HINDUSTAN PETROLEUM CORPORATION LTD, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX -1, MUMBAI

ITA 2275/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0073 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 12-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Keywords: Capital asset; Business income; Business expenditure; Cost of acquisition; Difference of opinion; Set aside
• Section: 143(3); 14A; 115JB; 43; 13; 119; 37; 263

Judgement Text

ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) A ND RAM LAL NEGI (JUDICIAL MEMBER) ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 20 1 4 - 15 HINDUSTAN PETROLEUM CORPORATION LIMITED . APPELLANT PETROLEUM HOUSE,17, JAMSHEDJI TATA ROAD, CHURCHGATE, MUMBAI 400 020 [PAN: AAACH1118B] VS DY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2), MUMBAI RESPONDENT APPEARANCES BY AARTI SATHE FOR THE APPELLANT B SRINIVAS FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: : DECEMBER 3 , 2019 DATE OF PRONOUNCEMENT : MARCH 02 ,2020 ORDER PER PRAMOD KUMAR, VP: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 12 TH FEBRUARY 2018 PASSED BY THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX, UNDER SECTION 263 R.W.S. 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2014 - 15. 2. GRIEVANCES RAISED BY THE ASSESSEE, AS SET OUT IN THE MEMORANDUM OF APPEAL, ARE AS F OLLOWS: 1 ) THE PR . CIT ERRED IN PASSING THE ORDER DATED 12 TH FEBRUARY, 2018 UNDER SECTION 263 OF THE ACT, IN AS MUCH AS THERE IS NOTHING ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE WHICH HAS BEEN POINTED OUT IN THE IMPUGNED ORDER . THE IMPUGNED ORDER IS THEREFORE LIABLE TO BE SET ASIDE . 2 ) THE PR . CIT ERRED IN NOT APPRECIATING THAT IN THE PRESENT CASE THE ORIGINAL ASSESSMENT ORDER WAS PASSED AFTER CONSIDERING ALL THE DETAILS AND THE DOCUMENTS ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 2 OF 15 FURNISHED BY THE APPELLANT BEFORE THE ASSESSING OFFI CER AND HENCE THE PR . CIT WAS NOT JUSTIFIED IN EXERCISING THE SUO - MOTO POWER OF REVISION UNDER THE PROVISIONS OF SECTION 263 OF THE INCOME - TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT ). A COPY OF THE ASSESSMENT ORDER IS ENCLOSED AND MARKED AS EXHIBI T B . 3 ) THE PR . CIT FURTHER ERRED IN NOT APPRECIATING THAT IN THE PRESENT CASE THE ASSESSING OFFICER HAS APPLIED HIS MIND AND ARRIVED AT A CONCLUSION . IT WAS NOT A CASE OF LACK OF ENQUIRY AND ONLY BECAUSE THE PR . CIT, HAD A DIFFERENT OPINION ON THE SUBJEC T MATTER OF THE PRESENT CASE, THE SAME WOULD NOT CONFER REVISIONAL JURISDICTION ON HIM UNDER THE PROVISIONS OF SECTION 263 OF THE ACT . 4 ) THE PR . CIT ERRED IN PASSING THE IMPUGNED ORDER AND THEREBY DIRECTING THE ASSESSING OFFICER TO REFRAME THE ASSESSMENT ORDER AS PER DIRECTIONS GIVEN BY HIM, AND THUS NOT AFFORDING THE ASSESSING OFFICER TO INDEPENDENTLY APPLY HIS MIND AND TAKE AN INDEPENDENT VIEW OF THE MATTER AND HENCE THE SAME WILL BE PREJUDICIAL AND IN VIOLATION OF THE SETTLED LEGAL PRINCIPLES . 5 ) THE CIT ( A ) ERRED IN NOT APPRECIATING THAT THE ISSUE OF DISALLOWANCE OF THE LOSS ON SALE OF OIL BONDS WAS RAISED FOR THE FIRST TIME IN ASSESSMENT YEAR 2006 - 07 AND THE SAME WAS DISALLOWED BY THE A . O IN THE SAID ASSESSMENT YEAR, ON THE REASONING THAT THE BON DS WERE CAPITAL ASSETS AND THE LOSS / GAIN ON THE SAME HAS TO BE ASSESSED AS A CAPITAL GAIN / LOSS . HOWEVER, THE DEPARTMENT IN THE SAID ASSESSMENT YEAR ITSELF ISSUED RE - OPENING NOTICE SEEKING TO TAX THE SALE ON LOSS OF OIL BONDS AS A BUSINESS / REVENUE LOSS AND NOT AS A CAPITAL / LOSS . IT IS THEREFORE SUBMITTED THAT THE DEPARTMENT ITSELF HAS NOT BEEN CONSISTENT IN TAXING THESE LOSSES SUFFERED BY THE APPELLANT AND HENCE THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE ON THIS GROUND ALONE ). A COPY OF THE ASSESSMENT ORD ER AND REASSESSMENT NOTICE IS ENCLOSED AND MARKED AS EXHIBIT C . 6 ) IT IS FURTHER SUBMITTED THAT THE APPELLANT DID NOT PURCHASE THESE BONDS FOR ANY ENDURING NATURE . THESE BONDS WERE RECEIVED IN VIEW OF THE TYPICAL PRICING MECHANISM APPLICABLE FOR PSU OIL COMPANIES AND THE SAME HAD BEEN ISSUED BY THE MINISTRY OF PETROLEUM & NATURAL GAS ( MOP & NG ) , IN LIEU OF CASH COMPENSATION FOR UNDER RECOVERY AND HENCE THE PROFIT / LOSS ARISING OUT OF THE SALE OF BONDS SHOULD BE TREATED AS A REVENUE LOSS . 7 ) THE PR . CIT E RRED IS NOT APPRECIATING THAT THE LOSS ON SALE OF OIL BONDS WAS INCURRED IN THE COURSE OF BUSINESS AND HENCE THE SAME WAS ALLOWABLE AS A BUSINESS EXPENDITURE UNDER THE PROVISIONS OF SECTION 37 OF THE ACT . THE IMPUGNED ORDER HAS BEEN PASSED ON AN ERRONEOUS INTERPRETATION OF THE FACTS AND LAW AND HENCE IS LIABLE TO BE SET ASIDE ON THIS GROUND ALONE . 8 . THE PR . CIT ERRED IN NOT APPRECIATING THAT THE IND AS STANDARDS ON WHICH HE HAS PLACED RELIANCE TO PASS THE IMPUGNED ORDER ARE MADE EFFECTIVE FROM FINANCIAL ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 3 OF 15 YEAR COMMENCING ON 1 ST APRIL, 2016 AND HENCE THE SAME CANNOT BE MADE APPLICABLE FOR MAKING THE INVENTORY VALUATION AND THE EXPENSE TOWARDS EXCHANGE RATE VARIATION COULD NOT BE ADDED TO FORM PART OF COST AND BE ADDED TO THE CLOSING STOCK AS PER THE IND AS S TANDARD . THE IMPUGNED ORDER HAS BEEN PASSED ON A NON - APPRECIATION OF THE FACTS AND THE LAW AND IS THEREFORE LIABLE TO BE SET ASIDE . 9 ) THE PR . CIT ERRED IN NOT APPRECIATING THAT THE IND AS 23 ITSELF HAD SCOPED OUT ITS APPLICABILITY ON INVENTORIES . IN THE SAID IND AS 23, IN PARAGRAPHS 2 TO 4, UNDER THE CAPTION SCOPE , IT IS STATED THAT THE STANDARD IS NOT TO BE APPLIED TO INVENTORIES THAT ARE MANUFACTURED / PROCESSED IN LARGE QUANTITIES ON A REPETITIVE BASIS . THE FOLLOWING IS THE SCOPE : - ( I ) AN ENTI TY SHALL APPLY THIS STANDARD IN ACCOUNTING FOR BORROWING COSTS . ( II ) THE STANDARD DOES NOT DEAL WITH THE ACTUAL OR IMPUTED COST OF EQUITY, INCLUDING PREFERRED CAPITAL NOT CLASSIFIED AS A LIABILITY . ( III ) AN ENTITY IS NOT REQUIRED TO APPLY THE STANDARD TO BORROWING COSTS DIRECTLY ATTRIBUTABLE TO THE ACQUISITION, CONSTRUCTION OR PRODUCTION OF : ( A ) A QUALIFYING ASSET MEASURED AT FAIR VALUE , FOR EXAMPLE, A BIOLOGICAL ASSET; OR ( B ) INVENTORIES THAT ARE MANUFACTURED, OR OTHERWISE PRODUCED, IN LARGE QUANTITIE S ON A REPETITIVE BASIS . ACCORDINGLY, ON A READING OF PARAGRAPH 4 READ WITH 4 ( B ) OF THE STANDARD ABOVE, IT CAN BE OBSERVED THAT THE AFORESAID STANDARD IS NOT BE APPLIED . THE IMPUGNED ORDER HAS BEEN PASSED ON A NON - APPRECIATION OF THE FACTS OF THE CASE AND IS THEREFORE LIABLE TO BE SET ASIDE . 10 . THE ISSUE OF ADDITION OF EXCHANGE RATE VARIATION TO INVENTORY IS OUTSIDE THE JURISDICTION OF SECTION 263 AS THE SAME HAS BEEN CONSIDERED BY COMMISSIONER OF INCOME TAX ( APPEALS ) IN APPEAL . COPY OF APPELLATE O RDER IS ENCLOSED AND MARKED AS EXHIBIT D . 11 . THE PR . CIT ORDER U / S . 263 IS NOT A SPEAKING ORDER AND DOES NOT EXPLAIN THE REASON FOR WHY EARLIER ORDER IS ERRONEOUS AND PREJUDICIAL TO REVENUE . 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US A PUBLIC SECTOR COMPANY, AND ITS ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 7 TH MARCH, 2016. ON 24 TH JULY 2017, HOWEVER, LEARNED PRINCIPAL COMMISSIONER, ISSUED A SHOW CAUSE NOTICE REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY SHOULD THIS COMPLETED ASSESSMENT NOT BE SUBJECTED TO REVISION PROCEEDINGS. THE SAID SHOW CAUSE NOTICE, INTER ALIA, STATED AS FOLLOWS: ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 4 OF 15 2 . IT IS OBSERVED ON EXAMINATION OF RECORDS RELATING TO ASSESSMENT MADE ON 07 . 03 . 2016, U / S . 143 ( 3 ) OF THE I . T ACT , 1961 FOR A . Y 2013 - 14, THAT THE ASSESSING OFFICER, WHILE COMPLETING ASSESSMENT HAS FAILED TO CARRY OUT RELEVANT AND MEANINGFUL ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONCLUDE IT CORRECTLY AS PER LAW . THIS WILL BE APPARENT FROM THE FOLLOWING DISCUSSION . IT WOULD BE ALSO CLEAR FROM THE DISCUSSION IN THE PARAGRAPHS BELOW THAT ASSESSING OFFICER ACCEPTED THE VARIOUS CLAIMS OF THE ASSESSEE AT FACE VALUE AND ALSO THE EXPLANATION FILED WITHOUT VERIFYING THE VERACITY OF THE DETAILS ON ACCOUNTS OF NON - APPLICATION OF MIND . 3 . THE RETURN OF INCOME FOR A . Y 2013 - 14 WAS FILED ON 29 . 11 . 2013 DECLARING TOTAL LOSS AT RS . 214,38,03,475 / - . SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY . THE ASSESSMENT U / S . 143 ( 3 ) OF THE ACT, WAS COMPLETED ON 07 . 03 . 2016 DETERMINING TOTAL INCOME AT RS . ( - ) 2,82,13,67 . 736 / - AND BOOK PROFIT U / S . 115JB AT RS . 13,22,71,57 . 526 / - AFTER MAKING DISALLOWANCE ON ACCOUNT OF R & D EXPENDITURE CLAIMED U / S . 35 ( 2AB ) OF RS . 4,72,85,548 / - ESTABLISHMENT EXPENSES CHARGED TO CAPITAL WORK - IN - PROGRESS OF RS . 96,61,01,203 / - DISALLOWANCE U / S . 14A R . W . R 8D OF RS . 90,87,2 . 131 / - . 4 . ISSUE OF ALLOWANCE OF LOSS ON SALE OF CURRENT INVESTMENT AS BUSINESS EXPENDITURE : ON EXAMINATION OF CASE RECORDS, IT IS OBSERVED THAT IN THE ORDER PASSE D U / S . 143 ( 3 ) OF THE ACT, THE A . O HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE . THE ACTION OF THE AO IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE IS ERRONEOUS AS IT IS AGAINST THE STAND OF THE DEPARTMENT ION EARLIER YEARS AND ALSO PREJUDICIAL TO THE REVENUE . 5 . ISSUE OF EXCESS ALLOWANCE OF DEDUCTION ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION : THE ASSESSING OFFICER MADE ON ADDITION OF RS . 127,44,42,112 / - ON ACCOUNT OF CLOSING STOCK REVALUATION TO ACCOUNT FOR DIRECT FOREX COSTS . FOR COMPUTING THE REVALUATION OF CLOSING STOCK IN THE RELEVANT AY 2013 - 14, AO ADOPTED THE METHOD AS ADOPTED FOR AY 2012 - 13 . FOR THIS PURPOSE, THE AO COMPUTED THE RATIO OF INVENTORY TO SALE AND APPLIED THE SAID RATIO TO THE FOREX LOSS DEBITED TO THE PROFIT AND LOSS ACCOUNT . THE AO COMPUTED THE ADDITION TO BE MADE TO CLOSING STOCK AT RS . 127,44,42,112 / - . THEREAFTER, THE AO ALSO TOOK CONSIDERATION THAT FOR AY 2012 - 13, A SIMILAR ADDITION ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 5 OF 15 TO CLOSING STOCK WAS MADE AT RS . 221 . 21 CRORES . THEREBY THE AO ALLOWED NET DEDUCTION OF RS . 93,76,57,888 / - . THE WORKING IS SUMMARIZED BELOW : PARTICULARS WORKING OF AY 2013 - 14 ( IN CRORES ) AS PER ORDER U / S . 143 ( 3 ) FOR AY 2012 - 13 ( IN CRORES ) SALE OF PRODUCTS 1900048 . 5 169011 . 37 INVENTORIES 16438 . 70 19454 . 53 INVENTORIES AS % AGE OF SALES 8 . 65 % 11 . 51 % EXCHANGE RATE VARIATION 1473 . 39 1921 . 91 ADDITION TO INVENTORY VALUATION 127 . 44 221 . 21 LESS : BENEFIT OF ADDITION MADE CLOSING STOCK AT EARLIER YEAR 221 . 21 0 NET ADDITION / DEDUCTION ( - ) 93 . 76 0 IT IS NOTICED THAT HE EXCHANGE ATE VARIATION OF RS . 1473 . 39 CRORES DEBITED TO P / L ACCOUNT IS NET FIGURE AFTER SETTING OFF THE FOREX GAIN OF RS . 79 . 41 CRORS . AS PER NOTE 35 READ WITH NOTE 26 TO THE ACCOUNTS, THAT THIS NE T ADJUSTMENT OF RS . 79 . 41 CRORES IS ON EXCHANGE DIFFERENCE ARISING FROM SYNDICATED LOANS FROM FOREIGN BANKS ( REPAYABLE IN FOREIGN CURRENTLY ) TAKEN FOR ACQUISION OF FIXED ASSET . THEREFORE THE AMOUNT OF RS . 79 . 41 CRORES IS ON CAPITAL ACCOUNT AND SHOULD BE EX CLUDED FROM THE EXCHANGE RATE VARIATION OF RS . 1473 . 39 CRORES ADOPTED FOR THE PURPOSE OF DETERMINING THE ADDITION / DEDUCTION TO CLOSING STOCK ON ACCOUNT OF EXCHANGE FLUCTUATION . ACCORDINGLY, AFTER EXCLUDING THE FOREX GAIN OF RS . 79 . 41 CRORES, THE EXCHANGE RATE VARIATION WOULD BE RS . 1552 . 79 CRORES . THE SAME IS COMPUTED BELOW IN TABULAR MANNER : PARTICULARS WORKING OF AY 2013 - 14 ( IN CRORES ) RESUMPTION FOR AY 2013 - 14 ( IN CRORES ) SALE OF PRODUCTS 1900048 . 5 1900048 . 5 INVENTORIES 16438 . 70 1900048 . 5 INVENTORIES AS % AGE OF SALES 8 . 65 % 8 . 65 % EXCHANGE RATE VARIATION 1473 . 39 1473 . 39 + 79 . 41 = 1552 . 79 ADDITION TO INVENTORY VALUATION 8 . 65 %* 147 . 39 = 127 . 44 8 . 65 %* 1552 . 70 = 134 . 32 LESS : BENEFIT OF ADDITION MADE CLOSING STOCK AT EARLIER YEAR 221 . 21 221 . 21 NET ADDITION / DEDUCTION ( - ) 93 . 76 ( A ) ( - ) 86 . 89 ( B ) ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 6 OF 15 EXCESS DEDUCTION ALLOWED ( A ) ( B )= 6 . 87 THUS THE AO ALLOWED EXCESS ALLOWANCES OF DEDUCTION OF RS . 6 . 88 CRORES BY NOT EXCLUDING THE FOREX GAIN WHICH IS ON CAPITAL ACCOUNT . THIS ACTION OF THE AO IS ERRONEOUS AN D PREJUDICIAL TO THE REVENUE . 6 . IT IS SETTLED PROPOSITION OF LAW THAT FAILURE OF THE A . O . TO CARRY OUT RELEVANT AND MEANINGFUL ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE RENDERS THE ASSESSMENT ORDERS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FAILING WITHIN THE PARAMETERS OF PROVISIONS OF SECTION 263 OF THE I . T ACT . 4. IN REPLY TO THIS SHOW CAUSE NOTICE, ELABORATE SUBMISSIONS WERE MADE BY THE ASSESSEE, WHICH, FOR READY REFERENCE, IS REPRODUCED BELOW: WE ARE PLACED TO GIVE OUR REPLY TO SHOW CAUSE NOTICE AS UNDER : IT MAY KINDLY BE NOTED THAT ASSESSING OFFICE HAS CARRIED OUT DETAILED ANALYSIS OF THE SUBJECT YEAR, WHICH IS CLEARLY EVIDENT FROM THE SEVERAL NOTICES ISSUED BY HIM SEEKING DETAIL ON VARIOUS ISSUES AND DETAILED REPLIES FILED BY ASSESSEE . ALL MATERIAL FACTS HAD BEEN DISCLOSED FULLY AND TRULY TO ASSESSING OFFICE DURING SCRUTINY ASSESSMENT PROCEEDINGS . ON ISSUE OF ALLOWANCE OF LOSS ON SALE OF CURRENT INVESTMENT AS BUSINESS EXPENDITURE, NOTICE DATED 29 / 01 / 2016 WAS GIVEN TO ASSESSEE, DETAILED REPLY FOR WHICH WAS SUBMITTED VIDE LETTER DATED 10 / 02 / 2016 . ON ISSUE TO STOCK VALUATION, NOTICE DATED 29 / 01 / 2016 WAS GIVEN TO ASSESSEE, DETAILED REPLY FOR WHICH WAS SUBMITTED VIDE LETTER DATED 26 / 002 / 2016 ON GOING T HROUGH DETAILED SUBMISSION OF ASSESSEE REFERRED ABOVE AND ITS DETAILED ANALYSIS CARRIED OUT BY ASSESSING OFFICER IN HIS ASSESSMENT ORDER DATED 07 / 03 / 2016, IT CAN BE FAIRLY CONSTRUCTED THAT, ASSESSING OFFICER HAS PROPERLY APPLIED HIS MIND WHILE DISALLOWING ANY EXPENDITURE OR ALLOWING ANY DEDUCTION TO ASSESSEE . IN OUR OPINION NO INCOME HAS ESCAPED ASSESSMENT AND THEREFORE WE ARE UNABLE TO UNDERSTAND THE BASIS ON WHICH THE SUBJECT NOTICE IS SERVED . ISSUE NO . 1 . ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 7 OF 15 ISSUE OF ALLOWANCE OF LOSS ON SALE OF CURRENT AS BUSINESS EXPENDITURE : ON EXAMINATION OF CASE RECORDS, IT IS OBSERVED THAT IN THE ORDER PASSED U / S . 143 ( 3 ) OF THE ACT, THE AO HAS ACCEPTED THAT CLAIM OF THE ASSESSEE THAT LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE . THE ACTION OF THE AO IN ACCEPTING THE CLAIM OF THE ASSESSEE THE LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE IS ERRONEOUS AS IT IS AGAINST THE STAND OF THE DEPARTMENT IN EARLIER YEARS AND ALSO PREJUDICIAL TO THE REVENUE . FACTS EVEN AFTER ADMINISTERED PRICE DISMANTLING THE PRICE OF MS , HSD, LPT ( DOM ) AND SKO ( PDS ) ARE BEING MONITORED BY MINISTRY OF PETROLEUM & NATURAL GAS GOVERNMENT OF INDIA . AS PER THE GOVERNMENT S DIRECTIVES, THE OIL COMPANIES WERE REQUIRED TO SELL PETROL, DIESEL, SKO MEANT FOR PUBLIC DISTRIBUTION SYSTEM ( PDS ) AND LPG USED FOR DOMESTIC CONSUMPTION, TO THE CONSUMERS AT THE PRICE FIXED BY THE MOP &NG . THE SALE PRICE FIXED AS PER GUIDELINES WAS MUCH LOWER THAN ITS ACTUAL COST, WHICH RESULTED INTO OPERATING LOSSES FOR OIL COMPANIES . TO COMPENSATE THIS OPERATING LOSS SUFFE RED BY THE OIL COMPANIES, THE GOVERNMENT OF INDIA ISSUED SPECIAL OIL BONDS TO EACH OIL MARKETING COMPANY ( OMC ) INCLUDING HPCL SINCE F . Y . MARCH 2002 . BONDS ISSUED FOR MOP & NG ARE IN LIEU OF CASH PAYMENTS TOWARDS COMPENSATION FOR UNDER - RECOVERY SUFFERED BY OIL COMPANIES ON LPG, SKO, MS AND HSD ( BY NOT ALLOWING THE OIL COMPANIES TO INCREASE THE PRICE IN THE LINE WITH THE ACTUAL COSTS AND THEREBY INVOLVING SUBSIDY TO THE CONSUMERS ). IF GIVEN A CHOICE, THE OIL COMPANIES WOULD NOT HAVE INVESTED IN THESE BONDS . D URING FY 2012 - 13, OIL BONDS HAVING FACE VALUE OF RS . 708 . 00 CR . WERE SOLD AT RS . 672 . 47 CR . IN RETURN OF INCOME, LOSS AMOUNTING TO RS . 35 . 53 CR . WAS TREATED AS BUSINESS EXPENDITURE AND THE SAID FACT WAS BROUGHT TO THE ATTENTION OF AO VIDE NOTES TO RETURN D ATED 07 / 08 / 2015 . DETAILS OF BONDS SOLD DURING FY 20012 - 13 ARE AS UNDER : PARTICULARS COST OF ACQUISITION ( PER BOND ) SALE PRICE ( PER BONDS ) GAIN / LOSS ON SALE OF BONDS RS IN CR . ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 8 OF 15 6 . 35 % OIL BONDS, 2024 100 . 00 85 . 79 ( 28 . 42 ) 8 . 20 % OIL BONDS, 2024 100 . 00 98 . 60 ( 7 . 11 ) TOTAL ( 35 . 53 ) THE ISSUE INVOLVED IS TREATMENT OF PROFITS / LOSS MADE ON SALE OF OIL BONDS . CURRENT SHOW CAUSE NOTICE ISSUED TO ASSESSEE, HAS A MENTION THAT ' THE ACTION OF THE AO IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE IS ERRONEOUS AS IT IS AGAINST THE STAND OF THE DEPARTMENT IN EARLIER YEARS AND ALSO PREJUDICIAL TO THE REVENUE . IN THIS CONNECTION WE WOULD LIKE TO BRING TO YOUR KIND ATTENTION THAT, THOUGH COMPENSATION WAS STARTED DURING MARCH 2002 THE ISSUE RELATING TO TREATMENT OF PROFIT / LOSS ON SALE OF OIL BONDS WAS RAISED FOR THE FIRST TIME ONLY DURING SCRUTINY ASSESSMENT OF AY 2006 - 07 . ASSESSING OFFICER DISALLOWED IT ON THE GROUND THAT OIL BONDS ARE LIKE ANY OTHER BONDS AND HAS TO BE TREATED AS CAPITAL ASSET : HIS VIEW WAS CONFIRMED BY CIT ( A ) , AGAINST WHICH HPCL IS IN APPEAL BEFORE ITAT, ORDER IS AWAITED . FOR THE SAME YEAR ( AY 2006 - 07 ) RE - ASSESSMENT NOTICE DATED 1 1 / 04 / 2012 WAS ISSUED TO HPCL GIVING REASONS THAT THERE HAS BEEN OMISSION IN ASSESSING IT AS CAPITAL GAIN & THEREFORE IT IS PROPOSED TO ASSESS AS BUSINESS INCOME ( COPY OF THE NOTICE ATTACHED AND MARKED AS ANNEXURE - I ) , WHICH WAS REPLIED BY US VIDE LETTER DA TED 16 / 04 / 2012, AGAINST WHICH NO FURTHER ACTION WAS TAKEN BY THE DEPARTMENT . IT MAY PLEASE BE NOTED THAT, VIDE RE - ASSESSMENT NOTICE; DEPARTMENT QUESTION THEIR OWN TREATMENT OF TAXING LOSS / GAIN ON SALE OF OIL BONDS AS CAPITAL . GAIN . ISSUE ON TREATMENT O F OIL BONDS WAS RAISED BY ASSESSING OFFICER ONLY IN AY 2006 - 2007, AY 2007 - 2008 & AY 2008 - 09, AGAINST WHICH HPCL IS IN APPEAL BEFORE 1TAT, ORDER IS AWAITED . IT MAY ALSO BE NOTED THAT, AY 2009 - 2010 ONWARDS IT HAS ALWAYS BEEN TREATED AS BUSINESS EXPENDITURE / GAIN BY ASSESSING OFFICER IN ASSESSMENT YEARS . WE WOULD LIKE TO BRING TO YOUR KIND ATTENTION THAT : ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 9 OF 15 RECEIPT OF BONDS HAS BEEN CONSIDERED BY HPCL AS TAXABLE INCOME IN THE YEAR OF RECEIPT . HPCL HAS NOT PURCHASED THESE BONDS FOR ANY ENDURING RETURN . THESE BONDS ARE RECEIVED IN VIEW OF THE TYPICAL PRICING MECHANISM APPLICABLE FOR PSU OIL COMPANIES AS EXPLAINED ABOVE, AND HENCE THE RESULTING GAIN / LOSS ON SALE OF OIL BONDS TO IMPROVE THE LIQ UIDITY POSITION, IS TO BE TREATED AS REVENUE RECEIPT AS HELD IN THE FOLLOWING CASES : PATNAIK & CO . LTD . VS . CIT ( ORISSA ) 161 ITR 365 ( SC ) CIT VS . GANNON DUNKERLEY& COND . 119 ITR 595 ( BOM ) CIT VS . INDUSTRY AND COMMERCE ENTERPRISES 118 ITR 606 ( ORISS A ) CIT VS . BMS 119 ITR 321 ( MAD ) CIT VS . DHANDAYUTHANPANI 123 ITR 709 ( MAD ) WE FURTHER SUBMIT THAT THOUGH THE BONDS ARE SHOWN AS INVESTMENTS IN THE BALANCE SHEET, THE TRUE NATURE OF THIS INCOME IS OF REVENUE NATURE SINCE IT IS ISSUED IN LIEU OF CASH COMPENSATION FOR UNDER RECOVERY, ISSUED BY THE MOP & NG, WHICH IS ALREADY OFFERED TO TAX IN THE RESPECTIVE YEARS AS PART OF RECOVERY UNDER SUBSIDY SCHEMES, HENCE ANY PROFIT / LOSS ARISING OUT OF SALE OF SUCH BONDS SHOULD BE TREATED AS REVENUE INCOME / EXPENDITURE FOR TAX PURPOSE IN LINE WITH BOOKS AND IN LINE WITH SUPREME COURT S DECISI ON IN CASE OF PATNAIK AND CO . LTD . AND ABOVE CITED DECISION WHICH CLEARLY HELD THAT INVESTMENT IN GOVERNMENT LOAN / BONDS TO INCREASE ITS BUSINESS WITH THE GOVERNMENT AND HENCE LOSSON SALE OF SUCH INVESTMENTS IS ALLOWABLE AS BUSINESS EXPENDITURE ACCORDING LY, LOSS ON SALE OF SUCH INVESTMENTS IS INCURRED IN THE COURSE OF THE BUSINESS ANDBUSINESS AND THEREFORE DEDUCTIBLE U / S . 37 ( 1 ) OF THE ACT . IT IS ALSO INTO AGAINST THE STAND OF THE DEPARTMENT IN EARLIER YEARS . ISSUE NO . 2 ISSUE OF EXCESS ALLOWANCE OF DEDU CTION ON ACCOUNT OF FOREIGN EXCHANGE, FLUCTUATION THE DISALLOWANCE OF AO IS CONTAINED IN PARAGRAPH 5 AT PAGE NO 11 IN THE ASSESSMENT ORDER . DISALLOWANCE IS MADE BY ASSESSING OFFICER MERELY BY FOLLOWING HIS PREDECESSOR S, ORDER, WHEREIN IT WAS HELD THA T EXPENSE ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 10 OF 15 TOWARDS EXCHANGE RATE VARIATION SHALL FORM PART OF COST AND BE ADDED TO THE CLOSING STOCK AS PER IND - AS STANDARDS . AS PER AO, VALUATION OF STOCK WILL HAVE TO INCLUDE ACTUAL COST TO ASSESSEE WHICH WILL BE LANDED COST INCLUSIVE OF FOREX LOSS AND TH EREFORE THE VALUATION OF CLOSING STOCK HAS TO BE INCREASED BY RS . 127 . 44 CRORES . VIDE LETTER DATED 26 / 02 / 2016, ( WHICH THE IMPUGNED ORDER REFERS TO IN PARAGRAPH 5 . 1 AT PAGE 11 IT HAS BEEN BROUGHT TO THE ATTENTION OF HE LEARNED AO THAT IN THE VALUATION OF INVENTORY, AS - 2 IS FOLLOWED AND FURTHER TO THE EXTENT OF TREATMENT OF FOREIGN EXCHANGE LOSS, AS - 11 READ WITH AS - 2 IS FOLLOWED . BRIEFLY STATED, THE VIEWS OF AO ARE AS UNDER : 0 * SUBSTANTIAL PART OF RAW MATERIAL BEING CRUDE OIL IS IMPORTED AND THE COSTS OF I MPORT NECESSARILY IMPLIES LOSS / GAIN DUE TO FOREIGN CURRENCY VARIATION . * BORROWING COSTS AND FINANCIAL CHARGES CAN BE MADE PART OF INVENTORY COST AS IT IS A QUALIFYING ASSET AS PER IND AS - 23 . * IF THE ASSESSEE IMPORTS CERTAIN QUANTITY WHICH IS TREATED AS STOCK, THE VALUATION OF STOCK WILL HAVE TO INCLUDE ACTUAL COSTS TO THE ASSESSEE WHICH WILL BE LANDED COST, INCLUSIVE OF FOREX COST . * SECTION 43 ( 1 ) STATES THAT THE COST OF THE ASSET OF THE ASSESSEE MEANS ACTUAL COST AS REDUCED BY THAT PORTION OF COST THAT HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY . WE WOULD LIKE TO BRING YOUR KIND ATTENTION THAT : * INVENTORY VALUATION IS DONE AT COST OR MARKET PRICE, WHICHEVER IS LOWER . EVEN IF THE COSTS ARE ARBITRARILY JACKED UP, IT STILL NEEDS TO BE COMPARED WITH MARKET VALUE, WHICH EXERCISE, THE LEARNED AO HAS FAILED TO CARRY OUT . THE ENTIRE EXERCISE WAS DONE IN A HAST WITHOUT ANY LOGICAL REASONING . * THE DISALLOWANCE HAS BEEN HURRIEDLY MADE ON THE STRENGTH OF AO, UNDERSTANDING OF IND AS 2 ( VALUATION OF INVENTORIES ) IND AS 23 ( BORROWING COSTS ) WITHOUT APPRECIATING THAT THE SAID IND AS STANDARDS ARE APPLICABLE EFFECTIVE THE FINANCIAL YEAR COMMENCING ON A PRIL 01, 2016, * EVEN IF IT WERE TO BE APPLICABLE, THE SAID IND AS 23 ITSELF HAS SCOPED OUT ITS APPLICABILITY ON INVENTORIES . I N THE SAID IND AS 23, IN PARAGRAPHS 2 TO 4, ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 11 OF 15 UNDER THE CAPTION 'SCOPE , IT IS STATED THAT THE STANDARD IS NOT TO BE APPLICABLE TO INVENTORIES THAT ARE MANUFACTURED / PROCESSED IN LARGE QUANTITIES ON A REPETITIVE BASIS, AS QUOTED BELOW : SCOPE 2 . AN ENTITY SHALL APPLY THIS STANDARD IN ACCOUNTING FOR BORROWING COSTS . 3. THE STANDARD DOES NOT DEAL WITH THE ACTUAL OR IMPUTED COST OF EQUI TY, INCLUDING PREFERRED CAPITAL NOT CLASSIFIED AS A LIABILITY. 4. AN ENTITY IS NOT REQUIRED TO APPLY THE STANDARD TO BORROWING COSTS DIRECTLY ATTRIBUTABLE TO THE ACQUISITION, CONSTRUCTION OR PRODUCTION OF: (A) A QUALIFYING ASSET MEASURED AT FAIR VALUE, FO R EXAMPLE, A BIOLOGICAL ASSET; OR (B) INVENTORIES THAT ARE MANUFACTURED, OR OTHERWISE PRODUCED, IN LARGE QUANTITIES ON A REPETITIVE BASIS ACCORDINGLY, ON A READING OF PARAGRAPH 4 READ WITH 4(B) OF THE STANDARD ABOVE, IT CAN BE OBSERVED THAT AFORESAID STANDARD IS NOT TO BE APPLIED. INDEPENDENT OF 4(B) ABOVE, WHICH CLEARLY EVIDENCES THE NON - APPLICABILITY OF THE STANDARD, EVEN ON A READING 4(A), IT WOULD BE APPARENT THAT AS INVENTORIES ARE VALUED AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER, IT MEANS THAT IT IS VALUED AT FAIR VALUE & THEREFORE STANDARD IS NOT APPLICABLE THE LEARNED RESPONDENT ALSO HAD A MISPLACED RELIANCE ON SECTIO N 43(1) OF THE ACT READ WITH EXPLANATION 8. HE FAILED TO REALIZE THAT SECTION 43(1) THAT DEFINES ACTUAL COST, IS IN THE CONTEXT OF FIXED ASSETS. LASTLY, WE WOULD LIKE TO REFER TO CIT(A) ORDER FOR AY 2012 - 2013& AY 2013 - 14, WHEREIN THE ID.CIT(A) HAS SET A SIDE THE ORDER OF AO AFTER 2013 - 2014, WHEREIN THE LD. CIT(A) HAS SET ASIDE THE ORDER OF AO AFTER PERUSING OUR SIMILAR SUBMISSIONS MADE IN THAT YEAR AND HELD THE FOLLOWING: SECTION 43A IS SPELT ABOUT ONLY CAPITAL ASSET IND - AS HAS GIVEN SPECIFIC EXCLUSI ON FOR THE ENTIRE MANUFACTURING OR PRODUCING IN LARGE QUANTITY ON A REPETITIVE BASIS FOR THE PURPOSE OF VALUING THE CLOSING STOCK. PRESS RELEASE OF MINISTRY OF CORPORATE AFFAIRS ON 02/01/2015, WHICH IS RELIED BY AO, IS APPLICABLE WITH EFFECT FROM 01/04 /2016. ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 12 OF 15 IN VIEW OF THE DETAILED SUBMISSIONS BROUGHT OUT ABOVE AND CIT(A) ORDER FOR AY 2012 - 2013 & 2013 - 2014. IT MAY PLEASE BY NOTED THE DISALLOWANCE MADE BY AO ITSELF IS OUT CONTEXT, AND HENCE IT IS NOT A FIT CASE FOR NOTICE U/S.263. FROM THE ABOVE FACTS AND LEGAL OPINION, IT IS EVIDENT THAT: 1. THE SHOW CAUSE NOTICE DATED 24/07/2017 HAS BEEN ISSUED WITHOUT JURISDICTION U/S.263 OF THE I.T.ACT. 1961 IN AS MUCH AS THERE IS NOTHING ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE WHICH HAS BEEN POINTED OU T IN THE SHOW CAUSE NOTICE. THE SHOW CAUSE NOTICE IS THEREFORE LIABLE TO BE SET ASIDE. 2. IN THE ORIGINAL ASSESSMENT ORDER ALL THE DETAILS WERE FURNISHED BEFORE THE AO AND HENCE THERE WAS NOT LACK OF ENQUIRY ON THE PART OF THE AO WHILE PASSING THE ORIGINA L ASSESSMENT ORDER, THEREFORE, THE ASSUMPTION OF THE JURISDICTION U/S.263 IS NOT JUSTIFIED AND WARRANTED. 3. AT THE TIME OF THE ORIGINAL ASSESSMENT THE AO HAD APPLIED HIS MIND TO THE CASE AND ALLOWED THE RELEVANT DEDUCTIONS TO THE ASSESSEE AND THEREFORE, MERELY ON A CHANGE / DIFFERENCE OF OPINION THE JURISDICTION ASSUMED U/S.263 OF THE ACT CANNOT BE INVOKED ON AN ISSUE WHICH IS DEBATABLE AND ON WHICH THERE ARE TWO VIEWS POSSIBLE, AS IS IN THE PRESENT FACTS OF THE PREPOSITION CASE. THE ASSESSEE RELIES UPON THE FOLLOWING CASE LAWS FOR THE ABOVE PREPOSITION: A. CIT VS. MAX INDIA LTD.(2007)295 ITR 282(SC) B. MALABAR INDUSTRIAL CO.LTD. VS. CIT(2000) 243 ITR 83 (SC) C. CIT VS. VIKAS POLYMERS (2010) 341 ITR 537 IN VIEW OF THE ABOVE, WE SUBMIT THAT THE PROPOSED ACTION U/S263 IS WARRANTED . 5. LEARNED PCIT REPRODUCED THE ABOVE SUBMISSIONS IN THE IMPUGNED REVISION ORDER, AND ADDED, BY WAY OF A RATHER CRYPTIC OP ERATIVE PORTION OF THE IMPUGNED ORDER - SIMPLY ANNOUNCING HIS CONCLUSIONS RATHER THAN GIVING ANY REASONS IN SUPPORT OF HIS CONCLUSIONS, AS FOLLOWS: 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND HAVE ALSO GONE THROUGH THE FACTS OF THE CASE AND DONOT FIND ANY FORCE IN THE SUBMISSIONS BY ASSESSEES REPRESENTATIVE FOR THE FOLLOWING REASONS: (A) ON ISSUE OF ALLOWANCE OF LOSS ON SALE OF CURRENT INVESTMENTS AS BUSINESS EXPENDITURE, THE AO IS TO FOLLOW EARLIER YEARS ORDER IN THIS ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 13 OF 15 RESPECT AS ACTION OF THE AO BY ALLOWING LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE IS ERRONEOUS. (B) LIKEWISE, THE ISSUE OF EXCESS ALLOWANCE OF DEDUCT ION ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION NEEDS DETAILED RE - EXAMINATION. 5. IN THE LIGHT OF THE DISCUSSIONS IN THE PRECEDING PARA, I AM OF THE OPINION THAT ORDER PASSED ON 07/03.2016 UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2013 - 14 IS ERRONEOUS I NSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENCE, THE SAID ORDER IS SET ASIDE UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 TO BE DONE AFRESH DE NOVO. THE AO WILL PASS AN ORDER INN ACCORDANCE WITH THE STATUTORY PROVISIONS AS WELL AS CASE L AW APPLICABLE TO THE CLAIM MADE BY THE ASSESSEE. THE AO SHALL GIVE THE ASSESSEE SUFFICIENT OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER. 6. THE ASSESSEE IS AGGRIEVED OF THE ORDER SO PASSED BY THE LEARNED PCIT, AND IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION . 8. WE FIND THAT WHILE THE LEARNED PCIT HAS REPRODUCED THE SUBMISSIONS MADE BY THE ASSESSEE, HE HAS NOT EVEN GO NE THROUGH THE MOTION OF DEALING WITH THE SAME. AS CAN BE SEEN IN A VERY CRYPTIC OPERATIVE PORTION OF THE ORDER, AS REPRODUCED ABOVE, HE HAS SIMPLY ANNOUNCED THAT ON ISSUE OF ALLOWANCE OF LOSS ON SALE OF CURRENT INVESTMENTS AS BUSINESS EXPENDITURE, THE AO IS TO FOLLOW EARLIER YEARS ORDER IN THIS RESPECT AS ACTION OF THE AO BY ALLOWING LOSS ON SALE OF OIL BONDS AS BUSINESS EXPENDITURE IS ERRONEOUS BUT THEN THERE IS NOT EVEN WHISPER OF A SUGGESTION AS TO WHY THE OIL BONDS, HAVING BEEN RECEIVED AS COMPENSAT ION FOR SELLING THE PRODUCTS BELOW COST PRICE, SHOULD NOT BE TREATED AS BUSINESS REVENUE IN NATURE, AND CORRESPONDINGLY THE LOSS ON SALE OF SUCH SHARES NOT BE TREATED AS IN THE NATURE OF A BUSINESS LOSS. THE LARGE NUMBER OF JUDICIAL PRECEDENTS CITED BY TH E ASSESSEE HAVE SIMPLY BEEN IGNORED , AS IS THE TREATMENT GIVEN BY THE ASSESSING OFFICER HIMSELF IN SEVERAL OTHER SUBSEQUENT ASSESSMENT YEARS. IT IS WELL SETTLED IN LAW, IN THE CASE OF MALABAR INDUSTRIAL CO LTD VS CIT [(2000) 243 ITR 83 (SC)] , THAT EVERY L OSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 14 OF 15 PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE T WO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE . THE PCIT OUGHT TO HAVE AT LEAST SHOWN AS TO HOW THE VIEW TAKEN BY THE ASSESSING OFFICER HIMSELF IN OTHER YEARS, AND A VIEW CANVASSED BY THE ASSESSEE ON THE STRENGTH OF HIS REASONING AND JUDICIAL PRECEDENTS, IS NOT A COURSE PERMISSIBLE IN LAW. THE PCIT DOE S NOTHING AT ALL, EXCEPT FOR ANNOUNCING THAT THE ACTION OF THE ASSESSING OFFICER, IN ALLOWING THE LOSS, IS ERRONEOUS. THIS APPROACH OF THE PCIT IS WHOLLY UNSUSTAINABLE IN LAW, AND BEYOND THE SCHEME OF SECTION 263 OF THE ACT. IN ANY CASE, THIS ISSUE IS DECI DED IN FAVOUR OF THE ASSESSEE BY A COORDINATE BENCH OF THIS TRIBUNAL, IN ASSESEES OWN CASE, FOR THE ASSESSMENT YEAR 2006 - 07. ON THE ISSUE OF DEDUCTION ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION, LEARNED PCIT SIMPLY STATES THAT LIKEWISE, THE ISSUE OF EX CESS ALLOWANCE OF DEDUCTION ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION NEEDS DETAILED RE - EXAMINATION BUT THEN WHAT MAKES HIM THINK THAT HE CAN DO SO IN EXERCISE OF HIS POWERS UNDER SECTION 263. UNDOUBTEDLY, WHEN AN ASSESSING OFFICER REMAINS PASSIVE ON THE FACTS WHICH CALL FOR FURTHER EXAMINATION, EVEN SUCH AN INERTIA CAN TRIGGER THE EXERCISE OF POWERS BY THE COMMISSIONER UNDER SECTION 263, BUT THEN THAT IS NOT EVEN THE CASE OF THE PRINCIPAL COMMISSIONER, AND, RIGHTLY SO, BECAUSE, AS RIGHTLY POINTED OUT BY THE ASSESSEE, THE MATTER HAS BEEN EXAMINED AT LENGTH AND THAT FACT IS INCORPORATED IN THE ASSESSMENT ORDER ITSELF. THAT CONTENTION REMAINS UNCONTROVERTED. LEARNED PCIT HAS NOT GIVEN ANY CATEGORICAL FINDINGS ABOUT INCORRECTNESS OF THE APPROACH ADOPTED BY TH E ASSESSING OFFICER, OR ABOUT THE LACK OF NECESSARY INQUIRIES BY THE ASSESSING OFFICER. IT IS NOT AT HI S UNFETTERED DISCRETION THAT , AT ANY POINT OF TIME, ANY ISSUE CAN BE SENT BACK TO THE ASSESSING OFFICER FOR, WHAT IS TERM ED AS, DETAILED RE - EXAM IN ATION. IT IS ONLY WHEN THE CONDITIONS PRECEDENT UNDER SECTION 263 FOR INVOKING THESE POWERS ARE SATISFIED, THAT THE COMMISSIONER CAN EXERCISE THESE POWERS. HE HAS TO SHOW AS TO HOW THE ORDER IS ERRONEOUS ON A POINT BEFORE HE CAN SEND IT FOR RE - EXAMINATION. THAT H AS NOT BEEN DONE AT ALL, AND THE IMPUGNED ORDER HAS BEEN PASSED IN A VERY MECHANICAL AND STERO - TYPED MANNER . THATS UNACCEPTABLE . THE SOUL OF A JUDICIAL, OR QUASI - JUDICIAL, ORDER, IS IN ITS REASONING BECAUSE IT IS THIS REASONING WHICH IS EXAMINED AS THE M ATTER TRAVELS TO THE APPELLATE FORUM. IN THE ABSENCE OF THE REASONING SO SET OUT, THERE IS INDEED A PROBLEM IN TAKING A CALL ON THE CORRECTNESS OF THE COURSE ADOPTED IN THE ORDER APPELLATE AGAINST. THAT PRECISELY IS THE SITUATION BEFORE US, AND WE HAVE NO WAY TO DECIPHER AS TO ON WHAT BASIS DID THE COMMISSIONER COME TO THE CONCLUSION THAT HE DID. AS WE HAVE NOTED EARLIER, TH E IMPUGNED ORDER SIMPLY ITA NO. 2275/MUM/18 ASSESSMENT YEAR: 2014 - 15 PAGE 15 OF 15 CONTAINS THE CONCLUSIONS ARRIVED AT BY THE LEARNED PCIT, AND IT DOES NOT CONTAIN REASONING OF HIS CONCLUSION, BUT THE N IN THE ABSENCE OF SUCH A REASONING, THE IMPUGNED ORDER CANNOT MEET ANY JUDICIAL SCRUTINY . CLEARLY, THEREFORE, THE IMPUGNED REVISION ORDER IS DEVOID OF ANY LEGALLY SUSTAINABLE MERITS, AND HAS TO BE QUASHED. WE, THEREFORE, DEEM IT FIT AND PROPER TO QUASH THE IMPUGNED REVISION ORDER. ORDERED, ACCORDINGLY. 9. IN THE RESULT, THE APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT TODAY ON THE 2 ND DAY OF MARCH, 2020. SD/ - SD/ - RAM LAL NEGI PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) MUMBAI, DATED THE 2 ND DAY OF MARCH , 20 20 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI