2018 (6) TMI 1279 - AT - Income Tax

Disallowance of foreign exchange fluctuation loss - mark to market loss - Held that - Scope of the Assessing Officer s verification in the instant consequential round of proceedings was very much a limited one. He had only to verify the impugned mark to market loss as not to have arisen from derivatives or in capital field. There is hardly any quarrel on such DRP s directions are binding on an Assessing Officer u/s 144C(10) - DR to pin point any specific material on record indicating the assessee either to have claimed the loss in question from derivatives or in capital field. There is no such cogent material in the case file. Emerges that the assessee s above extracted heads of foreign financial instruments are in revenue field. It appears to have already followed netting method in computing the impugned losses. Conclude that the CIT(A) has rightly held the assessee s impugned mark to market loss incurred on foreign exchange fluctuation to be allowable. TDS u/s 194H - non deduction of tds - Held that - The fact remains that the DRP had issued a clear cut direction that TDS in question had to be deducted @ ₹ 17 per card coming to ₹ 33,71,771/- only which has already been upheld. The said findings have attained finality. No reason to interfere with the CIT(A) action deleting the impugned disallowance in tune thereof. The Revenue s latter substantive ground is also rejected accordingly.

Summary

Issues:
1. Disallowance of foreign exchange fluctuation loss
2. Disallowance of TDS under section 194H

Analysis:

Issue 1: Disallowance of foreign exchange fluctuation loss
The appeal challenged the correctness of the CIT(A)'s order reversing the Assessing Officer's disallowance of the assessee's foreign exchange fluctuation loss and the disallowance under section 40(a)(ia). The Tribunal found that the AO disallowed the loss based on CBDT Instruction No. 3/2010, treating it as a provision for future loss on foreign exchange fluctuation. However, the appellant argued that the transactions were not derivative transactions or capital loss, supported by statements filed. The Tribunal noted that the AO disregarded the DRP's direction to verify the nature of the transactions, concluding that the loss arose due to restatement of monetary items in foreign currency. The Tribunal held that the AO's disallowance was unjustified, directing the deletion of the disallowance of the foreign exchange fluctuation loss.

Issue 2: Disallowance of TDS under section 194H
The Revenue's appeal also contested the disallowance made by the AO for failure to deduct TDS under section 194H. The CIT(A) accepted the assessee's arguments partially, restricting the disallowance based on DRP directions. The DRP directed TDS deduction at a specific rate, which was upheld. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the findings had attained finality. Consequently, the disallowance under section 194H was rejected, aligning with the DRP's directive. The Revenue's appeal was ultimately dismissed by the Tribunal.

In conclusion, the Tribunal upheld the deletion of the disallowance of foreign exchange fluctuation loss and rejected the disallowance of TDS under section 194H, as directed by the DRP. The Tribunal emphasized the importance of verifying the nature of transactions and following higher appellate authorities' orders. The decision was pronounced on 22.06.2018 by the Tribunal.