Section 263 revision upheld for inadequate enquiry into foreign exchange loss on repayment of a foreign currency loan.

Revision under section 263 was upheld where the Assessing Officer allowed the entire foreign exchange loss on repayment of a foreign currency loan without adequate enquiry. The record showed only a general query, with no proper examination of whether exchange differences had to be recognised year-wise under the applicable accounting standards and income computation framework. The assessee had clubbed accumulated exchange differences of earlier years with the current year loss, although only a small part related to the relevant year. The assessment order was therefore treated as erroneous and prejudicial to the interests of the Revenue, justifying revisionary intervention.

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Issues: Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 to set aside the assessment on the ground that the Assessing Officer had allowed the entire foreign exchange loss on repayment of foreign currency loan without proper examination.

Analysis: The assessee had claimed deduction for exchange loss arising on repayment of a foreign currency loan in one stretch, covering accumulated exchange differences of earlier years as well. The assessment records showed that the Assessing Officer had asked only a general query and had accepted the claim without examining whether the loss was required to be recognised year-wise in accordance with the applicable accounting standards and the income computation framework. The governing provisions and standards required exchange differences on monetary items to be recognised in the relevant previous year, and the treatment adopted by the assessee was not in conformity with that requirement. The record also showed that the loss relatable to the current year was only a small portion of the total amount claimed, which supported the view that the assessment order had been passed without the necessary enquiry.

Conclusion: The invocation of section 263 was valid and the assessment order was rightly held to be erroneous and prejudicial to the interests of the Revenue.

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