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2023 (3) TMI 984 - AT - Income TaxAssessment u/s 144C - Mandation to consider assessee submissions - Unrealized foreign currency losses - AO disallowed claim as assessee company to furnish details of foreign currency losses along with vouchers and details of dealing - HELD THAT - Observations of the ld DRP that the ld AO considered the submissions seems to be incorrect as the draft order does not reflect the same. DRP seems to have not shown interest in examining the material on record and give a conclusive finding on issue. The provisions of Section 144C of the Act with sub-section 7 provides that DRP before issuing any directions under sub-section 5 of Section 144C can make such inquiry as it feels or call for any inquiry to be made by any Income Tax Authority. It is a settled proposition of law that the process before the DRP is continuation of the assessment proceedings as only thereafter would a final appealable assessment order be passed. The proceeding before the DRP is not an appeal proceeding but a corrective mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assessee. It is a continuation of the assessment proceeding till such time a final order of assessment which is appealable is passed by the AO DRP thus is an authority expected to exercise its power more extensively then actually available with First Appellate Authority, CIT(A). The Bench is of considered opinion that Ld. DRP has fallen in error in not exercising it s exhaustive powers within the scope of Section 144C and to give a finding on the merits of the objections of the assessee on the basis of record before it. Too much stress has been laid by Ld. DRP on the non-satisfaction of Ld. AO about the lack of information provided to the Ld. AO. As a quasi judicial authority, the Ld. AO and Ld DRP, both were supposed to examine the claim on merits on the basis of whatever matter was before it. Brushing aside all the submission without any marshaling of whatever evidence or submissions are available and stressing on a particular information, is not justified. On merits of the claim, the bench is of considered opinion that judgments relied by the Ld. AR in the case of CIT vs. M/s. Woodward Governor India P. Ltd. ( 2009 (4) TMI 4 - SUPREME COURT and ONGC Ltd. vs. CIT ( 2010 (3) TMI 81 - SUPREME COURT extensively deal with the question as to what factors should be taken into account in order to find out if an expenditure on account of fluctuation in the foreign currency rates, when the assessee is following mercantile system of accounting, is deductible. The issue requires to be remanded back to the Ld. AO with directions to take into consideration the submissions of assessee dated 22.03.2021 and 02.04.2021 along with its enclosures / annexures and to pass afresh draft assessment order. Needless to say that Ld. AO will be in it s right to call for any further information from the assessee. Appeal of assessee is allowed for statistical purposes.
Issues Involved:
1. Validity of the final assessment order under Section 143(3) read with Section 144C(13) of the Income Tax Act. 2. Alleged violation of the principle of natural justice. 3. Disallowance of foreign exchange loss claimed by the assessee. 4. Charging of interest under sections 234A, 234B, and 234C of the Income Tax Act. Summary: 1. Validity of the Final Assessment Order: The assessee challenged the final assessment order passed by the Assessing Officer (AO) as bad in law and on facts, arguing that the AO made the assessment at an income of Rs. 3,52,14,160/- against the returned income of Rs. 1,81,59,890/-. 2. Violation of Natural Justice: The assessee claimed that the AO erred in passing the order without providing a reasonable opportunity to the assessee, thereby violating the principle of natural justice. 3. Disallowance of Foreign Exchange Loss: The primary issue revolved around the disallowance of Rs. 1,70,54,270/- on account of foreign exchange loss claimed by the assessee. The AO disallowed the loss, stating that the assessee did not provide complete details or justify the business expediency of the foreign exchange loss. The Dispute Resolution Panel (DRP) upheld the AO's decision, noting that the assessee failed to provide specific agreements, invoices, and the nexus of the transactions with the business operations in India. The Tribunal observed that the assessee had responded to every notice from the AO and provided relevant information and documents, including detailed submissions dated 22.03.2021 and 02.04.2021. The Tribunal found that the AO and DRP did not adequately consider these submissions. The Tribunal cited the Supreme Court judgments in CIT vs. M/s. Woodward Governor India P. Ltd. and ONGC Ltd. vs. CIT, which support the allowance of foreign exchange losses as deductible expenditure under Section 37(1) of the Income Tax Act. 4. Charging of Interest: The assessee also contested the charging of interest under sections 234A, 234B, and 234C of the Income Tax Act, but the Tribunal did not specifically address this issue in its detailed analysis. Conclusion: The Tribunal set aside the orders of the lower tax authorities and remanded the matter back to the AO for fresh consideration. The AO was directed to take into account the assessee's submissions dated 22.03.2021 and 02.04.2021 and pass a fresh draft assessment order, allowing the AO to call for any further information if necessary. The appeal of the assessee was allowed for statistical purposes.
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