Tribunal allows Revenue's appeal on addition deletion, upholds loss claim due to forex rate, stresses verification

The Revenue's appeal challenging the deletion of an addition without proper verification was allowed by the Tribunal. The issue was remanded to the Assessing Officer for detailed examination. Regarding the loss claimed under "other income" due to foreign exchange rate fluctuations, the Tribunal upheld the claim, emphasizing adherence to accounting standards. The Revenue's appeal was allowed for statistical purposes, stressing the necessity of thorough verification in such matters. The judgment underscored the significance of verifying claims related to vendor balances, bank advances, and foreign exchange fluctuations in line with established legal precedents and accounting principles.

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Issues:
1. Correctness of order deleting addition of Rs. 1,52,29,559 without verification of vendor balances and bank advances.
2. Allowability of loss claimed under "other income" head due to fluctuation in foreign exchange rates.

Analysis:

Issue 1:
The appeal was filed by the Revenue challenging the deletion of an addition of Rs. 1,52,29,559 by the CIT(A) without verifying the vendor balances and bank advances. The assessee, engaged in tunnel construction, declared an income of Rs. 5,55,19,860 for the assessment year 2009-10. The CIT(A) relied on the Apex Court's decision in CIT vs. Woodward Governor India Pvt. Ltd. and the Special Bench's decision in ONGC Ltd. vs. DCIT to allow relief to the assessee. The Revenue contended that the CIT(A) accepted the submissions without proper verification. The Tribunal directed the AO to verify the claim from vendor balances and bank advances, as the CIT(A) did not conduct such verification. The issue was restored to the AO for a detailed examination and a speaking order.

Issue 2:
The second issue revolved around the allowability of the loss claimed under "other income" due to fluctuation in foreign exchange rates. The CIT(A) upheld the claim, citing the appellant's adherence to the mercantile system of accounting and accounting standards. The Tribunal, considering the decisions of the Supreme Court and ITAT Special Bench, concluded that the loss on account of fluctuation in foreign exchange rates was an allowable expenditure. The losses claimed were considered to be on the revenue account, and the disallowance made by the AO was deleted. The appeal of the Revenue was allowed for statistical purposes, emphasizing the need for proper verification in such matters.

In conclusion, the judgment highlighted the importance of thorough verification in assessing claims related to vendor balances, bank advances, and foreign exchange fluctuations. The Tribunal emphasized adherence to accounting standards and the mercantile system while allowing legitimate expenditures based on established legal precedents.

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