POWERICA LTD,MUMBAI vs. CIT(LTU), MUMBAI

We have considered the rival submission of parties and have gone through the orders of authorities below. We have also considered the various decision relied by learned AR of the assessee. For appreciation of facts and the "Section 263(1) in The Income- Tax Act:

We have seen that during the assessment proceedings the assessing officer required the statement of exchange rate fluctuations as on 31 March 2012 from the assessee. The assessee furnished the statement of Exchange rate as on 31 March 2012 and the Note on account of Foreign Exchange Fluctuation. In the said note the Auditor has explained that total of Rs. 5,89,26,400/- includes exchange rate fluctuation on account of fluctuation on the payments made in the normal course of business such export realisation for Rs. 2,69,96,400/- and Rs. 3,19,30,000/-on account of ECB loan availed from Citibank of US Dollar 20,000,000/-. ECB from Citibank was availed for financing of installation of wind mill at Gujarat.

The Hon’ble jurisdictional High Court in Apollo Tyres Ltd supra while considering the question if the assessing officer while assessing a company for income tax under section 115 of income tax act can questions the correctness of the profit and loss account prepared by assessee company and certified by the statutory auditors of the company 8 III of schedule VI to the companies act. The Hon’ble jurisdictional High Court held ; “That sub-section (1A) of section115 does not empower the assessing officer to embark upon fresh inquiry with regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact mandate the company to maintain its account in accordance with the requirement of the Companies Act which mandate, according to us is bodily lifted from the Companies Act into the Income tax Act for limited purpose of making the said accounts so maintained as a basis for computing the companies income for levy of Income tax Act. Beyond that, we do not think that the said sub-section empower the authority under the income tax act to probe into the account accepted by authorities under the companies act. If the statue mandate that income prepared in accordance with the companies act shall be deemed income for the purpose of section 115 of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two income one for the purpose of Companies Act and another for the purpose of Income tax both maintained under the same Act. ........... Therefore, we are of the opinion, the assessing officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increase and reduction is provided for the explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and Powerica Ltd loss account except to the extent provided in Explanation to section 115J.

Similar view was taken in case of CIT Vs Adbhut Trading Company Private Limited supra and further in Bhagwan Industries Ltd. Further we have seen that Mumbai Tribunal in case of Bharat Serums & vaccines Ltd (supra) held that when the assessee claimed loss incurred due to revaluation of open forward contracts, which the AO disallowed the same and also recomputed book profit by making consequential addition pursuant to this disallowance by relying CBDT instruction date 23.03.2010. However, the Tribunal allowed the loss as claimed by the assessee by considering the decision of High Court in D Chetan & Co (ITA No.278 of 2014 dated 01.10.2016) . The Tribunal relied on the CBDT Circular, which is also relied by ld CIT in its order. In our view the case of the assessee is on better footing, the assessee has not claimed loss on forward derivative contracts but claimed loss on the existing loan liability for Wind Mill at Gujarat. Thus, the treatment of charging of exchange loss on account of ECB loan availed for Wind Mill for Rs.3,19,30,000/- to profit and loss account is in accordance with the accepted accounting principles as mandated under Accounting Standard (AS-11) as revised up to date (revised in 2003) and at such the book profit should be computed in accordance with the order dated final accounts and provisions of section 115JB of the Act. The perusal of Circular No. 3 Foreign Exchange Derivative transaction only. Further, we have seen that the assessing officer during the seeking explanation from the assessee along with the details submitted, the assessing officer taken one of the possible views and accepted the contention of the assessee while passing the assessment order regarding Forex Loss.

The Hon’ble Bombay High Court in case of Gabriel India Ltd (supra) has held that Commissioner cannot initiate proceeding with a view to starting fishing and roving enquiries in matters or orders which are already concluded. There must be material on record to show that tax which was lawfully exigible has not been imposed if claim was allowed by the Income tax officer. On being satisfied with the explanation of the assessee, such decision of the Income tax Officer cannot be held to be ‘erroneous’ simply because in his order he did not make an elaborate decision in that record. The Hon’ble High Court further held that when Commissioner himself, even after initiating proceeding for revision and hearing of the case, could not say that the disallowance of the claim of the assessee was erroneous and simply ask the assessing officer to re-examine the matter, which was not permissible.

In our view while exercising the power under section 263 of income tax Act the learned Commissioner should be able to demonstrate that the decision taken by the assessing officer was not possible being legally 11 Powerica Ltd unsustainable and incorrect and this finding must be recorded. Mere conclusion of learned Commissioner that order of assessing officer is erroneous and direction to the assessing officer to recompute the income by is not correct. Even in cases where there is inadequate enquiry but not lake of enquiry, the learned Commissioner must give and record finding that order/enquiry made by assessing officer is erroneous. This can happen if any enquiry and verification is conducted by the learned Commissioner and his able to establish and show the error or mistake make by assessing officer making the order unsustainable in law. The matter cannot be remitted for fresh decision to the assessing officer to conduct further enquiries without a finding that order is erroneous and the learned Commissioner further must also satisfied the second limb of provision that the order is also prejudicial to the interest of revenue.

The Hon’ble Apex Court in case of Malabar Industrial Co. ( supra) relied by learned AR of the assessee held that where two views are possible and the AO adopts one of the view possible in law, then the order cannot be treated as erroneous or prejudicial to the interest of revenue, unless the view taken by assessing officer is unsustainable and in law. In view of the above discussion, the assessing officer in the course of assessment proceeding has taken one of the possible view thus the revision proceeding initiated by learned Commissioner under section 263 is invalid. Thus the ground of appeal raised by assessee is allowed. 12 Powerica Ltd