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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap :- This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax, Kolkata-I, Kolkata dated 26.03.2014 for the assessment year 2009-10 passed under section 263 of the Income Tax Act, 1961.
The assessee in the present case is a Company, which is engaged in the business of manufacturing and trading of jute, jute blended and flax goods. In the revised return of income filed by the assessee for the year under consideration, total income was shown by the assessee at a loss of Rs.71,62,440/- and book profit under section 115JB at Rs.5,85,16,032/-. ./2014 Assessment year: 2009-2010 Page 2 of 8 In the assessment completed under section 143(3) vide an order dated 14.12.2011, total income of the assessee was determined by the Assessing Officer at a loss of Rs.17,95,513/- and book profit at Rs.6,03,76,206/-. The records of the said assessment subsequently came to be examined by the ld. CIT and on such examination, he was of the prima facie view that the assessment order passed by the Assessing Officer under section 143(3) suffered from the following errors, which were prejudicial to the interests of the Revenue:- “During the previous year ended on 31.03.2009, 'relevant to the A. Y.: 2009-10', the assessee was engaged in the business of manufacture and trading of jute, jute blended and flax goods. It is observed from the assessment records that the assessee company, vide its letter dated 13.10.2011, had submitted the 'party wise details of purchases' (above Rs.20 lacs) with detailed postal address. It is observed from the 'details of party wise purchases' that the Raw material of Jute amounting to Rs.34,70,63,898/- was purchased by assessee from M/s. The Jute Corporation of India Ltd. during the year ended an 31.03.2009.
2.2 However, in response to notice issued u/s 133(6), M/s The Jute Corporation of India Ltd., vide its letter dated 25.11.2011 had furnished the details of its transactions made with the assessee i.e. M/s AI Champdany Industries Ltd. during the year ended on 31.03.2009. It is observed from the aforesaid information dated 25.11.2011 furnished by the Jute Corporation of India Ltd. that the only transaction of Rs.17,84,30,679/- towards Sale(Raw Jute) was undertaken with the assessee company and a total payment of Rs.18,02,99,556/- including amount outstanding for immediate previous year was received during the year ended on 31.03.2009 thereby leaving a Closing Balance (DR.) of Rs. 1,34,22,716/- as on 31.3.2009 payable by the assessee company.
2.3. Thus, there was a difference of Rs. 16,86,33,219/- (Rs.34,70,63,898/- - Rs.17,84,30,6791-) between the amount of transaction towards Sale(Raw Jute) undertaken as stated by 'M/s The Jute Corporation of India Ltd.' with the assessee company and the amount of Purchase recorded in the books of accounts of the assessee. Hence the assessee had shown excess & inflated purchases recorded in its accounts for the year ended on 31.03.2009, to the extent of Rs.16,86,33,219/-, which was required to be disallowed and added back to total income. As this was not done the same has resulted in under assessment of income by such amount.
./2014 Assessment year: 2009-2010 Page 3 of 8
3.1. It is further observed from the Profit & Loss Account for the year ended as on 31.3.2009 and from "Serial No.22 of the Notes to Accounts" (Schedule-17 of the Balance sheet in the Audited accounts dated 28.06.2009) that the 'Net Profit' of Rs.18,501,548/- was arrived at by reducing the amount of Exceptional Items (net) of Rs.1,65,40,487/-. As per aforesaid 'serial No.22 of the Notes to Accounts', the Exceptional item was the net of provision for doubtful export debtor of Rs.401.46 lacs, Fluctuation loss on conversion of Dollar Loans to rupee loans of Rs.476.01 lacs and surplus on transfer of Rampur Texpro Unit of RS.712.07 lacs i.e. (Rs.401.46 + Rs.476.01 - Rs.712.07) Lacs i.e. RS.1,65,40,487/-. Therefore, the 'Fluctuation loss' of Rs.476.01 lacs, inter alia, was claimed and allowed in the assessment u/s 143(3) dated 29.12.2011.
3.2 "Serial No. 1.8 of the Notes to Accounts" (Schedule -17 of the Balance sheet) furnished along with the Audited accounts dated 28.06.2009, states as follows:
"Foreign Currency transactions: (i) Monetary assets and liabilities relating to foreign currency transactions remaining unsettled at the yearend are translated at closing spot rates on the last day of the year.
(ii) The difference in translation in monetary assets and liabilities and realized gains and losses in foreign exchange transactions other than those relating to fixed assets are recognized in the Profit & Loss Account.
(iii) Exchange differences in respect of liabilities incurred to acquire fixed assets are adjusted to the carrying amount of such fixed assets.
3.3. Further as per Accounting Policy of the assessee company, as referred to in aforesaid 'SI. No. 1.8 of Schedule-17 of the Notes of Accounts', it appears that the difference in translation in monetary assets and liabilities and realized gains and losses in foreign exchange transactions remained unsettled at the year end had been recognized in the Profit & Loss Account. As per assessee's submission stated above, it appears that the said loss was arisen due to difference between the purchase price and the value as on valuation date at the year-end in respect of foreign exchange Derivative transaction that remained unsettled during the previous year. Therefore, the said loss was a notional loss since no sale/conclusion/settlement of contract was taken place and the asset continued to be owned by the assessee. Any losses in foreign exchange transactions remained unsettled (unexpired contract) at the end of the year cannot be regarded as an ascertained liability for the purpose of claiming deduction as ./2014 Assessment year: 2009-2010 Page 4 of 8 an expenditure laid out or expended wholly and exclusively for the purposes of the business of the assessee during the previous year ended as on 31.3.2009 and relevant to the Assessment year: 2009-10.
3.4. In addition, the assessee was required to justify in respect of any loss not being a notional loss with detailed key documents, confirmation etc. from the respective authorities in support of the admissibility of claim as to how the fluctuation loss on conversion of Dollar loans to Rupee loans was recognized which had a direct relation with the business of the assessee. Any details or copy of the relevant document is not available on the records and further this issue has not been discussed in the assessment records.
3.5. In view of the above, the fluctuation loss on conversion of Dollar loans to Rupee loan of Rs.476.01 lacs, debited to the Profit and Loss, Account for the year ended on 31.03.2009, is required to be disallowed and added to the total income of the assessee. As this was not done the same has resulted in under assessment of income to the extent of Rs.4,76,01,396/-“.
Accordingly, a notice under section 263 was issued by the ld. CIT pointing out the above errors to the assessee and seeking explanation as to why the assessment made by the Assessing Officer under section 143(3) should not be revised by exercising the powers conferred upon him under section 263. In reply, written submission was filed by the assessee offering its explanation in the matter. The same, however, was not found acceptable by the ld. CIT and after discussing the various case laws explaining the scope of revision under section 263, he held the assessment order passed by the Assessing Officer under section 143(3) to be erroneous as well as prejudicial to the interest of the Revenue on the ground that there was failure on the part of the Assessing Officer to properly scrutinize and enquire into the various aspects pointed out by him while completing the assessment. Accordingly, the order passed by the Assessing Officer under section 143(3) was set aside by the ld. CIT with a direction to the Assessing Officer to do the same afresh after examining all the relevant facts and figures. Aggrieved by the order of the ld. CIT passed under section 263, the assessee has preferred this appeal before the Tribunal. ./2014 Assessment year: 2009-2010 Page 5 of 8
The ld. counsel for the assessee submitted that the ld. CIT vide his impugned order passed under section 263 has virtually done re- assessment, which is not permissible in law. He submitted that the assessee during the course of proceedings under section 263 had filed a written submission on all the points raised by the ld. CIT in the notice under section 263. He invited our attention to a copy of the said written submission placed at page nos. 23 to 28 of his paper book and contended that the ld. CIT in his impugned order has not given any finding on the said submissions made by the assessee in order to point out what exactly was the error in the order of the Assessing Officer passed under section 143(3). He contended that the ld. CIT has simply set aside the order of the Assessing Officer with a direction to make it de novo by exercising his powers under section 263 while it was incumbent upon him to give specific finding on the submissions made by the assesese on each and every point in order to arrive at the conclusions about the errors before exercising the powers under section 263. In support of this contention, he relied on the decision of the Hon’ble Rajasthan High Court in the case of CIT –vs.- Jai Mewar Wine Contractors reported in 251 ITR 785 and that of Hon’ble Delhi High Court in the case of ITO –vs.- D.G. Housing projects Limited reported in 343 ITR 329.
The ld. D.R., on the other hand, strongly relied on the impugned order passed by the ld. CIT under section 263 and submitted that in the absence of many issues relevant to the assessment of the assessee for the year under consideration having not been examined by the Assessing Officer as pointed out by the ld. CIT, the order of the Assessing Officer passed under section 143(3) was erroneous as well as prejudicial to the interest of the Revenue justifying revision by the ld. CIT under section 263.
We have considered the rival submissions and also perused the relevant material available on record. It is observed that the main error ./2014 Assessment year: 2009-2010 Page 6 of 8 pointed out by the ld CIT in the assessment made by the Assessing Officer under section 143(3) is that the various issues relevant to the assessment of the assessee’s income as pointed out by him were not examined by the Assessing Officer. The ld. CIT, therefore, issued a notice under section 263 bringing such issues to the notice of the assessee and although in reply filed to the said notice, the assessee tried to explain its case on merit in respect of the said issues, there was nothing in the said submission to show that the issues raised by the ld. CIT in the notice under section 263 had already been examined by the Assessing Officer during the course of assessment proceedings. The ld. CIT, therefore, held the order of the Assessing Officer to be erroneous as well as prejudicial to the interest of the Revenue on the ground that there was failure on the part of the Assessing Officer to scrutinize and enquire into the various aspects while completing the assessment in the case of the assessee and set aside the same by exercising his powers under section 263 with a direction to the Assessing Officer to do the same de novo after examining all the relevant facts and figures.
At the time of hearing before us, the ld. counsel for the assessee has mainly challenged the impugned order of the ld. CIT passed under section 263 on the ground that he has not given any finding on the submissions made by the assessee before him to point out exactly the errors in the order of the Assessing Officer. However, as already noted by us, there was nothing contained in the written submission filed by the asseessee to show how the various issues raised by the ld. CIT were examined by the Assessing Officer during the course of assessment proceedings and since the ld. CIT vide his impugned order has set aside the assessment order made by the Assessing Officer not on the ground that the same was wrong on merit on the issues raised by him, but the same was erroneous for lack of inquiries by the Assessing Officer on the said issues as warranted in the facts and circumstances of the case, we are of the view that it was not necessary for the ld. CIT to give any finding on the relevant issues on merit before exercising his powers under section 263. In the cases of Jai ./2014 Assessment year: 2009-2010 Page 7 of 8 Mewar Wine Contractors (supra) and D.G. Housing Projects Limited (supra) cited by the ld. counsel for the assessee, the orders of the Assessing Officer were held to be erroneous by the ld. CIT on the ground that the decision rendered by the Assessing Officer on certain issues was wrong on merits and in these facts and circumstances of the said cases, it was held that it was incumbent upon the ld. CIT to record specific finding, after taking into consideration the submissions made by the assessee, that the order of the Assessing Officer is erroneous in any manner, which is prejudicial to the interest of the Revenue. It was held that when no such finding has been recorded by the ld. CIT, it is very difficult to assume that he must have arrived at a finding as to the erroneous nature of the order sought to be revised or if such order is allowed to stand, it will be prejudicial to the interest of the Revenue.
It is pertinent to note here that the Hon’ble Delhi High Court in the case of D.G. Housing Projects Limited (supra) has drawn a distinction in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order erroneous and prejudicial to the interests of the Revenue and cases where the Assessing Officer conducts an enquiry but the finding recorded is erroneous which is also prejudicial to the interests of the Revenue. It was held that only in the latter cases, the Commissioner has to examine the order or the decision taken by the Assessing Officer on the merits and then form an opinion on the merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. In the present case, the order passed by the Assessing Officer under section 143(3) has been revised by the ld. CIT under section 263 for lack of enquiry by the Assessing Officer as pointed out by him and since such lack of enquiry by itself renders the order erroneous and prejudicial to the interests of the Revenue, we are of the view that it was not required for the ld. CIT while setting aside the order of the Assessing Officer with a direction to make it de novo by exercising his powers under section 263 to examine the submission of the assessee on the various issues raised by him and to give a finding on ./2014 Assessment year: 2009-2010 Page 8 of 8 merits of the said issues in order to point out that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue. The decision of the Hon’ble Delhi High Court in the case of D.G. Housing Projects Limited (supra) as well as the various judicial pronouncements discussed by the ld. CIT in his impugned order supports this view. We, therefore, find no infirmity in the impugned order of the ld. CIT passed under section 263 and upholding the same, we dismiss this appeal filed by the assessee.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on May 06, 2016.