Tribunal upholds deletion of addition based on exchange rate loss, citing valid accounting principles

The Tribunal dismissed the Revenue's appeal against the deletion of the addition on account of loss on exchange rate difference for the assessment year 2009-10. The Tribunal upheld the Ld. CIT(A)'s order, finding that the Assessing Officer's addition lacked proper understanding of accounting principles. It was determined that the assessee's method of booking purchases and settling payments was valid, and the allegation of circulating black money was baseless. The Tribunal concluded that there was no infirmity in the Ld. CIT(A)'s decision and upheld the deletion of the addition.

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Issues:
Appeal against deletion of addition on account of loss on exchange rate difference for assessment year 2009-10.

Analysis:
1. The Revenue appealed against the deletion of an addition of Rs. 1,91,51,938 made on account of loss on exchange rate difference for the assessment year 2009-10. The Assessing Officer re-opened the case under section 147, alleging that the assessee imported diamonds and debited Rs. 1.91 crores towards exchange difference for payments, claiming that the actual foreign exchange loss should have been Rs. 3.08 crores. The Assessing Officer disallowed the claim of loss of exchange in the assessment order dated 20.12.2016, alleging that the assessee suppressed the loss and circulated black money.

2. The assessee filed an appeal before the Ld. CIT(A), providing detailed written submissions. The Ld. CIT(A) found that the Assessing Officer made additions without understanding the facts and accounting principles. The assessee had booked purchases at industry rates, and the difference between the purchase rate and actual payment was claimed as "exchange rate difference." The Ld. CIT(A) noted that the method followed by the assessee was valid, as purchases were settled through buyer's credit, automatically adjusting any differences in the booking rate. The Ld. CIT(A) held that the Assessing Officer's allegation of the assessee circulating black money was baseless and not supported by evidence.

3. The Revenue contended that the exchange rate difference claimed by the assessee was not supported by documentary evidence and that the rates adopted did not match with sample bills. The Ld. CIT(A) had appreciated the explanation provided by the assessee regarding the method of booking purchases at custom rates and settling payments at actual rates debited by the bank. The Ld. CIT(A) found no discrepancy in the claim of exchange rate difference and upheld the assessee's method of accounting for foreign exchange transactions.

4. The Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order. The Tribunal noted that the Assessing Officer's addition was made without proper understanding of accounting principles and facts of the case. The Tribunal concurred with the Ld. CIT(A)'s findings that the assessee's method of booking purchases and settling payments was valid and that the allegation of circulating black money was baseless. The Tribunal held that there was no infirmity in the Ld. CIT(A)'s order and upheld the decision.

In conclusion, the Tribunal dismissed the Revenue's appeal against the deletion of the addition on account of loss on exchange rate difference, affirming the Ld. CIT(A)'s order based on a thorough analysis of the facts and accounting principles involved in the case.

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