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TMI Blog2023 (2) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that the A.O. failed to make proper inquiries in respect of issued mentioned in the show cause notice u/s 263 of the Act. 3. The learned Principal Commissioner of Income-tax - 3, Ahmedabad failed to appreciate that the very issues raised by the Commissioner u/s 263 were duly examined by the assessing officer by way of specific inquiries/notices and replies thereto, while finalizing assessment proceedings u/s. 3. The ld.counsel for the assessee began by pointing out that the ld.PCIT issued show cause notice to the assessee assuming jurisdiction to revise the assessment order passed by the AO finding it to be erroneous so as to cause prejudice to the Revenue on account of AO not having duly verified the following: i) The assesses claim of "foreign exchange loss on notional entries" of Rs.68,11,120/-in the computation of its income returned for taxation, despite no expense of foreign exchange loss being debited in its Books of accounts. That it was a artificial loss not allowable otherwise. ii) The issue of purchase shown in the income-tax return being less than the invoice value of import show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings in depth and entries passed by way of journal entries were duly explained. Ld. Counsel for the assessee contended that there was no error in the order of AO and also there was no prejudice caused to the Revenue also. Our attention was drawn to the reply filed to the ld.PCIT vide letter of the assessee dated 9.3.2021, copy of which placed before us in PB Page No.8 to 11, more particularly para 3.1, Page No.9 as under: "3.1 Foreign exchange rate fluctuation of Rs. 68,11,121/- The Ld. AO vide Annexure to notice dated 28.09.2019 at Question - 7 required bifurcation of deduction of Rs. 3,01,19,909/- and same replied dated 21.10.2019 at Annexure F and Annexure H. Again vide notice in Annexure 2 dated 09.12.2019 at Question-1 and specifically at Question-2, specific inquiries made for foreign exchange fluctuation. The assessee vide letter 11.12.2019 at Para 2, explained completely the foreign exchange fluctuation entries in books of accounts together with complete explanation at Annexure-J of the same reply. Thus issue of Rs.68,11,121/- was fully verified in depth during course of assessment proceedings by Ld. AO and there seems no errors and also interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange and invoice) attached herewith in annexure 1. ii) Ledger of Lillbacka power co. in annexure 2. iii) WIP Fixed assets ledger annexure 3. iv) Complete audit report including Balance sheet, p &l ,bank statements etc. are already placed on record 4) Other Required details for F.Y. 2016-17 are as under : i) Import purchase ledger - annexure 4 ii) Import purchase bills -it is very bulky data, we can submit it in few days if required again. iii) Reconciliation explained in para 2&3 above 5) Looking to covid situation we had not made personal appearance but we believe that we have explained properly. In case of any adverse decision by your honor we would like to present personally for any further information and explanations if required. Your honor is requested to accept the details and oblige. Thanking you, Yours sincerely, For, S.S.white technologies India Pvt Ltd -SD- 7. Our attention was also drawn to all the evidences mentioned in the letter placed before in PB Page No.21 to 37. 8. With regard to the issue of claim of notional foreign change fluctuation loss amounting to Rs.68,11,121/- having been examined by the AO during the assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1st April and 1st October every year. We hereby attach ledger of following accounts, (i) Foreign exchange fluctuation SSW (USA) - Rs. 95,35,344/-. (ii) Foreign exchange fluctuation SSW tech. inc.- Rs. 31,49,611/-(iii) Foreign exchange fluctuation on sales SSW (UK)- Rs.33,714. We have already submitted Foreign exchange fluctuation A/c under annexure- H of our previous submission. We hereby forward detailed analysis of the said Foreign exchange fluctuation A/c (as per annexure-J) in which each and every entries are explained fully and notional entry portion is highlighted. The net notional entry loss is Rs.68,11,121/- as calculated in the said sheet." 9. He thereafter drew our attention to the copy of ledger account of foreign exchange fluctuation filed to the AO containing the calculation of net foreign exchange loss on notional entry of Rs.68,11,121/- claimed by the assessee, which was placed before us in PB Page No.69-70. Referring to the same, the ld.counsel for the assessee contended that in the said reply filed to the AO, the assessee had explained that the calculation of net foreign exchange fluctuation on notional entries of Rs.68,11,121/-, had been made by netting off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexure-F & Annexure-H. assessee further contended that vide notice dtd. 09.12.2019(Q.No.l) and specifically vide Q.No.2, specific query was made regarding foreign exchange fluctuation. In response, assessee vide letter dtd. 11.12.2019 at Para-2 explained foreign exchange fluctuation entries in books of accounts together with explanation as Annexure-J of the same reply. So, as per assessee there was no error in the assessment order, Assessee has also provided summary of calculation of Foreign Exchange Loss/Gain as shown in Annexure-J as under- Foreign Exchange gain on notional entries Rs. 3,29,29,838/- Foreign Exchange loss on notional entries Rs. (-)3 ,97,40,959/- Net Forex loss on notional entries Rs.(-) 68.11.121/- As per assessee because (-) sig is ignored, this confusion has arose because actually it is notional gain and hence it was reduced from income. Details/ submissions filed before Assessing Officer as well as contentions raised by the assessee has been thoroughly examined. On verification, the same are not found true and acceptable. It is true that at the time of assessment proceedings, then AO vide 142(1) notice dtd. 28.09.2019 (Q.No.7) asked the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent." 11. With regard to the import purchase the ld.DR relied on the order of the ld.Pr.CT at para 5(b) as under: "(b) With regard to difference in respect of purchase figures shown in ITR visa-vis import dara shown by CBEC (Central Excise Department), the assessee admitted during assessment proceedings that there were certain errors and omissions but failed to reconcile the same. The Assessing Officer also failed to examine the reasons for the discrepancies in the purchases figures. The assessee has contended that errors in CBEC data are not within assessee's control but claimed that entries in its books of accounts are correct. Although, during assessment proceedings, the then AO collected information about Export/Import from O/o. the Superintendent, Range-2, Central Excise & Customs, Surendranagar but did not confront the assessee due to Covid-19 Pandemic. As per this information, import /export data as per Income Tax Return and CBEC were as under:- Export Invoice Value (Rs.) Import Invoice Value (Rs.) CBEC 26,06,43,566/- 6,03,81,215/- Income Tax 25,85,85,267/- 5,66,52,472/- Difference 20,58,299/- 37,28,743/- During assessment proceedings vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that the same was duly explained to the AO during the assessment proceedings. We find that except for stating that the claim related to net notional foreign exchange gain or loss , which was claimed by the assessee in the ledger of foreign exchange fluctuation loss, and was substantiated with the copy of ledger account, no other explanation was furnished by the assessee. We agree with the Ld.Pr.CIT that no cogent explanation for claiming this notional loss of foreign exchange fluctuation was given by the assessee. As rightly noted by the Ld/PCIT the assesses explanation of this claim of notional loss of Rs.68,11,120/- was only to the effect that foreign exchange fluctuation includes both actual and notional gain/loss , that this gain or loss is calculated half yearly and subsequently reversed and that the component of notional loss entry in the foreign exchange fluctuation account was Rs.68,11,120/- . This is the only explanation offered by the assessee alongwith relevant copies of ledger account of foreign exchange fluctuation. How this explains the assesses claim of notional loss while computing its income for the year is not clear. The Ld.Counsel for the assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h all necessary documents including the bills from parties from whom these items had been purchased, copy of ledger accounts, i.e purchase account, WIP account and even bank statements. The ld.Pr.CIT also, we have noted, has found this explanation to be prima facie correct. But despite the same, he has directed the AO to verify the documents filed by the assessee. Revisionary power cannot be exercised for verification purposes. There has to be a finding of error in the order of the AO for the PCIT to exercise his revisionary powers ,as also the error causing prejudice to the Revenue. On the impugned issue of mismatch in purchase as per CBEC data and that booked by the assessee, the Ld.PCIT finding the assesses explanation for the same to be prima facie correct he was largely satisfied with the explanation of the assessee, and therefore clearly there is no error in the order of the AO as per the Ld.PCIT also. When all facts and evidences were there before the Ld.PCIT ,he was required to go through the same and thereafter arrive at his finding of error. Subject to the verification of the evidences by the AO, clearly as per the Ld.PCIT there was no error in the order of the AO. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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