2023 (1) TMI 39 - AT - Income Tax

Tribunal allows appeal, foreign exchange loss expenditure approved, PF & ESIC disallowed, guidance on TDS credit.

The Tribunal partly allowed the appeal, directing the AO to verify certain claims and allowing the foreign exchange fluctuation loss as revenue ... TDS credit - CIT(A) directing the AO to verify the TDS credit instead of allowing the same - HELD THAT:- Since the AO has not given credit of the tax paid at Rs.3,20,21,101/- and given credit of Rs.3,19,78,883/- only without assigning any reason, the assessee preferred appeal before the ld.CIT(A) who directed the AO to verify the taxes paid and give credit accordingly. We do not find any infirmity in the order of the ld.CIT(A) on this issue. Since, the ld.CIT(A) has directed the AO to verify the taxes paid and give appropriate credit and since it is the apprehension of ld.AR that the ld.CIT(A) has no power to set aside an issue and therefore, the AO may not follow his direction, therefore, we direct the AO to verify the record and give due credit of the taxes paid by the assessee in shape of TDS, advance tax and self-assessment tax. The ground raised by the assessee on this issue is accordingly allowed for statistical purposes. Addition being the income underreported and treated the same as income of the assessee for AY 2014-15 - excess receipts over the income reported in P&L account on interest received - HELD THAT:- As submitted assessee is following mercantile system of accounting and has duly filed the reconciliation statement. It is his submission that due to misunderstanding by the AO, he could not appreciate the system of accounting consistently followed by the assessee and made the addition. It is also his submission that given an opportunity, the assessee is in a position to substantiate with evidence to the satisfaction of the AO that such income has already been offered to tax in subsequent years and the method of accounting consistently followed by the assessee has been accepted by the revenue and therefore, no addition should be made in this year. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to verify from the record the method of accounting consistently being followed by the assessee and pass appropriate order as per fact and law. The second additional ground raised by the assessee is accordingly allowed for statistical purposes. Nature of expenses - foreign exchange loss treated as capital expenditure and allow depreciation on the same instead of revenue expenditure as claimed by the assessee - HELD THAT:- Hon’ble Supreme Court in the case of the CIT vs. Woodward Governor India (P.) Ltd. [2009 (4) TMI 4 - SUPREME COURT] has held that loss suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure u/s. 37(1). We are of the considered opinion that the foreign exchange fluctuation loss on account of restatement of loan taken from Indusind bank for purchase of building at Chennai from M/s.Shriram Ventures Ltd. has to be allowed as revenue expenditure. We hold and direct accordingly. Issues Involved:1. Disallowance of delayed payment of PF & ESIC.2. Credit for TDS.3. Disallowance of foreign exchange loss.4. Validity of limited scrutiny notice.5. Reconciliation of gross receipts with 26AS statement.6. Allowability of foreign exchange loss as revenue expenditure.Detailed Analysis:1. Disallowance of Delayed Payment of PF & ESIC:The AO disallowed Rs.9,12,184 on account of delayed payment of PF & ESIC. The CIT(A) confirmed this disallowance and directed the AO to verify the tax credit and give appropriate credit. The Tribunal found no infirmity in the CIT(A)'s order and upheld the disallowance.2. Credit for TDS:The AO considered total taxes paid at Rs.3,19,78,883 instead of Rs.3,20,21,101 as claimed by the assessee. The CIT(A) directed the AO to verify the taxes paid and give credit accordingly. The Tribunal agreed with the CIT(A) and directed the AO to verify the record and give due credit of the taxes paid by the assessee.3. Disallowance of Foreign Exchange Loss:The AO disallowed Rs.14,32,814 being foreign exchange loss on account of restatement of a loan taken from Indusind Bank for the purchase of a building, treating it as a capital expenditure. The CIT(A) upheld this disallowance but allowed proportionate depreciation. The Tribunal, however, found merit in the assessee's argument that such foreign exchange loss should be treated as revenue expenditure. Citing various decisions, including those of the Hon'ble Supreme Court, the Tribunal held that the foreign exchange fluctuation loss should be allowed as revenue expenditure and directed accordingly.4. Validity of Limited Scrutiny Notice:The assessee argued that the notice issued under section 143(2) was invalid and without jurisdiction as it did not mention the matters considered for examination. The Tribunal dismissed these grounds as they were not argued by the assessee's representative.5. Reconciliation of Gross Receipts with 26AS Statement:The AO made an addition of Rs.42,810 for underreporting income based on discrepancies between the gross receipts and the 26AS statement. The assessee argued that it follows the mercantile system of accounting and that the income had already been offered to tax in subsequent years. The Tribunal restored the issue to the AO for verification of the method of accounting and to pass an appropriate order.6. Allowability of Foreign Exchange Loss as Revenue Expenditure:The Tribunal referred to several judicial precedents, including the decisions of the Hon'ble Supreme Court in the cases of CIT vs. Woodward Governor India Ltd. and CIT vs. Tata Iron and Steel Company Ltd., and found that foreign exchange fluctuation loss arising from a loan taken for the purchase of a building should be treated as revenue expenditure. The Tribunal directed the AO to allow the foreign exchange fluctuation loss as revenue expenditure.Conclusion:The appeal filed by the assessee was partly allowed, with the Tribunal directing the AO to verify certain claims and allowing the foreign exchange fluctuation loss as revenue expenditure. The disallowance of delayed payment of PF & ESIC was upheld, and the Tribunal provided detailed guidance on the treatment of foreign exchange losses and the credit for TDS.