2013 (4) TMI 62 - AT - Income Tax

Tribunal overturns Income Tax assessment under section 263, citing impermissible change of opinion

Jyoti Limited. Versus Commissioner of Income Tax-I

The Tribunal allowed the appeal of the assessee, finding that the order passed under section 263 of the Income Tax Act was not erroneous in various ... Jurisdiction power u/s 263 by CIT(A) - AO has not disallowed u/s 43 B a sum pertained to earlier previous year towards loan from GIIC and claimed as deduction u/s 43 B - Held that:- A.O. has issued the show cause notice on this issue and the assessee filed reply & A.O. has not made any addition after considering the reply. Therefore, the CIT order u/s 263 on this issue is tantamount to change of opinion which is not permitted under the law as held by the various high courts on this issue - in favour of assessee. Foreign currency loan, liability and assets (other than fixed assets) were restated at the rate of prevailing at the year end and exchange rate difference was charged to the profit and loss account which was not according to ratio laid down in the case of Indian Overseas Bank Ltd.(1984 (4) TMI 35 - MADRAS HIGH COURT) as notional liability is not permissible - Held that:- As this fluctuation of exchange loss is allowable being a revenue expenditure relied in the case of Woodward Governor Pvt. Ltd. vs. CIT (2009 (4) TMI 4 - SUPREME COURT) and details were also given before the AO, therefore, there is no revenue loss. As that the exchange rate pertained to various purchases as claimed by the appellant are revenue in nature. Thus no reason to uphold the order of CIT - in favour of assessee. Issues:1. Validity of order passed under section 263 of the Income Tax Act.2. Treatment of interest liability pertaining to a loan from GIIC.3. Treatment of accrued interest shown as unpaid in the balance sheet.4. Change of opinion by the Commissioner of Income Tax.5. Acceptance of retention amount not accounted by the assessee.6. Addition of exchange rate difference on outstanding amount.Issue 1: Validity of order passed under section 263 of the Income Tax ActThe appeal pertains to an order passed by the Ld. CIT-I, Baroda under section 263 of the Income Tax Act. The Ld. AO had completed the assessment, making gross additions and allowing carried forward losses. The counsel for the assessee contended that the order passed under section 263 was invalid as all issues had been considered during the assessment proceedings. The Ld. CIT observed discrepancies related to a loan from GIIC and accrued interest, but it was argued that these had been duly addressed by the assessee. The Tribunal found that the AO's order was not erroneous to the extent that the interest had already been added back by the appellant in the computation of income.Issue 2: Treatment of interest liability pertaining to a loan from GIICThe Ld. CIT observed that a sum pertaining to a loan from GIIC was claimed as a deduction under section 43 B of the Income Tax Act, but the interest liability was not added back as required. The A.R. argued that the full amount had been added back in the computation of income by the assessee. The Tribunal verified this and found that the interest had indeed been added back, concluding that the AO's order was not erroneous in this regard.Issue 3: Treatment of accrued interest shown as unpaid in the balance sheetThe Ld. CIT noted that interest accrued but unpaid was shown in the balance sheet, and since the loan advance and interest due had been converted into a term loan, the interest was not actually paid and thus not admissible under section 43B of the Income Tax Act. The counsel for the appellant argued that this aspect had been considered by the AO, who did not make any addition after reviewing the reply. The Tribunal held that the CIT's order on this issue amounted to a change of opinion, which is impermissible under the law.Issue 4: Change of opinion by the Commissioner of Income TaxThe Tribunal emphasized that the CIT's order under section 263, which was based on issues already considered by the AO, constituted a change of opinion, which is not allowed under legal precedents set by various high courts. It was established that the AO had issued a show cause notice on the matter, and the assessee had filed a reply, indicating that the CIT's intervention was unwarranted.Issue 5: Acceptance of retention amount not accounted by the assesseeThe Commissioner of Income-tax had directed the AO regarding a retention amount not accounted for by the assessee. Subsequently, the rectification order was passed, accepting the assessee's claim. The counsel for the assessee did not press this issue, indicating acceptance of the decision in their favor.Issue 6: Addition of exchange rate difference on outstanding amountThe Ld. CIT directed the addition of an exchange rate difference on the outstanding amount, citing discrepancies in the treatment of foreign currency transactions. The Tribunal reviewed the facts and arguments presented, ultimately concluding that the exchange rate fluctuations were allowable as revenue expenditure, in line with relevant legal precedents. The appeal of the assessee was allowed in this regard.In conclusion, the Tribunal allowed the appeal of the assessee, addressing various issues related to the validity of the order under section 263, treatment of interest liabilities, accrued interest, change of opinion, acceptance of claims, and exchange rate differences, providing detailed analysis and legal reasoning for each aspect.