Rahul Textile Industries Pvt. Ltd., Surat V. The Pr. CIT-2, Surat

ITA 300/SRT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2468 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-02-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 19-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Difference of opinion; Change of opinion
• Section: 263; 143(3); 40(a)(ia); 37(1); 250; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No.300/SRT/2018 (AY 2013-14) (Hearing in Virtual Court) Rahul Textile Industries Pvt. Ltd., 4026-27, World Trade Centre, Udhna Darwala, Ring Road, Surat – 395002. PAN: AADCR 5890 F Vs The Principal Commissioner of Income Tax-2, Surat. Appellant/ Revenue Respondent/ Assessee Assessee by Shri Hiren Vepari – AR Revenue by Shri H.P.Meena – CIT-DR Date of hearing 02/02/2022 Date of pronouncement 23/02/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Principal Commissioner of Income Tax-2, (Pr.CIT) Surat dated 21.03.2018 passed under section 263 of the Act for the Assessment Year (A.Y.) 2013-14. The assessee has raised the following grounds of appeal: “1) The Principal Commissioner of Income-tax was not justified in assuming jurisdiction/s.263 without satisfying conditions. 2) The appellant submits that the Principal Commissioner of Income-tax ought not to have invoked provisions of section 263 on the very same point on which the Assessing Officer had made inquiry and taken position. 3) The appellant further submits that the Principal Commissioner of Income-tax did not appreciate the settled position of law where proceedings u/s.263 do not stand to sustain if Principal Commissioner of Income-tax opts to take different view in the same matter. ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 2 4) The appellant submits that the Statutory Auditor’s sole disclaimer that “In absence of details of foreign exchange gain/loss, we are not in position to comment on the same” does not make an assessment order erroneous. 5) On merits, the claim of the appellant of net foreign exchange loss of Rs.35.31 lacs being justified, the Principal Commissioner of Income-tax ought to have treated it allowable and drop the proceedings u/s.263. 6) The appellant craves leave to add, alter or vary any of the grounds of appeal. 2. Brief facts of the case are that the assessee is a Private Limited Company, engaged in the business of manufacturing, trading and export of yarn. The assessee filed its return of income for assessment year (A.Y.) 2013-14 on 03.10.2013 declaring Nil income. The assessee claimed carried forward loss of current year of Rs.2.48 crore. The case was selected for scrutiny and the Assessing Officer(AO) after making certain enquiries passed assessment order under section 143(3) of the Act on 01.03.2016, after making certain disallowance under section 40(a)(ia) of the Act. The assessment order was revised by ld. Pr. CIT by invoking his power jurisdiction under section 263 of the Act. The ld. Pr. CIT, on perusal of records noted that on perusal of Profit and Loss Account it was seen that the financial cost of Rs.2.05 crore includes foreign exchange loss of Rs.35,31,404/-. Further from the Annexure-B to the auditor’s report, it was noted that at the year ended on 31.03.2013, the auditor had qualified foreign exchange loss in absence of requisite details. The above qualification made by auditor’s raises serious doubts on the correctness of ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 3 foreign exchange loss by Assessee Company was ascertainable and same was required to be disallowed. On the bases of aforesaid observation, the ld. Pr. CIT issued show cause notice to assessee on 05.03.2018 in fixing the date on 12.03.20163 as to why the assessment order should not be set-aside as it is erroneous and prejudicial to the interest of the Revenue. 3. In response to the show cause notice, the assessee filed its reply on 14.03.2018. The reply of the assessee is extracted in para 4 of order of ld. Pr. CIT. In reply to the assessee contended that remarks of auditor’s “absence of details” does not make the assessment order erroneous in so far as prejudicial to the interest of the Revenue. It is only that auditor did not have details in their hands at the time of audit, that is why they make remarks. During the assessment, the AO sought details on 13 issues including the issue under consideration. All the details were furnished to the AO vide reply / letter dated 06.01.2016, the copy of such reply was also furnished. The assessee further explained that having furnished the details, the AO having taken position of these details by accepting those details which has been now sought in notice under section 263 of the Act on which the AO has already taken a view. The assessee specifically stated that assessee had a net foreign exchange loss of Rs.35,31,44/- [foreign exchange loss Rs.64,55,754/- - foreign exchange gain Rs.29,24,350/-]. The ledger extract of foreign exchange fluctuations [exports] ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 4 from 01.04.2012 to 31.03.2013 was also furnished. The assessee also furnished the ledger of overseas importers from the books of assessee to whom the assessee had exported goods demonstrated that foreign exchange fluctuation [gain or loss] has arisen out of transaction on account of exports. The foreign exchange rate between export transaction and the realisation of the export. The assessee summed up its reply by stating that auditor’s remark on non-availability of details at the time of audit does not make the assessment order erroneous so as to invoke the revision. The show cause notice is based on difference of opinion on same set of facts. The foreign exchange loss or gain is nothing but demonstrably emanating out export transaction and was a legitimate claim allowed by the AO. The assessee prayed for dropping the revision proceedings. 4. The reply of assessee was not accepted by the ld.Pr.CIT. The ld.Pr.CIT recorded that he has gone through the submission of assessee carefully and the same is not acceptable to him. The financial cost of Rs.2.05 crore includes foreign exchange loss. The auditor’s qualified the foreign exchange loss in absence of details. The above qualification made by the auditor raised serious doubt about the correctness of claim of foreign exchange loss and that Clause- (a) of Explanation-2 of section 263 is applicable in the case. The AO passed the assessment order without making enquiries or verification which should ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 5 have been made. The ld.Pr.CIT set-aside the assessment order and directed to pass the assessment order after giving opportunity of hearing to the assessee. Aggrieved by the order of ld.Pr.CIT, the assessee filed present appeal before this Tribunal. 5. We have heard the submission of ld. Authorised Representative (ld.AR) of the Assessee and ld. Commissioner of Income Tax [CIT-DR] for the Revenue. The ld.AR of the assessee submits that the assessment order passed by the AO is not erroneous and in so far prejudicial to the interest of the Revenue. The ld. Pr. CIT issued show cause notice by taking view that statutory auditor refused comment on the details of foreign exchange gain, hence, foreign exchange loss was not ascertainable. In response to show cause notice under section 263 of the Act, the assessee explained that the claim of foreign exchange loss was examined and verified by the AO while passing the assessment order under section 143(3) of the Act. The AO during the assessment vide his show cause notice dated 24.08.2015 asked the assessee to furnish complete details of ‘exchange fluctuation’. The AO further required details on foreign exchange fluctuation loss vide order sheet entry dated 17.12.2015. In response to the show cause notices, the assessee filed ledger account of exchange fluctuation export and explained that transaction took place through bank account only. The ld.AR of the assessee submits that ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 6 during the relevant period under consideration, the assessee suffered foreign exchange loss Rs.64,55,764/- and foreign exchange gain of Rs.29,24,350/-, thus, the net foreign exchange loss was of Rs.35,31,404/-. 6. The corresponding ledger of overseas importer were also filed before the ld. Pr. CIT. The ld.AR of the assessee submits that the AO passed assessment order after making sufficient enquiry up to his satisfaction. The observation of ld.Pr.CIT in the show cause notice is incorrect. The assessee furnished complete details for verification of the loss before the ld.Pr.CIT. None of the details was examined by him. The ld.Pr.CIT simply concluded that assessment order was passed without making enquiry or verification which should not have been made. The ld.Pr.CIT has not specified as to what kind of further enquiry was required by assessing officer. Merely, because the ld. Pr. CIT held different view that would not permit him to revise the assessment order, when the AO made sufficient enquiry and has taken a reasonable, legal and one of the possible view which cannot be held as erroneous. To support his submission, the ld.AR of the assessee relied upon the following decisions: 1. Aryan Arcade Ltd. 250 Taxmann 138 (Guj HC) 2. The ‘Sasme’ Co-operative Society Ltd - ITA No.185/SRT/2020 (Surat) 3. Gujarat JHM Hoteld Ltd., - ITA No.301/SRT/2018 (Surat) 4. Shaileshbhai Shah – 98 TTJ 154 (Ahmedabad ‘B’) 5. Jet Electronics – 116 TTJ 225 (Ahmedabad ‘A’) ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 7 7. On merit of the foreign exchange fluctuation, the ld.AR of the Assessee submits that whether loss suffered by the assessee on account of foreign exchange difference as on date of balance sheet is an item of expenditure under section 37(1) of the Act, as has been held by the Hon’ble Supreme Court in Woodward Governor India (P.) Ltd., - 179 Taxman 326 (SC). Both the gains or loss on account of exchange rate fluctuation on reporting date are to be accounted for while computing income changeable to tax and it has been held so by the decision of Mumbai Tribunal in Tata Consultancy Services Ltd., -108 taxmann.com 41 (Mumbai Tribunal). 8. On the other hand, the ld.CIT-DR for the Revenue submits that there is no whisper in the assessment order whether the issue examined or verified by the AO while passing the assessment order. Since the assessment order is silent on the issue and was passed without making proper enquiry, the order is erroneous and in so far as prejudicial to the interest of the Revenue. The auditor has not examined the details of such foreign exchange fluctuation as no details were provided to him. 9. We have considered the rival submission of both the parties and perused the material available on record. We have also deliberated on various case laws relied by the ld AR for the assessee. There is no dispute that in the assessment order there is no reference about the examination of foreign exchange ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 8 fluctuation loss. However, we find that during the assessment proceeding the AO issued notice first notice dated 26.08.2015 and sought various information therein. In para 2(x) of the said notice, the AO sought complete details of expenses including loss of foreign exchange loss on foreign currency. We find that the assessee vide its reply dated 14.09.2015 furnished the details of expenses including loss of foreign currency. The assessee further in response to order sheet entry dated 17.12.2015 furnished the fluctuation account /export. Thus, the issue was examined and verified by the AO. As recorded there is no reference in the assessment order about the verification of the issue. However, it is clearly discernible from the copy of show cause notice and the reply thereto and the relevant evidence in support of such claim that issue was examined by the AO. The Hon’ble Supreme Court in CIT Vs Woodward Governor India (P) ltd. (supra) held that the loss suffered by the assessee on account of foreign exchange fluctuation difference as on the date of balance sheet is an item of expenditure allowable under section 37. Therefore, the order of AO in allowing the foreign exchange loss in assessment order will not render his action as erroneous. 10. We further find that ld. Pr. CIT while issuing show cause notice on his observation as recorded in para 2(i)(ii) that the statutory auditor has qualified foreign exchange loss in absence of details. We find that the assessee filed ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 9 detailed reply to the said show cause notice under section 263. The ld. Pr.CIT instead of giving any independent finding on the reply so furnished by the assessee repeated his observation that assessment order was passed without making enquiries or verification. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., Vs PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. 11. In CIT Vs Nirma Chemical Works (P) Ltd (2009) 309 ITR 67, the Hon’ble High Court also held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. So in our view of the above factual and legal discussions, we find that AO after examining the issue has taken a reasonable and plausible view and if the ld. PCIT is not agreeable, the action initiated by ld. Pr CIT was based on changed of opinion. In view of the above discussions, we are of the view that the twin condition of section 263 of the Act is not fulfilled in the present case. Moreover, the order of the ld PCIT is also based on change of opinion. ITA No.300/SRT/2018 (AY 2013-14) Rahul Textile Industries Pvt. Ltd., Surat. 10 Therefore, the order under section 263 of the Act is set-aside. The grounds of appeal raised by the assessee are allowed. 12. In the result, the appeal of the assessee is allowed. Order announced on 23 February, 2022 by placing the result on the notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat Dated: 23/02/2022 /SGR* Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order / / TRUE COPY / / Sr.Pvt.Secretary, ITAT Surat