TaxTMI 
TaxTMI 
2023 (3) TMI 984
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....e addition with following findings as per para 4 of the draft order:- "4. The reply of the assessee company is considered but not acceptable on ground that the assessee company did not provide the complete details regarding Foreign Exchange Loss. The assessee company was asked to furnish the details of transaction for which this loss on foreign exchange has been generated but no submission was received from the assessee company to explain the said loss. The Purpose of foreign currency loss was also to be determined by the assessee company which has remained unexplained as the assessee company failed to state the purpose of the loss in all its submissions. The assessee company was also asked to state the Business expediency for incurring this expenditure and provide all invoices related to it. However, the assessee company has not provided/furnished complete documents nor has it submit a valid explanation for the queries or information sought in the matter of the foreign currency loss. In absence of complete documentary evidence the claim of the assessee is not sustainable. Therefore in absence of complete documentary evidence the claimed loss amounting to Rs. 1,70,54,269/- on acc....
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....echnical support services, Business Support Services, Sundry expenses and for the services so availed, the assessee company received invoices from its suppliers and the amount outstanding at the end of the financial year is shown under the head current liabilities. That, being foreign currency transactions, the balance outstanding as on the year end was reinstated by the assessee company as per the provisions of section 145(2) of the Income Tax Act as well as per the guidelines contained in AS-11. It was contended that both these are in parity with the accounting and disclosure requirement and the foreign currency (loss)/ gain arising on such reinstatement is claimed/ booked in the profit & loss account while computing income under head Profits and gains of business or profession'. Accordingly, in order to adhere to the provisions of section 145 and AS- 11, the balance outstanding as on 31.03.2018 was reinstated by the assessee company, which resulted in foreign exchange loss of Rs. 1,70,54,269/- and the same was claimed by the assessee in its P&L A/c while computing income under the head 'Profits and gains of business or profession. 7. It was submitted that during the cou....
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....es reinstatement claimed as expenses. 10. It was also submitted that the ld AO has not considered the expenditure to be doubtful or suspicious and once they are not doubted the exchange losses arriving out of reinstatement of foreign currency payable at the end of the financial year could not have been disallowed. 11. The ld AR referred to the following judgment in support of this contentions:- 1. CIT Vs. M/S WOODWARD GOVERNOR INDIA P. LTD. & M/S HONDA SIEL POWER PRODUCTS LTD. 2009 (4) TMI 4. Dated: 8-4-2009- SC 2. OIL & NATURAL GAS CORPORATION LTD. VERSUS COMMISSIONER OF INCOME TAX 2010 (3) TMI 81 dated 15.03.2010-SC 3. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 16 (1), NEW DELHI VERSUS M/S TIMEX WATCHESLTD. AND VICA-VERSA 2016 (7) TMI 999 dated 21.06.2016- ITAT Delhi 4. DY. COMMISSIONER OF INCOME TAX CIRCLE-6 (3) (1), MUMBAI VERSUS ISAGRO (ASIA) AGROCHEMICALS PVT. LTD. AND (VICE-VERSA) 2020 (5) TMI 20 dated 26.02.2020-ITAT Mumbai 5. RADHASOAMI SATSANG Vs. COMMISSIONER OF INCOME-TAX 1991 (11) TMI 2 dated 15.11.1991 (SC) 6. COMMISSIONER OF INCOME TAX VERSUS M/S EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES P. LTD 2013 (10 TMI 324 dated 08.10.2013 (SC) 7. M/S UNIPARTS ....
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....documents to the satisfaction of Ld. AO but DRP on appraisal of record has found submissions dated 22.03.2021 and 02.04.2021 available on assessment record. 17.1 The submissions dated 22.03.2021 available at page no. 86 to 87 along with enclosure up to page no. 116 show that these submissions were in response to notice u/s142(1) dated 17.03.2021. 17.2 The paper book further reflects that after this submission of 22.03.2021 another notice u/s 142(1) of the Act dated 01.04.2021 was issued to the assessee and where the annexure issued by the Ld. AO mentions; "it is informed that due to some technical error the reply filed by you could not be down loaded, therefore, you are again requested please provide the reply of notice u/s 142(1)/ questionnaire dated 17.03.2021". The paper book shows that in response to this notice dated 01.04.2021 submissions dated 02.04.2021 were made by the assessee which are similar in content to one dated 22.03.2021. Then at page no. 120 of PB, a screenshot of the Revenue's portal is filed which mentions that in response to the query dated 01.04.2021 the response was filed and a part of this has been reproduced by Ld. AO in para no. 3 of the assessment o....
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....e resubmitted copies of earlier submission dated 02.04.2021 which are already part of the record and duly considered by the AO but not found acceptable. 6. In this regard, it is noted that the assessee had not submitted details regarding underlying transactions which led to foreign exchange fluctuation loss, their business connection with Indian operations etc. The assessee was also provided fresh opportunity to provide the relevant information viz. copy of contract/agreement, nexus with Indian operations of PO of the assessee, bills/invoice etc. However, no details were submitted by the assessee and the assessee sent his earlier submissions only. It may be noted that the assessee neither during the assessee proceedings nor during the remand proceedings could furnish any reasons for undertaking transactions which resulted in foreign exchange loss, nexus of such transactions with Indian business operations of the PO and copy of contract/agreement for services availed by the assessee. Thus, the assessee has failed to explain the rationale of transactions and its nexus with business of the assessee in India. Thus, submissions of the assessee dated 22.03.2021/02.04.2021 which are p....
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....a total amount of EUR 14,88,469 was outstanding with the book value in Indian rupees at Rs. 10,38,05,111/-. Applying the Euro rate of 80.622 as on 31-3- 2018 the value of this Euro comes to Rs. 12,00,03,381/- and thus there was an exchange loss of Rs. 1,61,98,269/-, which after adjusting the exchange loss of Rs. 55,400/- booked earlier, the net loss came to Rs. 1,62,53,669/-. There was a further outstanding of EUR 77,940/- and against which after conversion of these Euro at the prevailing rate a further loss of Rs. 8,00,600/- was there. Thus, the total exchange loss was Rs. 1,70,54,269/-. 1.8 It may be relevant to point out here that there is no dispute in respect of the credit in respect of each of these invoices. The Ld. AO has disallowed the foreign exchange loss on the pretext that details were not filed. The letter along with complete vouchers and explanation and the computation are self-speaking. Not only this, at paper book pages 106 to 115 each of the invoices number, the amount in Euro and the conversion of the same in the Indian rupees has been stated. 1.9 Despite filing of the above details the Assessing Officer issued another letter dated 1-4-2021 placed at paper bo....
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....hartered Accountant of India under Accounting Standard-11, which deals with The Effects of Changes in Foreign Exchange Rates' and are required to be mandatorily followed while preparing the financial statements of the company. ii. To adhere with the provisions of section 43AA r.w.s. 145(2) of the Income Tax Act, wherein Income Computation and Disclosure Standards (ICDS) has been specified by the Central Government, which are to be mandatorily followed by the assessee while computing income under the head 'Profits and gains of business or profession'. The ICDS relevant in the case under consideration is ICDS-VI, which deals with the 'Effects of Changes in Foreign Exchange Rates'. 1.13 Your honour our detailed submission in this regard has been discussed vide our submission dated 26.10.2021 (from para 1.6 on page no. 9 till para 1.22 on page no.28) filed before your honours. 1.14 Your honour, in addition to the above issue, Ld. AO in the remand report has also alleged that assessee has failed to substantiate the nexus of the foreign currency transactions with the business of the assessee company. In this regard, we would like to submit before your honour, th....
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....at the details have not been submitted. It was also stated that the only purpose for recognizing the foreign currency loss/gain in the financial statements of the assessee company was to give a true and fair picture of the financials of the assessee as on the balance sheet date i.c., as on 31.03.2018, and that the only reason for the foreign exchange loss is change in the currency rate as on the last date. Thus, the Panel is of the opinion that when specific documents, requisition by the AO such as details regarding underlined transactions which led to foreign exchange fluctuation loss, the Assessing Officer was correct in disallowance the same. The invoices and the debit notes are merely self-seeking and unilateral documents and in the absence of specific agreements for services avail and the corresponding copies of invoices from the head office, they cannot be accepted as evidence. The Panel, therefore, finds no infirmity in the order of the Assessing Officer. The assessee's objections are accordingly dismissed. 4. The objections of the assessee are dismissed as above. The Assessing Officer is directed to incorporate the findings of the Panel in respect of various objection....
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....ctible and as for convenience para no. 10 of the judgment in ONGC vs. CIT (supra) is reproduced :- "10. Having carefully perused the decision of this Court in Woodward's case [2009] 312 ITR 254, we are of the opinion that both the issues stand concluded by the said decision. Dealing with the said issues extensively, speaking for the Bench, S.H. Kapadia, J. summarised the following factors which should be taken into account in order to find out if an expenditure on account of fluctuation in the foreign currency rates, when the Assessee is following mercantile system of accounting, is deductible: (i) whether the system of accounting followed by the assessee is the mercantile system, which brings in the debits of the amount of expenditure for which a legal liability has been incurred even before it is actually disbursed and credits, what is due, immediately it becomes due even before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that m....