2019 (6) TMI 1403 - AT - Income Tax

Disallowance of unrealized foreign exchange loss on account of reinstatement of assets and liabilities - HELD THAT - A detailed explanation was submitted by the assessee before the AO in support of allowability of unrealized foreign exchange loss which assessee incurred on account of re-statement of foreign currency denominated trade assets/liabilities. The foreign exchange loss had been provided for by the assessee pursuant to the mandatory Accounting Standard (AS-11) issued by the ICAI. The assessee is consistently followed the this policy of restating foreign exchange assets/liabilities as per the exchange rate prevailing on the last day of previous year and accounting for the resultant profit/loss. AO totally ignored this fact as well as the decision of the Hon ble Apex Court in case of CIT vs. Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT . Thus, there is no need to interfere with the findings of the CIT(A). Ground No. 1 of Revenue s appeal is dismissed. Addition of interest on refund - HELD THAT - The records show that no refund has been received by the assessee in A.Y. 2011-12 which was received in June 2014 after adjustment of outstanding demands. The interest income was offered to tax in A.Y. 2015-16 by the assessee. Therefore, the CIT(A) has given a proper finding and there is no need to interfere with the same. Ground No. 2 of Revenue s appeal is dismissed. Addition AIR information for which the assessee asked the Assessing Officer to give party-wise/date-wise details of the information as mentioned in the AIR - HELD THAT - But the Assessing Officer did not provide the same. Thus, without giving proper opportunity and without verifying the details from the assessee, the Assessing Officer proceeded on the basis of AIR information and made the addition which is not correct. CIT(A) has rightly deleted this addition. Ground No. 3 of the Revenue s appeal is dismissed.

Summary

Issues:
1. Disallowance of unrealized foreign exchange loss
2. Addition of interest on refund
3. Addition on account of default as per AIR information

Issue 1: Disallowance of Unrealized Foreign Exchange Loss

The appeal involved a dispute over the disallowance of unrealized foreign exchange loss. The CIT(A) allowed the deduction, stating that the loss arising from fluctuation in exchange rates was deductible under Section 37(1) in the year of fluctuation, not repayment. The CIT(A) emphasized that the term "expenditure" in Section 37 includes losses, even if not physically paid. The assessee's consistent application of Accounting Standard (AS-11) was highlighted, and the AO's disregard for this and Supreme Court precedent was criticized. The ITAT upheld the CIT(A)'s decision, citing the Supreme Court's approval of a similar ITAT Special Bench judgment. The ITAT emphasized that the AO should allow the consequential relief, dismissing the Revenue's appeal on this ground.

Issue 2: Addition of Interest on Refund

Regarding the addition of interest on a tax refund, the CIT(A) directed that the interest be taxed in the year the refund was received, following a High Court decision. As the refund was received in a subsequent year and the interest income was offered for taxation accordingly, the ITAT upheld the CIT(A)'s decision. The ITAT found no reason to interfere with the ruling, dismissing the Revenue's appeal on this ground.

Issue 3: Addition on Account of Default as per AIR Information

The dispute centered on an addition based on information from the Annual Information Return (AIR) without providing detailed party-wise or date-wise information to the assessee. The CIT(A) emphasized the principle of natural justice, stating that the appellant had the right to receive and rebut information used against them. The ITAT agreed with the CIT(A), noting that additions based solely on piecemeal AIR information were not sustainable. The ITAT highlighted the Assessing Officer's failure to provide necessary details to the assessee, leading to the deletion of the addition. The ITAT dismissed the Revenue's appeal on this ground, emphasizing the need for proper opportunity and verification before making such additions.

In conclusion, the ITAT upheld the CIT(A)'s decisions on all three issues, dismissing the Revenue's appeal in its entirety. The ITAT emphasized adherence to accounting standards, principles of natural justice, and the need for proper verification before making additions based on information provided by the authorities.