2017 (11) TMI 198 - AT - Income Tax

Validity of reopening of assessment - proceeding initiated without proper assumption of jurisdiction u/s. 147, on the premise of (i) non-service of notice u/s. 148, 143(2) and 142(1); (i) recording of invalid reasons; (iii) failure to record requisite satisfaction; (iv) issuance of proceedings without obtaining requisite approval; and (v) issuance of proceedings beyond the period of limitation - Held that - Though there is no material before us to ascertain whether such notices were issued and served, but it is discernible from the record that the assessee was cooperating with the department in response to notice u/s. 148. The assessee has also replied in response to this notice that the return originally filed be deemed to be filed in response to notice u/s. 148. The assessee has filed various replies before the Assessing Officer in the re-assessment proceedings. Moreover, the factum of non-service of notice u/s. 143(2) nowhere finds place in the objections filed by the assessee before the Assessing Officer. Therefore, in view of the provisions of section 292BB of the IT Act, the assessee stands precluded to object the service of any notice in order to vitiate the re-assessment proceedings. Accordingly, this contention made by the assessee deserves to fail. The remaining issues regarding non-satisfaction of the conditions envisaged u/s. 147 to 151 and the notice being beyond the period of limitation, too have been decided by the first appellate authority with categorical observation that case of the assessee was reopened by the AO u/s. 148 of the IT Act, 1961 after duly recording of the reasons. Notice u/s. 148 was issued and duly served upon the assessee on 23.03.2012 in response to which AR of the assessee company appeared before the AO from time to time. Since the notice u/s. 148 was issued on 23.03.2012 within four years from the end of the relevant A.Y. 2007-08, therefore, the notice being within the prescribed time limit the contention of the appellant that notice was barred by limitation is without any merit. No contrary material is laid on record on behalf of the assessee to discard the above findings of the ld. CIT(A). We, therefore, find no justification to interfere with the decision reached by first appellate authority on this count. Accordingly, the legal ground raised before us deserves to be dismissed sans merit and we hold that the objection on validity of proceedings u/s. 147/148 initiated by Assessing Officer, is not sustainable on these counts. Addition on account of interest on disputed arbitration awards not declared as income by assessee during the year - Held that - Out of three cases, the award in the case of NDCC, Ph-II, NDMC, New Delhi was made in favour of the assessee on 27.01.2007 which has been further challenged by NDMC and rest two awards were received on 17.07.2007 and 06.06.2007 which has been considered as interest income received by the assessee in F.Y. 2007-08. The case laws relied by the assessee are, therefore, applicable in the instant case. The assessee has correctly recorded such receipts as income in his books of account in the subsequent year, but the assessee did not bring any evidence to prove whether it has been offered for tax or not during the subsequent year. Therefore, this aspect needs verification at the stage of Assessing Officer. Therefore, the matter is remanded to the AO to verify the same and act in the light of observations given in the body of this order above. Therefore, this ground of appeal is allowed for statistical purposes Disallowance on account of foreign exchange fluctuation loss claimed by assessee - Held that - AS 11 enjoins reporting of monetary items denominated in foreign currency using the closing rate at the end of the accounting year. It also requires that any difference, loss or gain, arising from such conversion of the liability at the closing rate should be recognized in the profit and loss account for the reporting period. Similarly, CBDT notification on Income Computation and Disclosure Standards also, inter alia, deals with recognition of exchange differences. The notification also sets out that the exchange difference arising on foreign currency transactions have to be recognized as income or business expenses in the period in which they arise subject to exception as set out in Section 43A of the Act or Rule 115 of the Income-tax Rules, 1962, as the case may be. In view of the various provisions of the Companies Act and the IT Act, it was mandatory to draw accounts as per AS-11. Thus, the loss recognized on account of foreign exchange fluctuation as per notified AS 11 is an accrued and subsisting liability and not merely a contingent or a hypothetical liability. We accordingly observe that the AO is not justified to disallow the foreign exchange fluctuation loss in the instant case. As a result, the appeal of the assessee deserves to be partly allowed.

Summary

Issues:
1. Validity of proceedings initiated without proper assumption of jurisdiction u/s. 147
2. Addition of interest accrued during the year and foreign exchange fluctuation loss

Issue 1: Validity of Proceedings u/s. 147:
The appellant challenged the initiation of proceedings under section 147 without proper jurisdiction, citing non-service of notices, invalid reasons, lack of requisite satisfaction, absence of necessary approval, and alleged limitation bar. The impugned order clarified that the notice u/s. 148 was duly served, and the appellant cooperated with the department, precluding objections under section 292BB. The first appellate authority upheld the reopening of the case within the prescribed time limit, dismissing objections raised by the appellant. The Tribunal found no merit in the appellant's contentions, affirming the validity of the proceedings under section 147.

Issue 2: Addition of Interest and Foreign Exchange Fluctuation Loss:
Regarding the addition of interest accrued, the AO and CIT(A) upheld the inclusion of ?4.47 crores as income for the year, disregarding the appellant's claim of taxation upon receipt. The Tribunal, considering the uncertainty of receipt and legal obligations, remanded the matter for verification by the AO. In the case of foreign exchange fluctuation loss, the Tribunal noted the consistent accounting policy followed by the appellant, accepted in the original assessment. The AO's disallowance in the reassessment was deemed unjustified, as the accounting method complied with AS 11 and CBDT notification requirements. Consequently, the appeal was partly allowed, emphasizing the correctness of the accounting treatment for foreign exchange fluctuation loss.

In conclusion, the Tribunal partially allowed the appeal, remanding the interest accrued matter for verification while upholding the appellant's accounting treatment for foreign exchange fluctuation loss. The judgment emphasized adherence to accounting standards and legal obligations in determining the tax implications of interest income and foreign exchange fluctuations.