2022 (11) TMI 848 - AT - Income Tax

Revision u/s 263 - assessee claimed an expenditure related to the expenditure incurred in foreign exchange towards watch duty - As per CIT part of the expenditure claimed by the assessee pertains to the A.Y.2013-14 and is not allowable for the year under consideration i.e.A.Y.2014-15 - HELD THAT - In the instant case, the expenses claimed by the assessee are covered either by clause 5.3 or 6.1 of the agreement and therefore, the Ld.Pr.CIT has directed the Ld.AO to disallow the same. We are therefore of the considered view that the Ld.Pr.CIT has rightly directed the Ld.AO and find no infirmity in the order of the Ld.Pr.CIT and dismiss the ground raised by the assessee. Disallowance of loss on foreign exchange rate fluctuation - HELD THAT - We observe from the statement submitted by the Ld.AR that the difference in exchange rate was computed as on 31.03.2012 in comparison with exchange rate prevailing on 31.03.2014. It is evident from workings that the exchange loss has been calculated for two assessment years and claimed in the impugned assessment year. AO has therefore rightly considered the exchange loss arising for the impugned assessment year and has allowed the same while passing order u/s 154 of the Act. Exchange loss for the F.Y.2012-13 cannot be claimed in the F.Y.2013-14, relevant to the A.Y.2014-15 u/s 37 of the Act, since it is considered as prior period expenses. We are therefore of the considered view that the Ld.AO has rightly allowed the exchange loss pertaining to the relevant assessment year and has disallowed the same pertaining to the previous assessment year. We, therefore, do not wish to interfere in the order of the Ld.AO on this ground and dismiss the ground raised by the assessee.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr.CIT) under Section 263.
2. Allowability of expenditure claimed by the assessee amounting to Rs. 5,13,41,403/-.
3. Disallowance of loss on foreign exchange rate fluctuation amounting to Rs. 2,38,77,814/-.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (Pr.CIT) under Section 263:
The assessee contested the jurisdiction of the Pr.CIT to initiate revisionary proceedings under Section 263, arguing that the original assessment was conducted with detailed inquiries, proper verification, and due application of mind. The Tribunal noted that the Pr.CIT has the authority to revise an assessment order if it is found to be erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the Pr.CIT's jurisdiction, stating that the conditions for invoking Section 263 were satisfied.

2. Allowability of Expenditure Claimed by the Assessee Amounting to Rs. 5,13,41,403/-:
The Pr.CIT observed that the assessee claimed expenses which were supposed to be borne by the Taiwanese purchaser as per the marketing agreement. The assessee argued that clauses 5.3 and 6.1 of the marketing agreement should be read together, allowing them to claim the expenses. However, the Tribunal found that the expenses claimed by the assessee were covered by either clause 5.3 or 6.1, and thus, the Pr.CIT was correct in directing the AO to disallow these expenses. The Tribunal dismissed the assessee's ground, agreeing with the Pr.CIT's interpretation and decision.

3. Disallowance of Loss on Foreign Exchange Rate Fluctuation Amounting to Rs. 2,38,77,814/-:
The Pr.CIT noted discrepancies in the assessee's claim of foreign exchange loss, pointing out that the advances received were towards the acquisition of fishing vessels and not for trade, thus governed by Section 43A and not Section 37(1). The Tribunal observed that the exchange loss was calculated for two assessment years and claimed in the impugned assessment year, which was not permissible. The Tribunal upheld the Pr.CIT's direction to the AO to examine the correctness and admissibility of the foreign exchange loss. The Tribunal agreed with the AO's decision to allow the exchange loss pertinent to the relevant assessment year and disallow the prior period expenses.

Conclusion:
The Tribunal dismissed the appeal, upholding the Pr.CIT's order under Section 263, which found the original assessment erroneous and prejudicial to the interest of the revenue. The Tribunal agreed with the disallowance of the claimed expenses and the restriction of the foreign exchange loss to the relevant assessment year. The appeal of the assessee was dismissed in its entirety.