2021 (12) TMI 708 - AT - Income Tax

Reopening of assessment u/s 147 - addition made on account of loss on exchange rate difference - addition solely on the basis of his view that rate of dollar adopted by assessee at ₹ 40/- per dollar while making payment on the same date, the rate was taken at ₹ 41.92 per dollar which is not in accordance with rate prescribed by RBI - whether assessee has suppressed loss and circulated black capital as the purchase rate at the time of purchase as well as the exchange rate at the time of payment are not taken in accordance with the prevailing Foreign Exchange Rate declared by the RBI for the date of Import and the date of payment? - HELD THAT - We find that in the statement of fact, the Assessing Officer recorded that the case of assessee was re-opened on audit objection. The re-assessment order was passed after verification and consideration of submission made by assessee. We find that re-opening on audit objection is not valid as it has been held by Hon'ble jurisdictional High Court in the case of Torrent Power of SEC Ltd 2016 (12) TMI 871 - GUJARAT HIGH COURT . However, we are conscious of the fact that issue is not raised before us for our consideration. CIT(A) after appreciation on the fact held that Assessing Officer made the addition without understanding the accounting and facts of the case. CIT(A) held that assessee was right in booking the purchase at the custom rate which is fixed for some period as per trading norm and same point of method is followed by Custom Department for charging custom duty on the imported goods as the RBI rate fluctuating in daily at the time of actual payment in foreign exchange for imported bills. The assessee had adopted actual rate, which the bank has debited to their accounts and it is the rate taken by the bank during the day, the trading rate which almost very closed to rate of RBI - all purchases of the assessee was settled during the year by payment through credit so difference, if any, booking rate at the time of purchase automatically being settled in the year itself in the profit and loss account - if the view of AO is accepted then the purchases would be booked at the time of RBI s fixed rate and when actual payment will be made, the exchange rate difference would be less and the purchase cost would be increased by corresponding amount which is evident from the observation of AO as he has computed foreign exchange loss of ₹ 3.08 Crores in place of 1.91 Crores calculated by assessee. CIT(A) also held that the allegation of Assessing Officer is that assessee circulated black money is baseless and impounded. Thus, we do not find any infirmity or illegality in the order passed by ld. CIT(A), which we affirm accordingly. - Decided against revenue.

Summary

Issues:
Appeal against deletion of addition on account of loss on exchange rate difference for assessment year 2009-10.

Analysis:
1. The Revenue appealed against the deletion of an addition of ?1,91,51,938 made on account of loss on exchange rate difference for the assessment year 2009-10. The Assessing Officer re-opened the case under section 147, alleging that the assessee imported diamonds and debited ?1.91 crores towards exchange difference for payments, claiming that the actual foreign exchange loss should have been ?3.08 crores. The Assessing Officer disallowed the claim of loss of exchange in the assessment order dated 20.12.2016, alleging that the assessee suppressed the loss and circulated black money.

2. The assessee filed an appeal before the Ld. CIT(A), providing detailed written submissions. The Ld. CIT(A) found that the Assessing Officer made additions without understanding the facts and accounting principles. The assessee had booked purchases at industry rates, and the difference between the purchase rate and actual payment was claimed as "exchange rate difference." The Ld. CIT(A) noted that the method followed by the assessee was valid, as purchases were settled through buyer's credit, automatically adjusting any differences in the booking rate. The Ld. CIT(A) held that the Assessing Officer's allegation of the assessee circulating black money was baseless and not supported by evidence.

3. The Revenue contended that the exchange rate difference claimed by the assessee was not supported by documentary evidence and that the rates adopted did not match with sample bills. The Ld. CIT(A) had appreciated the explanation provided by the assessee regarding the method of booking purchases at custom rates and settling payments at actual rates debited by the bank. The Ld. CIT(A) found no discrepancy in the claim of exchange rate difference and upheld the assessee's method of accounting for foreign exchange transactions.

4. The Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order. The Tribunal noted that the Assessing Officer's addition was made without proper understanding of accounting principles and facts of the case. The Tribunal concurred with the Ld. CIT(A)'s findings that the assessee's method of booking purchases and settling payments was valid and that the allegation of circulating black money was baseless. The Tribunal held that there was no infirmity in the Ld. CIT(A)'s order and upheld the decision.

In conclusion, the Tribunal dismissed the Revenue's appeal against the deletion of the addition on account of loss on exchange rate difference, affirming the Ld. CIT(A)'s order based on a thorough analysis of the facts and accounting principles involved in the case.