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Assessee by None Revenue by Shri Deependra Kumar, Sr-DR Date of hearing 27.10.2021 Date of pronouncement 13.12.2021 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals-1, Surat dated 03.07.2017 for assessment year (AY) 2009-10, which in turn arises from the assessment order passed under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2016. The Revenue has raised following grounds of appeal:- “i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.1,91,51,938/- made on account of loss on exchange rate difference.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee has suppressed loss and circulated black capital as the purchase rate at the time of purchase as well as the exchange rate at the time of payment are not taken in accordance with the (A.Y. 09-10) Sh. Anand S Jain prevailing Foreign Exchange Rate declared by the RBI for the date of Import and the date of payment
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Surat ought to have upheld the order of the Assessing Officer, it is, therefore, prayed that the order of the Ld.cita-1 Surat maybe set-aside and that of the Assessing Officer’s order may be restored.”
2. Brief facts of the case are that assessee is engaged in the business of trading, manufacturing, importing and exporting of diamonds under the name and style of “Yukta Exports”. The assessee filed its return of income for assessment year 2009-10 on 30.09.2009, offering taxable income at Rs.3,22,790/-.The assessee was selected for scrutiny and assessment was completed u/s 143(3) r.w.s 14 4of the Act on 27.12.2011. Subsequently, the case of assessee was re-opened under section 147 of the Act. The case of assessee was re-opened by Assessing Officer by taking view that on verification of details available on record, it was noticed that during the relevant year, the assessee imported diamonds and debited Rs.1.91 crores towards exchange difference for payments of imported diamonds. As per details available on record, the diamonds were imported on 23.07.2008.The assessee adopted rate of dollar at Rs. 40/- per dollar, whereas the payment of same date the rate was taken at Rs. 41.925/- per dollar. Therefore, the actual foreign exchange loss should have been Rs.3.08 crores instead of foreign exchange loss of Rs.1.91 crores claimed by assessee. Thus, the Assessing Officer was of the view that assessee has suppressed the loss and circulated 2 (A.Y. 09-10) Sh. Anand S Jain black money thereby income of assessee has escaped to the extent of Rs.1.91 Crores.
3. The Assessing Officer after recording the reasons issued notice under secetion148 of the Act on 29.03.2016. In response to notice under section 148 of the Act. The assessee filed his reply dated 13.04.2016 stating therein that original return filed on 30.09.2009 may be treated as return of income in response to notice under section 148 of the Act. The assessee required reasons recorded. The reasons recorded were provided to assessee. The Assessing Officer after serving statutory notices under section 143(2) and 142(1) proceeded for assessment. During the assessment Assessing Officer on the basis of reasons recorded issued show cause notice to the assessee and asked as to why the exchange rare debited should not be disallowed. The assessee filed his reply on 21.12.2016 (the contents of reply of assessee is not recorded / referred by Assessing Officer). The Assessing Officer recorded that he has considered the submission of assessee and found no merit as the amount paid due to fluctuation in the exchange rate is artificially created to amass the circulation of black capital. The Assessing Officer repeated the same version that assessee imported diamonds on 23.07.2008 and the rate of dollar adopted by assessee at Rs.40/- per dollar, however while making the same was different of Rs.41.42 per dollar which is not in (A.Y. 09-10) Sh. Anand S Jain accordance with rate prescribed by Reserve Bank of India (RBI). Accordingly, the Assessing Officer disallowed the claim of loss of exchange in the assessment order dated 20.12.2016.
4. Aggrieved by the additions in the assessment order, the assessee filed appeal before the Ld. CIT(A). Before ld. CIT(A), the assessee filed detailed written submission as recorded in para-6.1of his order. In the written submission, the assessee stated that he is engaged in the business of trading, manufacturing, importing and exporting of diamonds in the name of M/s Yukta Exports. The assessee stated that initially his case was selected for scrutiny and the assessment was completed under section 143(3). All information was available on the record. The assessing officer again on the basis of details available on record recorded the reasons of re-opening. The reasons recorded are wrong the assessee provided all the information. The assessee further stated that the cause of re-opening of his case that during the year assessee imported diamonds and debited Rs.1.91 crores. The exchange rate adopted by the assessee on purchase of diamonds as per custom rate. Ifsuppose the assessee takes the rate at RBI’s prevailing rate then what will be effected is his purchase, either it will be increase or decrease and the net result will be no exchange difference because as and when he will make the (A.Y. 09-10) Sh. Anand S Jain payment the profit / loss on payment will be the exchange difference of that transaction.
The Ld. CIT(A) after considering the explanation of assessee held that the Assessing Officer passed the assessment order with pre-determined mind set of making additions, which is clearly evident from the facts and without going through the submission and evidence placed before him. The assessee debited of sum of Rs.1.91 crores as exchange difference for the payment of imported diamonds and all the purchase settled during the year by payment through buyer’s credit. The assessee had booked purchased at industry rate and difference between the purchase rate and actual payment is claimed at “exchange rate difference”. If the method suggested by Assessing Officer then the end result would remain the same because in case of purchases will be booked on higher amount due to rate of exchange being higher and with corresponding exchange different rate would be reduced end result would remain the same because in case of purchases will be booked on higher amount due to rate exchange being higher and with corresponding exchange rate difference would be reduced. Ultimately end result will be same. The Ld. CIT(A) further held that he found no discrepancy in the claim of exchange rate difference. The assessee was right in booking the purchases as custom rate which is fixed for some period as per trade norms. The same (A.Y. 09-10) Sh. Anand S Jain type of method is followed by Custom Department for charging custom duty of goods imported as the RBI rate are fluctuating daily. At the time of making actual payment in foreign exchange for imported bills, the assessee had taken the actual rate which the bank had debited to their accounts and it is the rate taken by the bank during the day trading rate which almost varying closed to rate of RBI which the Assessing Officer adopted. The Ld. CIT(A) also recorded that all the purchases of assessee were settled during the year payment through buyer’s credit, so the difference, if any, in booking rate at the time of purchases is automatic settled in the year itself. The allegation of Assessing Officer is that assessee suppressed the loss and circulated that money is baseless. The understanding is not proper for appreciating of accounting and the facts of the case. Aggrieved by the order of ld. CIT(A) the Revenue has filed this present appeal before this Tribunal.
None, appeared on behalf of assessee despite the service of notice through registered post as well as through departmental representative. As none appeared on behalf of assessee despite service of notice, therefore, we left no option except to hear the submission of Ld. Senior Departmental Representative (DR) for the Revenue and to decide the appeal on the basis of materials available on record.
(A.Y. 09-10) Sh. Anand S Jain 7. The Ld. SR DR for the Revenue submits that order of Ld. CIT(A) is not acceptable for the reasons that amount paid due to fluctuation in the exchange rate is artificially created to amass the circulation of loss. From the various documentary evidence produced by assessee during the assessment it was noted that the date-wise rate of US dollar adopted by assessee was not matching with the sample bill produced by assessee. The purchase rate at the time of purchase as well as exchange rate at the time of payment are in accordance with the prevailing foreign exchange rate declared by RBI and in date of import and date of payment, the claim of assessee for exchange rate difference was not supported by documentary evidence. The Ld. Sr. DR prayed for reversing the order of Ld. CIT(A) and restored the order of Assessing Officer.
We have considered the submission of Ld. Sr. DR of the Revenue, statement of facts furnished by Assessing Officer and the order of Ld. CIT(A). We find that in the statement of fact, the Assessing Officer recorded that the case of assessee was re-opened on audit objection. The re-assessment order was passed after verification and consideration of submission made by assessee. We find that re-opening on audit objection is not valid as it has been held by Hon'ble jurisdictional High Court in the case of Torrent Power of SEC Ltd Vs ACIT ( 392 ITR 330 Guj)/ [(2017) 77 taxmann.com 57 Gujarat].
(A.Y. 09-10) Sh. Anand S Jain However, we are conscious of the fact that issue is not raised before us for our consideration.
We further find that in the assessment order, the Assessing Officer made addition solely on the basis of his view that rate of dollar adopted by assessee at Rs.40/- per dollar. However while making payment on the same date, the rate was taken at Rs.41.92 per dollar which is not in accordance with rate prescribed by RBI. We find that during re-assessment the assessee explained the fact before assessing officer, the assessee again at first appellate stage explained the, which has been extracted by Ld. CIT(A)
CIT(A) in para 7.1 of his order, which reproduced below:-
“The exchange rate taken books on purchase/borrowed is as per the custom rate, If suppose I take the rate at RBI prevailing rate (as your honour has supposed to have taken) then what will be affected my purchase, either it will be increased or decreased and the net result will be on exchange difference because as and when I will make the payment the profit/loss on payment will be the exchange difference of that transaction. Now for example we take a sample from the list.
1 2 3 4 5 SL.No. Particular Purchase rate Purchase rate Payment rate (amt. in dollar) (as per party) RBI rate (actual) (as per AO) 3 986172.03 40.71 44.17 41.2 Now if we go as per assessee what will happen it that purchase will be booked at 40.71 and exchange loss will be (40.71 -41.2) – 49. i.e. total will be 40.71 + .49= 41.2 And by your honours system the result will be purchase at Rs.44.17 and exchange gain will be of (44.17 – 41.2) Rs.2.97 i.e. net results will be 44.17 – 2.97 = 41/2 i.e. in short it makes no difference as to at what rate the purchase is booked either at custom rate or at the RBI prevailing rate of the day, if the transaction is settled (A.Y. 09-10) Sh. Anand S Jain at the end because the diff. if any in the purchase will be settled in exchange diff. on the time of payment or year end. Further your honours other reason regarding no uniformity in the booking exchange rate at the time of payment in foreign exchange is wrong and not acceptable as all the payment rate are taken as per the actual payment done through bank. I enclose all the bank advice for the payments done during the year, if I am taking the payment rate on account of payment rate as booked by the bank then how a hypothetical rate can be taken by your honour.”
We find that the Ld. CIT(A) after appreciation on the fact held that Assessing Officer made the addition without understanding the accounting and facts of the case. The Ld. CIT(A) held that assessee was right in booking the purchase at the custom rate which is fixed for some period as per trading norm and same point of method is followed by Custom Department for charging custom duty on the imported goods as the RBI rate fluctuating in daily at the time of actual payment in foreign exchange for imported bills. The assessee had adopted actual rate, which the bank has debited to their accounts and it is the rate taken by the bank during the day, the trading rate which almost very closed to rate of RBI. The Ld. CIT(A) also held that all purchases of the assessee was settled during the year by payment through credit so difference, if any, booking rate at the time of purchase automatically being settled in the year itself in the profit and loss account. The Ld. CIT(A) also appreciated the facts that if the view of Assessing Officer is accepted then the purchases would be booked at the time of RBI’s fixed rate and when actual payment will be made, the exchange rate (A.Y. 09-10) Sh. Anand S Jain difference would be less and the purchase cost would be increased by corresponding amount which is evident from the observation of Assessing Officer as he has computed foreign exchange loss of Rs.3.08 Crores in place of 1.91 Crores calculated by assessee. The Ld. CIT(A) also held that the allegation of Assessing Officer is that assessee circulated black money is baseless and impounded. Thus, we do not find any infirmity or illegality in the order passed by ld. CIT(A), which we affirm accordingly.
In the result, the appeal of the Revenue is dismissed. Order pronounced on 13/12/2021 in open court and the result was also placed on the Notice Board.