Shantai Exim Ltd., Ahmedabad V. Deputy Commissioner of Income Tax, Circle-2(1)(2), Surat

ITA 274/SRT/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5791 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 11-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S T BIDARI
• Assessee Lawyers: RASESH SHAH
• Keywords: Business income; Depreciation; Opportunity of being heard; Principle of natural justice; Maximum Marginal Rate; Period of limitation; Speculation loss; Difference of opinion; Corroborative evidences; Assessment record; Change of opinion; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 40(b); 142(1); 80HHC; 115JB; 143(2); 113; 48; 2(A); 73(1); 73; 13; 119; 22; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM ./ITA NO.274/SRT/2018 ( [ [ / ASSESSMENT YEARS: (2013-14) (VIRTUAL COURT HEARING) SHANTAI EXIM LIMITED, C/O. KETAN H. SHAH, ADVOCATE, 903, SAPPHIRE COMPLEX, C.G. ROAD, NAVRANGPURA, AHMEDABAD. VS. THE DCIT, CIRCLE-2(1)(2), SURAT. ./ ./ PAN/GIR NO.: AAECM1115D (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI RASESH SHAH, CA REVENUE BY : SHRI S.T. BIDARI, CIT(DR) / DATE OF HEARING : 23/04/2021 /DATE OF PRONOUNCEMENT : 28/04/2021 / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 26.03.2018 PASSED BY THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX-2, SURAT, (LD PCIT), UNDER SECTION 263 OF THE INCOME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT). GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS. 1. THE LEARNED PR. CIT HAS ERRED IN EXERCISING JURISDICTION U/S.263 OF THE IT ACT. IT IS SAID THAT THE WHOLE PROCEEDINGS INITIATED IS ITSELF BAD IN LAW, VOID AB INITIO AND ILLEGAL SINCE THE ORDER EARLIER PASSED IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE, AND THEREFORE, THE ORDER PASSED U/S 263 DATED 26.03.2018 IS NULL AND VOID AND LIABLE TO BE QUASHED. 2. THE LEARNED PR. CIT HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ISSUE OF LOSS ON EXCHANGE RATE DIFFERENCE MENTIONED BY HIM IN PARA 5 OF THE ORDER HAS ALREADY BEEN TAKEN CARE BY THE ASSESSING OFFICER IN EARLIER PROCEEDINGS U/S 143(3), AND THEREFORE, IT IS AMOUNT TO CHANGE OF OPINION, AND THEREFORE, THIS ORDER IS LIABLE TO BE QUASHED ON THIS GROUND. 3.THE LEARNED PR. CIT HAS ALSO ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS DULY DISCHARGED THE ONUS AT THE TIME OF REGULAR ASSESSMENT BY PROVIDING VARIOUS DETAILS IN SUPPORT OF EXPORT RATE DIFFERENCE LOSS OF PAGE | 2 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D RS.7,31,67,312 AS WELL AS PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/-, AND THEREFORE, THE ISSUE HAS ALREADY BEEN ACCEPTED BY APPLICATION OF MIND, AND THEREFORE, THERE IS NO QUESTION OF ORDER TERMED AS 'ERRONEOUS', AND THEREFORE, PREJUDICIAL TO THE INTEREST OF REVENUE. 4.EVEN ON MERITS, THE PR. CIT OUGHT NOT TO HAVE HELD ERRONEOUS ORDER AS PER THE OBJECTIONS RAISED BEFORE HIM IN A SUBMISSION DATED 19.02.2018 ALONG WITH THE ENCLOSURES MENTIONED THEREIN, AND THEREFORE, HE OUGHT NOT TO HAVE GIVEN DIRECTION TO THE ASSESSING OFFICER TO REFRAME THE ASSESSMENT ON MERITS, AND THEREFORE, THE PRESENT ORDER PASSED BY HIM IS ERRONEOUS AND LIABLE TO BE QUASHED. 5.THE LEARNED PR. CIT HAS ALSO ERRED IN NOT PASSING SPEAKING ORDER IN REFERENCE TO SUBMISSION DATED 19.02.2018 ALONG WITH PAPER BOOK PAGE 1 TO 190, AND THEREFORE, ERRED IN PASSING CRYPTIC ORDER AND EVEN ON MERITS, THERE IS NO JUSTIFICATION TO GIVE DIRECTION TO THE ASSESSING OFFICER BASED ON THIS SUBMISSION, AND THEREFORE, THE ORDER PASSED MAY PLEASE BE CANCELLED. THE APPELLANT CRAVES LEAVE TO ADD/DELETE/ALTER AND/OR AMEND ANY OF GROUNDS AS AFORESAID AS AND WHEN NECESSARY. 2. ALTHOUGH IN THIS APPEAL, THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, AS REPRODUCED BY US ABOVE, HOWEVER, AT THE TIME OF HEARING THE SOLITARY GRIEVANCE OF THE ASSESSEE HAS BEEN CONFINED TO THE ISSUE THAT SINCE THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT, DATED 31.03.2016, IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE, THEREFORE, LD LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX (LD PCIT), HAS ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE INCOME TAX ACT 1961. 3. SUCCINET FACTS OF THE ISSUE ARE AS FOLLOWS: BEFORE US, ASSESSEE IS A LIMITED COMPANY AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 30.9.2013, DECLARING TOTAL INCOME TO THE TUNE OF RS. 1,41,70,520/-. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING, MANUFACTURING AND EXPORT- IMPORT OF FABRICS. ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS FRAMED BY DCIT CIR.2(1)(2) ON 31.3.2016, (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER) DETERMINING TOTAL INCOME AT RS. 1,49,97,540/- BY MAKING CERTAIN ADDITIONS/DIS ALLOWANCE. 4. THEREAFTER, LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX (LD PCIT), HAS EXERCISED HIS JURISDICTION UNDER SECTION 263 OF THE INCOME TAX ACT 1961. PAGE | 3 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D THE LD PCIT HAD EXAMINED THE BALANCE SHEET, PROFIT AND LOSS ACCOUNT, 3CD REPORT AND COMPUTATION OF INCOME OF THE ASSESSEE COMPANY AND OBSERVED THAT ASSESSEE COMPANY HAS SHOWN NET PROFIT FROM SPECULATIVE BUSINESS OF RS.1,31,80,948/- UNDER THE SUB HEAD 'OTHER NON-OPERATING INCOME' UNDER THE HEAD 'OTHER INCOMES' OF PROFIT AND LOSS ACCOUNT. IT WAS NOTICED BY HIM THAT THE ASSESSEE COMPANY HAD SHOWN LOSS ON ACCOUNT OF EXCHANGE RATE DIFFERENCE ON EXPORT OF RS.7,31,67,312/- UNDER THE HEAD 'OTHER OPERATING REVENUE' AS NEGATIVE FIGURE. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAD TOTAL EXPORT SALE OF RS.140,46,80,780/- DURING THE YEAR. IT WAS ALSO NOTICED FROM DAILY EXCHANGE RATE OF RESERVE BANK OF INDIA (RBI) FOR FINANCIAL YEAR 2012-13 THAT THERE WAS NEAR STEADY INCREASE IN VALUE OF US DOLLAR AGAINST INDIAN RUPEE DURING THAT PERIOD. (EXCHANGE RATE WAS RS.50.56 AS ON 03.04.2012 AND RS.54.38 AS ON 28.03.2013). BARRING FEW BRIEF PERIODS, VALUE OF US DOLLAR AGAINST INDIAN RUPEE HAS ALWAYS INCREASED. AS EXPORT PROCEEDS ARE ALWAYS REALIZED AFTER BOOKING OF EXPORT SALES, THERE IS NO POSSIBILITY THAT THE ASSESSEE HAD LOST NEARLY 5.21 PERCENT OF ITS EXPORT EARNING AS FOREIGN EXCHANGE LOSS ON EXPORT. THIS CLEARLY INDICATED THAT THE ASSESSEE HAD SHOWN PROFIT ON FORWARD CURRENCY DEALING AS EARNING FROM PROFIT AS SPECULATIVE BUSINESS WHEREAS LOSS ON SUCH BUSINESS HAS BEEN DOVETAILED ON ACCOUNT OF EXCHANGE RATE DIFFERENCE ON EXPORT TREATED AS BUSINESS LOSS. THUS, THERE WAS NET SPECULATION LOSS OF RS.5,99,86,364 ( RS.7,31,67,312 - RS.1,31,80,948) WHICH SHOULD NOT BE ADJUSTED AGAINST BUSINESS INCOME OF ASSESSEE U/S 73(1) OF THE ACT. 5. AFTER CONSIDERING THE ABOVE FACTS, THE LD PCIT HAS ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON 07.02.2018. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED WRITTEN SUBMISSIONS BEFORE THE LD PCIT, WHICH ARE REPRODUCED AS UNDER:- '2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS SUBMITTED ALL THE REQUIRED DETAILS AS ASKED FOR VIDE LETTER DATED 22.01.2016 FILED IN INWARD, WHEREIN THE COMPLETE DETAILS OF SPECULATION PROFIT IS ENCLOSED AS PER PAGE NO.2 TO 20. REGARDING ADVANCE FROM CUSTOMERS, THE DETAILED NAME AND ADDRESS HAS ALREADY BEEN PLACED ON RECORD. FURTHER, THE DETAILS OF DEBTORS RELATED TO CURRENCY I.E. 1TI FINANCIAL SERVICES LTD. AND KUNVERJI FINSTOCK PVT. LTD. ARE ALSO PLACED ON RECORD. PAGE | 4 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 3. ON GOING THROUGH COMPUTATION OF INCOME, IT IS FOUND THAT THE ASSESSEE HAS INCOME FROM BUSINESS AND PROFESSION OF RS.42,98,882/- AND THE SPECULATION BUSINESS INCOME AFTER DEPRECIATION IS WORKED OUT AT RS.98,18,896/- MAKING TOTAL OF RS.1,41,17,778/-. COPY OF PROFIT AND LOSS ACCOUNT HAS BEEN DULY AUDITED, WHEREIN THERE IS OTHER INCOME OF RS.3,99,54,081/- I.E. AS PER NOTE NO. 18 AND AS PER NOTE NO. 18, THERE IS NET PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/- AND THERE IS NOTE NO. 17 TO PROFIT AND LOSS ACCOUNT, WHEREIN THERE IS EXPORT INCENTIVE, NET RS.8,17,71,303/- AFTER ADJUSTING LOSS ON ACCOUNT OF EXCHANGE RATE DIFFERENCE ON EXPORT OF RS.7,31,67,312/-. SIMILAR LOSS OF SIMILAR NATURE WAS INCURRED IN F.Y.2011-12 OF RS.4,11,55,915/-. THE COMPLETE DETAILS IN REFERENCE TO LOSS OF RS.7,31,67,312/- IS ENCLOSED HEREWITH ALONG WITH EXPLANATORY NOTE REGARDING REASON OF SUCH EXCHANGE RATE DIFFERENCE LOSS. THIS LOSS HAS BEEN INCURRED GENUINELY AND SUPPORTED BY EVIDENCES AND ALSO AS PER RBI GUIDELINES. HOWEVER, NECESSARY NOTES IN REFERENCE TO REASON AND MODUS OPERANDI TO INCUR SUCH LOSS IS AS PER ANNEXURE-A ATTACHED HEREWITH. 4.THAT, THERE WAS NET PROFIT OF SPECULATION BUSINESS OF RS.1,31,80,948/-, THE DETAILS OF WHICH AREA ALREADY ON RECORD. HOWEVER, COPY OF ACCOUNT OF THE SAME IS ENCLOSED HEREWITH ALONG WITH SUPPORTING EVIDENCES REGARDING LOSS AS PER 1TI FINANCIAL SERVICES LTD. OF RS. 13,44,158/- ATTACHED HEREWITH. ON GOING THROUGH THE ACCOUNT, IT IS FOUND THAT THERE WAS NET GAIN FROM KUNVERJI FINSTOCK PVT. LTD. OF RS.1,45,25,106/- AND COPY OF EVIDENCES I.E. ACCOUNT, CONTRA ACCOUNT OF KUNVERJI FINSTOCK PVT. LTD. AS WELL AS ITI FINANCIAL SERVICES PVT. LTD. ARE ATTACHED HEREWITH AS PER PAGE NO.79 TO 90 WITH SUPPORTING EVIDENCES AS PER PAGE NO. 91 TO 108. THEREFORE, ALL THE DETAILS HAD ALREADY BEEN PLACED ON RECORD AND THEREAFTER THERE IS PROFIT OF RS.13,80,948/- AND EXCHANGE RATE DIFFERENCE LOSS OF RS.7,31,67,312/- AS REDUCED FROM EXPORT INCENTIVES AND DETAILS OF THESE WERE ALSO PLACED ON RECORD DURING THE COURSE OF EARLIER ASSESSMENT PROCEEDINGS AND THEREAFTER, AFTER APPLICATION OF MIND, ORDER U/S 143(3) HAS BEEN PASSED. 5. IN PARA 2 OF YOUR NOTICE DATED 07.02.2018, YOU HAVE SAID THAT THERE WAS FLUCTUATION OF EXCHANGE RATE ON 03.04.2012 AND 28.03.2013. HOWEVER, IN THIS CONNECTION, WE SAY THAT DURING F.Y.2012-13, THERE WAS ADMITTEDLY HIGH FLUCTUATION IN DOLLAR RATE COMPARED TO INDIAN RUPEE. HOWEVER, THERE IS NO EVIDENCE THAT THE ASSESSEE HAS ARTIFICIALLY TAKEN PRICE OR HAS MANIPULATED THE LOSSES IN REFERENCE TO FOREIGN EXCHANGE FLUCTUATION RATE DIFFERENCE. THE PROOF OF RATE DIFFERENCE OF RS.7,31,67,312/- IS ALSO PLACED ON RECORD AS PER PAGE NO.02 TO 28 ALONG WITH EVIDENCES AS PER PAGE NO. 29 TO 78 AND REASON FOR LOSS IS AS PER ANNEXURE-A AND PAGE NO.0L. THE DETAILS OF EXPORT PROCEEDS REALIZED HAS ALREADY BEEN ENCLOSED EARLIER. HOWEVER, THE DETAILS ARE AGAIN PLACED ON RECORD IN REFERENCE TO EXPORT SALES OF RS139,36,83,214/- AND GREY CLOTH EXPORT SALES OF RS.1,09,97,566/- MAKING TOTAL OF RS.140,48,80,780/-. THEREFORE, THERE IS NO REASON TO SUSPECT THAT THE ASSESSEE HAS NOT INCURRED LOSS OF RS. 7.31 CRORE. [A] AS REGARDS TRANSACTION WITH ITI FINANCIAL SERVICES LTD AND KUNVARJEE FINSTOCK PVT. LTD. FOR NET PROFIT OF RS.1,31,80,948/-LOSS: [I] THAT WE HAVE CARRIED OUT TRANSACTION IN REFERENCE TO TRADING IN FUTURE CURRENCY I.E. USD/INR. DURING THE YEAR WE HAVE PAID THE AMOUNT OF RS. PAGE | 5 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 21,46,000/- AND HAVE RECEIVED RS.1,00,000/- AND THERE WAS CLOSING BALANCE AS ON 31/03/2013 TO OUR ACCOUNT IS RS. 7,01,841/- THEREFORE AT THE END OF F.Y. THERE WAS LOSS TO OUR ACCOUNT RS. 13,44,158/-, THERE IS VALID CONTRACT NOTE/VOUCHERS TO EACH TRANSACTION ENTERED INTO THROUGH ITI FINANCIALS SERVICES LTD. ALL THESE TRANSACTIONS ARE REGULATED AND MONITORED BY BSE/NSE/MCX. AT THE TIME OF SCRUTINY ASSESSMENT FINALIZED U/S. 143(3), THE CONCERNED ASSESSING OFFICER HAS GONE THROUGH THE GENUINENESS OF THIS ACCOUNT AND THEREFORE ASKED US TO FILE CONTRA ACCOUNT/ CONFIRMATION OF ITI FINANCIALS SERVICES LTD. WHICH WAS FILED BEFORE HIM AND NOW PLACED AT PG. NO. 91 TO 92 AND COMPLETE ACCOUNT OF SPECULATION BUSINESS PROFIT/LOSS AGAIN ENCLOSED AT PG. NO. 79. [II] THERE WAS SIMILAR TRANSACTION ENTERED INTO WITH KUNVARJI FINSTOCK PVT. LTD. HOWEVER, THERE WAS NET GAIN OF RS.1,45,25,106/- AND THEREFORE THE NET RESULT OF THIS TRANSACTION IS RS.1,31,80,948/- AS PROFIT. IT IS FURTHER SAID THAT THE ASSESSING OFFICER HAS ALSO ASKED TO VERIFY THE TRANSACTION WITH KUNVARJI FINSTOCK PVT. LTD. AND FOR THIS PURPOSE WE HAVE FILED ACCOUNT CONFIRMATION FOR HIM AND NOW ENCLOSED AT PG. NO. 93 TO 108. THE COMPLETE SET OF VOUCHERS AND BOOKS OF ACCOUNTS WERE ALSO PRODUCED BEFORE HIM. [III] FURTHER, THE ASSESSEE HAS SUBMITTED A REPLY DATED 22/01/2016, IN TAPAL TO THE ASSESSING OFFICER WHEREIN, AS PER PG. NO. 2 TO 20, SPECULATION PROFIT DETAILS, DETAILS OF DEBTORS RELATED TO THE CURRENCY I.E. IN REFERENCE TO ITI FINANCIALS SERVICES LTD. AND KUNVARJEE FINSTOCK PVT. LTD. WERE ALSO PLACED ON RECORD HEREWITH. [IV]THERE ARE TOTAL 5 BOX FILES PLACED ON RECORD BEFORE ASSESSING OFFICER WHICH CONTAINS ALL VOUCHERS, INVOICES AS ASKED FOR FROM TIME TO TIME IN REFERENCE TO HIS NOTICES U/S 142(1), THERE ARE APPROXIMATELY 1500 PAGES PLACED ON RECORD ALONG WITH ANNEXURE A TO F FILED WIDE SUBMISSION DATED 26/06/2015, 30/11/2015. [B]AS REGARDS TRANSACTIONS IN REFERENCE TO EXPORT INCENTIVE/ LOSS OF EXCHANGE RATE DIFFERENCE ON EXPORT: [I]NOW ATTENTION DRAWN TO P&L ACCOUNT FOR THE YEAR ENDED ON 31/03/2013 ENCLOSED HEREWITH AT PG. NO. 110. THERE IS REVENUE FROM OPERATIONS OF RS.1,67,71,03,771/- WHICH IS AS PER NOTE NO. 17 THERETO. THE COPY OF NOTE NO.17 IS AS PER PG. NO. 109 WHEREIN THERE IS LOSS ON ACCOUNT OF EXCHANGE RATE DIFFERENCE WORTH OF RS.7,31,67,312/- IN F.Y. 2012-13 AS AGAINST IN F.Y. 2011-12 THERE WAS PROFIT OF SIMILAR NATURE OF RS.4,11,55,915/- WHICH HAS BEEN TAXED AS BUSINESS INCOME/ OPERATING REVENUE AS EXPORT INCENTIVES. THE ORDER FOR A.Y. 2012-13 WAS ALSO PASSED DATED 30/03/2015 BY DEPUTY CIT CIRCLE 2(1)(2) SURAT NAMELY JYOTI SHAH VIDE DC NO. 96/21/2014-45. EVEN IN F.Y. 2010- 11 THERE WAS SIMILAR PROFIT OF EXPORT EXCHANGE RATE DIFFERENCE OF RS.20,91,435/-. [II] THE COPY OF BANK ADVICE AS WELL AS SHIPPING BILLS IN SUPPORT OF FOREIGN EXCHANGE RATE DIFFERENCE WERE ALSO FILED BEFORE ASSESSING OFFICER. HOWEVER ITS VERY VOLUMINOUS IN A BOX FILES AND THEREFORE SAMPLE COPY OF THE SAME IS ENCLOSED HEREWITH WITH TABULARIZED CHART AT PG. NO. 01 TO 78 PG. NO. 01 IS IN REFERENCE TO TABULARIZED CHART ON SAMPLE INVOICE. THIS SAMPLE CHART PLACE ON PAGE | 6 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D RECORD TO PROVE THAT THERE WAS DEVALUATION IN RUPEE AT THE TIME OF EXPORT IN COMPARE TO PAYMENT RECEIVED. [III]THE PG. NO. 2 UPTO 28 IS THE COPY OF LEDGER ACCOUNT OF EXCHANGE RATE DIFFERENCE WHEREIN THERE IS PROFIT OF RS.1,73,29,674/- AS AGAINST LOSS OF RS. 9,04,96,986/- AND NET LOSS OF RS.7,31,67,312/- IN EVERY SHIPPING BILLS THERE IS VERIFICATION MADE BY CUSTOM PREVENTIVE OFFICER, AS CAN BE VERIFIABLE FROM PG. 35, 40, 46, 51. THE COPY OF BANK ADVICE IS AT PG. NO. 35 TO 78 ON SAMPLE BASIS. HOWEVER, WE ARE READY TO PRODUCE ALL THESE SUPPORTING EVIDENCE IN REFERENCE TO EACH AND EVERY TRANSACTION AS APPEARED IN A LEDGER ENCLOSED AT PG. NO. 02 TO 28. THE COPY OF INVOICE WISE DETAILS OF EXPORT RATE (RATE AS PER SHIPPING BILLS) AND BANK REALISE RATE (RATE AS PER BANK ADVICE) ARE AS PER PG. NO. 28(A) TO 28(AI). IN SUMMARY MANNERS WE HEREBY OBJECT THE PROCEEDINGS U/S 263 (I) THAT, THE ORDER PASSED EARLIER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE NOT SUBJECT TO REVISION. EVERY LOSS OF THE REVENUE AS CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE AS HELD IN GOKALDAS EXPORTS 333 ITR 214 KERALA. (II)THAT ALL THE REQUIRED DETAILS IN REFERENCE TO THE FOREIGN EXCHANGE FLUCTUATION LOSS HAS BEEN FILED BEFORE THE ASSESSING OFFICER AND THEREAFTER NO ADDITION HAS BEEN MADE. FURTHER THE AMOUNT OF 5,99,86,364/- IS REVENUE LOSS/BUSINESS LOSS AND NOT SPECULATION LOSS AS STATED BY YOU IN A NOTICE DATED 07/02/2018. THEREFORE, PROVISIONS OF SECTION 73(1) NOT APPLICABLE TO THE FACTS OF CASE. THE AO HAS TAKEN POSSIBLE VIEW AND THEREFORE REVISION IS NOT PERMISSIBLE AS HELD BY SUPREME COURT IN MALBAR INDUSTRIES 2431TR 83. GREEN WORLD CORPORATION 181 TAXMANN 111. (III)THERE IS DECISION OF SUPREME COURT IN CASE OF WOOD WORD GOVERNER, 312 ITR 254 IN FAVOR OF ASSESSEE AND MATTER IS ALREADY SETTLED, COPY IS AT PAGE NO. 148 TO 160 AND DELHI HIGH COURT AT PAGE NO.129 TO147 AND THEREFORE THE VIEW TAKEN BY THE AO IS IN CONSONANCE WITH THE DECISION OF SUPREME COURT AND THEREFORE CANNOT BE TERMED AS 'ERRONEOUS'. THERE IS DECISION OF AHMEDABAD ITAT IN CADILA HEALTH CARE PAGE NO. 113 TO 124 REGARDING EXCHANGE RATE FLUCTUATION AND GUJARAT HIGH COURT DECISION IN THE CASE OF INDIA GELATINE INDIA AT PG. NO. 125 TO 128 AND THEREFORE ASSESSING OFFICER HAS TAKEN POSSIBLE VIEW, HIS ORDER CANNOT BE TERMED AS ERRONEOUS AS HELD IN G.M. MITTAL 130 TAXMANN 67(SC). EVEN FOLLOWING TRIBUNAL DECISION IS NOT AN ERRONEOUS AS HELD IN 109 ITR 229 CALCUTTA RUSSEL PROPERTIES. (IV)IN OUR CASE IDENTICAL CLAIM HAS BEEN ACCEPTED IN REFERENCE TO FOREIGN EXCHANGE RATE DIFFERENCE AN EXPORT AND THAT DECISIONS HAS BECOME FINAL FOR ASSESSMENT YEAR 2011-12 AND ASSESSMENT YEAR 2012-13 AND THEREFORE THE ORDER FOR ASSESSMENT YEAR 2013-14 CANNOT BE TERMED AS ERRONEOUS AS HELD IN ESCORTS LTD.198 TAXMANN 324 (DELHI). (V) THE AMOUNT OF RS. 5.99 CRORES HAS GOT DIRECT NEXUS WITH THE EXPORT TURNOVER/ EXPORT REALISATION/ EXPORT SALES. IN REFERENCE TO SECTION 80HHC PAGE | 7 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D CLAIM, OUR SUPREME COURT AND GUJARAT HIGH COURT TAKEN CONSTANT VIEW THAT THE FOREIGN EXCHANGE FLUCTUATION PROFIT IS A INCOME DERIVED FROM EXPORT BUSINESS AND THEREFORE THE CLAIM U/S 80HHC HAS TO BE ALLOWED.' 6. THE LD PCIT HAS GONE THROUGH THE ABOVE WRITTEN SUBMISSIONS OF THE ASSESSEE AND OBSERVED THAT ON PAGE 8 OF WRITTEN SUBMISSION WHICH PERTAINED TO ANNEXURE-A, WHICH IS RELATED TO BILLS ISSUED AND PAYMENT RECEIVED DURING F.Y.2011-12. THE LD PCIT NOTICED THAT SAID DETAIL DOES NOT HELP THE ASSESSEE, AS DETAILS OF FINANCIAL YEAR 2011-12 WERE FURNISHED, WHICH ARE NOT RELEVANT FOR FINANCIAL YEAR 2012-13 UNDER CONSIDERATION. 7. THE ASSESSEE HAS SUBMITTED BEFORE LD PCIT, DATE-WISE, PARTY-WISE LIST OF FOREIGN EXCHANGE DIFFERENCE. THE LD PCIT HAS GONE THROUGH THE LIST AND MATCHED THE SAME WITH EXCHANGE RATE OF INDIAN RUPEE VS. DOLLAR IN FINANCIAL YEAR 2012-13', AS AVAILABLE ON THE WEBSITE OF RESERVE BANK OF INDIA (WWW.RBI.ORG.IN). THE LD PCIT NOTICED THAT AS PER RBI DATA AVERAGE RATE OF US DOLLAR WAS RS.54.40 AND YEAR END RATE WAS RS.54.38, AS AGAINST THESE FIGURES, THE ASSESSEE HAS CLAIMED EXCHANGE RATE DIFFERENCE AT AS LOW AS RS.44.88, 46.88, 45.41, 46.73 AND 47.07. THESE RATES QUOTED BY ASSESSEE ARE VERY LOW AS COMPARED TO RATES OF US DOLLAR DURING THE YEAR AND DULY AUTHENTICATED BY RBI DATA. HENCE, CREDIBILITY OF DATA CLAIMED BY ASSESSEE IN SUPPORT OF LOSS CLAIMED IS DOUBTFUL AND REQUIRES DEEP ANALYSIS BY THE ASSESSING OFFICER.THE LD PCIT HAD ALSO GONE THROUGH ONLINE DATA AVAILABLE ON INTERNET AS US DOLLAR TO INDIAN RUPEE EXCHANGE RATE- F.Y. 2012-13 HISTORICAL DATA CHART'. THE CHART IS AVAILABLE ONLINE TO SHOW RATE OF US DOLLAR ON ALL DATES DURING THE FINANCIAL YEAR 2012-13. THE ANALYSIS OF DATA REVEALS THAT THE ASSESSEE HAS NOT OFFERED TRUE FIGURES OF US DOLLAR WHILE COMPUTING EXPORT INCOME. AN EXAMPLE IS PLACED BELOW: SR. NO. DATE RATE OF US DOLLAR AS PER ONLINE DATA RATE OF US DOLLAR AS PER ASSESSEE SUBMISSION 1. 17.05.2012 54.38 52.25 2. 18.05.2012 54.49 52.25 3. 03.04.2012 50.65 47.45 4. 18.04.2012 51.71 47.27 5. 25.04.2012 52.46 45.89 PAGE | 8 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 6. 27.04.2012 52.46 47.29 7. 09.05.2012 52.46 47.42 8. 31.05.2012 56.08 47.65 THE LD PCIT NOTICED THAT WHEN AVERAGE RATE OF US DOLLAR IS RS.54.40 THROUGHOUT FINANCIAL YEAR 2012-13, THE ASSESSEE HAS TAKEN THE RATE AT RS.47.45 TO SUPPRESS PROFITS. COMPUTER GENERATED, INDIAN CUSTOMS SHIPPING BILLS FOR EXPORT, AS AVAILABLE ON RECORD SHOW DOLLAR RATE AT 55.15, 55.55, WHICH IS TRUE FIGURE AND MATCHED WITH RBI DATA ALSO. THE LD PCIT NOTICED THAT ASSESSEE HAD CLAIMED LOSS ON EXCHANGE RATE DIFFERENCE ON EXPORT AMOUNTING TO RS.7,31,67,312/- AND PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/-. THE NET LOSS OF RS.5,99,86,364/- (RS.7,31,67,312 -RS.1,31,80,948) SHOULD NOT BE ADJUSTED AGAINST BUSINESS INCOME AND NEED TO BE DISALLOWED. AS PER SECTION 73(1) OF THE INCOME TAX ACT, ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. 8. THE LD PCIT ALSO NOTED THAT IN ASSESSEE`S CASE, CLAUSE (A) AND (B) OF THE EXPLANATION 2 OF SECTION 263 OF THE INCOME TAX ACT, 1961 IS CLEARLY APPLICABLE SINCE NOWHERE IN THE ASSESSMENT RECORD, THERE IS EVIDENCE THAT NO QUERY/QUESTION REGARDING SPECULATION LOSS HAS BEEN ASKED BY THE ASSESSING OFFICER FROM THE ASSESSEE COMPANY DURING THE ENTIRE COURSE OF ASSESSMENT PROCEEDINGS. IN VIEW OF ABOVE FACTS AND OBSERVATIONS, THE LD PCIT HELD THAT ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER WITHOUT MAKING INQUIRIES OR VERIFICATION, WHICH OUGHT TO HAVE BEEN MADE IN THIS CASE, THEREFORE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2013-14 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 31.3.2016 BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, THEREFORE, LD PCIT SET-ASIDE THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT DATED 31.3.2016 FOR A.Y. 2013-14, WITH THE DIRECTION TO THE ASSESSING OFFICER, TO FRAME THE ASSESSMENT DE NOVO . PAGE | 9 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 9. AGGRIEVED BY THE ORDER OF LD PCIT UNDER SECTION 263 OF THE ACT, THE ASSESSEE IS IN APPEAL BEFORE US. 10. SHRI RASESH SHAH, LEARNED COUNSEL FOR THE ASSESSEE, BEGINS BY POINTING OUT THAT ASSESSEE HAS SUBMITTED EACH AND EVERY DETAIL ASKED BY THE ASSESSING OFFICER DURING THE ASSESSMENT STAGE. IN RESPONSE TO NOTICES U/S 143(2) AND 142(1), ASSESSEE'S ADVOCATE SHRI KETAN SHAH ATTENDED ON 26.06.2015 AND FILED REQUIRED DETAILS WHICH WERE KEPT ON RECORD. FURTHER, IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER ISSUED NOTICE U/S 142(1) ON 12.10.2015 REQUIRING ASSESSEE TO SUBMIT DETAILS ON CERTAIN POINTS. IN RESPONSE THERETO, ASSESSEE FILED THE BANK STATEMENT, THE DETAILS OF THE SALES EXCEEDING RS. 25 LAKHS ETC, VIDE LETTER DT. 30.11.2015. ALSO, IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER ORALLY ASKED THE ASSESSEE TO FILE DETAILS OF SPECULATION PROFIT, ADVANCE FROM CUSTOMERS AND OTHER DETAILS. ACCORDINGLY, ASSESSEE FILED THE DETAILS VIDE LETTER DATED 22.01.2016 WHICH HAS BEEN DULY ACKNOWLEDGED BY THE ASSESSING OFFICER. ON THE SAME DATE, ADVOCATE OF ASSESSEE PERSONALLY ATTENDED THE HEARING AND THE DETAILS FILED BY ASSESSEE WERE VERIFIED AS IT WAS SPECIFICALLY MENTIONED IN THE ORDER SHEET THAT THE CASE WAS DISCUSSED. THE EXCHANGE DIFFERENCE LOSS ON IMPORT AND EXPORT WERE RESULTED OUT OF THE CANCELLATION OF FORWARD EXCHANGE CONTRACT, THE ASSESSING OFFICER HAS REQUIRED THE DETAILS REGARDING SPECULATION PROFIT OF RS.1,31,80,948/- ONLY. ALTHOUGH, ASSESSING OFFICER HAS CONSIDERED THE DETAILS HE HAS NOT GIVEN ANY SPECIFIC FINDINGS IN THE ASSESSMENT ORDER. AS ASSESSEE IS DOING EXPORT ACTIVITY FOR LONG IN PAST ALSO, SUCH EXCHANGE RATE DIFFERENCE WAS NORMAL FEATURE OF PROFIT AND LOSS ACCOUNT. THEREAFTER, ASSESSEE'S ADVOCATE ALSO ATTENDED ON 23.03.2016 AND FILED SUBMISSION AND CASE WAS ALSO DISCUSSED. THE ASSESSEE HAS INCURRED EXCHANGE LOSS OF RS. 7,31,67,312/- BECAUSE ASSESSEE RECEIVED ADVANCE FROM CUSTOMERS BEFORE DATE OF EXPORT IN THE LAST YEAR AS WELL AS IN CURRENT YEAR. ASSESSEE HAD TO BEAR THE LOSS AS VALUE OF US DOLLAR INCREASED OVER THE PERIOD SINCE RECEIPTS OF THE REMITTANCE AND DATE OF EXPORT. IN MOST OF THE CASES OF THE REMITTANCE, ASSESSEE UTILIZED THE FORWARD EXCHANGE CONTRACT MADE IN THE LAST YEAR WHERE VALUE OF THE US$ WAS FIXED WHICH IS LOWER THAN THE VALUE OF US$ ON THE DATE OF ACTUAL REMITTANCE. ASSESSEE PAGE | 10 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D HAS NOT INCURRED LOSS ON ACCOUNT OF CANCELLATION OF FORWARD EXCHANGE CONTRACT BUT ON ACTUAL REMITTANCE RECEIVED ON UTILIZATION OF FORWARD EXCHANGE CONTRACT. THE FOREIGN EXCHANGE LOSS WAS COMPUTED AT THE TIME OF REMITTANCE OR DATE OF EXPORT WHICHEVER IS LATER BY DEDUCTING ACTUAL REMITTANCE FROM THE EXPORT VALUE. AS A MATTER OF CONSISTENCY THE ASSESSEE HAS ACCOUNTED THE EXPORT VALUE IN HIS BOOKS OF ACCOUNTS AS PER THE CUSTOM EXCHANGE RATE NOT AS PER RBI RATE AS IT IS NORMAL PRACTICE IN CASE OF ALL EXPORTERS. THIS IS BECAUSE THE CUSTOM DEPARTMENT NOTIFIES THE EXCHANGE RATE MONTHLY WHILE RBI RATES FLUCTUATE DAILY. IT IS ALWAYS PRACTICAL TO RECORD SALES VALUE AS PER CUSTOM RATE. EVEN IF THE RATES AS PER RBI DATA ARE TAKEN WHICH ARE HIGHER THAT RATE AS PER CUSTOMS AUTHORITY, IT IS REVENUE NEUTRAL AS ON ONE HAND SALES WOULD INCREASE AND ON OTHER HAND EXCHANGE LOSS WOULD INCREASE. THE REMITTANCE WAS ACCOUNTED IN BOOK OF ACCOUNTS AS PER THE BANK ADVICE BASED ON RBI RATE PREVAILING AT THE TIME OF REMITTANCE OR FIX RATE AS PER FORWARD EXCHANGE CONTRACT THAT WAS UTILIZED. THE REMITTANCE IS REFLECTED IN THE BANK STATEMENT FILED BEFORE ASSESSING OFFICER. THE ASSESSEE`S ACCOUNTANT USED WRONG NOMENCLATURE AS SPECULATION PROFIT OR LOSS, IN FACT, THE ASSESSEE COMPANY HAS NOT DONE ANY SPECULATION ACTIVITY, ALL EXCHANGE GAIN OR LOSS ARE RELATED TO ASSESSEE`S BUSINESS ONLY. THE ASSESSING OFFICER HAS MADE THE ENQUIRY REGARDING FOREIGN EXCHANGE PROFIT OR LOSS, THEREFORE IT IS NOT A CASE OF LACK OF ENQUIRY, HENCE ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE, HENCE ORDER OF LD PCIT MAY BE QUASHED. 11. ON THE OTHER HAND, LD CIT- DR FOR THE REVENUE SUBMITTED WRITTEN SUBMISSIONS BEFORE THE BENCH. THE IMPORTANT PART OF THE WRITTEN SUBMISSIONS IS REPRODUCED BELOW: THE LD. PR.CIT FOUND THAT THE ASSESSEE HAS SHOWN LOSS ON ACCOUNT OF EXCHANGE RATE DIFFERENCE ON EXPORT SALES TO THE TUNE OF RS.7,31,67,312/- UNDER THE HEAD 'OTHER OPERATING REVENUES' AS A NEGATIVE FIGURE. THE LD. PR.CIT OBSERVED THAT THIS BEING SPECULATION LOSS COULD NOT BE ADJUSTED AGAINST PROFIT FROM BUSINESS WITHIN THE MEANING OF SECTION 73 (1) OF THE ACT. THE LD. PR.CIT ISSUED SHOW CAUSE NOTICE, TO WHICH THE ASSESSEE FURNISHED EXPLANATION WHICH IS REFERRED TO IN THE IMPUGNED ORDER U/S 263. AFTER CONSIDERING THE SUBMISSION AND RELEVANT DETAILS, THE LD. PR.CIT IN PARA 4 OF THE IMPUGNED ORDER HAS POKED GAPING HOLES IN THE EXPLANATION OF THE ASSESSEE VIS-A-VIS THE DETAILS AND DOCUMENTARY EVIDENCES FILED IN SUPPORT OF THE SAME. THE LD. PR.CIT HAS DISCREDITED THE DETAILS FILED BEFORE HIM AND COMPREHENSIVELY REBUTTED THE PAGE | 11 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D EXPLANATION. THE LD. PR.CIT HAS POINTED OUT THE FALLACIES IN THE CLAIM OF LOSS BY THE ASSESSEE BASED ON EXCHANGE RATE. THE LD. PR.CIT HAS POINTED OUT THAT THE ASSESSEE HAS NOT CONSIDERED THE ACTUAL EXCHANGE RATES AVAILABLE ON THE WEBSITE OF RESERVE BANK OF INDIA. HENCE, THE LD. PR.CIT HAS CONCLUDED THAT THE ASSESSEE HAS NOT OFFERED THE TRUE FIGURES IN US DOLLAR WHILE COMPUTING EXPORT INCOME. BASED ON ALL THE ABOVE, THE LD. PR.CIT CONCLUDED AS UNDER: 5.THE ASSESSEE HAS CLAIMED LOSS ON EXCHANGE RATE DIFFERENCE ON EXPORT AMOUNTING TO RS.7,31,67,312/- AND PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/-. LOSS OF RS.5,99,86,364/- (RS.7,31,67,312/- - RS.1,31,80,948/-) SHOULD NOT BE ADJUSTED AGAINST BUSIES INCOME AND NEED TO BE DISALLOWED. AS PER SECTION 73(1) OF THE IT. ACT, ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. 6. IN THIS CASE, CLAUSE (A) & (B) OF THE EXPLANATION 2 OF SECTION 263 OF THE 1961 IS CLEARLY APPLICABLE SINCE NOWHERE IN THE ASSESSMENT RECORD, THERE IS EVIDENCE THAT NO QUERY /QUESTION REGARDING SPECULATION LOSS HAS BEEN ASKED BY THE A.O. FROM THE ASSESSEE COMPANY DURING THE ENTIRE COURSE OF ASSESSMENT PROCEEDINGS. 7. IN VIEW OF THE ABOVE FADS AND OBSERVATIONS, IT IS CLEAR THAT THE AO HAS PASSED THE ASSESSMENT ORDER WITHOUT MAKING INQUIRIES OR VERIFICATION, WHICH OUGHT TO BEEN MADE IN THIS CASE. BEFORE THE HON'BLE BENCH, THE LD. AR OF THE ASSESSEE WAS NOT ABLE TO DEMONSTRATE FROM RECORDS THAT THE LD. AO HAS MADE INQUIRIES REGARDING THE IMPUGNED LOSS. 6. CONCLUSION: THE PROVISIONS OF SECTION 263 OF THE ACT LAYS DOWN THAT IF THE PR.CIT OR CIT CONSIDERS THAT AN ORDER PASSED BY THE AUTHORITY UNDER THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE CAN EXERCISE JURISDICTION UNDER SECTION 263 OF THE ACT. WITHIN THE TERMS OF EXPLANATION 2, THE ORDER SHALL BE DEEMED TO BE ERRONEOUS 'IF IN OPINION OF PR.CIT OR CIT THE ORDER FALLS UNDER CLAUSES (A) TO (D). SO, ALL THAT IS REQUIRED IS FOR THE PR.CIT OR C1T TO FORM 'AN OPINION' THAT THE CASE FALLS IN ONE OR MORE CATEGORIES A) TO D). OPINION BY ITSELF IS BOUND TO BE SUBJECTIVE AND HENCE CANNOT BE SUBJECTED TO JUDICIAL SCRUTINY REGARDING ITS ADEQUACY OR CORRECTNESS AS LONG AS THERE IS A BASIS FOR ARRIVING AT THE SAME. IN THIS CASE, FROM THE ASSESSMENT RECORDS IT IS ESTABLISHED THAT THE FINDINGS GIVEN BY THE PR.CIT IN PARA 5, 6 & 7 OF IMPUGNED ORDER IS FACTUALLY CORRECT AND HENCE UNASSAILABLE. IT IS EVIDENT THAT ID. AO FAILED TO APPLY HIS MIND, FAILED TO MAKE NECESSARY VERIFICATIONS WHICH DOVETAILED INTO ALLOWING OF A CLAIM WITHOUT ENQUIRING INTO IT. THE LD. AR HAS NOT BEEN ABLE TO DEMONSTRATE OTHERWISE. MOREOVER AS PER JUDGMENTS DISCUSSED IN 5,4(3) ABOVE, MERE FACT THE NECESSARY INQUIRIES WAS NOT MADE, RENDERS THE ORDER ERRONEOUS AND THERE NEED NOT BE ANYTHING WRONG WITH THE ORDER PER SE. PAGE | 12 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D IN VIEW OF THE ABOVE, THERE IS NO MERIT IN THE APPEAL OF THE ASSESSE AND IT DESERVES TO BE DISMISSED. EVEN OTHERWISE, IT WOULD BE PRUDENT & JUDICIOUS TO ALLOW THE ISSUE TO BE EXAMINED BY THE LD. AO BY CONDUCTING NECESSARY INQUIRIES AND MAKE APPROPRIATE ASSESSMENT ORDER ON MERITS. THE ASSESSMENT ORDER CAN BE ASSAILED ON MERITS BY THE ASSESSEE IF IT IS AGGRIEVED & SUBJECTED TO APPELLATE SCRUTINY. HENCE, IT IS PRAYED THAT THE INSTANT APPEAL OF THE ASSESSEE AGAINST ORDER U/S 263 MAY BE DISMISSED. 12. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD PCIT AND OTHER MATERIALS BROUGHT ON RECORD. FIRST OF ALL, WE HAVE TO SEE WHETHER THE REQUISITE JURISDICTION NECESSARY TO ASSUME REVISIONAL JURISDICTION IS THERE EXISTING BEFORE THE PR. CIT TO EXERCISE HIS POWER. FOR THAT, WE HAVE TO EXAMINE AS TO WHETHER IN THE FIRST PLACE THE ORDER OF THE ASSESSING OFFICER FOUND FAULT BY THE PRINCIPAL CIT IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR THAT, LET US TAKE THE GUIDANCE OF JUDICIAL PRECEDENTS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIES LTD. VS. CIT [2000] 243 ITR 83(SC) WHEREIN THEIR LORDSHIP HAVE HELD THAT TWIN CONDITIONS NEEDS TO BE SATISFIED BEFORE EXERCISING REVISIONAL JURISDICTION U/S 263 OF THE ACT BY THE CIT. THE TWIN CONDITIONS ARE THAT THE ORDER OF THE ASSESSING OFFICER MUST BE ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE FOLLOWING CIRCUMSTANCES, THE ORDER OF THE AO CAN BE HELD TO BE ERRONEOUS ORDER, THAT IS (I) IF THE ASSESSING OFFICERS ORDER WAS PASSED ON INCORRECT ASSUMPTION OF FACT; OR (II) INCORRECT APPLICATION OF LAW; OR (III)ASSESSING OFFICERS ORDER IS IN VIOLATION OF THE PRINCIPLE OF NATURAL JUSTICE; OR (IV) IF THE ORDER IS PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND; (V) IF THE AO HAS NOT INVESTIGATED THE ISSUE BEFORE HIM; THEN THE ORDER PASSED BY THE ASSESSING OFFICER CAN BE TERMED AS ERRONEOUS ORDER. COMING NEXT TO THE SECOND LIMB, WHICH IS REQUIRED TO BE EXAMINED AS TO WHETHER THE ACTIONS OF THE AO CAN BE TERMED AS PREJUDICIAL TO THE INTEREST OF REVENUE. WHEN THIS ASPECT IS EXAMINED ONE HAS TO UNDERSTAND WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES (SUPRA) HELD THAT THIS PHRASE I.E. PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS TO BE READ IN PAGE | 13 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. THEIR LORDSHIP HELD THAT IT HAS TO BE REMEMBERED THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WHEN THE ASSESSING OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS TO THE REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 13. TAKING NOTE OF THE AFORESAID DICTUM OF LAW LAID DOWN BY THE HONBLE APEX COURT, LET US EXAMINE WHETHER IN ASSESSEE`S CASE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. WE NOTE THAT LD PCIT HAS EXERCISED HIS JURISDICTION UNDER SECTION 263 OF THE ACT ON ACCOUNT OF FOLLOWING ISSUES: (I). ASSESSEE SUBMITTED DETAILS OF BILLS ISSUED AND PAYMENT RECEIVED DURING FINANCIAL YEAR 2011-12, WHICH ARE NOT RELEVANT FOR FINANCIAL YEAR 2012-13 UNDER CONSIDERATION. (II).THE ISSUE RELATING TO EXCHANGE RATE OF INDIAN RUPEE VS. DOLLAR IN FINANCIAL YEAR 2012-13', THAT IS, LD PCIT NOTICED THAT AS PER RBI DATA AVERAGE RATE OF US DOLLAR WAS RS.54.40 AND YEAR END RATE WAS RS.54.38, AS AGAINST THESE FIGURES, THE ASSESSEE HAS CLAIMED EXCHANGE RATE DIFFERENCE AT AS LOW AS RS.44.88, 46.88, 45.41, 46.73 AND 47.07. THESE RATES QUOTED BY ASSESSEE ARE VERY LOW AS COMPARED TO RATES OF US DOLLAR DURING THE YEAR AND DULY AUTHENTICATED BY RBI DATA. HENCE, CREDIBILITY OF DATA CLAIMED BY ASSESSEE IN SUPPORT OF LOSS CLAIMED IS DOUBTFUL AND REQUIRES DEEP ANALYSIS BY THE ASSESSING OFFICER. THE ASSESSEE HAD CLAIMED LOSS ON EXCHANGE RATE DIFFERENCE ON EXPORT AMOUNTING TO RS.7,31,67,312/- AND PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/-. THE NET LOSS OF RS.5,99,86,364/- (RS.7,31,67,312 -RS.1,31,80,948) SHOULD NOT BE ADJUSTED AGAINST BUSINESS INCOME AND NEED TO BE DISALLOWED, AS PER SECTION 73(1) OF THE INCOME TAX ACT. PAGE | 14 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D (III). IN ASSESSEE`S CASE, CLAUSE (A) AND (B) OF THE EXPLANATION 2 OF SECTION 263 OF THE INCOME TAX ACT, 1961 IS APPLICABLE. NOW, WE SHALL EXAMINE THESE ISSUES ONE BY ONE TO UNDERSTAND WHETHER ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 14. ASSESSEE SUBMITTED DETAILS OF BILLS ISSUED AND PAYMENT RECEIVED DURING FINANCIAL YEAR 2011-12, WHICH ARE NOT RELEVANT FOR FINANCIAL YEAR 2012-13 UNDER CONSIDERATION. WE NOTE THAT BANK ADVICES FOR REMITTANCE OF EXPORT PROCEEDS, RELATE TO FINANCIAL YEAR 2012-13, WHICH IS PLACED AT PAPER BOOK PAGE NOS.91TO 96. SAMPLE COPY OF INVOICES, BILLS ISSUED, FOREIGN BILL TRANSACTION ADVICE FROM BANK, EXCHANGE CONTROL COPY FROM INDIAN CUSTOMS DEPARTMENT IN SUPPORT OF EXCHANGE RATE FLUCTUATION ALONGWITH FORM SDF UNDER FOREIGN EXCHANGE MANAGEMENT ACT SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ARE PLACED IN ASSESSEE`S PAPER BOOK PAGE NOS.40 TO 162, THESE ALL DOCUMENTS RELATE FINANCIAL YEAR 2012-13. THEREFORE, OBSERVATION OF LD PCIT THAT THESE BILLS AND OTHER DOCUMENTS RELATE TO FINANCIAL YEAR 2011-12, IS FACTUALLY NOT CORRECT. WE NOTED THAT ALL BILLS AND OTHER DOCUMENTS RELATE TO FINANCIAL YEAR 2012-13, RELEVANT TO ASSESSMENT YEAR 2013-14 UNDER CONSIDERATION, WHICH WERE SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THEREFORE, ASSESSMENT ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT DATED 31.3.2016 FRAMED BY THE ASSESSING OFFICER SHOULD NOT BE ERRONEOUS ON THIS COUNT. 15. THE ISSUE RELATING TO EXCHANGE RATE OF INDIAN RUPEE VS. DOLLAR IN FINANCIAL YEAR 2012-13', THAT IS, LD PCIT NOTICED THAT AS PER RBI DATA AVERAGE RATE OF US DOLLAR WAS RS.54.40 AND YEAR END RATE WAS RS.54.38, AS AGAINST THESE FIGURES, THE ASSESSEE HAS CLAIMED EXCHANGE RATE DIFFERENCE AT AS LOW AS RS.44.88, 46.88, 45.41, 46.73 AND 47.07. THESE RATES QUOTED BY ASSESSEE ARE VERY LOW AS COMPARED TO RATES OF US DOLLAR DURING THE YEAR AND DULY AUTHENTICATED BY RBI DATA. HENCE, CREDIBILITY OF DATA CLAIMED BY ASSESSEE IN SUPPORT OF LOSS CLAIMED IS DOUBTFUL AND REQUIRES DEEP ANALYSIS PAGE | 15 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D BY THE ASSESSING OFFICER. THE ASSESSEE HAD CLAIMED LOSS ON EXCHANGE RATE DIFFERENCE ON EXPORT AMOUNTING TO RS.7,31,67,312/- AND PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/-. THE NET LOSS OF RS.5,99,86,364/- (RS.7,31,67,312 -RS.1,31,80,948) SHOULD NOT BE ADJUSTED AGAINST BUSINESS INCOME AND NEED TO BE DISALLOWED, AS PER SECTION 73(1) OF THE INCOME TAX ACT. IN THIS REGARD, THE ASSESSEE SUBMITTED THE FOLLOWING DOCUMENTS AND EVIDENCES BEFORE THE ASSESSING OFFICER: (1).COPY OF EXCHANGE DIFFERENCE EXPORT LEDGER FINANCIAL YEAR 2012-13 (PAPER BOOK PAGE 1 TO 39) (2).BANK ADVICES FOR REMITTANCE OF EXPORT PROCEEDS, FOR FINANCIAL YEAR 2012-13, RELEVANT TO ASSESSMENT YEAR 2013-14, (PAPER BOOK PAGE NOS.91TO 96). SAMPLE COPY OF INVOICES, BILLS ISSUED, FOREIGN BILL TRANSACTION ADVICE FROM BANK, EXCHANGE CONTROL COPY FROM INDIAN CUSTOMS DEPARTMENT IN SUPPORT OF EXCHANGE RATE FLUCTUATION ALONG WITH FORM SDF UNDER FOREIGN EXCHANGE MANAGEMENT ACT ( VIDE PAPER BOOK PAGE NOS.40 TO 162). (3).AUDITED FINANCIAL STATEMENTS INCLUDING BALANCE SHEET, PROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 2013-14. (4).NOTIFICATION NO.38/2012 ISSUED BY CBIC RELATING TO EXCHANGE RATE (PAPER BOOK PAGE 97). (5).NOTIFICATION NO.26/2012 ISSUED BY CBIC RELATING TO EXCHANGE RATE (PAPER BOOK PAGE 98). (6).LIST OF EXPORT INVOICE WITH RATES, PAYMENT EXCHANGE LOSS ETC.( PAPER BOOK PAGE 1) (7).EXCHANGE RATE DIFFERENCE, EXPORT ACCOUNT FOR THE ASSESSMENT YEAR 2013-14, WHEREIN THERE IS PROFIT OF RS.1,73,29,674/- AND LOSS OF RS.9,04,96,986/- AND NET PAGE | 16 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D LOSS OF RS.7,31,67,312/- ( RS.9,04,96,986- RS.1,73,29,674), HAS BEEN SHOWN (VIDE PAPER BOOK PAGE 2 TO 28). (8).COPY OF EXPORT OUTSTANDING FOR THE ASSESSMENT YEAR 2013-14 (VIDE PAPER BOOK PAGE 28A TO 28AI). (9).CURRENCY CONVERSION DETAILS FROM BANK OF BARODA (VIDE PAPER BOOK PAGE 29 TO 34). (10).LEDGER OF SPECULATION BUSINESS PROFIT AND LOSS FOR ASSESSMENT YEAR 2013-14 (VIDE PAPER BOOK PAGE 79) (11) LEDGER ACCOUNT OF KANVARJI FINSTOCK FOR THE ASSESSMENT YEAR 2013-14 (VIDE PAPER BOOK PAGE 80 TO 89). (12)LEDGER ACCOUNT OF ITI FINANCIAL SERVICES FOR THE ASSESSMENT YEAR 2013- 14(VIDE PAPER BOOK PAGE 90) (13)ACCOUNT CONFIRMATION FROM ITA FINANCIAL SERVICES FOR ASSESSMENT YEAR 2013-14 (VIDE PAPER BOOK PAGE 91 TO 92). (14) STATEMENT FROM KUNVARJI FINSTOCK PVT. LTD FOR ASSESSMENT YEAR 2013-14 (VIDE PAPER BOOK PAGE 93 TO108) 16. LEARNED COUNSEL SUBMITS BEFORE THE BENCH THAT ASSESSEE HAD FURNISHED THESE PLETHORA DOCUMENTS AND EVIDENCES, AS NOTED ABOVE, DURING THE ASSESSMENT STAGE BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAD EXAMINED THESE DOCUMENTS AND EVIDENCES AND TOOK A POSSIBLE VIEW ON THE ISSUE RELATING TO EXCHANGE RATE OF INDIAN RUPEE VS. DOLLAR. THEREFORE, THE ISSUE RELATING TO FOREIGN EXCHANGE RATE, FOREIGN EXCHANGE LOSS AND FOREIGN EXCHANGE GAIN HAS BEEN EXAMINED BY THE ASSESSING OFFICER DURING THE ASSESSMENT STAGE. THE LD COUNSEL ALSO SUBMITS THAT ALL FOREIGN EXCHANGE GAIN OR LOSS ARE RELATED TO BUSINESS ACTIVITIES, JUST BECAUSE THE ASSESSEE HAS USED, BY MISTAKE, THE NOMENCLATURE SPECULATION PROFIT/LOSS IN BOOKS OF ACCOUNT DOES NOT MEAN THAT BUSINESS RELATED PROFIT/LOSS BECOMES SPECULATION. WHATEVER THE PROFIT OR LOSS PAGE | 17 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D EARNED BY THE ASSESSEE, RELATE TO ITS BUSINESS ACTIVITIES AND THEREFORE ASSESSEE HAS RIGHT TO SET OFF THESE LOSSES WITH THE BUSINESS PROFIT. 17. IN RESPONSE TO NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTION 142(1) OF THE ACT, THE ASSESSEE SUBMITTED ITS REPLY BEFORE THE ASSESSING OFFICER, VIDE ASSESSEE`S LETTER DATED 22.01.2016, FILED BEFORE THE ASSESSING OFFICER WHEREIN THE ISSUE RELATING TO FOREIGN EXCHANGE RATE, SPECULATION PROFIT AND LOSS ETC, HAS BEEN EXAMINED BY THE ASSESSING OFFICER (VIDE PAPER BOOK PAGE 111 TO112). THE ASSESSEE ALSO SUBMITTED SOME DOCUMENTS RELATING TO EXCHANGE RATE IN RESPONSE TO QUERY RAISED DURING THE COURSE OF HEARING WHICH WERE NOT SPECIALLY MENTIONED IN NOTICE ISSUES UNDER SECTION 142(1) OF THE ACT. THUS, IT IS ABUNDANTLY CLEAR THAT DURING THE ASSESSMENT STAGE, THE ASSESSING OFFICER PUT THE QUERY BEFORE THE ASSESSEE ABOUT FOREIGN EXCHANGE RATE, SPECULATION PROFIT AND LOSS ETC, AND ASSESSEE REPLIED TO THE ASSESSING OFFICER WITH DOCUMENTARY EVIDENCES, THEREFORE IT IS NOT A CASE OF LACK OF INQUIRY. HENCE, SPECIFIC QUESTION WAS RAISED DURING THE ASSESSMENT STAGE AND THERE IS INQUIRY DURING THE ASSESSMENT STAGE AND THE SAID ISSUE HAS BEEN VERIFIED BY THE ASSESSING OFFICER, THEREFORE, THE ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. IN THIS REGARD, RELIANCE CAN BE PLACED ON THE DECISION OF THE COORDINATE BENCH OF ITAT AHMEDABAD IN THE CASE OF CADILA HEALTHCARE LTD, [2014] 51 TAXMANN.COM 255, WHEREIN IT WAS HELD AS FOLLOWS: 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOVE THE INVOKING OF PROVISIONS OF SECTION 263 BY CIT. 13. S. 263(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 RECORD 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 AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT.' 14. 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 ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION U/S 263, NAMELY (I) THE PAGE | 18 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D ORDER IS ERRONEOUS (II) BY VIRTUE OF BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE. 15. HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) HAS HELD THAT CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURSE CANNOT BE HAD TO S. 263(1). IT WAS FURTHER HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO; WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE 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. 16. IN THE CASE OF GABRIEL INDIA LTD. (SUPRA), THE HON'BLE BOMBAY HIGH COURT HAS HELD AS UNDER: 'AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS 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 VISUALISE A CASE OF SUBSTITUTION OF JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, 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 ESTIMATES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER 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. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE ITO HAS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIREMENT, NAMELY, THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE SUBJECT-MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT ALSO MUST BE FULFILLED.' 17. IN THE PRESENT CASE FOR AY 2006-07, IT IS SEEN THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO HAD RAISED QUERY WITH RESPECT TO THE EXCHANGE FLUCTUATION LOSS AND IN RESPONSE TO WHICH THE ASSESSEE HAS SUBMITTED ITS REPLY. FOR READY REFERENCE, THE REPLY SUBMITTED BY THE ASSESSEE VIDE ITS LETTER DATED 14TH OCTOBER 2009 (WHICH IS PLACED AT PAGE 7 OF THE PAPER BOOK) READS AS UNDER: '15. WE ARE ENCLOSING HEREWITH, DETAILS OF DEFICIT ON ACCOUNT OF FLUCTUATIONS IN FOREIGN EXCHANGE RATES ON LOANS OF RS. 565.95 LACS, MARKED AS ANNEXURE NO. 9. SINCE THE SAID DEFICIT/ LOSS IS PERTAINED TO THE LOAN/BORROWINGS OF THE COMPANY IT PAGE | 19 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT AS PER THE ACCOUNTING STANDARD 11 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, CONSISTENTLY FOLLOWED BY THE ASSESSEE COMPANY FROM YEAR TO YEAR.' COPY OF THE ANNEXURE 9 REFERRED TO IN THE ABOVE REPLY AND WHICH 9 OF THE PAPER BOOK IS AS UNDER: 'DETAILS OF EXCHANGE RATE FLUCTUATION GAIN/LOSS ON LOANS: NAME OF THE PARTY ERF LOSS RS. ERF GAIN RS LOAN TAKEN: BNP PARIBAS ECB LOAN 3,284,061 27,022,840 EXIM BANK FOREIGN LOAN 1,189,071 2,187,520 BOB-ECB & FCNR LOAN 26,701,748 SBI-FCNR LOAN 17,170,000 ICICI-ECB 13,100,000 LOAN GIVEN: ZYDUS INTERNATIONAL PVT. LTD., IRELAND 2,749,061 ZYDUS FRANCE SAS, FRANCE 27,110,000 NET DEFICIT 56,595,459 TOTAL 88,554,880 88,554,880 ASSESSEE VIDE ITS LETTER DATED 12TH NOV 2009 GAVE FURTHER CLARIFICATION ON THE FOREIGN EXCHANGE GAIN /LOSS (COPY PLACED AT PAGE 15 OF THE PAPER BOOK) THE RELEVANT PORTION OF WHICH IS AS UNDER: '5. AS REGARDS YOUR QUERY AS TO WHY FOREIGN EXCHANGE GAIN/LOSS ON LOANS GIVEN TO ZYDUS INTERNATIONAL PVT. LTD., IRELAND AND ZYDUS FRANCE SAS, FRANCE, HAVE BEEN CLAIMED ALLOWABLE REVENUE INCOME/LOSS, WE WISH TO SUBMIT AS UNDER: (A) IT RELATES TO THE LOANS GIVEN BY THE ASSESSEE COMPANY WHICH HAVE FETCHED INTEREST INCOME TO THE ASSESSEE COMPANY. (B) IT IS NOT COVERED U/S 43A AS THESE LOANS DO NOT REPRESENT ANY AMOUNT BORROWED TO ACQUIRE / IMPORT ANY FIXED ASSETS. (C) IT IS ACCOUNTED IN THE BOOKS OF ACCOUNTS FOR THE YEAR UNDER ASSESSMENT FOLLOWING THE ACCOUNTING STANDARD-11 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IN THIS REGARD, CONSISTENTLY FOLLOWED BY THE ASSESSEE COMPANY FOR YEAR TO YEAR. (D) THE ASSESSEE COMPANY IS RELYING ON THE FOLLOWING DECISIONS OF THE HON'BLE SUPREME COURT DECIDED IN FAVOUR OF THE ASSESSEE: PAGE | 20 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D (I) CIT V. WOODWARD GOVERNOR INDIA (P) LTD. [2009] 312 ITR 254 (SC) (II) CIT V. ENRON OIL & GAS INDIA LTD. [2008] 305 ITR 75 (SC) ' 18. THUS ON PERUSING THE QUERY OF THE A.O AND THE REPLY BY THE ASSESSEE TO THE QUERY RAISED BY A.O, IT IS SEEN THAT SPECIFIC QUERY WAS RAISED BY THE A.O ABOUT THE LOSS ON ACCOUNT OF EXCHANGE FLUCTUATION AND THE QUERY WAS ALSO REPLIED TO BY THE ASSESSEE AND THE DECISIONS OF THE APEX COURT ON WHICH THE ASSESSEE HAD RELIED UPON WAS ALSO POINTED OUT BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, IT APPEARS THAT THE REPLY OF ASSESSEE WAS FOUND TO BE ACCEPTABLE BY THE AO BECAUSE NO ADDITION ON ACCOUNT OF EXCHANGE RATE FLUCTUATION WAS MADE BY THE AO IN THE ASSESSMENT ORDER. 19. WITH RESPECT TO THE ISSUE OF ALLOWING OF REMUNERATION OF RS 4.73 CRORE IN AY 2008- 09, IT IS SEEN THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO VIDE NOTICE ISSUED U/S 142(1) DATED 19.9.2011 AND 24.10.2011 HAD RAISED THE QUERY AND SOUGHT THE EXPLANATION FROM THE ASSESSEE TO WHICH THE ASSESSEE VIDE REPLY DATED 13.10.2011 AND 19.12.2011 HAS FURNISHED THE REPLIES. FOR READY REFERENCE, THE QUERY OF THE AO VIDE NOTICE DATED 19.9.2011 (WHICH IS PLACED AT PAGE 1 OF THE PAPER BOOK) READS AS UNDER: '3. RS 4,73,19,405 HAVE BEEN CLAIMED AS EXEMPT IN THE STATEMENT OF TOTAL INCOME UNDER THE HEAD 'REMUNERATION FROM PARTNERSHIP FIRM SINCE DISALLOWED U/S 40(B) IN FIRM'S INCOME'. PLEASE GIVE DETAILS AND EVIDENCE OF THE SAME WITH WORKING AND A NOTE AS TO HOW THE SAME IS EXEMPT IN THE HANDS OF THE COMPANY' IN RESPONSE TO WHICH ASSESSEE VIDE REPLY DATED 13.10.2011 SUBMITTED (WHICH IS PLACED AT PAGE 9 OF THE PAPER BOOK) READS AS UNDER: '3. REPLY TO POINT NO 3 OF YOUR LETTER DATED 19.9.2011: THE ASSESSEE COMPANY HAS CLAIMED THE AMOUNT OF REMUNERATION FROM PARTNERSHIP FIRM AS NOT CHARGABLE TO TAX SINCE THE SAME HAS BEEN ADDED TO THE TOTAL INCOME AS DISALLOWANCE U/S 40(B) IN THE FIRM'S CASE AS ENVISAGED UNDER THE PROVISO TO S. 28(V) OF THE ACT. IN THIS REGARD, WE ARE ENCLOSING HEREWITH COPIES OF THE ADDENDUM TO THE PARTNERSHIP DEED AND THE MEMORANDUM OF UNDERSTANDING BETWEEN THE PARTNERS FIRXING THE REMUNERATION MARKED AS ANNEXURE NO 8 AND 9 RESPECTIVELY.' THEREAFTER VIDE NOTICE DATED 24.10.2011 (COPY PLACED AT PAGE 17 OF THE PAPERBOOK) FURTHER QUERY WAS RAISED BY THE AO WHICH READS AS UNDER: '2. WITH REGARD TO RS. 4,73,19,405 CLAIMED AS EXEMPT IN STATEMENT OF TOTAL INCOME UNDER THE HEAD 'REMUNERATION FROM PARTNERSHIP FIRM SINCE DISALLOWED U/S. 40(B) IN FIRM'S INCOME', VERIFICATION OF STATEMENT OF TOTAL INCOME OF ZYDUS HEALTHCARE, SIKKIM SHOWS THAT THE AMOUNT WAS ADDED IN COMPUTATION THERE AND THE SAME AMOUNT IS CLAIMED AS EXEMPT HERE IN THE COMPANY. THE DISALLOWED AMOUNT IN THE HANDS OF THE FIRM HAS GONE TO INCREASE THE ELIGIBLE BENEFIT U/S 10C AND THE SAME AMOUNT HAS IS CLAIMED NOT TAXABLE AS PER PROVISO PLACED UNDER SECTION 28(V). THE PROVISO READS THAT... 'PROVIDED THAT WHERE ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, OR ANY PART THEREOF HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (B) OF SECTION 40, THE INCOME UNDER THIS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF AMOUNT NOT SO ALLOWED TO BE DEDUCTED' PAGE | 21 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D IN OTHER WORDS THE SECTION 40(B) IS PROTECTION FOR THE REVENUE FROM EXCESS CLAIM OF REMUNERATION IN THE HANDS OF THE FIRM AND THE PROVISO PLACED UNDER SECTION 28(V) IS A SAFETY FOR THE ASSESSEE AGAINST DOUBLE TAXATION OF THE AMOUNT WHICH THE ASSESSING OFFICER DISALLOWS AS PER SECTION 40(B). HOWEVER THE INTENTION OF THE PROVISO IS NOT TO FACILITATE THE ASSESSEE TO SUO-MOTO DISALLOW FULL AMOUNT TO GET UNDUE BENEFIT OF 'EXCESS DEDUCTION' AND DEPRIVE THE REVENUE THE DUE TAX. THAT IS THE REASON FOR THE USAGE OF THE PHRASE 'HAS NOT BEEN ALLOWED TO BE_DEDUCTED_UNDER CLAUSE (B) OF SECTION 40' AS AGAINST THE WORDING 'DISALLOWED UNDER CLAUSE (B) OF SECTION 40'. IN OTHER WORDS THE SECTION 40(B) PROVIDES FOR DISALLOWANCE OF CERTAIN AMOUNTS IN EXCESS OF CERTAIN LIMITS, WHICH THE AO WILL DISALLOW AND THE INTENTION IS NOT TO ALLOW THE ASSESSEE TO DISALLOW THE ENTIRE AMOUNT TO MISUSE THE PROVISO FOR DERIVING UNDUE AND UNINTENDED BENEFIT. THEREFORE, THE AMOUNT, MORE SO THE FULL AMOUNT DISALLOWED BY YOU IN ZYDUS HEALTHCARE, SIKKIM TO CLAIM EXEMPTION HERE IN THE COMPANY BEING RS.4,73,19,405 IS PROPOSED TO BE DISALLOWED AND ADDED BACK TO INCOME. PLEASE FILE YOUR OBJECTIONS IF ANY.' IN RESPONSE TO THE QUERY, ASSESSEE VIDE ITS SUBMISSION DATED 19.12.2011 (COPY PLACED AT PAGE 19 TO 24 OF THE PAPER BOOK) SUBMITTED AS UNDER: '1. IN THE STATEMENT OF TOTAL INCOME FOR A.Y. 2008- 09, THE ASSESSEE COMPANY HAS EXCLUDED THE AMOUNT OF RS.4,73,19,405/- REPRESENTING REMUNERATION RECEIVED BY THE COMPANY FROM THE PARTNERSHIP FIRM OF M/S. ZYDUS HEALTHCARE SIKKIM, IN VIEW OF THE PROVISIONS OF SEC. 28(V) OF THE INCOME-TAX ACT. 2. IT IS A MATTER OF RECORD THAT THE SAID REMUNERATION OF RS.4.73 CRORES WAS DISALLOWED U/S. 40(B) WHILE COMPUTING THE TOTAL INCOME OF THE AFORESAID PARTNERSHIP FIRM. AS P ER SEC. 40(B), 'THE FOLLOWING AMOUNT SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION: - IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH, ANY PAYMENT OF SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED TO ANY PARTNER WHO IS NOT A WORKING PARTNER.' 3. SINCE AS PER EXPLANATION 4 TO SEC. 40(B), 'WORKING PARTNER' MEANS ONLY AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING THE AFFAIRS OF THE BUSINESS OR PROFESSION OF THE F IRM, REMUNERATION PAID TO THE ASSESSEE COMPANY IS NOT ALLOWED TO BE DEDUCTED UNDER THE PROVISIONS OF SEC.40(B). IN VIEW OF THE ABOVE, WHILE COMPUTING THE TOTAL INCOME OF THE PARTNERSHIP FIRM, REMUNERATION OF RS.4.73 CRORES PAID BY THE FIRM TO THE COMPANY WAS DULY DISALLOWED UNDER SEC. 40(B). 4. SECTION 28(V) PROVIDES THAT 'ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, DUE TO, OR RECEIVED BY, A PARTNER OF A FIRM FROM SUCH FIRM, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION.' HOWEVER, THE PROVISO TO THE SAID SECTION ALSO PROVIDES THAT, 'WHERE ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, OR ANY PART THEREOF HAS NOT BEEN ALLOWED TO BE DEDU CTED UNDER CLAUSE (B) OF SECTION 40, THE INCOME UNDER THIS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF THE AMOUNT NOT SO ALLOWED TO BE DEDUCTED.' 5. THE UNDERLYING LOGIC AND RATIONALE OF THE ABOVE CAME TO BE DULY EXPLAINED BY THE PAGE | 22 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D CBDT IN ITS CIRCULAR NO.6 36, DATED 31/08/1992 EXPLAINING THE PROVISIONS OF THE NEW SCHEME OF TAXATION OF FIRMS AND PARTNERS AS INTRODUCED BY THE FINANCE ACT, 1992 AS UNDER: '48.1 A FIRM WILL NOW ONWARDS BE TAXED AS A SEPARATE ENTITY (SECTIONS 184 & 185). THERE WILL BE NO DISTI NCTION BETWEEN REGISTERED AND UNREGISTERED FIRMS, AND CLAUSES 39 AND 48 OF SECTION 2 CONTAINING THE DEFINITION OF 'REGISTERED FIRM' AND ''UNREGISTERED FIRM' HAVE BEEN OMITTED. AFTER ALLOWING REMUNERATION AND INTEREST TO THE PARTNERS, THE BALANCE INCOME OF THE FIRMS WILL BE SUBJECT TO MAXIMUM MARGINAL RATE OF TAX OF INCOME-TAX, WHICH WILL BE 40% FOR ASSESSMENT YEAR 1993- 94. THE SURCHARGE ON INCOME- TAX WILL BE AT THE RATE OF 12%, OF THE TOTAL TAX, IF THE INCOME EXCEEDS RS. 1,00,000. THE EARLIER DISTINCTION BETWEEN RATES OF INCOME- TAX FOR PROFESSIONAL AND NON-PROFESSIONAL FIRMS HAS BEEN REMOVED. PARTNERS ARE NOT LIABLE TO TAX IN RESPECT OF THE SHARE OF INCOME FROM THE FIRM. HOWEVER, REMUNERATION AND INTEREST ALLOWED TO PARTNERS WILL BE CHARGED TO INCOME-TAX IN THEIR RESPECTIVE HANDS. THE ONLY DISTINCTION BETWEEN PROFESSIONAL AND NON- PROFESSIONAL FIRMS WILL BE IN RESPECT OF SLABS FOR ALLOWING DEDUCTION TO FIRMS IN RESPECT OF REMUNERATION. 48.2 THE SHARE OF THE PARTNER IN THE INCOME OF THE FIRM WILL NOT BE INC LUDED IN COMPUTING HIS TOTAL INCOME [SECTION 10(2A)]. HOWEVER, INTEREST, SALARY, BONUS, COMMISSION OR ANY OTHER REMUNERATION ALLOWED BY THE FIRM TO A PARTNER WILL BE LIABLE TO BE TAXED AS BUSINESS INCOME IN THE PARTNER'S HAND, [SECTION 2(24)(VE) AND SECTIO N 28(V)]. AN EXPLANATION HAS BEEN ADDED TO THE NEWLY INSERTED CLAUSE (2A1 OF SECTION 10 TO MAKE IT CLEAR THAT THE REMUNERATION OR INTEREST WHICH IS DISALLOWED IN THE HANDS OF THE FIRM WILL NOT SUFFER TAXATION IN THE HANDS OF THE PARTNER. IN CASE ANY REMUNE RATION PAID TO A PARTNER IS DISALLOWED IN THE HANDS OF THE FIRM OR THE AMOUNT IS VARIED IN SUBSEQUENT PROCEEDINGS, THE PARTNER'S ASSESSMENT CAN BE RECTIFIED [SECTION 155(1A)]. 48.3 THE GROSS TOTAL INCOME OF THE FIRM IS TO BE DETERMINED IN THE NORMAL WA Y UNDER DIFFERENT HEADS AS IN THE CASE OF ANY TAXABLE ENTITY. THE GROSS TOTAL INCOME SO COMPUTED IS REDUCED BY SALARY, BONUS, COMMISSION, OR ANY REMUNERATION PAYABLE OR PAID TO A PARTNER [SECTION 40(B)]. REMUNERATION DUE TO OR RECEIVED BY A PARTNER IS NOT TO BE ASSESSED AS INCOME UNDER THE HEAD 'SALARIES' (EXPLANATION 2 TO SECTION 15). ANY SALARY, INTEREST, BONUS, COMMISSION OR REMUNERATION DUE TO OR RECEIVED BY A PARTNER IN VIEW OF CLAUSE (V) TO SECTION 28 SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. 48.4 THE PAYMENT OF REMUNERATION ONLY TO A WORKING PARTNER IS ALLOWABLE [DEFINED IN EXPLANATION 4 TO SECTION 40(B)]. ONLY INDIVIDUALS ARE CAPABLE OF BEING WORKING PARTNERS. 6. AS LOGICALLY EXPLAINED IN THE AFORESAID CBDT CIRCULAR, THE PURPOSE OF THE PROVISO TO SECTION 28(V) (ERRONEOUSLY REFERRED TO AS EXPLANATION TO SEC. 10(2A) UNDER THE CIRCULAR), IS 'TO MAKE IT CLEAR THAT THE REMUNERATION OR INTEREST WHICH IS DISALLOWED IN THE HANDS OF THE FIRM WILT NOT SUFFER TAXATION IN THE HANDS OF THE PARTNER.' SINCE THE LEGISLATIVE INTENTION FOR THE NEW SCHEME OF TAXATION OF FIRMS AND PARTNERS IS TO ELIMINATE DOUBLE TAXATION OF THE SAME INCOME, IT HAS BEEN PROVIDED THAT THE INCOME, WHICH IS MADE LIABLE TO TAX IN THE HANDS OF THE FIRM, SHALL NOT BE TAXED IN THE HANDS OF THE PARTNERS. THUS, SHARE OF PROFIT TAXED IN THE CASE OF THE FIRM HAS BEEN TREATED AS EXEMPT U/S. 10(2A) IN THE HANDS OF THE PARTNERS. SIMILARLY, ANY INTEREST OR PAGE | 23 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D REMUNERATION THAT IS DISALLOWED AND MADE LIABLE TO TAX IN THE HANDS OF THE FIRM HAS BEEN EXCLUDED BY VIRTUE OF THE PROVISO TO SEC. 28(V). 7. IN THE ABOVE CONTEXT, THERE IS NO SCOPE FOR THE MISCHIEVOUS INTERPRETATION AS PROPOSED IN THE NOTICE DT. 24/10/2011. INFACT, WITH DUE RESPECT, IT IS SUBMITTED THAT THE FACTS OF THE CASE HAVE BEEN GROSSLY MISUNDERSTOOD AND THIS HAS PERHAPS LED TO THE SHOW CAUSE ON THE ISSUE AS PROPOSED. YOU HAVE OBSERVED THAT, 'THE DISALLOWED AMOUNT (OF REMUNERATION) IN THE HANDS OF THE FIRM HAS GONE TO INCREASE THE ELIGIBLE BENEFIT U/S. 10C (ERRONEOUSLY REFERRED IN PLACE OF SEC.80- IE) AND THE SAME AMOUNT IS CLAIMED NOT TAXABLE AS PER PROVISO PLACED UNDER SECTION 28(V).' 8. IT NEEDS TO BE APPRECIATED THAT IF NO REMUNERATION HAD BEEN PAID BY THE FIRM TO THE PARTNER, THE SAME WOULD HAVE COME TO BE RECEIVED BY THE PARTNER IN THE FORM OF SHARE OF PROFIT, ON WHICH NO TAX IS PAYABLE IN ANY CASE AS PER SEC. 10(2A). THE ENTIRE BUSINESS INCOME OF THE FIRM, OUT OF WHICH THE SHARE OF PROFIT IS ALLOCATED T O THE PARTNER, IS ALSO IN ANY CASE ENTITLED TO THE BENEFIT OF DEDUCTION U/S. 80- IE. THEREFORE, IT IS GROSSLY INCORRECT TO OBSERVE THAT 'THE DISALLOWED AMOUNT (OF REMUNERATION) IN THE HANDS OF THE FIRM HAS GONE TO INCREASE THE ELIGIBLE BENEFIT U/S. 10C (ERR ONEOUSLY REFERRED IN PLACE OF SEC.80- IE).' WHETHER OR NOT REMUNERATION PAID BY THE FIRM TO THE PARTNER IS DISALLOWED, THE SAME HAS NO BEARING OR IMPACT ON THE ELIGIBILITY AND EXTENT OF THE CLAIM OF THE FIRM UNDER SEC.80-IE. 9. YOU HAVE OBSERVED IN THE NOTICE TO THE EFFECT THAT, 'SEC.40(B) IS PROTECTION FOR THE REVENUE FROM EXCESS CLAIM OF REMUNERATION IN THE HANDS- OF THE FIRM AND THE PROVISO PLACED UNDER SEC.28(V) IS A SAFETY FOR THE ASSESSEE AGAINST DOUBLE TAXATION OF THE AMOUNT WHICH THE ASSESSING OFF ICER DISALLOWS AS PER SEC.40(B).' WE WISH TO SUBMIT THAT THE WORDS 'WHICH THE ASSESSING OFFICER DISALLOWS' AS INSERTED IN YOUR OBSERVATION ARE IN NO MANNER JUSTIFIED. THE INTENTION OF THE PROVISO TO SEC.28(V) IS MEANT TO AVOID DOUBLE TAXATION OF ANY DISALL OWANCE UNDER SEC.40(B), WHETHER MADE BY THE ASSESSEE SUO-MOTU OR BY THE ASSESSING OFFICER. THE LEGISLATIVE INTENTION IN THIS CONTEXT IS CLEARLY REFLECTED IN THE CBDT CIRCULAR NO. 636 EXTRACTED HEREINABOVE. 10. WE ALSO WISH TO POINT OUT THAT YOUR OBSERVA TION TO THE EFFECT THAT, 'THE INTENTION OF THE PROVISO IS NOT TO FACILITATE THE ASSESSEE TO SUO- MOTU DISALLOW FULL AMOUNT TO GET UNDUE BENEFIT OF EXCESS DEDUCTION AND DEPRIVE THE REVENUE OF DUE TAX,' IS WHOLLY MISPLACED, UNJUSTIFIED AND UNCALLED FOR ON THE FACTS OF OUR CASE. AS POINTED OUT HEREINABOVE, NEITHER THE PARTNERSHIP FIRM OF ZYDUS HEALTHCARE, SIKKIM, NOR THE PARTNER CADILA HEALTHCARE LTD. HAS DERIVED ANY UNDUE BENEFIT AS ALLEGED IN THE NOTICE. IN FACT, IT NEEDS TO BE NOTED THAT THE ASSESSEE COMPANY VIZ. CADILA HEALTHCARE LTD., WHO IS REQUIRED TO PAY INCOME- TAX UNDER THE PROVISIONS OF MAT U/S. SEC.115JB, HAS DULY DISCHARGED ITS TAX OBLIGATION BY PAYING MAT ON THE AFORESAID AMOUNT OF REMUNERATION OF RS.4.73 CRORES. THE COMPANY NEVER HAD ANY MISCHIEVOU S INTENTIONS. ELSE, IT COULD HAVE BEEN SMART IN NOT DRAWING ANY REMUNERATION AT ALL, BUT RECEIVE THE SAME AS SHARE OF PROFIT. IN THAT CASE, TAX LIABILITY OF MAT U/S. 115JB WOULD NOT HAVE ARISEN AT ALL IN THE HANDS OF THE COMPANY. 11. YOU HAVE OBSERVED T HAT THE USAGE OF THE PHRASE 'HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (B) OF SEC. 40' INDICATES THAT THE PROVISO TO SEC.28(V) CAN BE INVOKED ONLY IN A CASE WHERE THE DISALLOWANCE UNDER SEC.40(B) IS MADE BY THE AO WHILE FRAMING AN ASSESSMENT AND NOT BY THE ASSESSEE IN ITS RETURN OF INCOME. HERE AGAIN YOU HAVE REFERRED TO MISUSE OF THE PROVISO TO DERIVE UNDUE AND UNINTENDED BENEFIT. PAGE | 24 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D WE WISH TO RESPECTFULLY SUBMIT THAT EXCEPT FOR MAKING A WILD CHARGE, YOU HAVE NOT BEEN ABLE TO IN ANY MANNER SHOW OR SUB STANTIATE AS TO HAVE WE HAVE MISUSED THE PROVISO FOR DERIVING UNDUE AND UNINTENDED BENEFIT AS ALLEGED. MOREOVER, THE INTERPRETATION SOUGHT TO BE STRETCHED BY YOU OUT OF THE WORDS 'HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER SEC.40(B)' IS ALTOGETHER UNJUSTIFIED IN LAW. THE WORDS 'HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER SEC.40(B)' OBJECTIVELY REFER TO THE FACT OF DISALLOWANCE KEEPING IN VIEW THE CONDITIONS AND GUIDELINES UNDER SEC.40(B). THIS DISALLOWANCE MAY COME TO BE COMPUTED UNDER SEC.40(B) BY THE ASSESSE S, AT THE STAGE OF FILING THE RETURN OR BY THE ASSESSING OFFICER AT THE STAGE OF ASSESSMENT. IN EITHER CASE, THE SITUATION CAN BE DESCRIBED BY THE SAME WORDS 'HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER SEC.40(B).' OUR LOGICAL REASONING AND EXPLANATION IN REGARD TO THE UNDERLYING LEGISLATIVE INTENTION AND DUE CLARIFICATION IN THE MATTER UNDER THE CBDT CIRCULAR, AS ELABORATELY DISCUSSED HEREIN BEFORE, SHOULD BE CONSIDERED BY YOUR GOODSELF ON MERITS. 12. WE HAVE TO EARNESTLY REQUEST YOUR GOODSELF TO KINDLY APPRECIATE THE MERITS OF OUR SUBMISSIONS HEREIN ABOVE AND WE ARE CONFIDENT THAT YOU WILL BE PLEASED TO DROP YOUR PROPOSAL TO DISALLOW AND ADD-BACK RS.4,73,19,405/- . IN CASE YOU ARE STILL INCLINED TO TAKE A DIFFERENT VIEW IN THE MATTER, WE SHALL BE OBLIGED I F YOU WILL KINDLY POINT OUT ANY FLAWS IN OUR LOGICAL REASONING AND JUSTIFICATION SUBMITTED HEREIN ABOVE, SO THAT WE CAN SPECIFICALLY MEET WITH THE SAME POINT BY POINT.' 20. CONSIDERING THE AFORESAID FACTS IT IS SEEN THAT FOR A.Y. 2006-07 AND A.Y. 2008-09, AO HAD HAD MADE FULL INQUIRIES BY RAISING THE QUERIES WITH RESPECT TO THE ISSUE UNDER CONSIDERATION AND THE SAME WERE ALSO REPLIED BY THE ASSESSEE AND ON RECEIPT OF THE REPLIES ACCEPTED THE CLAIM OF THE ASSESSEE. WE FURTHER FIND THAT HON'BLE APEX COURT IN THE CASE OF CIT V. MAX INDIA LTD. [2007] 295 ITR 282/[2008] 166 TAXMAN 188 (SC) HAS HELD THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IT IS A GENERALLY NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO EXAMINES NUMEROUS ISSUES AND GENERALLY, THE ISSUES WHICH ARE ACCEPTED DO NOT FIND MENTION IN THE ASSESSMENT ORDER AND ONLY SUCH POINTS ARE TAKEN NOTE OF ON WHICH THE ASSESSEE'S EXPLANATIONS ARE REJECTED AND ADDITIONS/DISALLOWANCES ARE MADE. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT PROVISIONS OF S. 263 CANNOT BE RESORTED TO AND FOR WHICH WE DRAW SUPPORT BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GABRIEL INDIA LTD. (SUPRA). WE ALSO DRAW SUPPORT FROM THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. HONDA SIEL POWER PRODUCTS LTD. [2011] 333 ITR 547/[2010] 194 TAXMAN 175 WHERE IT HAS BEEN HELD THAT WHEN A REGULAR ASSESSMENT IS MADE U/S 143(3) A PRESUMPTION CAN BE RAISED THAT THE ORDER HAS BEEN PASSED UPON ON APPLICATION OF MIND. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE VIEW TAKEN BY THE AO WAS AN IMPERMISSIBLE VIEW AND WAS CONTRARY TO LAW OR WAS UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES NECESSITATING THE EXERCISING OF REVISIONARY POWERS U/S 263. FURTHER, THE CASES LAWS RELIED UPON BY THE REVENUE ARE DISTINGUISHABLE ON FACTS AND THEREFORE CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. IN THE VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE FOR AY 2006-07 AND FOR AY 2008-09, CIT WAS NOT JUSTIFIED IN RESORTING TO THE REVISIONARY POWERS U/S 263 OF THE ACT. WE THEREFORE SET ASIDE THE ORDERS OF CIT FOR AY 2006-07 AND AY 2008-09, SETTING ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. THUS THE GROUND OF ASSESSEE ARE ALLOWED IN BOTH THE YEARS. PAGE | 25 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 18. IN ASSESSEE`S CASE, CLAUSE (A) AND (B) OF THE EXPLANATION 2 OF SECTION 263 OF THE INCOME TAX ACT, 1961 IS APPLICABLE. THE LD. CIT, DR APPEARING ON BEHALF OF THE REVENUE, DRAWING SUPPORT FROM THE EXPLANATION (2) INSERTED IN SECTION 263 BY THE FINANCE ACT, 2015, AND ARGUED THAT LD. PR. CIT HAD RIGHTLY INVOKED HIS POWERS UNDER SECTION 263 OF THE ACT SINCE IN HIS OPINION, THE AO HAD NOT CONDUCTED THE ENQUIRIES IN THE MANNER AS DESIRED BY THE LD. PR. CIT AND CONSEQUENT TO WHICH THE PREJUDICE HAD BEEN CAUSED TO THE REVENUE. HE FURTHER CLAIMED THAT SINCE THE LD. PR. CIT DID NOT HIMSELF RECORD ANY ADVERSE FINDING NOR HAD GIVEN SPECIFIC DIRECTION FOR MAKING ADDITIONS/DISALLOWANCES BUT HAD MERELY SET ASIDE THE ASSESSMENT, REQUIRING THE AO TO PASS THE ASSESSMENT AFRESH AFTER CONDUCTING PROPER ENQUIRIES AND AFTER GIVING OPPORTUNITY OF BEING HEARD, NO PREJUDICE WAS CAUSED TO THE ASSESSEE AT THIS STAGE AND THEREFORE THERE WAS NO MERIT IN THE APPEAL PREFERRED BY THE ASSESSEE. HE THEREFORE URGED THAT THE ORDER OF THE LD. PR. CIT SHOULD NOT BE INTERFERED WITH. 19. PER CONTRA, LD COUNSEL SUBMITS BEFORE US THAT LD PCIT, VIDE PARA NO.7 OF HIS ORDER, WHEREIN HE HELD THAT ASSESSING OFFICER HAS PASSED ASSESSMENT ORDER WITHOUT MAKING INQUIRIES OR VERIFICATION, WHICH OUGHT TO HAVE BEEN MADE IN ASSESSEE`S CASE. THE LD COUNSEL STATES THAT DURING THE ASSESSMENT STAGE THE ASSESSING OFFICER ASKED THE QUERY AND ASSESSEE HAS REPLIED WITH DOCUMENTARY EVIDENCES THEREFORE IT IS NOT A CASE WHERE INQUIRY WAS NOT MADE BY THE ASSESSING OFFICER. BESIDES, CLAUSE (A) AND (B) OF THE EXPLANATION 2 OF SECTION 263 OF THE INCOME TAX ACT, 1961 HAS BEEN INSERTED BY THE FINANCE ACT 2015, WITH EFFECT FROM 01.06.2015 WHICH IS PROSPECTIVE IN NATURE AND THEREFORE DOES NOT APPLY TO THE ASSESSEE UNDER CONSIDERATION, AS THE ASSESSMENT YEAR INVOLVED IN THE ASSESSEE`S CASE IS ASSESSMENT YEAR 2013-14. 20. WE NOTE THAT IN ASSESSEE`S CASE, WE FIND THAT LD. PR. CIT INVOKED JURISDICTION U/S 263 OF THE ACT PRINCIPALLY ON THE BROAD ALLEGATION THAT THERE WAS FAILURE TO CONDUCT ENQUIRIES WHICH THE FACTS OF THE CASE REQUIRED THE AO TO PAGE | 26 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D MAKE. ACCORDING TO LD. PR. CIT ASSESSMENT ORDER SUFFERED FROM LACK OF ENQUIRY AND APPLICATION OF MIND TO THE FACTS AS ALSO BY INCORRECT APPLICATION OF APPLICABLE LEGAL PROVISIONS TO THE FACTS OF THE CASE. AS A RESULT, IN THE OPINION OF LD. PR. CIT, AOS ORDER WAS ERRONEOUS AND THEREFORE LIABLE FOR REVISION U/S 263 OF THE ACT. IN THE CIRCUMSTANCES THEREFORE BEFORE ADJUDICATING THIS ISSUE ARISING FROM THE IMPUGNED ORDER, WE HAVE TO FIRST EXAMINE THE SCOPE OF REVISIONAL JURISDICTION U/S. 263 OF THE ACT. FOR THAT, AT THE COST OF REPETITION, LET US TAKE THE GUIDANCE OF JUDICIAL PRECEDENCE LAID DOWN BY THE HON'BLE APEX COURT IN MALABAR INDUSTRIES LTD. VS. CIT [2000] 243 ITR 83(SC) WHEREIN THEIR LORDSHIP HAVE HELD THAT TWIN CONDITIONS SHOULD BE SATISFIED BEFORE JURISDICTION U/S 263 OF THE ACT IS EXERCISED BY THE LD. CIT. THE TWIN CONDITIONS WHICH NEED TO BE SATISFIED ARE THAT (I) THE ORDER OF THE ASSESSING OFFICER MUST BE ERRONEOUS AND(II) AS A CONSEQUENCE OF PASSING AN ERRONEOUS ORDER, PREJUDICE IS CAUSED TO THE INTEREST OF THE REVENUE. IN THE FOLLOWING CIRCUMSTANCES, THE ORDER OF THE AO CAN BE HELD TO BE ERRONEOUS I.E. (I) IF THE ASSESSING OFFICER'S ORDER WAS PASSED ON ASSUMPTION OF INCORRECT FACTS; OR ASSUMPTION OF INCORRECT LAW; (II) ASSESSING OFFICER'S ORDER IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE; (III) IF THE ASSESSMENT ORDER IS PASSED BY THE AO WITHOUT APPLICATION OF MIND; OR (IV) IF THE AO HAS NOT INVESTIGATED THE ISSUE BEFORE HIM. IN THE CIRCUMSTANCES ENUMERATED ABOVE ONLY THE ORDER PASSED BY THE ASSESSING OFFICER CAN BE TERMED AS ERRONEOUS FOR THE PURPOSE OF SECTION 263 OF THE ACT. COMING NEXT TO THE SECOND LIMB, THE AO'S ERRONEOUS ORDER CAN BE REVISED BY THE LD. CIT ONLY WHEN IT IS SHOWN THAT THE SAID ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE. WHEN THIS ASPECT IS EXAMINED ONE HAS TO UNDERSTAND WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES (SUPRA) HELD THAT THIS PHRASE I.E. 'PREJUDICIAL TO THE INTEREST OF THE REVENUE'' HAS TO BE READ IN CONJUNCTION WITH AN 'ERRONEOUS' ORDER PASSED BY THE ASSESSING OFFICER. THE HONBLE SUPREME COURT, HELD THAT FOR INVOKING POWERS CONFERRED BY SECTION 263; THE CIT SHOULD NOT ONLY SHOW THAT THE AO'S ORDER IS ERRONEOUS AS A RESULT OF ANY OF THE SITUATIONS ENUMERATED ABOVE BUT CIT MUST ALSO FURTHER SHOW THAT AS A RESULT OF AN ERRONEOUS ORDER, SOME LOSS IS CAUSED TO THE INTEREST OF PAGE | 27 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D THE REVENUE. THEIR LORDSHIP IN THE SAID JUDGMENT HELD THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS FURTHER OBSERVED THAT WHEN THE ASSESSING OFFICER ADOPTS ONE OF THE COURSE PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS TO THE REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE LD. CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW . IN THE CIRCUMSTANCES IT WAS NECESSARY FOR THE LD. PR. CIT TO SHOW IN THE IMPUGNED ORDER THAT THE AOS ORDER WAS ERRONEOUS BECAUSE THE VIEW FOLLOWED BY HIM IN RESPECT OF EACH OF THE REASON, MENTIONED ABOVE, WAS UNSUSTAINABLE IN LAW AND THEREFORE THE ORDER WAS LIABLE FOR REVISION U/S 263 OF THE ACT. 21. WE NOTE THAT LD PCIT HAS EXERCISED HIS JURISDICTION UNDER SECTION 263 OF THE ACT BECAUSE THE ASSESSING OFFICER DID NOT MAKE PROPER INQUIRY IN RESPECT OF THE FOLLOWING ISSUES: (I). ASSESSEE SUBMITTED DETAILS OF BILLS ISSUED AND PAYMENT RECEIVED FOR FINANCIAL YEAR 2011-12, INSTEAD OF FINANCIAL YEAR 2012-13 UNDER CONSIDERATION. (II).ASSESSING OFFICER DID NOT MAKE PROPER INQUIRY FOR EXCHANGE RATE OF INDIAN RUPEE VS. DOLLAR IN FINANCIAL YEAR 2012-13'. (III). IN ASSESSEE`S CASE, CLAUSE (A) AND (B) OF THE EXPLANATION 2 OF SECTION 263 OF THE INCOME TAX ACT, 1961 IS APPLICABLE. WE NOTE THAT LD. PR. CIT OBSERVED THAT IN RESPECT OF ISSUES SET OUT IN (I) AND (II) ABOVE, PROPER ENQUIRY WAS NOT CONDUCTED BY THE AO WHICH THE CIRCUMSTANCES OF THE CASE DEMANDED AND FOR ABSENCE OF PROPER ENQUIRY, THE ASSESSMENT ORDER WAS CONSIDERED BY THE LD. PR. CIT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT IS TRUE THAT THE COURTS HAVE HELD THAT AN ORDER OF ASSESSMENT CAN BE CONSIDERED TO BE ERRONEOUS IF THERE WAS LACK OR TOTAL ABSENCE OF ENQUIRY WITH REGARD TO AN ISSUE WHICH HAS MATERIAL BEARING ON THE ASSESSMENT OF TOTAL INCOME FOR THE RELEVANT YEAR. HOWEVER, IN SUCH A CASE, THE PCIT HAS TO FIRST DEMONSTRATE PAGE | 28 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D THAT NO ENQUIRY AT ALL WAS CONDUCTED AND CONSEQUENT TO WHICH NOT ONLY THE ORDER BECAME ERRONEOUS BUT SUCH AN ERROR ALSO CAUSED PREJUDICE TO THE REVENUE. IN OUR CONSIDERED VIEW ONE ALSO HAS UNDERSTAND THE DIFFERENCE BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY' AND WHEN IT CAN BE TERMED AS ERRONEOUS FOR USURPATION OF JURISDICTION U/S 263 OF THE ACT. FOR BETTER UNDERSTANDING OF THIS ASPECT, WE CAN TAKE HELP OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT VS J.L. MORRISON (I) LTD (366 ITR 593), WHEREIN THEIR LORDSHIPS EXPLAINED THE DIFFERENCE BETWEEN THE TWO AS FOLLOWS:- '86. WHETHER THE ASSESSMENT ORDER DATED 28TH MARCH, 2008 WAS PASSED WITHOUT APPLICATION OF MIND IS BASICALLY A QUESTION OF FACT. THE LEARNED TRIBUNAL HAS HELD THAT THE ASSESSMENT ORDER WAS NOT PASSED WITHOUT APPLICATION OF MIND. THE RECORDS OF THE ASSESSMENT INCLUDING THE ORDER SHEETS GO TO SHOW THAT APPROPRIATE ENQUIRY WAS MADE AND THE ASSESSEE WAS HEARD FROM TIME TO TIME. IN DECIDING THE QUESTION COURT HAS TO BEAR IN MIND THE PRESUMPTION IN LAW LAID DOWN IN SECTION 114 CLAUSE - E OF THE EVIDENCE ACT :-- 'THAT JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED;' 87. THEREFORE, THE COURT HAS TO START WITH THE PRESUMPTION THAT THE ASSESSMENT ORDER DATED 28TH MARCH 2008 WAS REGULARLY PASSED. THERE IS EVIDENCE TO SHOW THAT THE ASSESSING OFFICER HAD REQUIRED THE ASSESSEE TO ANSWER 17 QUESTIONS AND TO FILE DOCUMENTS IN REGARD THERETO. IT IS DIFFICULT TO PROCEED ON THE BASIS THAT THE 17 QUESTIONS RAISED BY HIM DID NOT REQUIRE APPLICATION OF MIND. WITHOUT APPLICATION OF MIND THE QUESTIONS RAISED BY HIM IN THE ANNEXURE TO NOTICE UNDER SECTION 142 (1) OF THE ACT COULD NOT HAVE BEEN FORMULATED. 88. THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE RETURN FILED BY THE ASSESSEE IN ORDER TO ASCERTAIN HIS INCOME AND TO LEVY APPROPRIATE TAX ON THAT BASIS. WHEN THE ASSESSING OFFICER WAS SATISFIED THAT THE RETURN, FILED BY THE ASSESSEE, WAS IN ACCORDANCE WITH LAW, HE WAS UNDER NO OBLIGATION TO JUSTIFY AS TO WHY WAS HE SATISFIED. ON THE TOP OF THAT THE ASSESSING OFFICER BY HIS ORDER DATED 28TH MARCH, 2008 DID NOT ADVERSELY AFFECT ANY RIGHT OF THE ASSESSEE NOR WAS ANY CIVIL RIGHT OF THE ASSESSEE PREJUDICED. HE WAS AS SUCH UNDER NO OBLIGATION IN LAW TO GIVE REASONS. 89. THE FACT, THAT ALL REQUISITE PAPERS WERE SUMMONED AND THEREAFTER THE MATTER WAS HEARD FROM TIME TO TIME COUPLED WITH THE FACT THAT THE VIEW TAKEN BY HIM IS NOT SHOWN BY THE REVENUE TO BE ERRONEOUS AND WAS ALSO CONSIDERED BOTH BY THE TRIBUNAL AS ALSO BY US TO BE A POSSIBLE VIEW, STRENGTHENS THE PRESUMPTION UNDER CLAUSE (E) OF SECTION 114 OF THE EVIDENCE ACT. A PRIMA FACIE EVIDENCE, ON THE BASIS OF THE AFORESAID PRESUMPTION, IS THUS CONVERTED INTO A CONCLUSIVE PROOF OF THE FACT THE ORDER WAS PASSED BY THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND. PAGE | 29 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 90. THE JUDGMENTS CITED BY MR. NIZAMUDDIN DO NOT REALLY SUPPORT HIS CONTENTION. THE JUDGMENT IN THE CASE OF MEERUT ROLLER FLOUR MILLS (P.) LTD. (SUPRA) DOES NOT APPLY BECAUSE THE HIGH COURT IN THAT CASE WAS SATISFIED THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT ENQUIRY. 91. THE JUDGMENT OF COCHIN BENCH OF INCOME TAX APPELLATE TRIBUNAL IN ITA NO. 116 /COCH/ 2012 RELIED UPON BY MR. NIZAMUDDIN IS EVIDENTLY BASED ON AN ERRONEOUS IMPRESSION THAT 'THE PROCEEDINGS BEFORE THE ASSESSING OFFICER ARE JUDICIAL PROCEEDINGS'. THIS IMPRESSION, WHICH IS PATENTLY CONTRARY TO THE VIEWS EXPRESSED BY APEX COURT IN THE CASE OF S.S. GADGILL (SUPRA), WAS RESPONSIBLE FOR THE VIEWS TAKEN BY THE TRIBUNAL. WHEN THE PREMISE IS WRONG, THE CONCLUSION IS BOUND TO BE WRONG. 92. THE JUDGMENT IN THE CASE OF INFOSYS TECHNOLOGIES LTD. (SUPRA) IS DISTINGUISHABLE ON FACTS. THE STEP TAKEN BY THE CIT UNDER SECTION 263 IN THAT CASE WAS JUSTIFIED BECAUSE THE INCOME TAX RECORDS PRODUCED BEFORE HIM DID NOT SHOW THAT THE ASSESSING OFFICER HAD CONSIDERED THE DOUBLE TAXATION AVOIDANCE AGREEMENT ON THE BASIS WHEREOF THE CLAIMS WERE MADE BY THE ASSESSEE. THEREFORE, THAT WAS A CLEAR CASE TO SHOW THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT CONSIDERING THE RELEVANT PIECES OF EVIDENCE. 93. THE JUDGMENT IN THE CASE OF ANUSAYABAN. A. DOSHI (SUPRA) DOES NOT APPLY BECAUSE THE HIGH COURT IN THAT CASE WAS DEALING WITH THE NEED ON THE PART OF THE LEARNED TRIBUNAL TO GIVE REASONS IN SUPPORT OF ITS ORDER. 94. THE JUDGMENT IN THE CASE OF HINDUSTHAN TIN WORKS LTD. (SUPRA) ALSO DOES NOT APPLY BECAUSE THERE THE DELHI HIGH COURT WAS DEALING WITH THE DUTY OF THE LEARNED TRIBUNAL TO DISCLOSE REASONS IN SUPPORT OF ITS APPELLATE ORDER. 95. THE JUDGMENT IN THE CASE OF S.N. MUKHERJEE (SUPRA) IS CLEARLY DISTINGUISHABLE. THE POINT FOR CONSIDERATION IN THAT CASE WAS WHETHER IT WAS INCUMBENT FOR THE CHIEF OF ARMY STAFF WHILE CONFIRMING THE FINDINGS AND THE SENTENCE OF THE GENERAL COURT MARTIAL, AND FOR THE CENTRAL GOVT. WHILE REJECTING THE POST CONFIRMATION PETITION OF THE APPELLANT, TO RECORD REASONS FOR THE ORDERS PASSED BY THEM. 96. THE FUNCTION OF AN ASSESSING OFFICER IS TO ESTIMATE THE INCOME OF THE ASSESSEE AND TO RECOVER TAX ON THE BASIS OF SUCH ESTIMATE AS LAID DOWN BY THE APEX COURT IN THE CASE OF S.S GADGIL (SUPRA). THEIR LORDSHIPS OPINED THAT THE INCOME TAX PROCEEDINGS DO NOT PARTAKE THE CHARACTER OF A JUDICIAL PROCEEDING BETWEEN THE STATE AND THE CITIZEN. THEREFORE, THE PRINCIPLES APPLICABLE TO A PROCEEDING BEFORE A JUDICIAL OR A QUASI-JUDICIAL AUTHORITY WHERE THERE ARE TWO CONTESTING PARTIES CANNOT BE MADE APPLICABLE TO THE PROCEEDINGS BEFORE AN ASSESSING OFFICER. 97. MR. NIZAMUDDIN CONTENDED THE JUDGMENTS CITED BY MR. PODDAR INDICATE THAT THE ASSESSING OFFICER IS NOT REQUIRED TO WRITE AN ELABORATE JUDGMENT. HE CONTENDED THAT THE ASSESSING OFFICER MAY NOT HAVE ANY SUCH OBLIGATION BUT IT CANNOT BE SAID, ACCORDING TO HIM, THAT THE ASSESSING OFFICER IS UNDER NO OBLIGATION TO RECORD ANYTHING IN HIS ASSESSMENT ORDER. IT IS NOT IN THE FIRST PLACE A FACT THAT HE HAS NOT RECORDED ANYTHING. FROM THE ASSESSMENT ORDER, THE FOLLOWING FACTS AND CIRCUMSTANCES APPEAR:-- PAGE | 30 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 'RETURN WAS FILED ON 29/11/06 SHOWING TOTAL INCOME OF RS.3,80,66,940/-. IN RESPONSE TO NOTICES U/S. 143(2) AND 142(1) OF THE I. T. ACT, 1961, SRI P. R. KOTHARI, A/R APPEARED FROM TIME TO TIME AND EXPLAINED THE RETURN. NECESSARY DETAILS AND PARTICULARS WERE FILED. THE BUSINESS OF THE ASSESSEE IS MANUFACTURING AND TRADING OF COSMETICS AND DENTAL CARE PRODUCTS AS IN EARLIER YEARS. IN VIEW OF ABOVE TOTAL INCOME IS COMPUTED IS UNDER:' 98. UNLESS THE AFORESAID RECITAL IS FACTUALLY INCORRECT OR THE COMPUTATION IS LEGALLY WRONG, IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT APPLICATION OF MIND. ON THE TOP OF THAT WHEN THE ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE ASSESSEE THERE WAS NO OCCASION FOR HIM TO MAKE ANY DISCUSSION IN HIS ORDER. 99. IF THE ASSESSING OFFICER CANNOT BE SHOWN TO HAVE VIOLATED ANY FORM PRESCRIBED FOR WRITING AN ASSESSMENT ORDER, IT WOULD NOT BE CORRECT TO HOLD THAT HE ACTED ILLEGALLY OR WITHOUT APPLYING HIS MIND. THE THIRD QUESTION IS, FOR THE REASONS DISCUSSED ABOVE, ANSWERED IN THE NEGATIVE.' 22. THIS ASPECT WAS ALSO EXPLAINED BY THE HONBLE DELHI HIGH COURT IN ITS JUDGMENT IN THE CASE OF CIT VS SUNBEAM AUTO LTD (332 ITR 167). THE RELEVANT EXTRACTS OF THE JUDGMENT IS AS FOLLOWS: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSIDERATION 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 WAS 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 BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE 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 ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITSELF, GIVE OCCASION TO THE COMMISSIONER 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 OF ACTION WOULD BE OPEN. IN GABRIEL INDIA LTD.'S CASE (SUPRA), LAW ON THIS ASPECT WAS DISCUSSED IN THE FOLLOWING MANNER : '. . . FROM A READING OF SUB-SECTION (1) OF SECTION, IT IS CLEAR THAT THE POWER OF SUOMOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINA-TION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME-TAX OFFICER IS 'ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE'. IT IS NOT AN ARBITRARY OR UNCHARTERED POWER. IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREMENTS LAID DOWN IN SUB-SECTION (1). THE CONSIDERATION OF PAGE | 31 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE MUST BE BASED ON MATERIALS ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. [SEE :PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 (SC) AT PAGE 10]. ****** FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A 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 VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME-TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, 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 ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME-TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOME-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. . . . THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. ****** WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABOVE. THE INCOME-TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATION ON THAT REGARD BY A LETTER IN WRITING. ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. SUCH DECISION OF THE INCOME-TAX OFFICER CANNOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD . . .' (PP. 113-117) PAGE | 32 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 13. WHEN WE EXAMINE THE MATTER IN THE LIGHT OF THE AFORESAID PRINCIPLE, WE FIND THAT THE ASSESSING OFFICER HAD CALLED FOR EXPLANATION ON THIS VERY ITEMS, FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHED HIS EXPLANATION VIDE LETTER DATED 26-9-2002. THIS FACT IS EVEN TAKEN NOTE OF BY THE COMMISSIONER HIMSELF IN PARA 3 OF HIS ORDER DATED 3-11-2004. THIS ORDER ALSO REPRODUCES THE REPLY OF THE RESPONDENT IN PARA 3 OF THE ORDER IN THE FOLLOWING MANNER : 'THE TOOLS AND DIES HAVE A VERY SHORT LIFE AND CAN PRODUCE UP TO MAXIMUM 1 LAKH PERMISSIBLE SHORTS AND HAVE TO BE REPLACED THEREAFTER TO RETAIN THE ACCURACY. MOST OF THE PARTS MANUFACTURED ARE FOR THE AUTOMOBILE INDUSTRIES WHICH HAVE TO WORK ON COMPLETE ACCURACY AT HIGH SPEED FOR A LONGER PERIOD. SINCE IT IS AN ONGOING PROCEDURE, A COMPANY HAD PRODUCED 10,75,000 SETS WHOSE SELLING RATES IS INCLUSIVE OF THE REIMBURSEMENT OF THE DIES COST. THE PURCHASE ORDERS INDICATING THE COSTING INCLUDES THE REIMBURSEMENT OF DIES COST ARE BEING PRODUCED BEFORE YOUR HONOUR. SINCE THE SALE RATE INCLUDES THE REIMBURSEMENT OF DIES COST AND TO HAVE THE MATCHING EFFECT THE COST OF THE DIES HAS BEEN CLAIMED AS A REVENUE EXPENDITURE.' 14. THIS CLEARLY SHOWS THAT THE ASSESSING OFFICER HAD UNDERTAKEN THE EXERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES AND TOOLS IS TO BE TREATED AS REVENUE EXPENDITURE OR NOT. IT APPEARS THAT SINCE THE ASSESSING OFFICER WAS SATISFIED WITH THE AFORESAID EXPLANATION, HE ACCEPTED THE SAME. THE CIT IN HIS IMPUGNED ORDER EVEN ACCEPTS THIS IN THE FOLLOWING WORDS : 'ASSESSING OFFICER ACCEPTED THE EXPLANATION WITHOUT RAISING ANY FURTHER QUESTIONS, AND AS STATED EARLIER, COMPLETED THE ASSESSMENT AT THE RETURNED INCOME.' 15. THUS, EVEN THE COMMISSIONER CONCEDED THE POSITION THAT THE ASSESSING OFFICER MADE THE INQUIRIES, ELICITED REPLIES AND THEREAFTER PASSED THE ASSESSMENT ORDER. THE GRIEVANCE OF THE COMMISSIONER WAS THAT THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRES RATHER THAN ACCEPTING THE EXPLANATION. THEREFORE, IT CANNOT BE SAID THAT IT IS A CASE OF 'LACK OF INQUIRY'. 23. BEFORE US THE LD. CIT, DR SUPPORTED THE INVOCATION OF REVISIONARY JURISDICTION BY THE LD. PR. CIT U/S 263 OF THE ACT, BY RELYING ON THE AMENDMENT TO SECTION 263 WHEREBY EXPLANATION 2 TO SUB-SECTION (1) OF SECTION 263 OF THE ACT WAS INSERTED WITH EFFECT FROM 01.06.2015. THE SAID AMENDMENT INSERTED THE WORDS IN THE OPINION OF PRINCIPAL COMMISSIONER OR COMMISSIONER . ACCORDING TO LD. CIT, DR, AFTER THIS AMENDMENT WAS BROUGHT INTO STATUTE, THE ORDER PASSED BY THE AO CAN BE DEEMED TO BE ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE IF IN THE OPINION OF THE PR. CIT OR CIT, THE ORDER HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. ACCORDING TO US, HOWEVER, THE INSERTION OF THE AMENDMENT WHICH INTRODUCED THE WORDS IN THE OPINION OF PRINCIPAL COMMISSIONER OR COMMISSIONER CANNOT BE PAGE | 33 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D READ IN ISOLATION. IT HAS TO BE KEPT IN MIND THAT EXPLANATION CANNOT OVER-RIDE THE SUBSTANTIVE PROVISION OF THE LAW WHICH THE EXPLANATION ONLY TRIES TO EXPLAIN/CLARIFY. 24. BEFORE WE ADVERT FURTHER, LET US LOOK AT SECTION 263 OF THE ACT, WHICH IS REPRODUCED AS UNDER:- 263. (1) THE PRINCIPAL COMMISSIONER OR] COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER 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 AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. [EXPLANATION 1.]FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, (A) AN ORDER PASSED [ON OR BEFORE OR AFTER THE 1ST DAY OF 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 BY THE [JOINT] COMMISSIONER UNDER SECTION 144A ; (II) AN ORDER MADE BY THE [JOINT] COMMISSIONER IN EXERCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL DIRECTOR GENERAL OR] DIRECTOR GENERAL OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER AUTHORISED 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 PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTEROF ANY APPEAL [FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988], THE POWERS OF THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEND [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL.] [EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, IT IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, PAGE | 34 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON.] [(2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AFTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED.] (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, [NATIONAL 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 GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED.' 25. FROM BARE READING OF SECTION 263 OF THE ACT AND THE EXPLANATION THERETO INTRODUCED THROUGH THE FINANCE ACT, 2015, W.E.F. 01.06. 2015, WE NOTE THAT EXPLANATION -2, IS A DEEMING PROVISION. THE WELL SETTLED POSITION OF LAW IS THAT WHILE CONSTRUING A DEEMING PROVISION, IT HAS TO BE STRICTLY INTERPRETED AND THAT THE LEGAL FICTION SHOULD NOT BE STRETCHED BEYOND THE PURPOSE FOR WHICH IT IS ENACTED AND SHOULD NOT EXTEND THAT LEGITIMATE FIELD (RAYMOND VS. STATE OF CHATTISGARH AIR 20-07 SC 2854). IT SHOULD BE KEPT IN MIND THAT DEEMING PROVISION SHOULD BE IN RESPECT OF FACTS, FROM WHICH LEGAL CONSEQUENCES WILL FOLLOW. HOWEVER, THE LEGAL CONSEQUENCE CANNOT BE DEEMED [DCM VS. STATE OF RAJASTHAN (1996) 2 SCC 449. AIR 1996 SC 2930 (3 JUDGES OF HONBLE SUPREME COURT) AND SAME VIEW REITERATED IN STATE OF KARNATAKA VS. STATE OF TAMIL NADU (2017) 3 SCC 362. SO WHEN WE LOOK AT EXPLANATION-2, WE NOTE THAT DEEMING FICTION OF LAW THAT THE ORDER OF THE ASSESSING OFFICER IS DEEMED TO BE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE ONLY IF IN THE OPINION OF THE LD. CIT, WHICH NECESSARILY HAS TO BE A FINDING OF FACT IN THE PAGE | 35 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D FOLLOWING FOUR EVENTS. THEN LEGAL CONSEQUENCE FOLLOWS, IF NOT, IT DOES NOT. SO, THE CIT HAS TO MAKE A FINDING OF FACT IN THE FOLLOWING: (A) THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS WITHOUT INQUIRY OR VERIFICATION, (B) THE ASSESSING OFFICER ALLOWED A CLAIM WITHOUT ENQUIRY, (C) THE ASSESSING OFFICER PASSED THE ORDER WHICH IS NOT IN ACCORDANCE WITH ANY ORDER, DIRECTIONS OR INSTRUCTIONS ISSUED BY THE CBDT U/S 119 OF THE ACT, (D) THE ASSESSING OFFICER PASSED THE ORDER WHICH IS NOT IN ACCORDANCE TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OR THE HONBLE SUPREME COURT, WHICH IS PREJUDICIAL TO THE ASSESSEE, WHICH IS RENDERED EITHER IN THE ASSESSEES CASE OR ANY OTHER PERSON. 26. THE AMENDMENT BROUGHT BY THE FINANCE ACT, 2015, BY WAY OF INSERTION OF EXPLANATION-2, CAN COME TO THE AID OF THE LD. PR. CIT ONLY WHEN ANY ONE OR MORE OF THE FOUR CONDITIONS, IS SATISFIED AND A CLEAR FINDING OF FACT TO THAT EFFECT IS RECORDED BY THE LD. PCIT. IT IS ONLY AFTER THE PCIT RECORDS A CLEAR FINDING OF FACT BRINGING THE ASSESSEES CASE WITHIN THE AMBIT OF ANY ONE OR MORE CONDITION SPECIFIED IN THE EXPLANATION, ONLY THEN THE LEGAL CONSEQUENCE ENVISAGED IN THE EXPLANATION CAN BE DEEMED OR ELSE IT CANNOT BE DEEMED. ONLY IN THE CASE WHERE THE PCIT RECORDS A CLEAR FINDING OF FACT ESTABLISHING ANY OF THE FOUR CONDITIONS POSTULATED ABOVE IS SATISFIED THEN THE ORDER FRAMED BY THE ASSESSING OFFICER CAN BE DEEMED TO BE ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, AND NOT OTHERWISE. TO SAY IT DIFFERENTLY, THE OPINION OF LD. PR. CIT CANNOT BE READ IN ISOLATION, AND IT HAS TO BE READ CO-JOINTLY WITH THE FOUR CONDITIONS STIPULATED UNDER EXPLANATION-2 CLAUSES (A) TO (D) . IT IS ONLY IN THE EVENT THAT ANY ONE OF THE SITUATION IS SATISFIED AND THERE IS A FINDING OF FACT BY THE LD. PCIT TO THAT EFFECT IN HIS REVISION ORDER, THEN ONLY THE DEEMING PROVISION OF EXPLANATION-2 CAN BE PRESSED INTO SERVICE FOR RENDERING AN ASSESSMENT ORDER AS ERRONEOUS, INSOFAR AS PREJUDICIAL TO THE REVENUE, WHICH IS THE JURISDICTIONAL FACT PAGE | 36 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D AND LAW REQUIRED FOR THE LD. PR. CIT/CIT TO INVOKE REVISIONAL JURISDICTION U/S 263 OF THE ACT. 27. COMING TO THE EXPRESSION IN EXPLANATION -2 IN THE OPINION OF THE LD. CIT, IT MUST BE THE CONSIDERED OPINION OF THE CIT WHICH IS BASED ON THE CORRECT FACTS AND IN ACCORDANCE WITH THE PRINCIPLES OF LAW. IT CANNOT BE AN ARBITRARY OPINION BEREFT OF FACTS OR LAW. THE AFORESAID CLAUSE ONLY PROVIDES FOR SITUATION WHERE INQUIRIES OR VERIFICATIONS SHOULD BE MADE BY REASONABLE AND PRUDENT OFFICER IN THE CONTEXT OF THE CASE. SUCH CLAUSE CANNOT BE READ TO AUTHORIZE OR GIVE UNFETTERED POWERS TO THE COMMISSIONER TO REVISE EACH AND EVERY ASSESSMENT ORDER. THE APPLICABILITY OF THE CLAUSE IS THUS ESSENTIALLY CONTEXTUAL. IT HAS TO BE THE OPINION OF A PRUDENT PERSON PROPERLY INSTRUCTED IN LAW. THE HONBLE SUPREME COURT IN MANEKA GANDHI VS. UNION OF INDIA REPORTED IN 1978 AIR (SC) 597 HAS LAID DOWN THE LAW THAT A PUBLIC AUTHORITY SHOULD DISCHARGE HIS DUTIES IN A FAIR, JUST AND REASONABLE, MANNER AND THE PRINCIPLE OF DUE PROCESS OF LAW WAS RECOGNIZED BY THE HONBLE SUPREME COURT. THEREFORE, THE OPINION OF THE LD. CIT HAS TO BE IN CONSONANCE WITH THAT OF THE WELL SETTLED JUDICIAL PRINCIPLES AND CANNOT BE ARBITRARILY MADE DISCARDING THE JUDICIAL PRECEDENT ON THE SUBJECT. THE OPINION OF THE LD. PR. CIT HAS TO BE REASONABLE AND THAT OF A PRUDENT PERSON INSTRUCTED IN LAW AND WHICH FOUNDED ON THE CORRECT FACTS BORNE OUT FROM RECORDS. THE CITS OPINION SHOULD BE BASED ON OBJECTIVE CONSIDERATION OF MATERIAL FACTS AND NOT ON HIS SUBJECTIVE NOTIONS OF THE FACTS WRONGLY PRESUMED OR INFERRED BY HIM. MOREOVER, IT HAS TO BE KEPT IN MIND THAT AN EXPLANATION TO SUBSTANTIVE SECTION SHOULD BE READ AS TO HARMONIZE WITH AND CLEAR UP ANY AMBIGUITY IN THE MAIN SECTION AND SHOULD NOT BE SO CONSTRUED AS TO WIDEN THE AMBIT OF THE SECTION CONFERRING POWERS OR AUTHORITY LARGER THAN WHAT IS ENVISAGED IN THE PRINCIPAL PROVISION. IT IS SO HELD BY THE HONBLE SUPREME COURT IN BIHTA COOPERATIVE DEVELOPMENT CANE MARKETING UNION LTD. VS. BANK OF BIHAR, AIR 1967 SC 389 AND M/S. OBLUM ELECTRICAL INDUSTRIES PVT. LTD., HYDERABAD VS. COLLECTOR OF CUSTOMS, BOMBAY - AIR 1997 SC 3467 AT PAGE 3471 AND ALSO SEE JUSTICE G. P. SINGH, PRINCIPAL OF STATUTORY INTERPRETATION 234 LEXUS 2016. IT HAS TO BE KEPT IN MIND THAT WHILE THE COMMISSIONER IS PAGE | 37 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D EXERCISING HIS REVISIONAL JURISDICTION OVER THE ASSESSMENT ORDER, HE HAS TO EXERCISE HIS POWER IN AN OBJECTIVE MANNER AND NOT ARBITRARILY OR SUBJECTIVELY SINCE HE IS DISCHARGING QUASI-JUDICIAL POWERS VESTED IN HIM WHILE DOING SO. THUS ACCORDING TO US, EXPLANATION (2) INSERTED BY THE PARLIAMENT U/S 263 CANNOT OVERRIDE THE MAIN SECTION I.E. SEC. 263(1) OF THE ACT. THE LD. CIT CAN EXERCISE HIS REVISIONAL JURISDICTION IN THE EVENT THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS DISCUSSED ABOVE AND NOT OTHERWISE. 28. WE NOTE THAT COORDINATE BENCH OF ITAT MUMBAI IN THE CASE OF NARAYAN TATU RANE [2016] 70 TAXMANN.COM 227 (MUMBAI - TRIB.), HELD THAT NEWLY INSERTED EXPLANATION 2(A) TO SECTION 263 DOES NOT AUTHORIZE OR GIVE UNFETTERED POWERS TO COMMISSIONER TO REVISE EACH AND EVERY ORDER, IF IN HIS OPINION, SAME HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. THE FINDINGS OF THE COORDINATE BENCH ARE REPRODUCED BELOW: 19. THE LAW INTERPRETED BY THE HIGH COURTS MAKES IT CLEAR THAT THE LD PR. CIT, BEFORE HOLDING AN ORDER TO BE ERRONEOUS, SHOULD HAVE CONDUCTED NECESSARY ENQUIRIES OR VERIFICATION IN ORDER TO SHOW THAT THE FINDING GIVEN BY THE ASSESSING OFFICER IS ERRONEOUS, THE LD PR. CIT SHOULD HAVE SHOWN THAT THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. IN THE INSTANT CASE, THE LD PR. CIT HAS FAILED TO DO SO AND HAS SIMPLY EXPRESSED THE VIEW THAT THE ASSESSING OFFICER SHOULD HAVE CONDUCTED ENQUIRY IN A PARTICULAR MANNER AS DESIRED BY HIM. SUCH A COURSE OF ACTION OF THE LD PR. CIT IS NOT IN ACCORDANCE WITH THE MANDATE OF THE PROVISIONS OF SEC. 263 OF THE ACT. THE LD PR. CIT HAS TAKEN SUPPORT OF THE NEWLY INSERTED EXPLANATION 2(A) TO SEC. 263 OF THE ACT. EVEN THOUGH THERE IS A DOUBT AS TO WHETHER THE SAID EXPLANATION, WHICH WAS INSERTED BY FINANCE ACT 2015 W.E.F. 1.4.2015, WOULD BE APPLICABLE TO THE YEAR UNDER CONSIDERATION, YET WE ARE OF THE VIEW THAT THE SAID EXPLANATION CANNOT BE SAID TO HAVE OVER RIDDEN THE LAW INTERPRETED BY HON'BLE DELHI HIGH COURT, REFERRED ABOVE. IF THAT BE THE CASE, THEN THE LD PR. CIT CAN FIND FAULT WITH EACH AND EVERY ASSESSMENT ORDER, WITHOUT CONDUCTING ANY ENQUIRY OR VERIFICATION IN ORDER TO ESTABLISH THAT THE ASSESSMENT ORDER IS NOT SUSTAINABLE IN LAW AND ORDER FOR REVISION. HE CAN ALSO FORCE THE AO TO CONDUCT THE ENQUIRIES IN THE MANNER PREFERRED BY LD PR. CIT, THUS PREJUDICING THE INDEPENDENT APPLICATION OF MIND OF THE AO. DEFINITELY, THAT COULD NOT BE THE INTENTION OF THE LEGISLATURE IN INSERTING EXPLANATION 2 TO SEC. 263 OF THE ACT, SINCE IT WOULD LEAD TO UNENDING LITIGATIONS AND THERE WOULD NOT BE ANY POINT OF FINALITY IN THE LEGAL PROCEEDINGS. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS AND THE STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THE LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. PAGE | 38 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D 20. FURTHER CLAUSE (A) OF EXPLANATION STATES THAT AN ORDER SHALL BE DEEMED TO BE ERRONEOUS, IF IT HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION, WHICH SHOULD HAVE BEEN MADE. IN OUR CONSIDERED VIEW, THIS PROVISION SHALL APPLY, IF THE ORDER HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH A REASONABLE AND PRUDENT OFFICER SHALL HAVE CARRIED OUT IN SUCH CASES, WHICH MEANS THAT THE OPINION FORMED BY LD PR. CIT CANNOT BE TAKEN AS FINAL ONE, WITHOUT SCRUTINISING THE NATURE OF ENQUIRY OR VERIFICATION CARRIED OUT BY THE AO VIS--VIS ITS REASONABLENESS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE, IN OUR CONSIDERED VIEW, WHAT IS RELEVANT FOR CLAUSE (A) OF EXPLANATION 2 TO SEC. 263 IS WHETHER THE AO HAS PASSED THE ORDER AFTER CARRYING OUR ENQUIRIES OR VERIFICATION, WHICH A REASONABLE AND PRUDENT OFFICER WOULD HAVE CARRIED OUT OR NOT. IT DOES NOT AUTHORISE OR GIVE UNFETTERED POWERS TO THE LD PR. CIT TO REVISE EACH AND EVERY ORDER, IF IN HIS OPINION, THE SAME HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. IN OUR VIEW, IT IS THE RESPONSIBILITY OF THE LD PR. CIT TO SHOW THAT THE ENQUIRIES OR VERIFICATION CONDUCTED BY THE AO WAS NOT IN ACCORDANCE WITH THE ENQURIES OR VERIFICATION THAT WOULD HAVE BEEN CARRIED OUT BY A PRUDENT OFFICER. HENCE, IN OUR VIEW, THE QUESTION AS TO WHETHER THE AMENDMENT BROUGHT IN BY WAY OF EXPLANATION 2(A) SHALL HAVE RETROSPECTIVE OR PROSPECTIVE APPLICATION SHALL NOT BE RELEVANT. 29. IN THE ASSESSEE`S CASE, THE ASSESSEE SUBMITTED VARIOUS DOCUMENTS AND EVIDENCES, AS NOTED BY US IN PARA NO.15 OF THIS ORDER, TO PROVE THE EXCHANGE RATE TAKEN BY HIM AND EXPLAINED THE EXCHANGE RATE DIFFERENCE STATING THAT AS A MATTER OF CONSISTENCY, THE ASSESSEE HAS BEEN USING CBIC EXCHANGE RATE TO CONVERT THE UD DOLLAR INTO INDIAN RUPEE. ALL THE EXCHANGE GAIN OR LOSS ARE RELATED TO BUSINESS ACTIVITIES, AS THE ASSESSEE HAS TAKEN FORWARD CONTRACT TO GUARD THE LOSSES. THERE IS NO ANY SPECULATION ACTIVITY IN THE ASSESSEE`S BUSINESS, THE ACCOUNTANT HAS USED WRONG NOMENCLATURE IN BOOKS OF ACCOUNTS. WE NOTE THAT FOR WORKING OF FOREIGN EXCHANGE GAIN OR LOSSES, THE LD. PR. CIT SET OUT SPECIFIC REASONS FOR WHICH HE HAD CONSIDERED THE AOS ORDER TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE NOTE THAT IN RESPONSE, THE ASSESSEE HAD SUBMITTED BEFORE THE LD. PR. CIT DETAILED EXPLANATIONS SUPPORTED BY TANGIBLE DOCUMENTARY EVIDENCE TO PROVE THAT LD PCIT HAD PROCEEDED ON ASSUMPTION OF SOME INCORRECT FACTS AND WRONG INTERPRETATION OF APPLICABLE LEGAL PROVISIONS. THE ASSESSEE ALSO EXPLAINED WITH COGENT MATERIAL THAT BEFORE COMPLETION OF ASSESSMENT, THE AO HAD INDEED MADE ENQUIRIES WITH REFERENCE TO SPECIFIC ISSUES RAISED BY THE LD PCIT. ACCORDING TO LD. COUNSEL, ON RECEIPT OF THE OBJECTIONS FROM THE ASSESSEE, THE LD. PR. CIT OUGHT TO HAVE EXAMINED THE PAGE | 39 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D ASSESSMENT RECORDS AND CONDUCTED HIS OWN ENQUIRY AND THEREAFTER SHOULD HAVE RECORDED HIS OWN FINDING PROVING THAT THE EXPLANATIONS FURNISHED BY THE ASSESSEE SUFFERED FROM ANY FACTUAL OR LEGAL INFIRMITY AND BECAUSE OF WHICH HE FOUND THAT THE VIEW ADOPTED BY THE AO WAS UNSUSTAINABLE IN LAW MAKING HIS ORDER AS ERRONEOUS WITHIN THE MEANING OF SECTION 263 OF THE ACT. IN OUR OPINION, ONCE THE LD. PCIT INITIATES THE PROCEEDINGS U/S 263 OF THE ACT FOR SPECIFIC REASONS AND THESE REASONS ARE MET BY THE ASSESSEE, THEN IT IS INCUMBENT UPON THE LD. PCIT TO HIMSELF INDEPENDENTLY DEAL WITH THE OBJECTIONS AND RECORD HIS OWN SATISFACTION TO PROVE THAT THE AOS ORDER IS IN FACT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASONS AS MENTIONED ABOVE. THE LD. PCIT IN SUCH A SITUATION CANNOT MERELY SET ASIDE THE ASSESSMENT ORDER DIRECTING AO TO PASS THE ORDER OF ASSESSMENT AFRESH, EFFECTIVELY GIVING THE AO A SECOND INNINGS WITHOUT ESTABLISHING THAT THE INITIAL ORDER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THIS REGARD, IT IS PERTINENT TO REFER TO THE OBSERVATIONS AND THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS DG HOUSING PROJECTS LTD IN 343 ITR 329, WHICH IS REPRODUCED BELOW: 19. IN THE PRESENT CASE, THE FINDINGS RECORDED BY THE TRIBUNAL ARE CORRECT AS THE CIT HAS NOT GONE INTO AND HAS NOT GIVEN ANY REASON FOR OBSERVING THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. THE FINDING RECORDED BY THE CIT IS THAT 'ORDER PASSED BY THE ASSESSING OFFICER MAY BE ERRONEOUS'. THE CIT HAD DOUBTS ABOUT THE VALUATION AND SALE CONSIDERATION RECEIVED BUT THE CIT SHOULD HAVE EXAMINED THE SAID ASPECT HIMSELF AND GIVEN A FINDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. HE CAME TO THE CONCLUSION AND FINDING THAT THE ASSESSING OFFICER HAD EXAMINED THE SAID ASPECT AND ACCEPTED THE RESPONDENT'S COMPUTATION FIGURES BUT HE HAD RESERVATIONS. THE CIT IN THE ORDER HAS RECORDED THAT THE CONSIDERATION RECEIVABLE WAS EXAMINED BY THE ASSESSING OFFICER BUT WAS NOT PROPERLY EXAMINED AND THEREFORE THE ASSESSMENT ORDER IS 'ERRONEOUS'. THE SAID FINDING WILL BE CORRECT, IF THE CIT HAD EXAMINED AND VERIFIED THE SAID TRANSACTION HIMSELF AND GIVEN A FINDING ON MERITS. AS HELD ABOVE, A DISTINCTION MUST BE DRAWN IN THE CASES WHERE THE ASSESSING OFFICER DOES NOT CONDUCT AN ENQUIRY; AS LACK OF ENQUIRY BY ITSELF RENDERS THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND CASES WHERE THE ASSESSING OFFICER CONDUCTS ENQUIRY BUT FINDING RECORDED IS ERRONEOUS AND WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN LATTER CASES, THE CIT HAS TO EXAMINE THE ORDER OF THE ASSESSING OFFICER ON MERITS OR THE DECISION TAKEN BY THE ASSESSING OFFICER ON MERITS AND THEN HOLD AND FORM AN OPINION ON MERITS THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE SECOND SET OF PAGE | 40 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D CASES, CIT CANNOT DIRECT THE ASSESSING OFFICER TO CONDUCT FURTHER ENQUIRY TO VERIFY AND FIND OUT WHETHER THE ORDER PASSED IS ERRONEOUS OR NOT. 30. CONCLUSION: WE NOTE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ADVOCATE OF THE ASSESSEE ATTENDED THE HEARING FROM TIME TO TIME AS PER THE FOLLOWING ORDER SHEET ENTRIES: DATE PARTICULARS 26.06.2015 SHRI KETAN SHAH ADV. ATTENDED. DETAILS SUBMITTED. KEPT ON RECORD. 30.11.2015 KETAN SHAH ATTENDED & FILED SUBMISSION. CASE DISCUSSED. 22.01.2016 SHRI KETAN SHAH ATTENDED. KEPT THE DETAILS SUBMITTED. CASE WAS DISCUSSED. 23.03.2016 SHRI KETAN SHAH ATTENDED & FILED SUBMISSION. CASE WAS DISCUSSED. IN RESPONSE TO NOTICES U/S 143(2) AND 142(1), ASSESSEE'S ADVOCATE SHRI KETAN SHAH ATTENDED ON 26.06.2015 AND FILED REQUIRED DETAILS WHICH WERE KEPT ON RECORD. THE ASSESSEE ALSO SUBMITTED A LOT OF DOCUMENTS AND EVIDENCES IN RESPONSE TO QUERY ASKED BY THE ASSESSING OFFICER VERBALLY, IN RESPECT OF EXCHANGE RATE DIFFERENCE, WHICH ARE NOTED BY US IN PARA NO. 15 OF THIS ORDER. THE ASSESSING OFFICER EXAMINED THEM AND APPLIED HIS MIND ALSO. THE LD PR. CIT HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS DULY DISCHARGED THE ONUS AT THE TIME OF REGULAR ASSESSMENT BY PROVIDING VARIOUS DETAILS IN SUPPORT OF EXPORT RATE DIFFERENCE LOSS OF RS.7,31,67,312/- AS WELL AS PROFIT FROM SPECULATION BUSINESS OF RS.1,31,80,948/-, AND THEREFORE, THE ISSUE HAS ALREADY BEEN ACCEPTED BY APPLICATION OF MIND BY ASSESSING OFFICER. THAT IS, ALL THE REQUIRED DETAILS IN REFERENCE TO THE FOREIGN EXCHANGE FLUCTUATION LOSS HAS BEEN FILED BEFORE THE ASSESSING OFFICER AND THEREAFTER ASSESSING OFFICER EXAMINED THEM AND APPLIED HIS MIND, HENCE NO ADDITION HAS BEEN MADE BY HIM. FURTHER THE AMOUNT OF 5,99,86,364/- ( RS.7,31,67,312 - RS.1,31,80,948) IS REVENUE LOSS/BUSINESS LOSS AND NOT SPECULATION LOSS AS STATED BY LD PCIT. THE LD PCIT NOTICED THAT WHEN AVERAGE RATE OF US DOLLAR IS RS.54.40 THROUGHOUT FINANCIAL YEAR 2012-13, THE ASSESSEE HAS TAKEN THE RATE AT RS.47.45 TO SUPPRESS PROFITS. WE NOTE THAT THE ASSESSEE HAS BEEN USING THE RATE DECLARED BY THE CUSTOM DEPARTMENT OF GOVERNMENT OF INDIA (CBIC), THESE RATES ARE MONTHLY PUBLISHED BY THE GOVERNMENT OF INDIA WHEREAS DOLLAR RATE FLUCTUATE DAILY. AS A MATTER OF PAGE | 41 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D CONSISTENCY, THE ASSESSEE HAS BEEN USING THE CBIC RATE FOR THE PURPOSE OF CONVERSION OF US DOLLAR INTO INDIAN RUPEE SINCE A LONG. THE ASSESSEE HAS INCURRED EXCHANGE LOSS OF RS.7,31,67,312/- BECAUSE ASSESSEE RECEIVED ADVANCE FROM CUSTOMERS BEFORE DATE OF EXPORT IN THE LAST YEAR AS WELL AS IN CURRENT YEAR. ASSESSEE HAD TO BEAR THE LOSS AS VALUE OF US DOLLAR INCREASED OVER THE PERIOD SINCE RECEIPTS OF THE REMITTANCE AND DATE OF EXPORT. IN MOST OF THE CASES OF THE REMITTANCE, ASSESSEE UTILIZED THE FORWARD EXCHANGE CONTRACT MADE IN THE LAST YEAR WHERE VALUE OF THE US$ WAS FIXED WHICH IS LOWER THAN THE VALUE OF US$ ON THE DATE OF ACTUAL REMITTANCE. CONSIDERING THE AFORESAID FACTS IT IS SEEN THAT AO HAD MADE FULL INQUIRIES BY RAISING THE QUERIES WITH RESPECT TO THE ISSUE UNDER CONSIDERATION AND THE SAME WERE ALSO REPLIED BY THE ASSESSEE AND ON RECEIPT OF THE REPLIES ACCEPTED THE CLAIM OF THE ASSESSEE. WE FURTHER FIND THAT HON'BLE APEX COURT IN THE CASE OF CIT V. MAX INDIA LTD. [2007] 295 ITR 282/[2008] 166 TAXMAN 188 (SC) HAS HELD THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. WE ALSO DRAW SUPPORT FROM THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. HONDA SIEL POWER PRODUCTS LTD. [2011] 333 ITR 547 [2010] 194 TAXMAN 175 WHERE IT HAS BEEN HELD THAT WHEN A REGULAR ASSESSMENT IS MADE U/S 143(3) A PRESUMPTION CAN BE RAISED THAT THE ORDER HAS BEEN PASSED UPON ON APPLICATION OF MIND. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE VIEW TAKEN BY THE AO WAS AN IMPERMISSIBLE VIEW AND WAS CONTRARY TO LAW OR WAS UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES NECESSITATING THE EXERCISING OF REVISIONARY POWERS U/S 263 OF THE ACT. IF AN INCOME-TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A 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. IN THE INSTANT CASE, THE LD PR. CIT HAS SIMPLY EXPRESSED THE VIEW THAT THE ASSESSING OFFICER SHOULD HAVE CONDUCTED ENQUIRY IN A PARTICULAR MANNER AS DESIRED BY HIM. SUCH A COURSE OF ACTION OF THE LD PR. CIT IS NOT IN PAGE | 42 ITA NO.274/SRT/2018 ASSESSMENT YEARS.2013-14 SHANTAI EXIM LIMITE D ACCORDANCE WITH THE MANDATE OF THE PROVISIONS OF SECTION 263 OF THE ACT. A MERE OBSERVATION THAT NO PROPER DETAILS HAVE BEEN OBTAINED, CANNOT BE SUFFICIENT TO COME TO A CONCLUSION THAT THE AO DID NOT MAKE PROPER AND ADEQUATE INQUIRIES WHICH HE OUGHT TO HAVE MADE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THIS CASE. IN THE CONCLUSION WE ARE OF THE VIEW THAT NONE OF THE REASONS SET OUT BY THE LD PCIT FOR INVOKING THE JURISDICTION U/S 263 OF THE ACT ARE SUSTAINABLE. WE ACCORDINGLY QUASH THE ORDER U/S 263 OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSEE. ASSESSMENT RECORD CALLED BY US, BE SENT BACK TO ASSESSING OFFICER FORTHWITH. 31. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED ON 28/04/2021 BY PLACING RESULT ON NOTICE BOARD. SD/- SD/- (PAWAN SINGH) (DR. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER LWJR /SURAT / DATE: 28/04/2021 SAMANTA COPY OF THE ORDER FORWARDED TO 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR/AR, ITAT, SURAT 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR/SR. PS/PS ITAT, SURAT