2015 (7) TMI 860 - AT - Income Tax

Loss under the head other income - CIT(A) allowed relief to assessee - Held that - Held that - Considering the finding, in the light of the submissions advanced where admittedly no verification on facts has been done by the Ld. CIT(A) accepting the arguments of the Ld. Sr. DR, we deem it appropriate to restore the issue back to the file of the AO with the direction to verify the claim of the assessee from the vendor balances and bank advances which has not been done by the CIT(A). The AO is directed to consider the facts and decide the issue by way of a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. - Decided in favour of revenue for statistical purposes

Summary

Issues:
1. Correctness of order deleting addition of Rs. 1,52,29,559 without verification of vendor balances and bank advances.
2. Allowability of loss claimed under "other income" head due to fluctuation in foreign exchange rates.

Analysis:

Issue 1:
The appeal was filed by the Revenue challenging the deletion of an addition of Rs. 1,52,29,559 by the CIT(A) without verifying the vendor balances and bank advances. The assessee, engaged in tunnel construction, declared an income of Rs. 5,55,19,860 for the assessment year 2009-10. The CIT(A) relied on the Apex Court's decision in CIT vs. Woodward Governor India Pvt. Ltd. and the Special Bench's decision in ONGC Ltd. vs. DCIT to allow relief to the assessee. The Revenue contended that the CIT(A) accepted the submissions without proper verification. The Tribunal directed the AO to verify the claim from vendor balances and bank advances, as the CIT(A) did not conduct such verification. The issue was restored to the AO for a detailed examination and a speaking order.

Issue 2:
The second issue revolved around the allowability of the loss claimed under "other income" due to fluctuation in foreign exchange rates. The CIT(A) upheld the claim, citing the appellant's adherence to the mercantile system of accounting and accounting standards. The Tribunal, considering the decisions of the Supreme Court and ITAT Special Bench, concluded that the loss on account of fluctuation in foreign exchange rates was an allowable expenditure. The losses claimed were considered to be on the revenue account, and the disallowance made by the AO was deleted. The appeal of the Revenue was allowed for statistical purposes, emphasizing the need for proper verification in such matters.

In conclusion, the judgment highlighted the importance of thorough verification in assessing claims related to vendor balances, bank advances, and foreign exchange fluctuations. The Tribunal emphasized adherence to accounting standards and the mercantile system while allowing legitimate expenditures based on established legal precedents.