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2022 (4) TMI 709 - AT - Income TaxRevision u/s 263 - Allowability of foreign exchange fluctuation loss - HELD THAT - There is no dispute that in the assessment order there is no reference about the examination of foreign exchange fluctuation loss. However, we find that during the assessment proceeding the AO issued notice first notice dated 26.08.2015 and sought various information therein. In para 2(x) of the said notice, the AO sought complete details of expenses including loss of foreign exchange loss on foreign currency. We find that the assessee vide its reply furnished the details of expenses including loss of foreign currency. The assessee further in response to order sheet entry furnished the fluctuation account /export. Thus, the issue was examined and verified by the AO. As recorded there is no reference in the assessment order about the verification of the issue. However, it is clearly discernible from the copy of show cause notice and the reply thereto and the relevant evidence in support of such claim that issue was examined by the AO. The Hon ble Supreme Court in CIT Vs Woodward Governor India (P) ltd. 2009 (4) TMI 4 - SUPREME COURT held that the loss suffered by the assessee on account of foreign exchange fluctuation difference as on the date of balance sheet is an item of expenditure allowable under section 37. Therefore, the order of AO in allowing the foreign exchange loss in assessment order will not render his action as erroneous. Pr. CIT while issuing show cause notice on his observation as recorded in para 2(i)(ii) that the statutory auditor has qualified foreign exchange loss in absence of details. We find that the assessee filed detailed reply to the said show cause notice under section 263. The ld. Pr.CIT instead of giving any independent finding on the reply so furnished by the assessee repeated his observation that assessment order was passed without making enquiries or verification. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., 2017 (8) TMI 535 - GUJARAT HIGH COURT held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid - Decided in favour of assessee.
Issues:
Jurisdiction under section 263 of the Income Tax Act regarding foreign exchange loss claimed by the assessee for A.Y. 2013-14. Analysis: Issue 1: Jurisdiction under section 263 The appeal contested the jurisdiction of the Principal Commissioner of Income Tax in invoking section 263 without meeting the necessary conditions. The assessee argued that the AO had already made inquiries and taken a position on the matter. The contention was that the assessment order was not erroneous based on the auditor's disclaimer regarding foreign exchange gain/loss. The Principal Commissioner issued a show cause notice questioning the foreign exchange loss claimed by the assessee, leading to the revision of the assessment order. Issue 2: Assessment proceedings and response The assessee responded to the show cause notice by providing detailed explanations and supporting documents regarding the foreign exchange loss. The assessee contended that the AO had already examined and verified the claim during the assessment proceedings. The reply highlighted that the foreign exchange loss was legitimate and arose from export transactions, supported by ledger extracts and overseas importer details. Issue 3: Disagreement on assessment order The Principal Commissioner rejected the assessee's reply, stating that the assessment order was erroneous as the AO did not conduct sufficient inquiries. The Principal Commissioner set aside the assessment order, directing a reassessment. The assessee challenged this decision before the Tribunal, arguing that the AO had conducted proper inquiries and taken a reasonable view, supported by legal precedents. Issue 4: Tribunal's decision The Tribunal considered both parties' submissions and reviewed the assessment proceedings. It noted that the AO had sought and received details on foreign exchange fluctuation during the assessment. The Tribunal found that the AO had examined and verified the issue, even though the assessment order did not explicitly mention it. Citing legal precedents, including the Supreme Court's ruling on foreign exchange losses, the Tribunal concluded that the AO's actions were reasonable and the Principal Commissioner's decision was based on a change of opinion. Consequently, the Tribunal set aside the order under section 263, allowing the appeal of the assessee. In conclusion, the Tribunal's decision emphasized the importance of proper assessment procedures and the need for substantial evidence to support revisions under section 263 of the Income Tax Act. The case highlighted the significance of thorough inquiries by assessing officers and the requirement for valid reasons to challenge assessment orders.
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