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TMI Blog2023 (3) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... naries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined as the assessee company failed to state the purpose of the loss in all its submissions. The assessee company was also asked to state the Business expediency for incurring this expenditure and provide all invoices related to it. However, the assessee company has not provided/furnished complete documents nor has it submit a valid explanation for the queries or information sought in the matter of the foreign currency loss. In absence of complete documentary evidence the claim of the assessee is not sustainable. Therefore in absence of complete documentary evidence the claimed loss amounting to Rs. 1,70,54,269/- on account of Foreign Exchange Loss is disallowed and the same is added to the business income of the assessee. 3. The assessee company approached the ld. DRP wherein, the ld DRP called for the records and also remand report from the ld AO and there upon the Ld. Panel was not satisfied with the response and refused to interfere with the draft assessment order. 4. The assessee is in appeal raising following grounds:- 1. On the facts and circumstances of the case, the final assessment order passed by the learned Assessing Officer under Section 143(3) read with Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in parity with the accounting and disclosure requirement and the foreign currency (loss)/ gain arising on such reinstatement is claimed/ booked in the profit loss account while computing income under head Profits and gains of business or profession'. Accordingly, in order to adhere to the provisions of section 145 and AS- 11, the balance outstanding as on 31.03.2018 was reinstated by the assessee company, which resulted in foreign exchange loss of Rs. 1,70,54,269/- and the same was claimed by the assessee in its P L A/c while computing income under the head 'Profits and gains of business or profession. 7. It was submitted that during the course of assessment proceedings, the Ld. AO issued notices u/s 142(1) of the Act dated 19.02.2021 and 25.02.2021, copy of which is placed at PB Page no. 71-74, wherein along with few other details, the Ld. AO required the assessee to furnish the following information/ documents: Details of foreign currency loss along with vouchers and details of dealing. 7.1 It is submitted that in response to the above notices, the assessee vide reply dated 25.02.2021 (PB Page no. 75-78) submitted the details of exchange fluctuation as on 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. OIL NATURAL GAS CORPORATION LTD. VERSUS COMMISSIONER OF INCOME TAX 2010 (3) TMI 81 dated 15.03.2010-SC 3. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 16 (1), NEW DELHI VERSUS M/S TIMEX WATCHESLTD. AND VICA-VERSA 2016 (7) TMI 999 dated 21.06.2016- ITAT Delhi 4. DY. COMMISSIONER OF INCOME TAX CIRCLE-6 (3) (1), MUMBAI VERSUS ISAGRO (ASIA) AGROCHEMICALS PVT. LTD. AND (VICE-VERSA) 2020 (5) TMI 20 dated 26.02.2020-ITAT Mumbai 5. RADHASOAMI SATSANG Vs. COMMISSIONER OF INCOME-TAX 1991 (11) TMI 2 dated 15.11.1991 (SC) 6. COMMISSIONER OF INCOME TAX VERSUS M/S EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES P. LTD 2013 (10 TMI 324 dated 08.10.2013 (SC) 7. M/S UNIPARTS INDIA LTD. VERSUS THE DY. C.I.T. CIRCLE-18 (1) NEW DELHI 2021 (10) TMI 276 dated 30.09.2021- ITAT Delhi 12. On the other hand the ld DR submitted that there is no deficiency in the order of the Tax Authorities below and the assessee has failed to justifiy the expenses by leading appropriate evidence. Making reference to the remand report, the ld DR submitted that in the remand proceedings the ld AO had called for specific replies which was not furnished and the ld DRP has accordingly sustained the draft ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the assessee and where the annexure issued by the Ld. AO mentions; it is informed that due to some technical error the reply filed by you could not be down loaded, therefore, you are again requested please provide the reply of notice u/s 142(1)/ questionnaire dated 17.03.2021 . The paper book shows that in response to this notice dated 01.04.2021 submissions dated 02.04.2021 were made by the assessee which are similar in content to one dated 22.03.2021. Then at page no. 120 of PB, a screenshot of the Revenue s portal is filed which mentions that in response to the query dated 01.04.2021 the response was filed and a part of this has been reproduced by Ld. AO in para no. 3 of the assessment order as follows. Sir we have submitted the details of Foreign, .. as per agreement with NHAI . 17.3 If these submissions dated 22.03.2021 and 02.04.2021 are considered the same reflect that assessee had provided an excel worksheet along with copies of invoice and debit notes explaining foreign exchange loss. The justification on the basis of disclosure norms as per AS-7 was pleaded and detail of expenditures was also provided. 17.4 The order of Ld. DRP shows that Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of contract/agreement, nexus with Indian operations of PO of the assessee, bills/invoice etc. However, no details were submitted by the assessee and the assessee sent his earlier submissions only. It may be noted that the assessee neither during the assessee proceedings nor during the remand proceedings could furnish any reasons for undertaking transactions which resulted in foreign exchange loss, nexus of such transactions with Indian business operations of the PO and copy of contract/agreement for services availed by the assessee. Thus, the assessee has failed to explain the rationale of transactions and its nexus with business of the assessee in India. Thus, submissions of the assessee dated 22.03.2021/02.04.2021 which are part of record, were not found to be satisfactory by the AO and disallowances were made accordingly. 7. In view of the foregoing, it is requested that additions made by the AO may be sustained for the reasons mentioned in the draft assessment order and also for reasons discussed above. 18.1 Then Ld. DRP took notice of the rejoinder of the assessee to the remand report and observed. 3.3 The assessee in his rejoinder, however, stated as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h after conversion of these Euro at the prevailing rate a further loss of Rs. 8,00,600/- was there. Thus, the total exchange loss was Rs. 1,70,54,269/-. 1.8 It may be relevant to point out here that there is no dispute in respect of the credit in respect of each of these invoices. The Ld. AO has disallowed the foreign exchange loss on the pretext that details were not filed. The letter along with complete vouchers and explanation and the computation are self-speaking. Not only this, at paper book pages 106 to 115 each of the invoices number, the amount in Euro and the conversion of the same in the Indian rupees has been stated. 1.9 Despite filing of the above details the Assessing Officer issued another letter dated 1-4-2021 placed at paper book Pg. no. 117-118. On going through page 118 it can be acknowledged that the Ld. AO has asked to re-file the details submitted earlier, where the Ld. Assessing Officer has stated that, It is informed that due to some technical error, the reply filed by you could not be downloaded. Therefore, you are again requested to please provide the reply of notice u/s 142(1) questionnaire dated 17th March, 2021 . In response thereto, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, which are to be mandatorily followed by the assessee while computing income under the head 'Profits and gains of business or profession'. The ICDS relevant in the case under consideration is ICDS-VI, which deals with the 'Effects of Changes in Foreign Exchange Rates'. 1.13 Your honour our detailed submission in this regard has been discussed vide our submission dated 26.10.2021 (from para 1.6 on page no. 9 till para 1.22 on page no.28) filed before your honours. 1.14 Your honour, in addition to the above issue, Ld. AO in the remand report has also alleged that assessee has failed to substantiate the nexus of the foreign currency transactions with the business of the assessee company. In this regard, we would like to submit before your honour, that the allegation made by the Ld. AO is against the actual facts of the case under consideration, since your honour, vide reply dated 22.03.2021 (placed at PB Pg. no. 82- 116) assessee company had duly submitted the copy of invoices (relevant pages are PB Pg. no. 88-105) received from its creditors. Your honours, had the Ld. AO gone through the copy of invoices, he would have himself acknowledged the nexus of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the last date. Thus, the Panel is of the opinion that when specific documents, requisition by the AO such as details regarding underlined transactions which led to foreign exchange fluctuation loss, the Assessing Officer was correct in disallowance the same. The invoices and the debit notes are merely self-seeking and unilateral documents and in the absence of specific agreements for services avail and the corresponding copies of invoices from the head office, they cannot be accepted as evidence. The Panel, therefore, finds no infirmity in the order of the Assessing Officer. The assessee's objections are accordingly dismissed. 4. The objections of the assessee are dismissed as above. The Assessing Officer is directed to incorporate the findings of the Panel in respect of various objections suitably in the final order. The Assessing Officer shall also place a copy of the Panel Directions as Annexure to the final order. 19. The aforsaid establish that Ld. DRP seems to have also 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following factors which 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: (i) whether the system of accounting followed by the assessee is the mercantile system, which brings in the debits of the amount of expenditure for which a legal liability has been incurred even before it is actually disbursed and credits, what is due, immediately it becomes due even before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted byrthe ..... 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