2019 (6) TMI 1403 - AT - Income Tax

ITAT upholds CIT(A) decisions on revenue appeal, stresses accounting standards, natural justice, and verification.

DCIT Circle-11 (1) New Delhi Versus HCL Comnet Ltd.

DCIT Circle-11 (1) New Delhi Versus HCL Comnet Ltd. - TMI Issues:1. Disallowance of unrealized foreign exchange loss2. Addition of interest on refund3. Addition on account of default as per AIR informationIssue 1: Disallowance of Unrealized Foreign Exchange LossThe appeal involved a dispute over the disallowance of unrealized foreign exchange loss. The CIT(A) allowed the deduction, stating that the loss arising from fluctuation in exchange rates was deductible under Section 37(1) in the year of fluctuation, not repayment. The CIT(A) emphasized that the term 'expenditure' in Section 37 includes losses, even if not physically paid. The assessee's consistent application of Accounting Standard (AS-11) was highlighted, and the AO's disregard for this and Supreme Court precedent was criticized. The ITAT upheld the CIT(A)'s decision, citing the Supreme Court's approval of a similar ITAT Special Bench judgment. The ITAT emphasized that the AO should allow the consequential relief, dismissing the Revenue's appeal on this ground.Issue 2: Addition of Interest on RefundRegarding the addition of interest on a tax refund, the CIT(A) directed that the interest be taxed in the year the refund was received, following a High Court decision. As the refund was received in a subsequent year and the interest income was offered for taxation accordingly, the ITAT upheld the CIT(A)'s decision. The ITAT found no reason to interfere with the ruling, dismissing the Revenue's appeal on this ground.Issue 3: Addition on Account of Default as per AIR InformationThe dispute centered on an addition based on information from the Annual Information Return (AIR) without providing detailed party-wise or date-wise information to the assessee. The CIT(A) emphasized the principle of natural justice, stating that the appellant had the right to receive and rebut information used against them. The ITAT agreed with the CIT(A), noting that additions based solely on piecemeal AIR information were not sustainable. The ITAT highlighted the Assessing Officer's failure to provide necessary details to the assessee, leading to the deletion of the addition. The ITAT dismissed the Revenue's appeal on this ground, emphasizing the need for proper opportunity and verification before making such additions.In conclusion, the ITAT upheld the CIT(A)'s decisions on all three issues, dismissing the Revenue's appeal in its entirety. The ITAT emphasized adherence to accounting standards, principles of natural justice, and the need for proper verification before making additions based on information provided by the authorities.