Adani Wilmar Ltd., Ahmedabad V. The DCIT, Circle -1, Ahmedabad

ITA 1475/AHD/2013

• Counselvise Citation: 147520514 RSA 2013
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Keywords: Opportunity of being heard; Period of limitation; Speculation loss; Procedural lapse; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 115JB; 43(5); 263; 12

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.1475/AHD/2013 / ASSESSMENT YEAR: 2007-2008 ADANI WILMAR LTD. FORTUNE HOUSE NR., ADANI HOUSE NR. MITHAKHALI SIX ROADS NAVRANGPURA 380 009. PAN : AABCA 8056 G VS DCIT, CIR.1 AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR WITH S SHRI P.M. MEHTA REVENUE BY : SMT. VIBHA BHALLA, CIT-DR / DATE OF HEARING : 20/10/2015 / DATE OF PRONOUNCEMENT: 08/12/2015 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME- TAX, AHMEDABAD-1, AHMEDABAD DATED 25.3.2013 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 FOR THE ASSTT.YEAR 2007-08. 2. THOUGH THE ASSESSEE HAS TAKEN FOUR GROUNDS OF AP PEAL, BUT ITS GRIEVANCES REVOLVE AROUND A SINGLE ISSUE, WHEREBY, IT HAS PLEADED THAT THE LD.CIT HAS ERRED IN TAKING COGNIZANCE UNDER SEC TION 263 OF THE ITA NO.1475/AHD/2013 2 INCOME TAX ACT AND SETTING ASIDE THE ASSESSMENT ORD ER PASSED ON 20.12.2010 UNDER SECTION 143(3) OF THE ACT AND DIRE CTING THE AO TO MAKE FRESH ASSESSMENT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY HAS FILED ITS RETURN OF INCOME ON 6.10.2007 DECLARING TOTAL INCOM E AT RS.NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERV ED UPON THE ASSESSEE. AFTER HEARING THE ASSESSEE, THE LD.AO HA D PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) ON 20.12.2010 . HE DETERMINED THE TOTAL LOSS AT RS.2,75,90,823/- AS AGAINST THE L OSS OF RS.3,04,67,089/- SHOWN BY THE ASSESSEE IN THE COMPU TATION OF INCOME. HE DETERMINED THE TAX PAYABLE BY THE ASSESSEE UNDER SECTION 115JB OF THE INCOME TAX ACT AT RS.74,82,453/-. 4. ON SCRUTINY OF THE RECORD, THE LD.COMMISSIOENR H ARBOURED A BELIEF THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF THE REVENUE, WHICH REQUIRED REVISION UNDER SECTION 263 OF THE INCOME TAX ACT. ACCORDINGLY, SHE HAS RECORDED REASONS FO R TAKING ACTION UNDER SECTION 263 OF THE INCOME TAX ACT. COPY OF THE SHO W CAUSE NOTICE ISSUED UNDER SECTION 263 DATED 12.3.2013 IS AVAILAB LE ON PAGE NO.1 OF THE PAPER BOOK. THE REASONS ASSIGNED BY THE LD.COM MISSIONER UNDER THIS SHOW CAUSE NOTICE ARE AS UNDER: 1. THE ASSESSEE HAS NOT ACCOUNTED FOR THE INCOME OF RS .544.24 LACS BEING INDUSTRIAL PROMOTION ASSISTANCE RECEIVAB LE FROM WEST BENGAL INCENTIVE SCHEME 2000. 2. THE ASSESSEE HAS CLAIMED CURRENCY SWAP LOSS OF RS.2 22.64 LACS AS BUSINESS LOSS. SUCH A LOSS OUGHT TO HAVE BEEN T REATED AS SPECULATIVE LOSS SINCE IT IS NOT EXCLUDED FROM SUCH TREATMENT AS PER CLAUSE (D) TO SECTION 43(5). 5. ON RECEIPT OF NOTICE, THE ASSESSEE HAS MADE ELAB ORATE SUBMISSIONS. THE COPY OF THE SUBMISSIONS HAS BEEN PLACED ON RECORD AT ITA NO.1475/AHD/2013 3 PAGE NOS.3 TO 14 OF THE PAPER BOOK. THE LD.COMMISS IONER SOMEHOW DID NOT CONCUR WITH THE SUBMISSIONS OF THE ASSESSEE AND IN A BRIEF ORDER TREATED THE ASSESSMENT ORDER AS ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE. THE FINDING RECORD BY THE LD.COMMISSIONER READ AS UNDER: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME FOR A.Y.2007-08 DECLARING TOTAL INCOME AT RS. NIL. THE ASSESSEE SUBSEQUENTLY FILED REVISED RETURN OF INCOM E ON 27TH AUGUST, 2008 DECLARING LOSS AT RS 3,04,67,089/-. TH E ASSESSMENT WAS FINALIZED UNDER SECTION 143(3) OF THE I.T. ACT, 1961 ON 20TH DECEMBER, 2010 DETERMINING TOTAL LOSS AT RS.2,75,90 ,823/- 4. SUBSEQUENTLY, ON EXAMINATION OF ASSESSMENT RECOR DS, IT WAS NOTICED THAT THE ASSESSEE HAD NOT ACCOUNTED FOR INC OME OF RS.544.24 LAKHS, BEING INDUSTRIAL PROMOTION ASSISTA NCE RECEIVABLE UNDER THE WEST BENGAL INCENTIVE SCHEME, 2000. FURTH ER, THE ASSESSEE HAD CLAIMED RS.222.64 LAKHS AS CURRENCY SW AP LOSS AND TREATED THE SAME AS BUSINESS LOSS ALTHOUGH IT WAS I N THE NATURE OF SPECULATION LOSS. 5. REGARDING THE FIRST ISSUE, IT WAS SUBMITTED THAT THE ASSESSEE HAD ACCOUNTED FOR THE INDUSTRIAL PROMOTION ASSISTAN CE RECEIVABLE FROM THE GOVERNMENT OF WEST BENGAL ON ACCRUAL BASIS IN THE CURRENT YEAR. SUBSEQUENTLY, IN THE ASSESSMENT YEAR 2008-09, COMPANY'S RIGHT TO RECOVER THIS INCENTIVE GOT IMPAI RED AND HENCE INCENTIVE FOR THAT YEAR WAS WRITTEN OFF AS BAD DEBT IN A.Y. 2008- 09. HOWEVER, IN RESPECT OF THE ASSISTANCE RECEIVABL E FOR A.Y. 2007-08 THE SAME WAS ACCOUNTED FOR AS INCOME OF A.Y . 2008-09. AT THE SAME TIME THE INCOME OF A.Y. 2007-08 WAS RED UCED TO THAT EXTENT BY FILING REVISED RETURN. 6. I HAVE CONSIDERED THE ARGUMENT OF THE ASSESSEE T HAT INCENTIVE RECEIVABLE UNDER WEST BENGAL INCENTIVE SCHEME, 2000 WAS ALREADY ACCOUNTED AS INCOME IN A.Y. 2007-08 AND OFF ERED TO TAX. HOWEVER, THIS WAS NOT VERIFIED BY THE ASSESSING OFF ICER WHILE FINALIZING THE ASSESS EN: UNDER SECTION 143(3) OF THE ACT. THE CLAIM OF ASSESSEE THAT SUCH AMOUNT HAS ULTIMATELY B ECC~E UNREALIZABLE IN A.Y. 2008-09 AND WRITTEN OFF AS BAD DEBT IN THAT ASSESSMENT YEAR WAS ALSO NOT VERIFIED BY THE AO WHI LE PASSING THE ORDER. LACK OF ENQUIRY RENDERS THE ORDER OF ASSESSM ENT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. LACK O F ENQUIRY COULD INCLUDE NOT ONLY A SITUATION WHERE NO ENQUIRY WAS M ADE BUT ALSO A SITUATION WHERE PROPER ENQUIRY WAS NOT MADE CONSIDE RING THE ITA NO.1475/AHD/2013 4 FACTS OF THE CASE. IN THIS REGARD, THE FOLLOWING DE CISIONS ARE RELEVANT: (I) CIT VS. SESHASAYEE PAPER & BOARDS LTD., 242 ITR 490 (MAD.) (II) CIT VS. SOUTH INDIA SHIPPING CORPORATION LTD. 233 ITR 546 (MAD.) (III) CTT VS.EMERY STONE MFG. CO. 213 ITR 843 (RAJ. ) 7. SO FAR AS THE SECOND ISSUE IS CONCERNED, THE ASS ESSEE HAD ARGUED THAT IT HAS EXPOSURE TO FLUCTUATION IN FOREI GN EXCHANGE RATES, HENCE HEDGING TRANSACTIONS WERE CARRIED OUT EITHER BY WAY OF FORWARD CONTRACTS OR OPTIONS, DEPENDING ON THE P REVAILING MARKET CONDITIONS, WITH A VIEW TO PROTECTING ITSELF FROM THE LOSSES THAT MAY ARISE ON ACCOUNT OF ADVERSE FLUCTUATIONS I N THE FOREIGN EXCHANGE RATE. IT WAS ALSO SUBMITTED THAT PROVISION S OF SECTION 43(5) APPLY TO TRANSACTIONS IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF COMMODITY INCLUDING STOCKS AND SHARES WHICH IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. FO REIGN CURRENCY CANNOT BE COVERED BY THE WORD 'COMMODITY' TO WHICH ALONE THE AFORESAID CLAUSE (5) CAN APPLY. 8. I HAVE CONSIDERED THE REPLY OF THE ASSESSEE AND THE FACTS OF THE CASE. IT IS APPARENT FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT VERIFIED THE TRANSACTION OF CURRENCY SWAP LOSS, WHICH HAS BEEN CLAIMED AS BUSINESS LOSS, ALTHOUGH IT WAS CLEARLY S PECULATIVE IN NATURE. THE ASSESSING OFFICER HAS NOT VERIFIED WHET HER THESE TRANSACTIONS ARE FOR HEDGING PURPOSE AND WHETHER TH E LOSS ARISING FROM SUCH TRANSACTIONS IS BUSINESS LOSS OR SPECULAT IVE LOSS. FURTHER, APPLICABILITY OF PROVISIONS OF SECTION 43( 5) INCLUDING ITS PROVISO IE., 43(5)(D), WHICH DEALS WITH AN ELIGIBLE TRANSACTION IN RESPECT OF TRANSACTION IN DERIVATIVES, HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. THE ASSESSEE HAS CLAIMED SUB STANTIAL LOSS AND SAME HAS BEEN ALLOWED WITHOUT PROPER VERIFICATI ON. ON THIS ACCOUNT ALSO, THE IMPUGNED ORDER OF THE AO IS UNSUS TAINABLE IN THE EYES OF LAW. 9. IN VIEW OF THE ABOVE AND HI THE LIGHT OF VARIOUS JUDICIAL DECISIONS AS DISCUSSED ABOVE, IT IS HELD THAT THE A SSESSMENT ORDER U/S 143(3) DATED 21-02-2011 WAS ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF REVENUE. HENCE, THE SAID ASSESSMEN T ORDER FOR A.Y.2007-08 DATED 21-02-2011 IS CANCELLED AND THE A .O. IS DIRECTED TO MAKE A FRESH ASSESSMENT OF THE TOTAL IN COME OF THE ASSESSEE FOR THE SAID ASSESSMENT YEAR. 10. ORDERED ACCORDINGLY. ITA NO.1475/AHD/2013 5 6. BEFORE US, ALONGWITH GROUNDS OF APPEAL, THE ASSE SSEE HAS FILED STATEMENT OF FACTS RUNNING INTO 27 PAGES. ON PAGE N OS.4 TO 10 OF THE STATEMENT OF FACTS, THE ASSESSEE HAS EXPLAINED ITS POSITION WITH REGARD TO BOTH THESE ISSUES, WHICH HAS NOT BEEN CONSIDERED IN DETAIL BY THE LD.COMMISSIONER. IN ORDER TO APPRECIATE THE CONTRO VERSY IN RIGHT PERSPECTIVE AND WITH A VIEW TO AVOID REPETITION, WE DEEM IT APPROPRIATE TO TAKE NOTE OF THE SUBMISSION MADE BY THE ASSESSEE IN THE STATEMENT OF FACTS STARTING FROM PAGE NOS.4 TO 10 (RELEVANT P ART). IT READS AS UNDER: '(7) YOUR GOODSELF HAS SOUGHT AN EXPLANATION REGARD ING THE ACCOUNTING TREATMENT FOLLOWED IN RESPECT OF IPA INC ENTIVES. IN THIS REGARD WE SUBMIT THAT THE COMPANY HAS CLAIM ED DEDUCTION OF INCENTIVE OF RS.5,44,24,167 ACCOUNTED FOR ON ACCRUAL BASIS FROM WEST BENGAL INCENTIVE SCHEME, 20 00 UNDER INDUSTRIAL PROMOTION ASSISTANCE AND STATE CAP ITAL INVESTMENT SUBSIDY (IPA INCENTIVE). THE COMPANY HAD ESTABLISHED PLANT AT HALDIA AND IS COVERED UNDER WEST BENGAL INCENTIVE SCHEME, 2000, WHEREIN T HE COMPANY IS ELIGIBLE FOR FOLLOWING ASSISTANCE: A) INDUSTRIAL PROMOTION ASSISTANCE AS PER THE SCHEME, 75% OF SALES TAX PAID IN IMMEDIA TELY PRECEDING YEAR, IS AVAILABLE AS AN INCENTIVE, IN SU BSEQUENT YEAR. SUCH INCENTIVE IS TO BE PAID THROUGH A CHEQUE TO BE DEPOSITED THROUGH A CHALLAN AS AN ADVANCE TAX. AS P ER THE CONDITION OF THE SCHEME, THE INCENTIVE IS AVAILABLE UP TO 100% OF FIXED CAPITAL INVESTMENT OR UPTO COMPLETION OF 15 YEARS, WHICHEVER IS EARLIER. B) STATE CAPITAL INVESTMENT SUBSIDY AS PER THE SCHEME, 15% OF SALES TAX PAID IN IMMEDIA TELY PRECEDING YEAR, IS AVAILABLE AS AN INCENTIVE, IN SU BSEQUENT YEAR. SUCH INCENTIVE IS TO BE PAID THROUGH A CHEQUE TO BE DEPOSITED THROUGH A CHALLAN AS AN ADVANCE TAX. AS P ER THE CONDITION OF THE SCHEME, THE INCENTIVE IS AVAILABLE UP TO 15% OF FIXED CAPITAL INVESTMENT WITH FURTHER CAP OF RS.150 LAKHS OR UPTO COMPLETION OF 10 YEARS, WHICHEVER IS EARLIER. ITA NO.1475/AHD/2013 6 IN VIEW OF ABOVE, THE COMPANY HAS CREDITED IPA INCE NTIVE RECEIVABLE OF RS 5,44,24,167 TO PROFIT AND LOSS ACC OUNT AS IS EVIDENT ON PERUSAL OF SCHEDULE-12 UNDER THE HEAD 'O THER GOVT. INCENTIVES'. HOWEVER, IN THE A.Y.2008-09, THE RIGHT TO RECOVER THE SAME INCENTIVE IS IMPAIRED ON ACCOUNT O F NON FILING OF APPLICATION FOR INCENTIVE WHICH WAS ONE O F THE CONDITIONS FOR GETTING THE IPA INCENTIVE. THIS IS E VIDENT ON PERUSAL OF NOTE NO 17(B) OF THE AUDITED ANNUAL REPO RT. SINCE, THE INCENTIVE IS NOT RECEIVABLE DUE TO PROCE DURAL LAPSE, THE COMPANY HAS, WHILE FILING RETURN OF INCO ME FOR A.Y.2007-08, REDUCED THE TAXABLE INCOME BY THE AMOU NT OF INCENTIVE ALREADY OFFERED FOR TAX AND ADDED BACK TH E AMOUNT OF INCENTIVE IN THE RETURN OF INCOME OF A.Y. 2008-09 AS THE SAME HAS BEEN CLAIMED AS DEDUCTION BY DEBITI NG THE P& L ACCOUNT FOR REVERSAL OF IPA INCENTIVE. FURTHER MORE, THE COMPANY HAS CONSISTENTLY FOLLOWED THE AFOREMENTIONE D ACCOUNTING TREATMENT WHICH CAN BE VERIFIED ON PERUS AL OF IT COMPUTATION STATEMENT OF A.Y.2006-07, 2007-08 AND 2 008- 09. THEREFORE IT IS SUBMITTED THAT THE REAL INCOME HAS NOT BEEN REALIZED AND RECEIVED BY THE ASSESSEE AND THER EFORE THE ASSESSEE IS NOT LIABLE TO TREAT THE SAME AS INC OME. 2.2 HOWEVER, ON ACCOUNT OF PROCEDURAL LAPSE BY THE COMPANY, NOW THE COMPANY IS NOT ELIGIBLE FOR THIS I NCENTIVE INCOME FOR THE A.Y.2008-09 AND HENCE, THE IPA INCEN TIVE INCOME IS REVERSED IN THE A.Y.2008-09. TO NULLIFY T HE SAID EFFECT, THE COMPANY HAS DEDUCTED IPA INCENTIVE ORIG INALLY CONSIDERED AS INCOME IN THE A.Y. 2007-08 AND DISALL OWED THE SAME IN THE A.Y.2008-09. IT IS THEREFORE SUBMIT TED THAT INCENTIVE AVAILABLE AGAINST THE SALES TAX HAS TO BE AMORTIZED ON A SYSTEMATIC BASIS. AS THE INCENTIVE H AS A DIRECT NEXUS WITH THE SALES TAX PAID, THE SYSTEMATI C BASE THAT CAN BE ADOPTED, UNDER CONCEPT OF MATCHING REVE NUE WITH EXPENDITURE OF PARTICULAR YEAR, IS TO AMORTIZE IT FULLY AGAINST THE CHARGE OF SALES TAX I.E. IT SHOULD BE C REDITED TO THE PROFIT & LOSS ACCOUNT OF THE YEAR IN WHICH SALE S TAX IS DEBITED.' 5. BEFORE THE LEARNED CIT ALSO THE AFORESAID FACTUAL POSITION WAS FULLY EXPLAINED IN THE WRITTEN REPLY. THIS FACT UAL POSITION PROVES THAT IN THE ULTIMATE ANALYSIS INCENTIVE RECE IVABLE AT RS.5,44,24,167 HAS NOT AT ALL ACCRUED TO THE ASSESS EE-COMPANY AND, THEREFORE, THE AFORESAID AMOUNT WAS NOT ASSESS ABLE AT ALL. THE ACCOUNTING ENTRIES PASSED BY THE ASSESSEE-COMPA NY ARE IN CONSONANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY ITA NO.1475/AHD/2013 7 THE ASSESSEE. AFTER CONSIDERING THE WRITTEN SUBMISS IONS, THE ASSESSING OFFICER ADOPTED A CORRECT VIEW WHICH IS T HE ONLY VIEW POSSIBLE AND HE DID NOT MAKE ANY ADDITION. ON THIS ISSUE THE ORDER OF THE ASSESSING OFFICER DOES NOT SUFFER FROM ANY E RROR AND FURTHER IT HAS NOT RESULTED INTO ANY PREJUDICE TO THE DEPAR TMENT. 6. ON THE SECOND ISSUE ALSO THE FACTUAL POSIT ION WAS DULY EXPLAINED DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS VIDE WRITTEN SUBMISSIONS DATED 7TH DECEMBER, 2010, THE R ELEVANT PART OF WHICH IS REPRODUCED BELOW: '(36) FURTHER, YOUR GOODSELF HAS SOUGHT DETAILS OF CURRENCY SWAP (LOSS)/GAIN. IN THIS REGARD WE SUBMIT THAT THE COMPANY HAS INCURRED CURRENCY SWAP LOSS OF RS.2,22, 63,965 ON ACCOUNT OF REPAYMENT OF FOREIGN CURRENCY DENOMIN ATED LOAN TAKEN BY SWAPPING US $ LIABILITY INTO RUPEES T ERMS. ON PERUSAL OF SCHEDULE-3 OF THE AUDITED ANNUAL REPORT, YOUR GOODSELF WOULD FIND THAT THE OUTSTANDING BALANCE OF FCNR LOAN AS ON 31ST MARCH, 2006 OF RS.9.15 CRORES IS RE DUCED TO RS.5.32 CRORES AS ON 31ST MARCH, 2007. WE ARE SUBMI TTING HEREWITH THE COMPLETE DETAILS FOR YOUR GOODSELF S P ERUSAL. (ANNEXURE-II).' 7. FROM THE ABOVE REPLY IT MAY KINDLY BE SEEN THAT COMPLETE DETAILS WERE FILED BEFORE THE ASSESSING OFFICER IN ANNEXURE-II. THE ASSESSING OFFICER DULY CONSIDERED THE SUBMISSIONS M ADE BEFORE HIM AND THE RELEVANT FACTS AND HE ARRIVED AT THE CO NCLUSION THAT THE AFORESAID CURRENCY SWAP LOSS IS ALLOWABLE BUSIN ESS EXPENDITURE WITH THE RESULT THAT HE DID NOT MAKE AN Y DISALLOWANCE. 8. THIS ISSUE WAS FURTHER EXPLAINED IN DETAIL BEFORE THE LEARNED CIT. IT WAS POINTED OUT THAT THE REGULAR BU SINESS ACTIVITY OF THE ASSESSEE-COMPANY INVOLVES SUBSTANTIAL IMPORT S AND EXPORTS. ACCORDINGLY, IN THE INTEREST OF BUSINESS T HE ASSESSEE- COMPANY ENTERED INTO THE CURRENCY SWAP CONTRACT OF UNDERLYING RUPEES LOAN INTO DOLLAR LOAN WITH HDFC BANK AND SCB BANK. ON MATURITY OF THE AFORESAID SWAP CONTRACT THE ASSESSE E SOLD DOLLAR LOAN TO GET BACK THE UNDERLYING RUPEE LOAN AND BY T HIS TRANSACTION THE ASSESSEE INCURRED A LOSS OF RS.2,22,63,965. IT WAS EXPLAINED BEFORE THE LEARNED CIT THAT THE RUPEE LOAN WAS CONV ERTED INTO DOLLAR LOAN WITH THE PURPOSE OF MITIGATING THE EXPO SURE TO FLUCTUATION IN FOREIGN EXCHANGE RATES. SUCH TRANSAC TION WAS ENTERED INTO FOR THE SOLE PURPOSE OF HEDGING AGAINS T LOSSES THAT MAY ARISE ON ACCOUNT OF ADVERSE FLUCTUATION IN THE FOREIGN EXCHANGE RATES. IT WAS FORCEFULLY CONTENDED THAT TH ERE IS NO BASIS ITA NO.1475/AHD/2013 8 WHATSOEVER FOR THE SUGGESTION THAT SUCH A TRANSACTI ON WOULD FALL IN THE CATEGORY OF A 'SPECULATIVE TRANSACTION'. IT WAS FORCEFULLY EXPLAINED TO THE LEARNED CIT THAT, HAVING REGARD TO THE CORRECT FACTUAL AND THE LEGAL POSITION, THE LOSS ARISING FR OM THE AFORESAID SWAPPING TRANSACTION CANNOT BE TREATED AS SPECULATI ON LOSS ON THE GROUND THAT THE SAME IS NOT EXCLUDED UNDER CLAUSE ( D) OF SECTION 43(5) OF THE I.T. ACT. THE LEARNED CIT SUMMARILY RE JECTED THESE SUBMISSIONS AND ASSUMED THAT THE ASSESSING OFFICER FAILED TO VERIFY THIS RELEVANT ISSUE AND ON THAT ACCOUNT THE ORDER PASSED BY HIM IS ERRONEOUS. HE RELIED ON THE THREE CASES ALRE ADY REFERRED TO ABOVE. 9. IT IS RESPECTFULLY SUBMITTED THAT THE LEAR NED CIT HAS GROSSLY ERRED IN ARRIVING AT THE AFORESAID CONCLUSION WHICH IS WITHOUT ANY BASIS WHATSOEVER. THE LEARNED CIT HAS FIRSTLY OBSER VED THAT THE ASSESSING OFFICER DID NOT VERIFY THIS ISSUE AND SEC ONDLY THAT THE TRANSACTION WAS OF SPECULATIVE NATURE FALLING U/S.4 3(5) OF THE I.T. ACT. IT IS SUBMITTED THAT THE BOTH THE INFERENCES D RAWN BY THE LEARNED CIT ARE FACTUALLY AND LEGALLY INCORRECT. TH E PROVISIONS OF SECTION 43(5) ARE REPRODUCED BELOW WITH EMPHASIS SU PPLIED: '(5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODIT Y, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULT IMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR M ERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUF ACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROU GH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRAC TS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDIS E SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAIN ST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLU CTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FO RWARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRA NSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAI NST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSIN ESS AS SUCH MEMBER; O] ITA NO.1475/AHD/2013 9 (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRAD ING IN DERIVATIVES REFERRED TO IN CLAUSE 35[(AC)] OF SECTI ON 236 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE;] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . EXPLANATION.FOR THE PURPOSES OF THIS CLAU SE, THE EXPRESSIONS (I) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYSTEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UNDER SECTION 12 OF THE SEC URITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CO NTRACTS [REGULATION) ACT. 1956 (42 OF 1956) OR THE SECURITI ES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR T HE DEPOSITORIES ACT, 1996 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS ISSUED U NDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNI SED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRA CT NOTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH O THER INTERMEDIARY TO EVERY CLIENT INDICATING IN THE CONT RACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER AN Y ACT REFERRED TO IN SUB-CLAUSE (A) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (II) 'RECOGNISED STOCK EXCHANGE' MEANS A RECOGNISED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 23 8 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRI BED AND NOTIFIED39 BY THE CENTRAL GOVERNMENT FOR THIS PURPO SE;' (EMPHASIS SUPPLIED) 10. IT WAS EXPLAINED TO THE LEARNED CIT THAT TH E AFORESAID SECTION APPLIES ONLY TO SUCH TRANSACTIONS IN WHICH A CONTRACT FOR PURCHASE OR SALE OF A COMMODITY, INCLUDING STOCKS A ND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. IT WAS EXPLAINED THAT THE WORD 'COMMODITY', BY NO STRETCH OF IMAGINA TION, CAN COVER CURRENCY WHICH IS ONLY A MEDIUM OF EXCHANGE W ITH WHICH GOODS AND SERVICES CAN BE BOUGHT AND SOLD. IT WAS F URTHER POINTED ITA NO.1475/AHD/2013 10 OUT THAT THE LEGISLATURE, WHILE ENACTING THE AFORES AID PROVISION, THOUGHT IT NECESSARY TO EXPRESSLY INCLUDE STOCKS AN D SHARES AS BEING COVERED UNDER 'COMMODITY', WHICH MEANS THAT B UT FOR SUCH EXPRESSED INCLUSION, THE WORD 'COMMODITY' WOULD NOT HAVE COVERED EVEN STOCKS AND SHARES. OBVIOUSLY, CURRENCI ES CANNOT BE COVERED BY THE WORD 'COMMODITY'. IT IS RESPECTFULLY SUBMITTED THAT SECTION 43(5) CANNOT BE APPLIED TO CURRENCIES. 11. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IT IS SUBMITTED THAT BY VIRTUE OF THE PROVISO TO SECTION 43(5), HED GING TRANSACTION CANNOT BE REGARDED AS SPECULATIVE TRANSACTIONS. IT IS NOTABLE THAT THE AFORESAID PROVISO DOES NOT CONTAIN ANYTHING TO PROVIDE FOR AN EXCEPTION ON ACCOUNT OF HEDGING CONTRACTS IN RESPEC T OF CURRENCIES WHEREAS IT SPECIALLY COVERS RAW-MATERIAL, MERCHANDI SE, STOCK AND SHARES. THIS FURTHER CONFIRMS THAT THE LEGISLATURE WAS CLEAR IN ITS MIND THAT SINCE THE WORD 'COMMODITY' ITSELF CANNOT TAKE IN ANY CURRENCY AS SUCH, THERE CAN BE NO QUESTION FOR PROV IDING AN INCEPTION IN THAT REGARD IN THE PROVISO. 7. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ORDER OF THE CIT(A) HAS RAISED TWO FOLD SUBMISSIONS. IN THE FIR ST FOLD OF HIS SUBMISSIONS, HE SUBMITTED THAT THE FIRST REASON ASS IGNED BY THE LD.COMMISSIONER FOR HOLDING THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IS THAT THE AO HAS NOT CONDUCTED PROPER INQUIRY ON BOTH THE ISSUES. ON TH E STRENGTH OF HONBLE GUJARAT HIGH COURTS DECISION IN THE CASE O F CIT VS. AMIT CORPORATION, 21 TAXMANN.COM 64 (GUJ.) (COPY PLACED ON RECORD), HE CONTENDED THAT ONCE THE AO HAD SELECTED THE CASE FO R SCRUTINY ASSESSMENT AND ISSUED A QUESTIONNAIRE ON ALL THE IS SUES, THEN IT COULD BE INFERRED THAT THE ASSESSMENT ORDER HAS BEEN PASS ED AFTER GOING THROUGH ALL THE RELEVANT MATERIAL. IN ORDER TO BUT TRESS THIS CONTENTION, HE TOOK US THROUGH THE QUESTIONNAIRE ISSUED BY THE AO WHOSE COPIES AVAILABLE ON PAGE NO.36 OF THE PAPER BOOK. HE DREW OUR ATTENTION TOWARDS THE QUESTIONS RAISED AT SR.NOS.36, 40 AND 4 8. THE ASSESSEE HAS GIVEN A REPLY TO THIS QUESTIONNAIRE RUNNING INT O 45 PAGES, WHICH IS ALSO BEEN PLACED ON PAGE NOS.42 TO 97 OF THE PAPER BOOK. ON THE STRENGTH OF THESE DETAILS, HE CONTENDED THAT THE LD .AO HAS ISSUED ITA NO.1475/AHD/2013 11 QUESTIONNAIRE ON BOTH THESE ISSUES SPECIFICALLY, AN D AFTER THE REPLY OF THE ASSESSEE, THE AO WAS SATISFIED. THUS, IT CANN OT BE ALLEGED THAT THE AO HAS NOT CARRIED OUT PROPER INQUIRY. 8. IN HIS SECOND FOLD OF CONTENTIONS, HE EXPLAINED THE ISSUE ON MERIT AND HOW THE AO HAS ACCEPTED THE ISSUES, THOUGH, WIT HOUT RECORDING ANY FINDING IN THE ASSESSMENT ORDER. WITH REGARD TO TH E FIRST ISSUE, HE POINTED OUT THAT THE INCENTIVE INCOME WAS RECOGNIZE D BY THE ASSESSEE ON ACCRUAL BASIS, BUT REALIZING THE FACT THAT THIS INCOME IS NOT GOING TO BE MATERIALIZED, THEREFORE, IT WAS REDUCED FROM THE RETURN. THE ASSESSEE HAS FIRST SHOWN THE INCOME IN THE ASSTT.YE AR 2007-08 AND CLAIMED THE DEDUCTION IN THE ASSTT.YEAR 2008-09. H OWEVER, SUBSEQUENTLY, THE ASSESSEE HAS REVISED THE RETURN F OR THE ASSTT.YEAR 2007-08 AND REDUCED THE INCOME EARLIER SHOWN ON ACC RUAL BASIS, MEANING THEREBY, THE DEDUCTION CLAIMED IN THE SUBSE QUENT YEAR IS AGAIN ADDED BACK. THERE WAS NO INCOME TO THE ASSESSEE, A ND THEREFORE IT WAS NOT REQUIRED TO BE SHOWN. IN SUPPORT OF HIS CONTEN TION, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS THE PAG E NOS.15 TO 28 OF THIRD COMPILATION WHERE THE COMPUTATION OF INCOME F OR THE ASSTT.YEAR 2006-07 TO 2008-09 HAVE BEEN PLACED ON RECORD. 9. WITH REGARD TO THE SECOND ISSUE, HE CONTENDED TH AT THE ASSESSEE IS NOT IN THE BUSINESS OF FOREIGN EXCHANGE. IT HAS ENTERED CONTRACT WITH THE BANK IN ORDER TO AVOID ANY LOSS ON ACCOUNT OF E XCHANGE FLUCTUATIONS. THIS ISSUE HAS BEEN CONSIDERED IN THE CASE OF ADANI ENTERPRISES LTD. FOR THE ASSTT.YEAR 2007-08 AS WELL AS ASTT.YEAR 2008-09 . ON THE STRENGTH OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI T VS. FRIENDS AND FRIENDS SHIPPING P. LTD., 35 TAXMANN.COM 553 (GUJ), THE TRIBUNAL HAS UPHELD THE ACTION OF THE AO OF ALLOWING THIS LOSS A S BUSINESS LOSS. HE PLACED ON RECORD. HONBLE GUJARAT HIGH COURT DECISI ON IN THE CASE OF CIT VS. FRIENDS AND FRIENDS SHIPPING P. LTD. (SUPRA). THUS, ACCORDING TO THE ITA NO.1475/AHD/2013 12 LD.COUNSEL FOR THE ASSESSEE, BOTH THESE ISSUES WERE FOUND PRIMA FACIE ALLOWABLE IN LAW AND THE AO HAS TAKEN A POSSIBLE VI EW IN THE LAW. 10. THE LD.CIT-DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LD.COMMISSIONER AND CONTENDED THAT PERUSAL OF THE A SSESSMENT ORDER DOES NOT SHOW ANY APPLICATION OF MIND AT THE END OF THE AO ON BOTH THESE ISSUES. THEREFORE, THE LD.COMMISSIONER HAS R IGHTLY TAKEN COGNIZANCE UNDER SECTION 263 OF THE INCOME TAX ACT. 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE T HROUGH THE RECORD CAREFULLY. SECTION 263 HAS A DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SEC TION. IT READS AS UNDER:- 263(1) THE COMMISSIONER MAY CALL FOR AND EXAMINE TH E RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE M AY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTE R MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSA RY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSES SMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASS ESSMENT. [EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION ,- (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST DAY O F JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE- (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME- TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED B Y THE JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTION S OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY ITA NO.1475/AHD/2013 13 THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORIZED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B) RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDIN G UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJEC T MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER TH E 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEND AND SHALL BE DE EMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL Y EAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASS ED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING O R DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, NA TIONAL TAX TRIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.- IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVI NG AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROC EEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCT ION OF ANY COURT SHALL BE EXCLUDED. 12. ON A BARE PERUSAL OF THE SUB SECTION-1 WOULD RE VEAL THAT POWERS OF REVISION GRANTED BY SECTION 263 TO THE LEARNED C OMMISSIONER HAVE FOUR COMPARTMENTS. IN THE FIRST PLACE, THE LEARNED COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT. FOR CALLING OF THE RECORD AND EXAMINATION, THE LEARNED COMMISSIONER WAS NOT REQUIRED TO SHOW ANY REASON. IT IS A PART OF HI S ADMINISTRATIVE ITA NO.1475/AHD/2013 14 CONTROL TO CALL FOR THE RECORDS AND EXAMINE THEM. T HE SECOND FEATURE WOULD COME WHEN HE WILL JUDGE AN ORDER PASSED BY AN ASSESSING OFFICER ON CULMINATION OF ANY PROCEEDINGS OR DURING THE PEN DENCY OF THOSE PROCEEDINGS. ON AN ANALYSIS OF THE RECORD AND OF TH E ORDER PASSED BY THE ASSESSING OFFICER, HE FORMED AN OPINION THAT SU CH AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. BY THIS STAGE THE LEARNED COMMISSIONER WAS NOT REQU IRED THE ASSISTANCE OF THE ASSESSEE. THEREAFTER THE THIRD STAGE WOULD C OME. THE LEARNED COMMISSIONER WOULD ISSUE A SHOW CAUSE NOTICE POINTI NG OUT THE REASONS FOR THE FORMATION OF HIS BELIEF THAT ACTION U/S 263 IS REQUIRED ON A PARTICULAR ORDER OF THE ASSESSING OFFICER. AT THIS STAGE THE OPPORTUNITY TO THE ASSESSEE WOULD BE GIVEN. THE LEARNED COMMISSION ER HAS TO CONDUCT AN INQUIRY AS HE MAY DEEM FIT. AFTER HEARING THE AS SESSEE, HE WILL PASS THE ORDER. THIS IS THE 4TH COMPARTMENT OF THIS SECT ION. THE LEARNED COMMISSIONER MAY ANNUL THE ORDER OF THE ASSESSING O FFICER. HE MAY ENHANCE THE ASSESSED INCOME BY MODIFYING THE ORDER. AT THIS STAGE, BEFORE CONSIDERING THE MULTI-FOLD CONTENTIONS OF TH E LD. REPRESENTATIVES, WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUNDAMENTA L TESTS PROPOUNDED IN VARIOUS JUDGMENTS RELEVANT FOR JUDGING THE ACTIO N OF THE CIT TAKEN U/S 263. THE ITAT IN THE CASE OF MRS. KHATIZA S. OO MERBHOY VS. ITO, MUMBAI, 101 TTJ 1095, ANALYZED IN DETAIL VARIOUS AU THORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AND HAS PROPO UNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVER Y TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTIO N WILL BE ATTRACTED. ITA NO.1475/AHD/2013 15 (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOU S ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANN OT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE T HE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH L AW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BE ING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 13. APART FROM THE ABOVE PRINCIPLES, WE DEEM IT APP ROPRIATE TO MAKE REFERENCE TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUN BEAM AUTO REPORTED IN 227 CTR 113 REFER RED BY LD. COUNSEL FOR THE ASSESSEE, AND GEE VEE ENTERPRISES LTD VS. A DDL. COMMISSIONER OF INCOME TAX (99 ITR 375). IN THE CASE OF SUN BEA M AUTO, THE ITA NO.1475/AHD/2013 16 HON'BLE HIGH COURT HAS POINTED OUT A DISTINCTION BE TWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE IS A LACK OF ENQUI RY, THEN THE ASSESSMENT ORDER CAN BE BRANDED AS ERRONEOUS. THE F OLLOWING OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT ARE WO RTH TO NOTE: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF TH E COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSID ERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER , THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUESTION WA S REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESSMENT ORDER WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT B Y ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON THE I SSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPL E THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED COUNSEL FOR THE ASSESS EE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN LACK OF INQUIRY AND INAD EQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE , THAT WOULD NOT BY ITSELF, GIVE OCCASION TO THE COMMISSIO NER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY, THAT SUCH A COURSE O F ACTION WOULD BE OPEN. 14. IN THE CASE OF GEE VEE ENTERPRISE VS. COMMISSIO NER OF INCOME TAX REPORTED IN 99 ITR PAGE 375, THE HONBLE COURT HAS EXPOUNDED THE APPROACH OF LD. ASSESSING OFFICER WHILE PASSING ASS ESSMENT ORDER. THE OBSERVATION OF THE HONBLE COURT ON PAGES 386 OF JO URNAL READ AS UNDER:- ITA NO.1475/AHD/2013 17 IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRIES BEFORE CANCELLING THE ASSESSMENT ORDER OF THE INCOME- TAX OFFICER. THE COMMISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE THE INCOME- TAX OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFO RE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME- TAX OFFICER IS VERY DIFFIDENT FROM THAT OF A CIVIL COURT. THE STATEMENT MADE IN A PLEADING PROVED BY THE MINIMUM AMOUNT OF EVIDENCE MAY BE ADOPTED BY A CIVIL COURT IN THE ABS ENCE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL. IT SIMPLY G IVES DECISION ON THE BASIS OF THE PLEADING AND EVIDENCE WHICH COMES BEFO RE IT. THE INCOME-TAX OFFICER IS NOT ONLY ON ADJUDICATOR BUT A LSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF THE RETURN WHICH IS APPARENTLY IN ORDER BUT CALLED FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOK E AN INQUIRY IT IS BECAUSE IT IS INCUMBENT ON THE INCOME-TAX OFF ICER TO FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIR CUMSTANCES WOULD MADE SUCH AN INQUIRY PRUDENT THAT THE WORD E RRONEOUS IN SECTION 263 INCLUDES THE FAILURE TO MAKE SUCH AN EN QUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH T HE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORR ECT. 15. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF A MIT CORPORATION (SUPRA) HAS OBSERVED AS UNDER: 5. WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITT ED NO ERROR. WHEN, DURING THE COURSE OF FRAMING OF THE ASSESSMEN T, THE ASSESSING OFFICER HAD ACCESS TO ALL THE RECORDS OF THE ASSESSEE, AFTER PURSUING SUCH RECORD THE ASSESSING OFFICER FR AMED THE ASSESSMENT, SUCH ASSESSMENT COULD NOT HAVE BEEN RE- OPENED IN EXERCISE OF REVISION POWER UNDER SECTION 263 OF THE ACT FOR MAKING FURTHER INQUIRIES. IN THE FACTS OF THE CASE, IN OUR OPINION, TRIBUNAL RIGHTLY INTERFERED WITH SUCH ORDER. NO QUE STION OF LAW ARISES. TAX APPEAL IS, THEREFORE, DISMISSED. 16. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE F ACTS OF THE PRESENT CASE. THE LD.AO HAS ISSUED A QUESTIONNAIRE UNDER S ECTION 142(1) OF THE INCOME TAX ACT ON 3.9.2010. AT SERIAL NOS.36,40, 4 8, HE CALLED FOR INFORMATION ON THE FOLLOWING ISSUES: ITA NO.1475/AHD/2013 18 36. PL. PROVIDE COMPLETE DETAILS OF CURRENCY SWAP (LOSS/GAIN) .. 40. PL. PROVIDE DETAILS OF GRANTS /SUBSIDY SANCTION ED/RECEIVED DURING THE YEAR ALONG WITH DETAILS OF ITS ACCOUNTIN G TREATMENT. . 48. WITH REGARD TO REVERSAL OF INCOME FROM TARGET P LUS SCHEME AMOUNTING TO RS.43.41 MILLION (ENTRY 17(A) NOTES OF ACCOUNTS), PL. PROVIDE COMPLETE DETAILS ALONG WITH WORKING AND COPY OF GOVERNMENT NOTIFICATION NO08/2006 DT.12/06/2006. F URTHER, RECONCILE THE SAME WITH THE AMOUNT REDUCED IN COMPU TATION OF TOTAL INCOME (RS.5,44,24,167/-). 17. THE ASSESSEE HAS GIVEN SPECIFIC REPLIES TO THIS QUESTIONNAIRE. AFTER GOING THROUGH THE RECORD AND THE REPLY OF THE ASSESSEE, THE LD.AO WAS SATISFIED. NOW, AS FAR AS THE FIRST ISSUE IS C ONCERNED, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD INCOME FR OM INCENTIVES WHICH WERE ULTIMATELY NOT OFFERED. THE ASSESSEE HA S EXPLAINED TO THE AO THAT ON ACCOUNT OF PROCEDURAL LAPSES, IT COULD N OT CLAIM THE INCENTIVES, AND THEREFORE, NO INCOME HAS ACCRUED TO HIM. THIS STAND OF THE ASSESSEE MUST HAVE BEEN EXAMINED BY THE AO. WE COULD APPRECIATE THE STAND OF THE LD.COMMSSIONER, HAD SHE POINTED OUT ANY FUNDAMENTAL CHANGE EITHER IN THE NATURE OF RECEIPT OR ANY DEVELOPMENT SHOWING THAT THIS COULD BE ASSESSED IN THE HANDS OF THE ASSESSEE. AS FAR AS THE SECOND ISSUE IS CONCERNED, THE ASSESS EE HAS EXPLAINED THAT ITS TRANSACTION DOES NOT FALL WITHIN THE MEANING OF SPECULATIVE TRANSACTIONS PROVIDED UNDER SECTION 43( 5) OF THE INCOME TAX ACT. NOW, HOW THIS COULD BE A SPECULATIVE TRAN SACTION, NOWHERE DISCERNIBLE EITHER FROM THE SHOW CAUSE NOTICE OR FR OM THE FINDINGS OF THE LD.COMMISSIONER. LD. COMMISSIONER HAS MADE AN OBSE RVATION THAT THERE IS AN INADEQUATE INQUIRY. AS PER THE DECISIO N OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AMIT CORPORATION (SUPRA) AS WELL AS ITA NO.1475/AHD/2013 19 DECISION OF THE HONBLE DELHI HIGH COURT, LACK OF I NQUIRY WOULD GIVE JURISDICTION TO THE COMMISSIONER TO TAKE ACTION UND ER SECTION 263. BUT THE ALLEGED INADEQUACY OF INQUIRY WOULD NOT EMPOWER THE LD. COMMISSIONER TO TAKE ACTION UNDER SECTION 263 OF TH E ACT. IN VIEW OF ABOVE DISCUSSION, WE ALLOW THE APPEAL OF THE ASSESS EE AND QUASH THE ORDER PASSED UNDER SECTION 263 OF THE ACT BY THE LD .COMMISSIONER. 18. IN THE RESULT OF THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 8 TH DECEMBER, 2015 AT AHMEDABAD. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER