DEVI SEA FOODS LIMITED,VISAKHAPATNAM vs. PRINCIPAL COMMISSIONER OF INCOME TAX, VISAKHAPATNAM

आदेश /O R D E R

PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER: 1. This appeal filed by the assessee against the order under section 263 of the Act Income Tax Act, 1961 (in short ‘Act’) passed by the Learned Principal Commissioner of Income-tax, Visakhapatnam-1 [hereinafter in short

I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited “Ld.Pr.CIT”] vide Din & Order No. ITBA/COM/F/17/2024-25/1075201062(1) dated 28.03.2025 for the A.Y. 2020-21.

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited 143(3) r.w.s. 144B of the Act should not be revised as per the above lines. In response, assessee furnished its explanation on 09.10.2024, 19.12.2024 and finally on 19.02.2025. On perusal of the assessee submissions, Ld.Pr.CIT being satisfied, deleted the addition of Rs.8,27,838/-, however, on the issue of “Fair value loss on derivative instruments” amounting to Rs.15,17,22,510/- the assessee has furnished reply stating that it worked out the loss of Rs.15,17,22,510/- which is debited to the Profit & Loss Account by following Ind AS Accounting Standard and also as per the Income Computation Disclosure Standards – VI (in short “ICDS-VI”) prescribed under section 145 of the Act. It was submitted that there is slight variation in the measurement of value of loss as per ICDS disclosures and the assessee has worked out the same at Rs.14,14,19,625/-. After verification of the assessee’s above submissions, the Ld.Pr.CIT found the contentions of the assessee as not acceptable for the reason that hedging forward contracts of foreign currency cannot be “marked to Market” on balance sheet date as already there is a underlying asset and the there is no extra outgo for settlement of the forward contract other than already determined in the contract and thus there is no additional liability or benefit to the assessee on the settlement date. He further concluded that once there is no liability or benefit on the settlement date, there is no possibility of liability or benefit to the assessee on balance sheet date also. The Ld.Pr.CIT also extracted Para -8(5) of ICDS-VI which is reproduced as follows:-

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited "premium, discount or exchange difference on contracts that are intended for trading or speculation purposes, or that are entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction shall be recognized at the time of settlement."

“1. The Learned Principal Commissioner of Income Tax (PCIT), Visakhapatnam-1 erred in law and on facts in invoking the provisions of Section 263 of the Income Tax Act, 1961 and holding that the assessment order passed under Section 143(3) r.w.s. 144B dated 25.09.2022 is erroneous and prejudicial to the interest of the revenue. 2. The impugned order passed by learned PCIT-1 under Section 263 is bad in law and is liable to be quashed as it fails to meet the jurisdictional requirements under Section 263, namely that the order sought to be revised must be both erroneous and prejudicial to the interests of the Revenue. 3. The learned Principal Commissioner of Income tax, PCIT-1, Visakhapatnam ought to have seen that the order of assessment is neither erroneous nor prejudicial to the interest of the revenue and that the learned CIT can assume jurisdiction under section 263 only if the twin

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited condition of the assessment order being erroneous and pre-judicial to the interest of the revenue is satisfied. 4. The Ld. PCIT grossly erred in treating the assessment order dated 25.09.2022 passed under Section 143(3) r.w.s. 144B of the Act as erroneous merely because he holds a different view on the allowability of fair value loss on derivative instruments, even though the Assessing Officer had duly examined this issue during scrutiny. 5. The learned PCIT ought to have seen that the assessing officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately, This section does not visualize a case of substitution of judgment of the Commissioner for that of the assessing officer, who passed the order, unless the decision is held to be erroneous. 6. That the Ld. PCIT failed to appreciate that the Assessing Officer, having considered and verified the facts, had taken a plausible view based on legal provisions, and hence the assessment order cannot be held to be erroneous and prejudicial merely because the PCIT holds a different opinion. 7. The learned PCIT ought to have seen that while exercising revisional jurisdiction under Section 263, the learned PCIT may set aside or modify an erroneous and prejudicial order, and may direct further enquiry or consideration, but cannot direct a specific outcome or addition. The impugned directions by the learned PCIT-1 prejudge the matter and leave no room for the Assessing Officer's independent application of mind, thereby vitiating the reassessment process. 8. The learned Principal Commissioner Of Income tax ought to have seen that there is a distinction between lack of enquiry and inadequate enquiry. The learned PCIT ought to have seen that if there was any enquiry, even inadequate that would not by itself give occasion to Ld. Pr. CIT to pass orders u/s 263, merely because he has different opinion in the matter. It is only in cases of "lack of enquiry that such a course of action would be open for the Ld. Pr. CIT. 9. The Ld. PCIT erred in not appreciating that the assessee is engaged in export trade, and forward exchange contracts were entered purely as hedging instruments to cover receivables, and such losses are not speculative in nature and are allowable under ICDS-VI. 10. That the reliance placed by the Ld. PCIT on CBDT Instruction No. 3/2010 and the case of Bechtel India Pvt. Ltd. is misplaced and distinguishable on facts, as those relate to speculative mark-to-market losses or unsettled contracts, whereas in the assessee's case the losses are for hedging instruments against confirmed receivables and computation is as per ICDS.

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited 11. That the Ld. PCIT failed to consider that detailed working for ICDS-VI adjustment was provided in the return of income and supported by ledger extracts, computation statement, tax audit report (Form 3CD), and multiple submissions made during assessment and 263 proceedings, all of which clearly establish that due methodology was followed. 12. That the Ld. PCIT failed to appreciate that the alleged loss of Rs.15,17,22,510/-shown in the books of account was not claimed as deduction in the computation of income, and instead, the assessee claimed a lower amount of Rs. 14,14,19,625/-computed strictly in accordance with ICDS-VI as prescribed under Section 145 of the Act, and necessary adjustment of Rs.99,81,753/- was also made and disclosed in the ITR. 13. That the Ld. PCIT erred in disallowing the amount of Rs. 18,06,51,740/- representing exchange difference on the forward contracts, even though such loss was never claimed in full and only the ICDS- computed amount after deducting amortized premium amount was adjusted in the ITR. The disallowance is therefore contrary to facts and based on incorrect appreciation of the computation mechanism.”

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited issued notice under section 142(1) of the Act dated 29.10.2021 has specifically in Question No.6 requested the assessee to furnish the foreign currency fluctuations. He further submitted that assessee in detail reply on 08.11.2024 has furnished the computation of foreign exchange loss in accordance with the ICDS-VI before the Ld. AO. Further he also submitted that the Ld. AO vide notice under section 142(1) of the Act dated 22.02.2022, after considering the assessee reply submitted on 08.11.2021 has specifically requested the assessee to submit the details of Rs.15,17,22,510/- representing the “Fair value loss on derivative instruments”. Assessee on 20.02.2022 once again furnished the computation before Ld. AO. He further submitted that the Ld. AO after considering the submissions, on being satisfied, did not make any addition writhe respect to the foreign exchange loss arising on account of forward contracts computed in accordance with ICDS-VI. He therefore submitted that the Ld.Pr.CIT has taken another view and has considered the order of the Ld.AO as erroneous and prejudicial to the interest of the revenue. He further submitted that various judicial pronouncement has held that when two views are possible and when Ld. AO while taking a view has applied his mind considering the replies furnished by the assessee, the Ld.Pr.CIT does not have jurisdiction to invoke revisionary proceedings under section 263 of the Act. He therefore pleaded that the order of the Ld. AO be restored. Further, he also submitted that the Ld.Pr.CIT cannot give specific directions to the Ld. AO to make additions. He further submitted that the Ld.Pr.CIT has also not directed the Ld. AO to

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited provide opportunity of being heard to the assessee during the remand proceedings.

“Forward Exchange Contracts: - 8. (1) Any premium or discount arising at the inception of a forward exchange contract shall be amortised as expense or income over the life of

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited the contract. Exchange differences on such a contract shall be recognised as income or as expense in the previous year in which the exchange rates change. Any profit or loss arising on cancellation or renewal shall be recognised as income or as expense for the previous year. (2) The provisions of sub-para (1) shall apply provided that the contract: (a) is not intended for trading or speculation purposes; and (b) is entered into to establish the amount of the reporting currency required or available at the settlement date of the transaction. (3) The provisions of sub-para (1) shall not apply to the contract that is entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction. For this purpose, firm commitment, shall not include assets and liabilities existing at the end of the previous year. (4) The premium or discount that arises on the contract is measured by the difference between the exchange rate at the date of the inception of the contract and the forward rate specified in the contract. Exchange difference on the contract is the difference between: (a) the foreign currency amount of the contract translated at the exchange rate at the last day of the previous year, or the settlement date where the transaction is settled during the previous year; and (b) the same foreign currency amount translated at the date of inception of the contract or the last day of the immediately preceding previous year, whichever is later. (5) Premium, discount or exchange difference on contracts that are intended for trading or speculation purposes, or that are entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction shall be recognised at the time of settlement.”

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited revenue. The Ld.Pr.CIT has considered the order of the Ld. AO as erroneous and prejudicial to the interest of the revenue while exercising his powers conferred under section 263 of the Act. The Hon’ble Supreme Court in the judgment reported in Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 83, held that the power under section 263 of the Act is rather wide provided the Commissioner will have to satisfy himself with the order passed by the Ld. AO is erroneous and prejudicial to the interest of the revenue. There is no dispute on the fact that in the contention of the revenue needs to be accepted when the Ld.Pr.CIT has exercised his power under section 263 of the Act in the right manner. However, the grievance of the assessee is that the Ld.Pr.CIT while exercising such power, whether he can direct the Ld. AO to complete the assessment in a particular manner in accordance with law with specific directions. The Hon’ble Madras High Court in the case of CIT v. Smt. Tasneem Z. Madraswala [2010] 324 ITR 67 (Madras) in Para No. 8 held as follows: -

“8. A reading of the abovesaid judgment would clearly show that while remanding the matter, the Commissioner of Income-tax ought not to have given a specific direction to complete the assessment in a particular manner. Further, the Tribunal has only set aside the abovesaid direction by which the Assessing Officer was directed to complete the assessment by following section 50C(2)(b) of the Act. We do not find any error in the order passed by the Tribunal. The questions of law raised by the Revenue are answered against the Revenue. Accordingly, the tax case appeal is dismissed. No costs.”

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited the AO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may pass such order as the circumstances justify, including an order enhancing, modifying or cancelling the assessment, or directing a fresh assessment.

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I.T.A.No.316/VIZ/2025 M/s. Devi Sea Foods Limited the allowability of foreign exchange loss as per ICDS-VI. Accordingly, grounds raised by the assessee are partly allowed for statistical purposes.

Order pronounced in the open court on 08th October, 2025.

Sd/- Sd/- (रिीश सूद) (एस बालाकृष्णन) (RAVISH SOOD) (S. BALAKRISHNAN) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated: 08.10.2025 Giridhar, Sr.PS आदेश की प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/ The Assessee : M/s. Devi Sea Foods Limited 50-1-51/1, ASR Nagar Seethammadhara Visakhapatnam – 530013 Andhra Pradesh 2. रधजस्व/ The Revenue : Pr.CIT-1 Visakhapatnam 3. The Principal Commissioner of Income Tax नवभधगीयप्रनतनिनर्, आयकरअपीलीयअनर्करण, नवशधखधपटणम /DR,ITAT, Visakhapatnam 4. 5. The Commissioner of Income Tax 6. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam

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