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2023 (9) TMI 1543 - AT - Income TaxValidity of Reopening of assessment - Disallowance of provision for forex loss and disallowance of loss on forward contracts - whether the assessee has disclosed fully and truly all the material facts before the AO to complete the assessment u/s 143(3) or not? - HELD THAT - As per the proviso to section 147 of the Act it is the duty of the assessee to disclose all the material facts fully and truly to complete the assessment. In this case we find that the assessee has not filed any details in respect of claim made by the assessee. AO by issuing notice u/s 148 reopened the assessment which is in accordance with law. So far as some details are filed and those are not the details actually required to complete the assessment u/s 143(3) and not only that the details filed by the assessee cannot be said that those are the material facts to complete the assessment. Therefore we are of the opinion that the AO has rightly reopened the assessment by issuing notice u/s 148. Thus we hold that the reopening is valid. On perusal of the reasons recorded by the AO we find that the assessee has not filed fully and truly all the relevant material facts for completing the assessment. There is no need to record separately that there is a failure on the part of the assessee to file fully and truly all the materials for completing the assessment. Therefore the arguments are rejected. Disallowance of provision for foreign exchange losses - Assessee has created a total provision towards restatement of the liability in foreign currency. Since the assessee failed to establish as to how the provision was calculated on a scientific basis in accordance with the method of accounting the AO disallowed the entire claim and brought to tax. CIT (A) observed that the assessee has adopted an ad-hoc rate of .50.22 per USD which was not supported by any document. CIT (A) sustained the loss to the extent and allowed relief to the extent - We have perused the details filed by the assessee in the form of paper book as was filed before the CIT (A) and find that the ld. CIT (A) has rightly confirmed the disallowance and granted. No merits in the arguments of the ld. Counsel for further relief over and above the relief granted by the CIT(A). Thus we find no infirmity in the order passed by the CIT(A). Thus the ground raised by the assessee towards confirmation of disallowance is dismissed. Similarly the ground raised by the Revenue of deletion of addition to the extent stands dismissed. Addition of loss on forward contracts - Before us assessee has contended that the purchase rates are supported by purchase invoice and therefore the losses claimed by the assessee are allowable on account of actual remittance - HELD THAT - The production of purchase invoices justifies the deduction on the basis of rate on the date of purchases thereby deduction was allowed as purchases are booked as per the rates prevailing on the date of raising the invoices. The assessee was claiming further deduction at the time of remittances stating that the rate as per forward cover or spot rate on the date of remittances as against the rate booked at the time of purchase has resulted in further loss to the assessee. As rightly pointed out by the CIT(A) we are also of the opinion that this loss can be allowed only when the assessee shows that rate of settlement is spot rate and there was no forward cover or alternatively rate of settlement was the forward rate and produce the forward contract. Admittedly the assessee has not produced forward contract either before the AO or before the ld. CIT (A) or even before the Tribunal. The assessee has not produced any evidence whatsoever in respect of the underlying transactions cancellation of the forward cover contract the circumstances under which they were cancelled and whether same was a premature cancellation. Since the assessee could not produce even a single document for cancellation the ld. CIT (A) dismissed the ground raised by the assessee. Before the Tribunal also the assessee has not furnished any document in support of its claim. We uphold the order passed by the CIT (A) on this issue and thus the ground raised by assessee is dismissed.
Issues Involved:
1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961. 2. Disallowance of provision for foreign exchange losses. 3. Disallowance of loss on forward contracts. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961: The primary issue was whether the assessee had disclosed all material facts fully and truly during the original assessment under section 143(3) of the Act. The Tribunal examined the reasons recorded by the Assessing Officer (AO) for reopening the assessment, which included the non-disclosure of details regarding the loss on restatement of foreign exchange and the failure to provide supporting documents for the forward contracts. The Tribunal upheld the reopening of the assessment, stating, "the assessee has not filed fully and truly all the relevant material facts for completing the assessment." The Tribunal also rejected the assessee's argument of change of opinion, citing the lack of initial disclosure, thus validating the reopening under section 147. 2. Disallowance of Provision for Foreign Exchange Losses: The AO disallowed the entire provision of Rs. 40,98,03,268/- created for restatement of liability in foreign currency, as the assessee failed to establish the scientific basis for the provision. The CIT(A) partially upheld the disallowance, allowing relief of Rs. 9,79,10,317/- and sustaining the disallowance of Rs. 31,18,92,950/-. The Tribunal noted that the assessee could not substantiate the provision with appropriate documentation, particularly for the forward contracts. The Tribunal concluded that the CIT(A) correctly upheld the disallowance of Rs. 31,18,92,950/-, observing, "the provision created at the end of the year in respect of transactions that are supported with forward cover have not been restated on any scientific basis." Consequently, both the assessee's and the Revenue's appeals on this issue were dismissed. 3. Disallowance of Loss on Forward Contracts: The AO disallowed the loss of Rs. 41,31,84,699/- on forward contracts, treating them as speculative transactions under section 43(5) of the Act, due to the lack of supporting documents for the underlying transactions. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision. The Tribunal emphasized that the assessee failed to produce any evidence of the forward contracts or the circumstances of their cancellation. The Tribunal cited relevant case law, including decisions from the Mumbai and Chennai Benches of the ITAT, which required proof of underlying transactions for such losses to be considered business losses. The Tribunal concluded, "the Assessing Officer's action in treating the same as speculative profit is upheld," and dismissed the assessee's appeal on this ground. Conclusion: In summary, the Tribunal upheld the reopening of the assessment under section 147, confirmed the partial disallowance of the provision for foreign exchange losses, and sustained the disallowance of the loss on forward contracts. Both the appeals filed by the assessee and the Revenue were dismissed. The order was pronounced on 06th September, 2023, at Chennai.
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