2020 (11) TMI 405 - AT - Income Tax

Tribunal upholds assessment order on foreign exchange premium expenditure under Income Tax Act.

Gold Finch Jewellery Ltd. Versus Pr. Comm. of Income Tax-2, Ahmedabad

The Tribunal held that the assessment order was not erroneous or prejudicial to the Revenue's interest. The Assessing Officer conducted proper inquiries ... Revision u/s 263 by CIT - AO has allowed the claim of expenditure pertaining to foreign exchange premium without making any proper and due inquiries - HELD THAT:- Assessee has furnished copies of the relevant documents explaining that the A has duly considered the claim of expenditure and explained that assessee has availed the credit facility with respect to the foreign current loan on which the premium was charged. In this facility, the bank has granted a limit of ₹ 15 crore which was subsequently enhanced to ₹ 18 crores and from this facility, the assessee has availed credit facility for purchase of U.S. $ at predetermined rate to cover the risk of foreign exchange fluctuation, the premium was charged by the bank so that the USA dollar was at the predetermined rate. The assessee has also filed the relevant detail to demonstrate that such facility was also obtained in the previous year relevant to the assessment year 2012-13 and also filed the relevant copies of sanction letter of the bank. CIT has failed to controvert the above referred facts and material cited by the assessee to demonstrate that its claim of foreign exchange premium was allowed by the AO after verification of the relevant materials/details as elaborated above - we consider that in the present case it is very clear that the order passed by the Assessing Officer was neither erroneous or prejudicial. - Decided in favour of assessee. Issues Involved:1. Whether the assessment order dated 22nd March 2016 was erroneous and prejudicial to the interest of the Revenue.2. Whether the Assessing Officer made proper and due inquiries and verification regarding the expenditure titled Foreign Exchange Premium amounting to Rs. 98,89,746/-.Detailed Analysis:Issue 1: Erroneous and Prejudicial Assessment OrderThe Principal Commissioner of Income Tax (Pr. CIT) issued a notice under section 263 of the Income Tax Act, 1961, stating that the assessment order dated 22nd March 2016 was erroneous and prejudicial to the interest of the Revenue. The Pr. CIT contended that the Assessing Officer (AO) allowed the claim of Rs. 98,89,746/- under the head 'Foreign Exchange Premium' without proper inquiry and verification, making the order erroneous and prejudicial to the Revenue.The assessee argued that the AO had conducted proper inquiries and due verification before allowing the claim. The AO had issued a detailed notice under section 142(1) on 14th August 2015, specifically asking for a complete breakup and details of other expenses, including the foreign exchange premium. The assessee provided the required details, and the AO allowed the claim after due examination.The Tribunal found that the AO had indeed made necessary inquiries and verified the expenditure during the assessment proceedings. The assessee had also demonstrated that similar expenses were incurred and verified in the previous assessment year (A.Y. 2012-13), and the nature of the expenses remained unchanged. Therefore, the Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.Issue 2: Proper and Due Inquiries and VerificationThe Pr. CIT argued that the AO allowed the foreign exchange premium expenditure without proper inquiries and verification, suggesting that the expenditure was bogus since the assessee did not show any foreign exchange expenditure in the financial year or the earlier year.The assessee countered this by explaining the nature of the credit facilities enjoyed with respect to the foreign currency loan on which the premium was charged. The bank granted a limit for purchasing U.S. dollars at a predefined rate to cover the risk of foreign exchange fluctuations. This facility was also obtained in the previous year relevant to A.Y. 2012-13, and similar expenses were verified and accepted.The Tribunal noted that the AO had specifically asked for details of other expenses, including the foreign exchange premium, in the notice under section 142(1). The assessee provided the necessary details, and the AO did not find any discrepancies. The Tribunal also observed that the Pr. CIT failed to controvert the facts and materials provided by the assessee. Therefore, the Tribunal concluded that the AO had made proper and due inquiries and verification regarding the expenditure.ConclusionThe Tribunal held that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the Revenue. The AO had conducted proper inquiries and due verification before allowing the claim of foreign exchange premium expenditure. Consequently, the appeal of the assessee was allowed, and the order under section 263 of the Income Tax Act was set aside.OrderThe appeal of the assessee is allowed, and the order was pronounced in the open court on 07-10-2020.