Faurecia Interior Systems India Pvt. Ltd., Pune V. Commissioner of Income-tax - IV,

ITA 1058/PUN/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7439 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Transfer pricing; Opportunity of being heard; Assessment record
• Section: 143(3); 37(1); 263

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ! , # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1058/PUN/2014 & & / ASSESSMENT YEAR : 2008-09 FAURECIA INTERIOR SYSTEMS INDIA PRIVATE LIMITED (FORMERLY KNOWN AS TACO FAURECIA DESIGN CENTRE PVT. LTD) SAI RADHA BUILDING, 3 RD FLOOR, RBM ROAD, BEHIND HOTEL LE MERIDIEN, PUNE 411 001. PAN NO.AACCT0275F. . / APPELLANT V/S COMMISSIONER OF INCOME - TAX I V, PUNE, PRAPTIKAR SADAN, ANNEXE BUILDING, 60/61, ERANDVANE, KARVE ROAD, PUNE 411 004. . / RESPONDENT / APPELLANT BY : SHRI NIKHIL MUTHA / RESPONDENT BY : SHRI RAJEEV KUMAR ' / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL OF THE ASSESSEE IS EMANATING OUT OF THE ORDE RS OF COMMISSIONER OF INCOME TAX (A) IV, PUNE DATED 21.03.2014 FOR THE ASSESSMENT YEAR 2008-09. / DATE OF HEARING :14.12.2016 / DATE OF PRONOUNCEMENT: 05.01.2017 2 ITA NO.1058/PUN/2014 AY.NO.2008-09 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF CAD / CAE SERVICES FOR AUTOMOTIVE SERVICES. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 29.09.2008 DECLARING TOTAL INCOME OF RS.2,81,340/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAM ED U/S 143(3) VIDE ORDER DT.30.12.2011 AND THE TOTAL INCOME WAS DETERMINED AT RS.2,91,51,900/-. THEREAFTER ON PERUSING T HE ASSESSMENT RECORDS, LD. CIT INTER-ALIA NOTICED THAT ASSESSEE HAD CLAIMED 'MARK TO MARKET' LOSS AND THE LOSS WAS ALLOWED B Y AO DESPITE CBDT INSTRUCTION NO.3/2010 DT.23.03.2010 WHICH INTER- ALIA STATED THAT 'MARK TO MARKET' LOSSES BEING CONTINGENT IN NATURE AND IS THEREFORE NOT ALLOWABLE. LD. CIT THEREFORE CONSIDERED THE ASSESSMENT ORDER DT.30.12.2011 FRAMED BY THE AO U/S 143 (3) TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE . HE THEREAFTER ISSUED NOTICED DT.10.01.2014 AND CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE ORDERS PASSED U/S 1 43(3) BE NOT REVISED BY INVOKING THE PROVISIONS U/S 263 OF THE I.T. ACT . IN RESPONSE TO THE NOTICE, ASSESSEE INTER-ALIA RAISED OBJECTIONS AGAINST INITIATION OF PROCEEDINGS AND THE ASSUMPTIONS OF JURISDICTION BY THE LD. CIT U/S 263 OF THE ACT. ON THE M ERITS OF ALLOWABILITY OF 'MARK TO MARKET' LOSSES IT WAS INTER-ALIA SUBMITTED THAT THE 'MARK TO MARKET' LOSS OF RS.2.33 CRORES WAS RE COGNIZED IN THE LIGHT OF THE GUIDELINES ISSUED BY INSTITUTE OF CHARTERE D ACCOUNTS OF INDIA AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO HAD ACCEPTED THE TREATMENT OF 'MARK TO MARKET' 3 ITA NO.1058/PUN/2014 AY.NO.2008-09 LOSS AS ALLOWABLE LOSS AFTER APPLICATION OF MIND AND AFTER PROP ER ENQUIRIES AND THEREFORE LD. CIT CANNOT RESORT TO REVISIONA RY PROCEEDINGS. THE SUBMISSIONS OF THE ASSESSEE WERE NOT F OUND ACCEPTABLE TO LD. CIT AS HE WAS INTER-ALIA OF THE VIEW THAT IN THE QUESTIONNAIRE ISSUED BY AO U/S 143(2), THERE WAS NO MENTIO N WITH RESPECT TO 'MARK TO MARKET' LOSS, THE SUBMISSION OF THE ASSESSEE BEFORE AO WITH 'MARK TO MARKET' LOSS WAS REPR ODUCTION OF THE NOTES TO ACCOUNTS AND THERE WAS NO DISCUSSION ON THE PART OF THE AO ON THAT ISSUE. HE WAS THEREFORE OF THE VIEW THAT AO HAD FAILED TO NOTE THE INSTRUCTION NO.3/2010 ISSUED BY CBDT AN D IN VIEW OF THE SAME, THE ASSESSMENT ORDER FRAMED U/S 143(3) WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE. HE ACCORDINGLY SET ASIDE THE ORDER OF AO AND DIRECTED T HE AO TO PASS FRESH ORDER AFTER CARRYING PROPER ENQUIRIES AND CON SIDERING THE POINTS MADE BY LD. CIT. AGGRIEVED BY THE ORDER OF LD . CIT, ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FO LLOWING GROUNDS : BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, FAURECIA INTERIOR SYSTEMS INDIA PRIVATE LIMITED (HER EINAFTER REFERRED TO AS 'THE APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL UNDER SECTION 253(1 )(C) OF THE AC T AGAINST THE ORDER DATED 21 MARCH 2014 PASSED BY THE COMMISSIONER OF INCOME-TAX - IV, PUNE (HEREINAFTER R EFERRED TO AS 'THE LEARNED CIT') UNDER SECTION 263 OF THE A CT ON THE FOLLOWING GROUNDS WHICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT HAS: GENERIC GROUND GROUND 1: ERRED IN INITIATING THE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT A ND IN DIRECTING THE ASSESSING OFFICER TO PASS FRESH ORDER WITHOUT APPRECIATING THE MERITS OF THE CASE. 4 ITA NO.1058/PUN/2014 AY.NO.2008-09 GROUNDS CHALLENGING THE VALIDITY OF REVISION PROCEEDINGS GROUND 2: ERRED IN INVOKING THE REVISION PROCEEDINGS UNDER SE CTION 263 OF THE ACT WITHOUT APPRECIATING THE FACT THAT T HE ASSESSING OFFICER HAD ALREADY DEALT WITH THE ISSUE ON MERITS AND HENCE, THE ASSESSMENT ORDER CANNOT BE REGARDED AS 'ERRONEOUS' FOR THE PURPOSE OF INITIATI NG THE PROCEEDINGS UNDER THE SAID SECTION. GROUND 3: ERRED IN INITIATING THE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT TO IMPUTE ADDITIONAL DISALLOWANCE UN DER SECTION 10A(7) R.W.S 80-IA(10) WITHOUT APPRECIATING THAT THE SAID MATTER HAS BEEN CHALLENGED AND PENDING BEFORE THE HON'BLE COMMISSIONER OF INCOME-TAX (APPEALS) - III, PUNE. GROUNDS CHALLENGING THE MERITS OF THE CASE: GROUND 4: ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLO W AND CONSIDER MARK TO MARKET (HEREINAFTER REFERRED TO AS 'MTM') LOSSES INCURRED ON DERIVATIVE CONTRACTS OF RS.2,33, 89,522 FOR THE PURPOSE OF ALLEGED ADJUSTMENT UNDER SECTION 10A(7) R.W.S 80-IA(1 0) OF THE ACT. GROUND 5: ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE AD DITIONAL ADJUSTMENT UNDER SECTION 10A(7) OF THE ACT CONSIDER ING MTM LOSSES AS A NON-DEDUCTIBLE TAX EXPENSE WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS ALREAD Y CONSIDERED SUCH LOSSES AS NON-OPERATING IN NATURE W HILE COMPUTING THE OPERATING PROFIT MARGIN FOR THE PURPO SE OF TRANSFER PRICING AND HENCE, IMPUTING SUCH ADDITIONA L ADJUSTMENT LEADS TO A DOUBLE DISALLOWANCE. WITHOUT PREJUDICE TO THE ABOVE, SHOULD THE DISALLOW ANCE UNDER SECTION 10A(7) BE SUSTAINED, THE MARK TO MARK ET LOSSES OUGHT TO BE CONSIDERED AS AN OPERATING COST FOR THE PURPOSE OF TRANSFER PRICING WHILE COMPUTING THE OPE RATING PROFIT MARGIN. GROUND 6: ERRED IN INVOKING THE PROVISIONS OF SECTION 10A(7) OF THE ACT ON THE ENTIRE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCT ION UNDER SECTION 10A OF THE ACT WITHOUT APPRECIATING THAT IF AT ALL ADJUSTMENT UNDER SECTION 10A(7) IS TO BE INVOKED, T HE SAME OUGHT TO BE COMPUTED ONLY TO THE EXTENT OF THE EXCE SS PROFITS BY APPLYING THE DIFFERENCE IN THE OPERATING MARGINS EARNED 5 ITA NO.1058/PUN/2014 AY.NO.2008-09 BY THE APPELLANT (AFTER CONSIDERING MTM AS AN OPERA TING ITEM) AND THE AVERAGE OPERATING MARGINS EARNED BY T HE COMPARABLE COMPANIES AND NOT BY APPLYING SUCH DIFFE RENCE ON THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. IN VIEW OF THE ABOVE GROUNDS AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT PRAYS YOUR HONOURS TO SET ASIDE ORDER UNDER SECTION 263 O F THE ACT AND GRANT RELIEF TO THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEA L, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE THIS APPEAL A CCORDING TO LAW. 3. AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE SOLE GROUND WHICH NE EDS ADJUDICATION IS GROUND NO.2 NAMELY, THE CHALLENGE TO THE VALIDITY OF REVISIONARY PROCEEDINGS. 4. BEFORE US, LD AR REITERATED THE SUBMISSIONS MADE BEFOR E LD.CIT AND FURTHER SUBMITTED THAT THE PREREQUISITE CONDIT IONS SPECIFIED U/S 263 OF THE ACT WERE NOT SATISFIED AND THERE FORE THE PROCEEDINGS U/S 263 INITIATED BY THE LD.CIT LACKS JURISDICT ION AND IS THEREFORE BAD IN LAW. HE SUBMITTED THAT U/S 263, THE LD. CIT CAN REVISE AN ORDER PASSED BY THE AO ONLY ON THE SATISFACT ION OF TWIN CONDITIONS NAMELY (I) THE ORDER IS ERRONEOUS AND (II) IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IF ONE OF THEM IS A BSENT I.E. IF EITHER THE ORDER OF THE REVENUE IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE OR IF IT IS NOT E RRONEOUS BUT IS PREJUDICIAL TO THE INTEREST OF REVENUE RECOURSE CANNOT BE HAD TO SEC.263(1). HE FURTHER SUBMITTED THAT THE ERRO R ENVISAGED BY SEC.263 IS NOT ONE WHICH DEPENDS ON POSSIBILITY OR GUE SSWORK BUT IT SHOULD BE AN ACTUAL ERROR EITHER OF FACTS OR OF LAW. HE 6 ITA NO.1058/PUN/2014 AY.NO.2008-09 FURTHER SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE AND T HE AO HAS TAKEN ONE VIEW WITH WHICH THE LD.CIT DOES NOT AGREE , THE ORDER OF THE AO CANNOT BE TREATED AS AN ERRONEOUS OR DER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIE W TAKEN BY THE AO IS UNSUSTAINABLE IN LAW AND FOR THE AFORESAID PROPOSITION HE RELIED ON THE DECISION IN THE CASE OF MALABA R INDUSTRIAL CO VS. CIT (2000) 243 ITR 83 (SC). 5. ON THE MERITS OF ALLOWABILITY OF 'MARK TO MARKET' LOSS CLAIMED BY THE ASSESSEE AND ALLOWED BY AO, HE SUBMITTED THAT IN THE NOTES TO ACCOUNTS THE ASSESSEE HAD CLEARLY EXPLAIN ED AND STATED THAT IT WAS PURSUANCE TO THE ANNOUNCEMENT MAD E BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA REGARDING A CCOUNTING FOR DERIVATIVES OF OPTIONS AND FORWARD EXCHANGE OF CONTRAC TS. THE LD.A.R. ALSO SUBMITTED THAT THE POSITION IN RELATION TO 'MARK TO MARKET' DERIVATIVES WERE DISCLOSED IN THE FINANCIAL STATEMEN TS ALONG WITH THE NOTES, COMPUTATION OF INCOME, RETURN OF INCOM E AND THE T.P. REPORT AND ALL THESE DOCUMENTS WERE PERUSE D BY AO BEFORE ALLOWING THE CLAIM OF THE ASSESSEE. IN SUPPORT OF ITS CONTENTION THAT ASSESSEE DURING THE COURSE OF ASSESSME NT PROCEEDINGS BEFORE AO, HAD SUBMITTED THE REPLY AND CLARIFIC ATION WITH RESPECT TO 'MARK TO MARKET' LOSS, HE SUBMITTED TH AT LD. CIT HIMSELF AT PAGE 7 OF THE ORDER HAS NOTED THAT ASSESSEE HAD SUBMITTED IT REPLY VIDE LETTER DATED 25.11.2011. LD.A.R. FURT HER SUBMITTED THAT 'MARK TO MARKET' LOSS IS ALLOWABLE DEDUCTIO N U/S 37(1) AND FOR WHICH RELIANCE WAS PLACED IN THE CASE OF RELIAN CE INDUSTRIES LIMITED VS. CIT REPORTED IN (2013) 40 TAXMANN.C OM 431 (MUMBAI TRIB). ON THE ISSUE OF ALLOWABILITY OF LOSS, HE ALS O 7 ITA NO.1058/PUN/2014 AY.NO.2008-09 RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN TH E CASE OF DIT VS. CITIBANK IN ITA NO.330/2013 ORDER DT.11.03.2015. H E FURTHER SUBMITTED THAT THE HONBLE APEX COURT IN THE CA SE OF CIT VS. WOODWARD GOVERNOR INDIA PRIVATE LIMITED (2009) 312 ITR 254 (SC) HAS ALSO HELD THE LOSS ON ACCOUNT OF FOREIGN EXCHANG E DIFFERENCE AS ON DATE OF BALANCE SHEET IS AN ITEM OF EXPEN DITURE ALLOWABLE U/S 37(1) OF THE ACT. LD.A.R. THEREFORE SUBMITTED T HAT WHEN AO HAS TAKEN A POSSIBLE VIEW WHILE ALLOWING THE CLAIM O F DEDUCTION AND SINCE THE CIRCULAR 3 OF 2010 ISSUED BY CBD T WAS IN CONFLICT WITH THE VIEW OF HIGH COURT, THE REVENUE AUTHOR ITIES HAVE TO IGNORE SUCH CIRCULAR AND FOR THIS PROPOSITION, HE R ELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF BHARTIA INDUSTRIES LTD. VS. CIT REPORTED IN (2011) 12 TAXMANN.CO M 409 (CAL). HE ALSO PLACED COPY OF THE AFORESAID DECISION. HE FURTHE R SUBMITTED THAT AO IN THE ASSESSMENT ORDER IS NOT REQUIR ED TO GIVE DETAILED REASON FOR ITEMS OF DEDUCTION ETC WHICH ARE ALLOWED BY HIM AND IT IS TO BE SEEN FROM THE RECORD AS TO WHETHER THERE WAS AN APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE AND FOR THIS PROPOSITION HE RELIED ON DECISION OF DELHI HIGH COURT IN C ASE OF CIT VS. SUNBEAM AUTO LTD (2011) 332 ITR 167 (DELHI). THE LD.A.R. THEREFORE AFTER RELYING ON THE DECISIONS CITED SUBMITT ED THAT THE ORDER PASSED BY LD. CIT LACKS JURISDICTION AND E VEN ON MERITS IT CANNOT BE UPHELD AND THEREFORE BE SET ASIDE. 6. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF LD. C IT AND FURTHER SUBMITTED THAT WHEN AO HAD ALLOWED THE CLAIM WITHOUT ANY DISCUSSION, THE ORDER PASSED BY AO WAS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE LD. CIT 8 ITA NO.1058/PUN/2014 AY.NO.2008-09 HAS RIGHTLY INVOKED PROVISIONS OF SEC.263. LD. D.R. FURTHE R PLACED RELIANCE ON THE DECISIONS IN THE CASE OF UCO BANK VS. CIT REPORTED IN (1999) 237 ITR 889 (SC) DT 13.05.1999 AND TH E DECISION OF PUNE TRIBUNAL IN THE CASE OF M/S. JAGADAMBA SAHAKARI SAKHAR KARKHANA LIMITED IN ITA NO.991/PN/2013 DT.06.11.2015. HE ALSO PLACED ON RECORD THE COPY OF THE A FORESAID DECISIONS. HE THEREFORE SUBMITTED THAT LD. CIT HAS RIGHT LY INVOKED THE PROVISIONS OF SEC.263 OF THE ACT AND THUS SUPPORTED THE ORDER OF LD. CIT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABO UT THE INVOKING OF PROVISIONS OF SECTION 263 BY LD.CIT. SECTION 2 63(1) OF THE ACT, THE POWERS UNDER WHICH CIT HAS ASSUMED POWER FOR REVISION READS AS UNDER: THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECOR D OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ITO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD A ND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEE MS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTA NCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR M ODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DI RECTING A FRESH ASSESSMENT. 8. THE READING OF THE ABOVE PROVISIONS MAKES IT VERY CLEAR THAT THE POWER OF SUO MOTU REVISION U/S 263(1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED O NLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MU ST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REV ISION U/S 263, NAMELY (I) THE ORDER IS ERRONEOUS (II) BY VIRTUE OF BEING 9 ITA NO.1058/PUN/2014 AY.NO.2008-09 ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE. 9. HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL C O LTD VS CIT (2000) 243 ITR 83 (SC) HAS HELD THAT LD.CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SO UGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE IN TERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF TH E ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURSE CA NNOT BE HAD TO SEC.263(1). IT WAS FURTHER HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR E RROR COMMITTED BY THE AO; WHEN AN ITO ADOPTED ONE OF THE CO URSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW W ITH WHICH THE LD.CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. 10. IN THE CASE OF LD.CIT VS. GABRIEL INDIA LTD (1993) 203 ITR 108 (BOM), THE HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT I S NOT IN ACCORDANCE WITH LAW. IF AN ITO 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 VIS UALISE A CASE OF SUBSTITUTION OF JUDGMENT OF THE COMMISSIONE R FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE D ECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WH ERE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNT S, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMAT ES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORD S, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFF ICER 10 ITA NO.1058/PUN/2014 AY.NO.2008-09 CONCERNED WAS ON THE LOWER SIDE AND, LEFT TO THE COMMISSIONER, HE WOULD HAVE ESTIMATED THE INCOME AT A HIGHER FIGURE THAN THE ONE DETERMINED BY THE ITO. T HAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXA MINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE ITO HAS EXERCISED THE QUA SI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRI VED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT F EEL SATISFIED WITH THE CONCLUSION. IT MAY BE SAID IN SU CH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER I N QUESTION IS PREJUDICIAL TO THE INTEREST OF THE REVE NUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMIS SIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIR ST REQUIREMENT, NAMELY, THE ORDER IS ERRONEOUS, IS ABS ENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICI AL TO THE INTEREST OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEO US ORDER CANNOT BE SUBJECT-MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT ALSO MUST BE FULFILLED. 11. IN THE PRESENT CASE, IT IS SEEN THAT PROVISIONS OF SEC .263 HAS BEEN INVOKED BY LD. CIT FOR THE REASON THAT THE 'MARK T O MARKET' LOSS HAS BEEN ALLOWED BY AO BY OVER-LOOKING THE INSTRUCT ION NO.3 OF 2010 ISSUED BY CBDT. IT IS LD. CITS STAND THAT THE LO SS ARISING FROM 'MARK TO MARKET' IS NOTIONAL / CONTINGENT IN NATURE AND ACCORDINGLY NOT ALLOWABLE AND THAT AS THE CIRCULAR HAS BE EN ISSUED U/S 119 OF THE I.T. ACT, IT WOULD BE BINDING ON THE AO AND SINCE AO HAS NOT FOLLOWED THE INSTRUCTIONS OF CBDT, THE OR DER OF AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVEN UE AND THEREFORE CAN BE SET ASIDE IN REVISIONARY PROCEEDINGS. BE FORE US, IT IS ASSESSEES CONTENTION THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS ASSESSEE HAD SUBMITTED EXPLANATION ABOUT TH E ALLOWABILITY OF THE 'MARK TO MARKET' LOSS AND AFTER CONSIDER ING THE SAME, AO FOUND THE STAND OF ASSESSEE ACCEPTABLE AND ALLOW ED THE CLAIM OF THE ASSESSEE. WE FIND THAT EVEN LD. CIT IN THE ORD ER PASSED U/S 263 MAKES A MENTION OF THE NOTE ON ALLOWABILITY OF 'MARK TO MARKET' LOSS SUBMITTED BY ASSESSEE BEFORE AO BUT HOWEVER HE IS OF THE VIEW THAT NOTE IS MERE REPRODUCTION OF NOTES 11 ITA NO.1058/PUN/2014 AY.NO.2008-09 TO ACCOUNTS. IN SUCH A SITUATION IT CANNOT BE SAID TO BE A CASE OF NO INQUIRY BY THE AO. ON THE ISSUE OF 'MARK TO MARK ET' LOSS, WE FIND THAT HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PRIVATE LIMITED (SUPRA) AND VARIOUS OTHER HIGH COURTS, INCLUDING BOMBAY HIGH COURT HAS HELD THAT 'MARK T O MARKET' LOSS AS ALLOWABLE. IN SUCH A SITUATION, THE ALLOWAB ILITY OF THE 'MARK TO MARKET' LOSS BY THE AO CANNOT BE CONSIDE RED TO BE AN IMPERMISSIBLE VIEW OR CONTRARY TO LAW. ON THE ISSUE AS TO WHETHER THE AO CAN IGNORE THE CIRCULAR ISSUED U/S 119 WHILE FRAMING THE ASSESSMENT, WE FIND THAT HONBLE CALCUTTA HIGH COURT IN TH E CASE OF BHARTIA INDUSTRIES LTD. VS. CIT (2011) 12 TAXMANN.COM 4 09 (CAL.) HAS NOTED AS UNDER : ON A PLAIN READING OF THE SAID PROVISION, WE HAVE NO DOUBT IN OUR MIND THAT THE CIRCULAR ISSUED BY THE BOARD UNDER THE AFORESAID PROVISION IS MEANT FOR GUIDING THE OFFICERS OF THE REVENUE FOR ADMINISTRAT IVE PURPOSE OF ENFORCING THE PROVISIONS OF THE ACT. BUT WHEN AN AUTHORITY UNDER THE ACT IS REQUIRED TO PERFO RM QUASI-JUDICIAL FUNCTIONS, SUCH AUTHORITIES SHOULD BE GUIDED BY THE LAW OF THE LAND AS ENUNCIATED ON THE QUESTIONS INVOLVED BY VARIOUS JUDICIAL AUTHORITIES WHICH HAVE BINDING EFFECT. IF AN EXISTING CIRCULAR IS IN CONFLICT WITH THE LAW OF THE LAND LAID DOWN BY THE HI GH COURTS OR THE SUPREME COURT, IN OUR VIEW, THE REVENU E AUTHORITIES, WHILE ACTING QUASI-JUDICIALLY, SHOULD IGNORE SUCH CIRCULARS IN DISCHARGE OF THEIR QUASI- JUDICIAL FUNCTIONS. 12. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS AND RE LYING ON THE DECISIONS CITED HEREINABOVE, WE ARE OF THE VIEW THAT P ROVISIONS U/S 263 CANNOT BE RESORTED TO IN THE PRESENT CASE. F URTHER THE CASE LAWS RELIED UPON BY LD. D.R. ARE DISTINGUISHABLE ON FACTS AND THEREFORE CANNOT BE APPLIED TO THE FACTS IN THE PRESENT CASE. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE VIEW TAKEN BY THE AO WAS AN IMPE RMISSIBLE VIEW OR WAS CONTRARY TO LAW OR WAS UPON ERRONEOUS APP LICATION OF 12 ITA NO.1058/PUN/2014 AY.NO.2008-09 LEGAL PROCEEDINGS NECESSITATING THE EXERCISING OF REVISIONARY POWERS U/S 263. IN VIEW OF THE AFORESAID FACTS WE ARE O F THE VIEW THAT LD. CIT WAS NOT JUSTIFIED IN RESORTING TO REVISIONARY POWERS U/S 263 OF THE ACT. WE THEREFORE SET ASIDE THE ORDER O F LD. CIT PASSED U/S 263 OF THE ACT. THUS, THIS GROUND IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON THE 5 TH DAY OF JANUARY, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE; ! DATED : 5 TH JANUARY, 2017. YAMINI ' ( ) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. THE CIT-IV, PUNE THE JT. CIT, RANGE-7, PUNE. #$% & 1 &'(, * '(, + / DR, ITAT, A PUNE; %,- . / GUARD FILE ' / BY ORDER , // TRUE COPY // //TRUE COPY// /01 &2 '3 / SR. PRIVATE SECRETARY * '( , / ITAT, PUNE