GOLD FINCH JEWELLERY LTD.,,AHMEDABAD vs. THE PR. CIT-2,, AHMEDABAD

The fact in brief is that return of income declaring loss of Rs. -7,75,561/- was filed on 24th Nov, 2014. The scrutiny assessment u/s. 143(3) of the Act finalized on 22nd March, 2016 and total income was assessed at Rs. 6,97,550/- . Subsequently, the ld. Pr. CIT-2, Ahmedabad has issued notice u/s. 263 of the Act on 23rd March , 2018 stating that assessment order u/s. 143(3) of the Act passed on Page No 2 Gold Finch Jewellery Ltd. vs. Pr. CIT 22nd March, 2016 was erroneous and prejudicial to the interest of the revenue for the following reasons:- “2.1 It is perused that you have claimed an expenditure titled Foreign Exchange Premium amounting to Rs. 98S9746/-. The AO has allowed the said claim without application of mind and without making any proper and due enquiries and verification in this regard. 2.2 An assessment order passed without application of mind and/or without making proper enquiries and verification of facts and the law on the subject makes such order erroneous and prejudicial to the interest of Revenue in terms of clause(a) of Explanation II appended to Section 263 of the IT Act.. I therefore intend to revise the same u/s 263 of IT Act. "

It is therefore submitted that adequate time has not been granted to the assessee company for making a effective representation and we reserve the right for further representation. The observation made in the notice under reply to the effect that "the A O had allowed the said claim without application of mind and without making any proper and due enquiries and verification in this regard" is not justifiable. The AO had passed the assessment order u/s. 143(3) dated 22.3.2016 after making proper enquiries and due verification of the books of account and relevant records. As mentioned earlier, the assessee had claimed expenditure for a sum of Rs. 98,89,746/- under the head fonvard exchange premium which is included in the major heading of "Other expenses". The AO has issued a detailed notice u/s. 142(1) dated 14.8.2015. At .Sr No. 35 of the said questionnaire the AO had specifically asked to furnish complete breakup and derails of o^^ to building and insurance. Copy of the said notice u/s. 142(1) is placed onpg.64 to 69 of the PB attached for your kind perusal from which it will be evident that the AO had specifically enquired complete details with regard to other expenses. As mentioned earlier, the other expenses, as per Note 26 of the audited P&L account included the amount of Rs.98,89,746/-claimed by the assessee under the head forward exchange premium. Therefore, it is clear beyond any shadow of doubt that the AO had made necessary enquiries with respect to the claim of expenditure of Rs.98,89,746/- on account of forward exchange premium. In response to notice u/s. 142(1) the assessee had filed submission dated 2.9.2015 which was submitted before the AO on 3.9.2015. Vide sr. no. 35 of the said letter, the assessee has clearly stated to the effect that breakup of other expenses, repairs to building and insurance given in the attached statement. Thus it is an irrefutable that in course of assessment proceedings the AO had made enquiries with regard to the expenditure in question and compliance thereto the assessee had furnished details of such expenditure before the AO. Therefore, the allegation that the AO had allowed the said claim without application of mind and without making any proper and due enquiries and verification in this regard is far removed from truth. At the cost of repetition, the assessee once again reiterates that the AO has allowed the claim after making necessary; enquiries and due verification. Therefore, the assessment order passed by the AO after making due verification of the facts cannot be said to be erroneous and prejudicial to the interest of Page No 3 Gold Finch Jewellery Ltd. vs. Pr. CIT the revenue within the meaning and scope of section 263 of the IT Act, The admissibilily of the claim of expenditure of Rs.98,89,746/- has been duly considered by the AO and after due verification he has taken a conscious decision thereon. Therefore the assessee submits that when the AO has decided the issue in one of the possible ways, the same cannot be said to be erroneous or prejudicial to the interest of the revenue. At this stage it is pertinent to explain the nature of credit facilities enjoyed by the assessee company with respect to the "Foreign currency loan" on which premium is charged. In this facility the bank grants a limit as in our case is Rs. 15.00 crores which was subsequently enhanced to Rs. 18.00 crores. From the limit so sanctioned you enjoy credit facilities for purchase of USS at the predefined rate. This loan has to be repaid in US$ terms after a specified period. To not be burdened with the foreign exchange fluctuations the premium is charged by the bank so .that the repayment of US$ is at the predetermined rate. The facilities in question had been obtained in the previous year relevant to A.Y.2012-13. Copy of the sanction letter for the earlier year is placed on pg.42 to 53 of the PB & where the limit has been enhanced has been placed on pg.54 to 63 of the PB. In the previous year relevant to A.Y.2012-13 complete verification of the facilities as enjoyed by us had been 'undertaken then. Copy of the letter filed on 23.01.2015 is enclosed for your kind reference. It was after examination of the same that the expenses have come to be accepted in A. Y. 2012-13. Copy of the audited account for the previous year relevant to A.Y.2012-13 is enclosed from where the claim of foreign exchange premium can be verified. Attention is invited to pg.25 of the PB foreign exchange premium has been included in the head "other expenses ". It is worthwhile to note that the expenses have been after verification in A.Y.2012-13 have been accepted. Similar expenditure has been incurred in the .2013- 14 where revision proceedings have been invoked. Therefore, once the expenditure after verification has been accepted in A.Y.2012-13 to undertake revision proceedings for A.Y.2013-14 on the same issue would not been justifiable. Furthermore, the facilities in question are used for purchasing diamonds and other stock in trade and not for any capital expenditure. For the purpose of invoking the provisions of section 263 the twin conditions must be satisfied: a. The order in question must be erroneous, and b. It should be prejudicial to the interest of the revenue. Both the conditions must be satisfied in conjunction. Mere satisfaction of any one condition cannot be the reason for invoking revision proceedings. It can thus, be seen that the view adopted by the Assessing Officer was after proper scrutiny of relevant facts and clearly a plausible view was adopted and therefore, was not open to revision at the hands of the Commissioner. It is 'well settled proposition of law as well as facts that if after proper inquiries, the Assessing Officer has adopted a view which is a plausible one, the view would not be open to revision by the Commissioner. [Para 10] as was held in the case of Micro Inks Pr. CIT (2017) 85 taxman. com 310(Gujarat) Therefore, the condition for proceeding with the exercising of revisional power u/s 263 is that the order in question should not only be erroneous but such erroneous order should have resulted in prejudice to the interest of the revenue. Therefore, mere error if presumed by alleged non verification of expenditure would not confer jurisdiction to exercise revisional power. It is hereby submitted that the AO had conducted all possible inquiries and after considering the materials and explanation came to definite conclusion in A.Y.2012-13. Since the expenditure in question had already been accepted in A.Y.2012-13 there was no need and necessity for verifying the same information which had come to be accepted in the earlier years and had attained finality in term so of revision proceedings u/s 263 of the Act. Therefore, to treat that specific information had not been called for in the year under revision and therefore the order should be considered as erroneous should be viewed in the light of the inquiries having already been conducted in the earlier years. The assessee company relies on the following judicial pronouncements in support of its contention.

In view of the above facts and circumstances it can be observed that the nature, of expenses have already been inquired into in A.Y.2012-13. Similar expenditure had been incurred in the previous year relevant to A.Y.2013-24. Detailed inquiries had been conducted in to the nature of expenditure in the previous year relevant to A.Y.2012-13 and thereafter assessment has came to be competed u/s 143(3) of the Act. This fact is also cross verified from the copy of letter furnished during the course of assessment proceedings as well as audited accounts for A.Y.2012-13. Since there was no change in the nature of expenditure incurred in the previous year relevant to A. Y. 2013-14 as compared, to A.Y.2012-13 the same came to be accepted. This by itself does not lead to the formation of opinion that the assessment order passed is erroneous."

During the course of appellate proceedings, the ld. counsel has filed paper book comprising copies of notices and replies along with copies of document filed during the course of assessment proceeding before the Assessing Officer and during the course of proceedings u/s. 263 of the Act before the Pr. CIT. The ld. counsel has also contended that these expenses were recurring nature of expenses which were also incurred in the earlier year. He has also mentioned that Assessing Page No 5 Gold Finch Jewellery Ltd. vs. Pr. CIT Officer in the questionnaire issued u/s. 142(1) of the Act on 14th August, 2015 at serial no. 35 has specifically asked the complete breakup and detail of other expenses which also included expenses pertaining to foreign exchange premium. The ld. counsel has also referred copies of letter of sanction of credit facility issued by the Union Bank of India vide letter dated 27th Feb, 2012 and 19th December, 2012 and also referred copies of Profit and Loss Account for the year ended on 31st March, 2012 wherein detail of such expenses were provided at note no. 27 to the P & L Account. On the other hand, ld. Departmental Representative has supported the order of lower authorities.

We have heard both the sides and perused the material on record. The case of the assessee was subject to scrutiny assessment and total income was assessed at Rs. 6,97,550/- on 22nd March, 2016. Subsequently, the ld. Pr. CIT has passed order u/s. 263 of the Act on 28th March, 2018 holding that the said assessment order u/s. 143(3) was erroneous and prejudicial to the interest of revenue as the Assessing Officer has allowed the claim of expenditure pertaining to foreign exchange premium amounting to Rs. 98,89,746/- without making any proper and due inquiries. The Assessing Officer had issued a detailed notice u/s. 142(1) dated 14th August, 2015 and at serial no. 35 of the said questionnaire, the Assessing Officer had specifically asked the assessee to furnish the complete break up and detail of other expenses which also included the amount of Rs. 98,89,746/- claimed by the assessee under the head forward exchange premium. In compliance, the assessee had submitted relevant details of such expenditure before the Assessing Officer. The Assessing Officer has not pointed out any discrepancy in the admissibility of the claim of expenditure of Rs. 98,89,746/-. It is further noticed from the Profit and Loss Account Note no. 27 that such foreign exchange premium expenses was of recurring nature and same was also claimed in A.Y. 2012-13. During the course of proceeding u/s. 263 of the Act before the Ld. Page No 6 Gold Finch Jewellery Ltd. vs. Pr. CIT PCIT, the assessee has furnished copies of the relevant documents explaining that the Assessing Officer has duly considered the claim of expenditure and explained that assessee has availed the credit facility with respect to the foreign current loan on which the premium was charged. In this facility, the bank has granted a limit of Rs. 15 crore which was subsequently enhanced to Rs. 18 crores and from this facility, the assessee has availed credit facility for purchase of U.S. $ at predetermined rate to cover the risk of foreign exchange fluctuation, the premium was charged by the bank so that the USA dollar was at the predetermined rate. The assessee has also filed the relevant detail to demonstrate that such facility was also obtained in the previous year relevant to the assessment year 2012-13 and also filed the relevant copies of sanction letter of the bank. The ld. Pr. CIT has failed to controvert the above referred facts and material cited by the assessee to demonstrate that its claim of foreign exchange premium was allowed by the Assessing Officer after verification of the relevant materials/details as elaborated above. Having examined the matter at length on facts as well as law, we consider that in the present case it is very clear that the order passed by the Assessing Officer was neither erroneous or prejudicial. Therefore, we are not inclined with the decision of ld. Pr. CIT in holding that the order was erroneous and prejudicial to the interest of revenue. Accordingly, the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.