Income Tax Appellate Tribunal - Kolkata
Eveready Industries India Ltd., ... vs Dcit, Circle - 11(1), Kolkata, Kolkata on 13 February, 2019
ITA No. 655/KOL/2018
A.Y. 2012-2013
Eveready Industries India Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Before Shri P.M. Jagtap, Vice-President (KZ)
and Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 655/KOL/2018
Assessment Year: 2012-2013
Eveready Indus tries Indi a Limi ted,........... .....................................Appellant
1, Middleton Street, Kolkata-700 071
[PAN: AAACE 5778 N]
-Vs.-
Deputy Commissioner of Income Tax,........ ...................................Respondent
Circle-11(1 ), Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
Appearances by:
Shri D.S. Damle, FCA, for the Appellant
Shri Devi Sharan Singh, CIT, D.R. , for the Respondent
Date of concluding th e hearing : November 26, 2018
Date of pronouncing the order : February 13, 2019
O R D E R
Per Shri P.M. Jagtap, Vice-President (KZ):-
This appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax, Kolkata-4, Kolkata dated 29.03.2018 passed under section 263 of the Income Tax Act, 1961.
2. The assessee in the present case is a Company, which is engaged in the business of manufacture and sale of Dry Cell Batteries, Flash-lights, etc. and also in the manufacture and sale of tea. The return of income for the year under consideration was filed by it on 29.09.2012 declaring a loss of Rs.8,29,07,711/-. The case of the assessee was selected for 1 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited scrutiny and in the assessment completed under section 143(3) read with section 144C(3) of the Act vide an order dated 15.03.2016, the total income of the assessee was determined by the Assessing Officer at a loss of Rs.6,27,68,848/- after making the following additions:-
(i) T.P. Adjustment Rs.1,96,77,739/-
(ii) Disallowance u/s 40(a)(ia) Rs. 3,00,000/-
(iii) Disallowance u/s. 40A(9) Rs. 1,61,124/-
The record of the assessment completed by the Assessing Officer under section 143(3) read with section 144C(3) of the Act was examined by the ld. Principal CIT, Kolkata-4, Kolkata. On such examination, he was of the view that there were following errors in the said assessment, which were prejudicial to the interest of the Revenue:-
"(i) It is noticed th at the detail s of miscellaneous expenses (Note 23 of P&L acco unt) assessee co mpany are given, which indicate 'Sh are issue expenses 'and 'St amp fee/ Regist ration' .
Both being capit al in nature (Ref. Punjab St ate Industrial Development Corpn. Ltd., [1997) 93 Taxman 5 (SC), Berger Paint s India Lt d., [2017/ 79 taxman.co m 450 (SC), G ruh - Finance Ltd.. [2016} 72 taxman.com 48 (Ahmedabad - Trib.) etc.) should have been added back.
(ii) The details of liabilities & provisions no longer required. Apart from provision fo r disput ed t ax of Rs.3 .22 crs, none of the other it ems was added back, enquire & examination in this regard is to be needed.
(iii) Again no disallowance u/s 14A of the Act was made as the no dividend was received, which violates Departmental Circular No. 5/2014 [F. No. 225/182/2013-ITA-II]. Further, fresh sh ares were purch ased as apparent from Note 12 of balance sh eet.
(iv) The 'Exceptional It em' of Rs.1.84 crs at Note-24 of P&L account . As VRS payment as referred h as al ready bee n allowed u/s.35 DDA of the Act, additional claim under this head appears to be irregul ar. If such payment is termed as payment of superannuat ion, it is co vered u/s. 36(1)(iv) of th e Act and availed by assessee. Any supplementary claim in this regard is not allowable even u/s 37 of the Act as the said section st art s with no n obstant e clause "Any expendit ure of the nature described in section 30 to 36 ".
2 ITA No. 655/KOL/2018A.Y. 2012-2013 Eveready Industries India Limited
(v) TAR at clause 13(d)(iii) refers to creation Fo reign Translatio n Reserve. Note 4(f) of balance sheet confirms it. Source of creation of such reserve not enquired into. Further, as per (b) of Explanation 1 of sectio n 115JB of the Act any such cl aim is supposed to be added back .
(vi) TAR at clause 15(a) indicates that on account of scient ific research, related revenue expenses were claimed in the P&L account twice, once Rs.2.57 crs. as such and again Rs.1.73 crs u/s 35(J)(i) of th e Act . Proper verificat ion was not do ne.
(vii) TAR at clause 1 5(a) indicates th at u/s. 35(2AB) of th e Act Rs.1.68 crs was claimed in th e P&L account. Same cl aim was made again in th e computat ion of income and profit was reduced.
(viii)TAR at cl ause 15(a) and comput ation of income indicates that similar claims u/s 35DD and 35DDA of the Act w ere made twice by the assessee.
(ix) Note 23 of P&L account s indicate provision fo r indirect taxes cl aim of Rs.1 .25 crs. ascertain ability of this pro visio n was not questio ned.
(x) Int erest free loans to subsidiary (Doubtful advances) were given as per Note 9(iii), 13©, 25.3 and 25 .15b. No rationale behind such an action was questioned.
(xi) Foreign currency t ransaction loss N ote 22(c) & 23 not verified as per provision of section 43 of the Act.
(xii) Receipt s per From 26AS vis-a-vis th ose disclosed in the account s were also no t checked" .
The ld. Principal CIT accordingly issued a notice under section 163 to the assessee on 15.12.2017 requiring it to show-cause as to why the assessment made by the Assessing Officer under section 143(3) read with section 144C(3) dated 15.03.2016 should not be revised on the points raised by him. In reply, written submission was filed by the assessee offering its explanation on each and every point raised by the ld. Principal CIT in the notice issued under section 263. The said explanation offered by the assessee was found acceptable by the ld. Principal CIT in respect of errors no. (i), (iv), (vi), (viii), (ix) and (x). As regards the explanation offered by the assessee in respect of other errors pointed out 3 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited by him in the notice issued under section 263, the ld. Principal CIT did not find the same to be acceptable for the reasons given in his impugned order. According to him, the said issues pointed out by him in the show- cause notice issued under section 263 required further enquiry and verification, which the Assessing Officer had failed to do. He accordingly held the order passed by the Assessing Officer under section 143(3) read with section 144C(3) on the said points as erroneous as well as prejudicial to the interest of the revenue as per Explanation 2(c) below section 263(1) of the Act and setting aside the order of the Assessing Officer on the said points, he directed the Assessing Officer to make the assessment afresh after providing reasonable opportunity to the assessee-company of being heard. Aggrieved by the order of the ld. Principal CIT passed under section 263, the assessee has preferred this appeal before the Tribunal.
3. Ground No. 1 raised by the assessee in this appeal is general while Grounds No. 2 & 3 read as under:-
(2) For that on the facts and in the circumstances of the case, the assessment of the appellant having been selected for scrutiny under CASS the CIT could not consider the assessment order to be erroneous in so far as it was prejudicial to the interest of the revenue with reference to the issues for which the appellant's case was not selected under CASS parameters.
(3) For that on the facts and in the circumstances of the case, the AO having conducted in-depth enquiry with reference to the CASS selection reasons the CIT was unjustified in law and on facts in exercising his revisionary jurisdiction with reference to issues not coming within the ambit of CASS.
4. In support of the assessee's case on the issue raised in Grounds No. 2 & 3, the ld. Counsel for the assessee submitted that the case of the assessee was selected for scrutiny as per CASS Selection and the scope of the said assessment, therefore, was limited. He invited our attention to page no. 131 of the paper book to point out that the reasons given for selection of the assessee's case under CASS were as under:
"CASS Reasons 4 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited
1. Depreciation claimed at high er rates / High er additional Depreciation
2. Low Income shown by Large Contractors
3. Large refund claim of Advance t ax
4. Large deduction u/s 35, 35{2AA), 35 (2AB)
5. Higher Ratio of Refund to T DS
6. Large Amount of Sundry C reditors
7. Low Net Profit or Loss shown from Large Gross Receipts Reference of our reply made during scrutiny assessment u/s 143(3) on reason for CASS as above:
CASS Reasons Reference of Reply Page No . of
Paper Book
1.Depreciat ion Point no . 1 of our 136 137
claimed at higher letter dtd.18.11.15 and
rates/ Higher point no . 3 of
addit ional letter dtd.08.03.16
depreciation
2.Low Inco me Not applicable fo r EIIL
shown by th e
contracto r
3.Large refund Point no . 3 of our 140
claimed of advance letter 140
tax dtd.21.12 .15
4.Large deduction u/s . Point no . 2 of our 136 & 137 35, 35(2AA) & letter dtd.18.11.15 and 35(2AB) point no. 2 of 08.03.1 6 5.High Ratio of Point no . 6 of our 138 Refund to TDS letter dat ed 08 .03.2016 6.Large amo unt o f Point no . 5 of our 138 sundry creditors letter dat ed 08 .03.2016
7.Low Net Profit or Point no . 3 & 5 of our 138 & 140 Loss shown fro m letter dtd.21.12.15 and Large G ross Receipts point no.4 of letter dtd.08.03.16 He contended that all these seven issues were duly considered and examined by the Assessing Officer, but the ld. Principal CIT raised altogether new twelve issues in the notice issued under section 263, which is not permissible. He contended that out of the said twelve issues raised by the ld. Principal CIT, only one issue was of CASS selection while other issues were not covered by CASS. He invited our attention to the letter dated 04.11.2015 issued by the Assessing Officer during the course of assessment proceedings to point out that specific queries were raised 5 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited by the Assessing Officer, which were duly clarified by the assessee by filing a written submission. Relying on the decision of the Tribunal in the case of Sanjiv Kumar Khemka -vs.- PCIT-15 (ITA No. 1361/KOL/2016 dated 02.06.2017) he contended that the ld. Principal CIT cannot go beyond the CASS points and revise the assessment under section 263 on the points, which were beyond CASS.
5. The ld. D.R., on the other hand, submitted that all cases are selected for scrutiny under CASS, some for limited scrutiny and others for regular assessment. He contended that there is nothing in the assessment order passed by the Assessing Officer under section 143(3) read with section 144C(5) to indicate that the case of the assessee was selected for limited scrutiny. He invited our attention to the letter dated 04.11.2015 issued by the Assessing Officer during the course of assessment proceedings (copy at page no. 133 of the paper book) to show that queries were raised by the Assessing Officer on various issues over and above the seven issues stated to be raised for limited scrutiny under CASS. He contended that these queries raised by the Assessing Officer clearly show that the case of the assessee was not selected for limited scrutiny and it was a case of regular assessment.
6. We have considered the rival submissions and also perused the relevant material available on record. Although the ld. Counsel for the assessee by relying on the CASS reasons given on page no. 131 has contended that the case of the assessee was selected for limited scrutiny, the letter dated 04.11.2015 issued by the Assessing Officer during the course of assessment proceedings clearly shows that queries were raised by him on various issues over and above the said seven issues. As rightly contended by the ld. D.R., there is nothing in the assessment order passed by the Assessing Officer under section 143(3) read with section 144C(5) to indicate that the case of the assessee was selected for limited scrutiny. On the other hand, the fact that the additions were made by the Assessing 6 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited Officer in the said assessment on account of T.P. adjustment, disallowance under section 40(a)(ia) and disallowance under section 40A(9) clearly shows that the case of the assessee was not selected for a limited scrutiny and it was a case of regular assessment. We, therefore, find no merit in the case of the assessee on this issue and rejecting the same, we dismiss Grounds No. 2 & 3.
7. Grounds No. 4 & 5 raised by the assessee in this appeal read as under:-
(4) For that on the facts and in the circumstances of the case, and without prejudice to the preceding grounds the CIT was unjustified in law in passing the impugned order u/s 263 setting aside the assessment with reference to 6 specific issues for conducting enquiry afresh without establishing as to how the assessment order was erroneous even though the appellant had furnished specific replies and facts to substantiate that the assessment order was not erroneous.
(5) For that on the facts and in the circumstances of the case, the CIT having issued the show cause notice pointing out specific instances of errors committed by the AO and thereafter the appellant having furnished his explanations to prove that no error was committed by the AO, CIT was unjustified in setting aside the assessment requiring the AO to re-verify the facts without pointing out any specific infirmity either in the explanations furnished or the AO's order.
8. We have heard the arguments of both the sides on the issue raised in Grounds No. 4 & 5 and also perused the relevant material available on record. The limited contention raised by the ld. Counsel for the assessee on this issue is that the ld. Principal CIT has not given any reason or basis for not accepting the explanation of the assessee before holding the order of the Assessing Officer to be erroneous as well as prejudicial to the interest of the revenue. As rightly contended by the ld. D.R. in this regard, total twelve points were raised by the ld. Principal CIT in the notice issued under section 263 and the explanation of the assessee on six points was accepted by him. As regards the remaining six points, the 7 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited explanation of the assessee was not accepted by the ld. Principal CIT and that too for the reasons given in his impugned order. We, therefore, find no merit in Grounds No. 4 & 5 raised by the assessee and dismiss the same.
9. The grounds no. 6 & 7 raised by the assessee in this appeal read as under:-
(6) For that on the facts and in the circumstances of the case, the CIT was unjustified in considering the assessment to be erroneous on account of lack of enquiry in relation to provision for liability written back even though it was established before him that none of the liabilities written back and credited in the Profit & Loss A/c were excluded from the ambit of the assessed total income by the AO.
(7) For that on the facts and in the circumstances of the case, the CIT was unjustified in holding the assessment to be erroneous for non furnishing of alleged reconciliation even though it was apparent from the audited accounts that none of the provisions written back in the Profit & Loss A/c were excluded by the AO from the ambit of assessed total income.
10. The ld. Counsel for the assessee submitted that the second issue raised by the ld. Principal CIT in the notice under section 263 was that the details of liabilities and provisions no longer required were not properly examined by the Assessing Officer and apart from provisions for disputed tax of Rs.3.22 crores, none of the other items was added back. He invited our attention to the letter dated 04.11.2015 issued by the Assessing Officer during the course of assessment proceedings to show that specific query was raised by the Assessing Officer asking the assessee to reconcile the difference between the amount credited to the Profit & Loss Account as provision no longer required written back and the corresponding amount reflected in the Tax Audit Report. He also invited our attention to the reply filed by the assessee before the Assessing Officer, wherein following explanation was offered by the assessee:-
"(1) Liability no longer required written back and credited to the St atement of Profit and Loss = Rs.1 ,7 8,88,987/-8 ITA No. 655/KOL/2018
A.Y. 2012-2013 Eveready Industries India Limited (2) Provision no longer required writt en back and c redited to the St atement of Profit and Loss Rs.5,86 ,12,638/-. Out of the said amount Rs.2,99,40,465/- was debited to Revaluat ion Reserve in acco rdance with the Scheme of Arrangement dated 17.01.2005 sanct ioned by the Hon'ble High Court at Kolkat a with effect from 01.04.2004 and was not debited to the Statement of Profit and Loss in F.Y. 2004-05".
He also invited our attention to the relevant details furnished by the assessee during the course of revision proceedings before the ld. Principal CIT placed at page no. 160 and contended that both the figures of liability no longer required written back and provision no longer written back were separate and there was no need for any reconciliation. He contended that this explanation offered by the assessee, however, was not accepted by the ld. Principal CIT without giving any reason and the order of the Assessing Officer was wrongly treated by him on this issue as erroneous as well as prejudicial to the interest of the revenue.
11. The ld. D.R., on the other hand, invited our attention to the relevant portion of the impugned order of the ld. Principal CIT and relied on the reasons given by the ld. Principal CIT in support of the revenue's case for not accepting the explanation of the assessee as under:-
"Fro m th e perusal of Profit & Loss account s it is noticed that an amount of Rs.3.22 crore has been writ ten back from the pro vision no longer required. Moreo ver, as per Para 20 of note to TAR the figure of pro vision no longer required is shown at 5,86,12,638/-. The reconciliation of the t wo figures have not been pro vided by the assessee during the assessment proceeding. Furth er, reconciliation of break-up of the liabilit y no longer required written back amounting to Rs.1,78,88,987/- was also not furnish ed by th e assessee during the assessment proceeding. In fact , in the submission dated 04-03-2016 befo re the A.O, the assessee has only shown breakup of liabilit y & pro visions no longer required. The assessee in h is letter dat ed 04-03-2016 before t he A.O stat ed " ..... Please note that the audito rs after thoro ugh checking and verification of details and document s h ave certified that both the items h ave been credit ed to th e Profit & Loss acco unt and have been offered to tax." However closer examination of relevant material fact on record, it is seen that the stat istical submission of th e assessee and the st atement referred to above do not address the 9 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited question of reco ncil iation. Mo reover, neither any further reconciliation h as been called fo r by the A.O nor any expl anation h as been furnished by the assessee. The A.O has in fact failed to enquire and bring on record the required reconciliation and tak e the issue to logical end" .
12. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee during the course of assessment proceedings was called upon by the Assessing Officer to reconcile the difference between the amount of RS.1,78,88,987/- indicated in the Tax Audit Report as provision for liability no longer required written back and the amount of Rs.5,86,12,638/- credited in the Profit & Loss Account. In reply filed in writing before the Assessing Officer, it was pointed out by the assessee that the amount of Rs.1,78,88,987/- represented liability no longer required written back while the amount of Rs.5,86,12,638/- represented provision no longer required written back. Even during the course of proceedings under section 263, the details of these two amounts credited to the Profit & Loss Account were furnished by the assessee to point out that they were separate figures representing liability no longer required written back and provision no longer required written back and there was no need to reconcile the same. It appears that the ld. Principal CIT, however, failed to appreciate this position clearly evident from the details furnished by the assessee and held the order of the Assessing Officer erroneous on this issue on the ground that there was failure on the part of the Assessing Officer to make necessary enquiry. As already noted by us, a specific query was raised by the Assessing Officer on this issue during the course of assessment proceedings and the same was duly clarified by the assessee by furnishing the relevant facts and figures. In our opinion, there was thus no error in the order of the Assessing Officer on this issue as alleged by the ld. Principal CIT calling for any revision under section 263. Grounds No. 6 & 7 of the assessee's appeal are accordingly allowed.
10 ITA No. 655/KOL/2018A.Y. 2012-2013 Eveready Industries India Limited
13. Grounds No. 8 to 10 raised by the assessee in this appeal read as under:-
(8) For that on the facts and in the circumstances of the case, the CIT was unjustified in law and on facts in setting aside assessment on the ground of non-enquiry relating to sources of investments in shares even though it was apparent from records that during the relevant year the appellant had not earned any dividend income from the Investments and in that view of the matter CIT was unjustified in treating the order to be erroneous for non-disallowance u/s 14A.
(9) For that on the facts and in the circumstances of the case, the reasons for which the CIT revised the AO's order on account of non disallowance u/s 14A being different from the reasons set out from the show cause notice the CIT's order on this issue deserves to be vacated.
(10) For that on the facts and in the circumstances of the case, the AO's order making no disallowance u/s 14A read with Rule 8D on account of non earning of tax-free dividend, being in consonance with the judgment of the jurisdictional High Court in the case of REI Agro Limited the CIT was unjustified in considering the assessment order to be erroneous for not making disallowance u/s 14A.
14. The ld. Counsel for the assessee submitted that no disallowance under section 14A was made by the Assessing Officer in the assessment completed under section 143(3) read with section 144C(5) as there was no exempt dividend income actually earned by the assessee during the year under consideration. He pointed out that a specific query was raised by the Assessing Officer in his letter dated 04.11.2015 and after having noticed that there was no dividend income actually earned by the assessee, no disallowance under section 14A was made by him. He contended that the ld. Principal CIT accepted the fact that there was no dividend income actually earned by the assessee during the year under consideration but still held the order of the Assessing Officer to be erroneous on this issue which is no justified.
11 ITA No. 655/KOL/2018A.Y. 2012-2013 Eveready Industries India Limited
15. The ld. D.R., on the other hand, relied on the following reasons given by the ld. Principal CIT for rejecting the explanation of the assessee on this issue and holding the order of the Assessing Officer as erroneous:-
"As regards issue in para 2(iii) above t he reply of the assessee in respect of disallowance u/s 14A of the Act so far related to shares of foreign company appears to be onl y partially correct . Th e sources of such purchases of fresh domestic shares requires further enquiry since the A.O h as merely accept ed the submissio n of th e assessee on this point without making enquiry regarding th e source thereof. It is also relevant to observe that during the asse ssment proceeding, the assessee h ad submitted that th e said investment is in the equity of subsidiary company. In this regard it is observed that the repl y of the assesse e on this point h as been general and neither th e A.O has called fo r specific det ails regarding the fresh investment nor the assessee has furnish ed specific det ails regarding fresh investments. Th us mere submission of general reply on the part of the assessee and mere acceptance o n the part of the A.O indicate th at t he issue remained unexamined and un-enquired. Thus there is a prima facie failure on th e part of the A.O to judicially adjudicate the issue after making enquiry and bring on reco rd material evidences/ details. Accordingly, this o rder is h eld to be erro neous so far as prejudicial to th e interest of revenue and hence comes under the revisionary ambit of provision U/ S 263 of the Income Tax Act , 1961. This issue has also been st re ssed upon in the case of Dbanuk a & Sons (2011) 12 t axmann.com 227 (Calcutta) as wel l in Maxo pp Investment Ltd. [2018] 91 taxmann.com 154 (SC) (para 41). Assessee's theo ry of strategic investment cannot come to it s h elp as per o rder of the Hon'ble Apex Court in the case of Maxopp Investment Ltd. (supra)" .
16. We have considered the rival submissions and also perused the relevant material available on record. As rightly submitted by the ld. Counsel for the assessee, if there was no exempt income in the form of dividend was actually earned by the assessee during the year under consideration, the question of disallowance under section 14A would not arise and, therefore, no such disallowance under section 14A read with Rule 8D was made by the Assessing Officer in the assessment completed under section 143(3) read with section 144C(5) taking a possible view. It appears that the ld. Principal CIT, however, overlooked this vital aspect while holding the order of the Assessing Officer on this issue as 12 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited erroneous. As rightly contended by the ld. Counsel for the assessee, there was no error in the order of the Assessing Officer on this issue and the ld. Principal CIT was not justified in revising the same under section 263. Grounds No. 8 to 10 of the assessee's appeal are accordingly allowed.
17. Grounds No. 11 to 13 raised by the assessee in this appeal read as under:-
(11) For that on the facts and in the circumstances of the case, the CIT was grossly unjustified in treating the order to be erroneous for not considering Foreign Currency Translation Reserve as income without properly understanding the explanations furnished.
(12) For that on the facts and In the circumstances of the case, the CIT was grossly unjustified in holding that Foreign Currency Translation Reserve was created as a result of gain in loan repayment due to Rupee devaluation even though such reserve had no connection whatsoever with the appellant's liability to repay foreign currency loans.
(13) For that on the facts and in the circumstances of the case, the CIT was unjustified in setting aside assessment even though detailed explanations & facts were furnished before him to prove that Foreign Currency Translation Reserve was on account of appellant's Foreign Currency transaction on capital account and without showing any factual and legal infirmity the CIT was unjustified in holding the AO's order to be erroneous on incorrect understanding of material facts and applicable legal provisions.
18. The ld. Counsel for the assessee submitted that the nature of Foreign Currency Translation Reserve was duly explained by the assessee during the course of proceedings under section 263 before the ld. Principal CIT. He contended that the ld. Principal CIT, however, failed to appreciate the same and treated the order of the Assessing Officer on this issue as erroneous.
19. The ld. D.R., on the other hand, submitted that the details filed by the assessee in respect of Foreign Currency Translation Reserve during the course of assessment proceedings before the Assessing Officer were not sufficient and it was difficult to ascertain the nature of the said 13 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited transactions on the basis of the details furnished by the assessee. He contended that the Assessing Officer, however, did not make any further enquiry to find out the exact nature of the Foreign Currency Translation Reserve and accepted the claim of the assessee. He contended that there was thus an error in the order of the Assessing Officer on this issue and the ld. Principal CIT was fully justified in revising the same under section
263.
20. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the explanation of the assessee on this issue was not accepted by the ld. Principal CIT for the following reasons given in his impugned order:-
"On the issue pointed out in Para 2(v) above us regards Foreign Currency Translation Reserve repl y of the assessee clearl y indicates gain in loan repayment due to rupee devaluat ion. In the present case, the purpose of the loan as stated was not for th e financing of fixed asset. Accordingl y, pro vision of section 43A of the Act and amendment therein w.e.f. A.Y. 2003-04 will not be attracted. Accordingly, any gain or loss on account of foreign exch ange fluctuation to be treat ed as revenue in nat ure. As per AS-II, the outst anding foreign currency lo an is required to he t ranslated into Indian currency by appl ying rat e of exchange on the day of closing of the repo rting period and net exchange difference as a result of such conversion is to be reco gnized as income or expendit ure in t he respective financial year. Foreign exchange fluctuation gain or loss h as a direct nexus with the interest cost s and no new capit al asset was brought into existence. Th erefore, gain in loan repayment due to rupee devaluat ion is revenue in nature and shoul d have been prima facie offered to t axation. The repl y of th e assesse e on this point st ates th at th e issue was raised by A.O during th e assessment proceeding and the relevant details were furnished vide his reply dated 21-12-2015 before the Assessing Officer. However on perusal of t he said reply of the assessee before th e A.O., it is seen that tho ugh various break ups of loss on foreign currency t ransactio n and translation has been furnished. However, again the said reply of the assessee is not clearly indicative of the nat ure of t ransaction and hence mere acceptance of such reply without calling for details of the nat ure of such t ransaction makes the order erroneous so far as prejudicial to the interest of revenue" .14 ITA No. 655/KOL/2018
A.Y. 2012-2013 Eveready Industries India Limited
21. A perusal of the reasons given by the ld. Principal CIT clearly shows that the details furnished by the assessee during the course of assessment proceedings before the Assessing Officer were not sufficient to ascertain the exact nature of the relevant transactions and there was thus an error in the order of the Assessing Officer accepting the claim of the assessee without making any further enquiry to find out the exact nature of the relevant transactions. In our opinion, there was thus an error in the order of the Assessing Officer on this issue and the ld. Principal CIT was fully justified in setting aside the same on this issue with a direction to the Assessing Officer to consider it afresh after making the necessary enquiry. Grounds No. 11 to 13 of the assessee's appeal are accordingly dismissed.
22. Ground No. 14 raised by the assessee in this appeal reads as under:-
"(14) For that on the facts and in the circumstances of the case, the CIT was grossly unjustified in considering the order to be erroneous for allowing deduction u/s 35(2AB) even though the appellant had furnished before the AO Certificate in Form-3CL issued by the D.S.I.R. being the Competent Authority entrusted by the Legislature to certify the allowability of expenses for the purpose of grant of deduction u/s 35(2AB) of the Act".
23. The ld. Counsel for the assessee invited our attention to the letter dated 04.11.2015 issued by the Assessing Officer during the course of assessment proceedings to point out that the assessee was required by the Assessing Officer to furnish the details of deduction claimed under section 35(2AB) with supporting evidences/documents. He also pointed out from the reply dated 18.11.2015 filed by the assessee before the Assessing Officer that the copy of approval received from DSIR, Government of India in Form 3CL for the amount of deduction under section 35(2AB) was filed by the assessee. He also invited our attention to the computation of total income of the assessee for the year under consideration placed at page no. 155 of the paper book to show as to how the claim under section 35(2AB) was made by the assessee. He contended that the claim of the assessee for the deduction under section 35(2AB) 15 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited thus was allowed by the Assessing Officer after making the necessary enquiry and there was no error in the order of the Assessing Officer on this issue calling for any revision under section 263.
24. The ld. D.R., on the other hand, relied on the following reasons given by the ld. Principal CIT in his impugned order while not accepting the explanation of the assessee on this issue and holding the order of the Assessing Officer to be erroneous:-
"On the issue pointed out in Para 2(v) above us regards Foreign Currency Translation Reserve repl y of the assessee clearl y indicates gain in loan repayment due to rupee devaluat ion. In the present case, the purpose of the loan as stated was not for th e financing of fixed asset. Accordingl y, pro vision of section 43A of the Act and amendment therein w.e.f. A.Y. 2003-04 will not be attracted. Accordingly, any gain or loss on account of foreign exch ange fluctuation to be treat ed as revenue in nat ure. As per AS-II, the outst anding foreign currency lo an is required to he t ranslated into Indian currency by appl ying rat e of exchange on the day of closing of the repo rting period and net exchange difference as a result of such conversion is to be reco gnized as income or expendit ure in t he respective financial year. Foreign exchange fluctuation gain or loss h as a direct nexus with the interest cost s and no new capit al asset was brought into existence. Th erefore, gain in loan repayment due to rupee devaluat ion is revenue in nature and shoul d have been prima facie offered to t axation. The repl y of th e assesse e on this point st ates th at th e issue was raised by A.O during th e assessment proceeding and the relevant details were furnished vide his reply dated 21-12-2015 before the Assessing Officer. However on perusal of t he said reply of the assessee before th e A.O., it is seen that tho ugh various break ups of loss on foreign currency t ransactio n and translation has been furnished. However, again the said reply of the assessee is not clearly indicative of the nat ure of t ransaction and hence mere acceptance of such reply without calling for details of the nat ure of such t ransaction makes the order erroneous so far as prejudicial to the interest of revenue" .
25. After considering the rival submissions and perusing the relevant material available on record, we find ourselves in agreement with the ld. Principal CIT on this issue. Although some enquiry was made by the Assessing Officer on the issue of assessee's claim for deduction under section 35(2AB) as pointed out by the ld. Counsel for the assessee, the 16 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited same was not sufficient as specifically made out by the ld. Principal CIT in his impugned order. The insufficiency of enquiry made by the Assessing Officer was established by him by pointing out specifically the proper and sufficient enquiry that should have been made by the Assessing Officer in the facts and circumstances of the case before allowing the claim of the assessee for deduction under section 35(2AB), which the Assessing Officer had clearly failed to do. In our opinion, the order of the Assessing Officer on this issue, therefore, was erroneous and the ld. Principal CIT was fully justified in revising the same under section 263 with a direction to the Assessing Officer to make the assessment afresh after making proper and sufficient enquiry on this issue. Ground No. 14 is accordingly dismissed.
26. Grounds No. 15 & 16 raised by the assessee in this appeal read as under:-
(15) For that on the facts and in the circumstances of the case, the CIT was unjustified in law and on facts in holding that foreign currency transaction loss was allowed by the AO without carrying out necessary examination even though full particulars of such loss were furnished before the AO prior to completion of assessment.
(16) For that on the facts and in the circumstances of the case, a foreign currency transaction loss having been arisen entirely out of appellant's trading transactions the CIT was grossly unjustified in law in treating the assessment order to be erroneous for lack of enquiry.
27. The ld. Counsel for the assessee invited our attention to the letter dated 04.11.2015 issued by the Assessing Officer during the course of assessment proceedings to point out that the assessee was required by the Assessing Officer to furnish the details of loss on foreign currency transaction and translation of Rs.299.43 lakhs, which had been considered as finance loss. He also pointed out that the assessee was also required by the Assessing Officer to furnish the details of loss on foreign currency transaction and translation of Rs.168.06 lakhs (other than 17 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited considered as finance cost). He submitted that these details required by the Assessing Officer were duly furnished by the assessee vide letter dated 28.12.2015 and the explanation of the assessee on this issue was also offered during the course of proceedings under section 263 before the ld. Principal CIT. He contended that the ld. Principal CIT, however, did not rebut the explanation offered by the assessee and proceeded to hold the order of the assessment made by the Assessing Office as evidence on this issue, which is not justified.
28. The ld. D.R., on the other hand, relied on the following reasons given by the ld. Principal CIT in his impugned order for treating the order of assessment made by the Assessing Officer on this issue as erroneous as well as prejudicial to the interest of the revenue:-
"As regards issue pointed out in Para 2(vii) supra it is observed that explanation given by the assessee in respect of scientific research appears to be only partiall y correct . On examinatio n of det ails in respect of expendit ure o n account of Scientific Research it is seen that the A.O during the assessment proceeding has not specifically enquired about the detail s of Research & Development facility on which the claim U/S 35(2AB) of the Inco me T ax Act , 1961 h as been made by the assessee and allowed by th e A.O. The A.O. was required to call for co py of approval in Fo rm No. 3CM. In this regard it is relevant to observe th at tho ugh the assessee h as furnished co py of form No. 3CL wh ich conveys approval of Department of Scientific and Indust rial Research but th e A.O has not examined the issue by calling for Fo rm No. 3CM which specifically contains the location of such R& D facility. Further, no enquiry has been made to verify th e genuineness of the claim of the assessee making th e order erro neous so far as prejudicial to the interest of revenue".
"As regards issue pointed o ut in Para 2(xi) regarding foreign currency t ransaction loss the assessee has stated that in relatio n to its trading liabilities o r trading t ransactions involving payment s and receipt s in fo reign currency, the losses and gains were incurred/ earned due to exch ange rat e fluctuatio ns, Such losses being relat ed to ordinary working of the Company's business: the same were allowable as revenue deduct ion. Th e plea of the assessee considered. However. o n perusal of assessment reco rd it is noticed that under head of 'Finance Costs' at Sch 22C(c) of P&L account Rs. 2.99 crs was debited as fo reign currency t ransaction & translat ion losses. Indeed th e assessee h ad given a break up o f such claim but the 18 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited AO has not examined and enquired into nature of t ransaction. In sho rt the eligibilit y of these cl aims were not examined in th e light of Audito r's co mment given at Note 2 5.4(1) at Page 47 of the Annual Repo rt wh erein it is mentioned t hat : -
.. 25 .4. Det ails of derivatives inst ruments and unhedged foreign currency exposures I. The following derivative positions are open as at March 31,2012. These t ransactions have been undertaken to act as economic hedges for the Company's exposures to vario us risks in fo reign exchange markets and may/ may not qualify or be designated as hedging inst ruments.
(a) Forward exchange cont ract s and optio ns [being derivative inst ruments} , which are not intended for t rading or speculat ive purposes but for hedge purposes to establish the amo unt of reporting currency required or avail able at the settlement date of ceria in payables and receivables.
(i) Out standing forward exchange contracts ent ered into by the Company as on March 31,2012 Currency Rs. In Lakhs Buy/Sell Cross C urrency USD 66.11 Buy Rupees (16.96) Buy Rupees EURO 5.60 Buy Rupees
- - -
USD 5.58 Sell Rupees
(1.82) Sell Rupees
JPY 3.36 Buy Rupees
- - -
Fro m above comment s prima facie it appears th at a part of foreign currency t ransaction was hedged. Thus, if the assessee had entered into fo rward cont ract s at predetermined exchange rate of foreign currency to safeguard its payable/ receivables from any fluct uatio n in foreign exchange, th e assessee had already h edged its receivables and immune itself from effect of any change in exch ange rate of fo reign currency. Th e issue th us requires further enquiry to det ermine it tax t reatment. With aforesaid observation, on this issue also th e o rder suffers from infirmit y of lack of enquiry and hence co mes with the ambit o f revisionary provisions u/s 263 of the Income Tax Act, 1961. The plea of th e assessee could be judicially examined only aft er examination/ verificat ion of relevant mat erial fact s. Without making enquiry and ascertaining full fact s the issue cannot be judicially adjudicated".
29. We have considered the rival submissions on this issue and also perused the relevant material available on record. It is observed that even though some of the details relating to the assessee's claim on this issue were called for by the Assessing Officer, there was no discussion 19 ITA No. 655/KOL/2018 A.Y. 2012-2013 Eveready Industries India Limited whatsoever made by him in the assessment order on this issue giving any reason for accepting the claim of the assessee. Moreover, as specifically pointed out by the ld. Principal CIT in his impugned order, proper and sufficient enquiry was not made by the Assessing Officer before allowing the claim of the assessee on this issue and such enquiries which the Assessing Officer ought to have made but failed to do was also specifically pointed out by him. We, therefore, find no infirmity in the impugned order of the ld. Principal CIT holding the order of assessment made by the Assessing Officer on this issue to be erroneous and revising the same with a direction to the Assessing Officer to consider and decide this issue afresh after making proper and sufficient enquiry. Grounds No. 15 & 16 of the assessee's appeal are accordingly dismissed.
30. Ground No. 17 raised by the assessee in this appeal reads as under:-
(17) For that on the facts and in the circumstances of the case, the CIT was unjustified in considering the order to be erroneous for the alleged failure to cross verify Party-wise particulars of receipts as per Form-
26AS vis-a-vis the accounts even though the AO had carried out the reconciliation of income as reflected in the books with income reflected in Form-26AS.
31. After considering the rival submissions and perusing the relevant material available on record, we find that the claim of the assessee for TDS was allowed by the Assessing Officer after making proper and sufficient enquiry as pointed out by the ld. Counsel for the assessee from the letters dated 02.03.2015 and 08.03.2016 submitted during the course of assessment proceedings. The allegation of the ld. Principal CIT that the claim of the assessee for such credit on account of TDS was accepted by the Assessing Officer without making proper and sufficient enquiry thus was factually incorrect and we do not subscribe to the view of the ld. Principal CIT that there was any error in the order of the Assessing Officer on this issue calling for revision under section 263. Ground No. 17 of the assessee's appeal is accordingly allowed.
20 ITA No. 655/KOL/2018A.Y. 2012-2013 Eveready Industries India Limited
32. Keeping in view our decision rendered above on each and every issue raised in this appeal of the assessee, we modify the impugned order passed by the ld. Principal CIT under section 263 and allow partly this appeal of the assessee.
33. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on February 13, 2019.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Vice-President (KZ)
Kolkata, the 13 t h day of February, 2019
Copies to : (1) Eveready Indus tries Indi a Limi ted,
1, Middleton Street, Kolkata-700 071
(2) Deputy Commissioner of Income Tax,
Circle-11(1 ), Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
(3) Principal Commissioner of Inco me T ax, Kolkat a-4 , Kolkata, (4) Commissio ner of Income Tax- , (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 21