Loading judgment…
Facts
The assessee changed its method of accounting for foreign currency loans based on an expert opinion and CERC regulations, resulting in a profit adjustment of Rs. 255.4 crores. The Assessing Officer (AO) made an addition of Rs. 255.40 crores, stating the assessee failed to provide necessary documentation. The CIT(A) upheld the AO's order.
Held
The Tribunal restored the issue to the file of the AO. The AO is directed to examine the details filed by the assessee, including CERC regulations and the expert opinion, and decide the issue in accordance with law. The assessee must provide all necessary details and evidence.
Key Issues
Whether the change in accounting method for foreign currency loan adjustments, supported by expert opinion and regulations, is valid for tax purposes, especially when initial documentation was not provided to lower authorities.
Sections Cited
250
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
(ASSESSMENT YEAR:2008-09) NTPC Limited, Addl. CIT, Core-7, Scope Complex-7, Range-13, Institutional Area, Vs. New Delhi-110002. Lodi Road, New Delhi-110003. PAN:AAACN0255D (Appellant) (Respondent) Assessee by Shri Ved Jain, Adv. and Ms. Uma Upadhyay, CA Department by Shri Shankar Lal, Sr. DR Date of hearing 28.04.2025 Date of pronouncement 18.06.2025 O R D E R
PER MANISH AGARWAL, AM:
This appeal is filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals)-16, Delhi [The CIT(A) in short] in appeal No. 214/10-11 dated 28.04.2014 for A.Y. 2008-09 passed u/s 250 of the Income Tax Act, 1961 (“The Act” in short).
Brief facts are that the appeal of the assessee in 05.08.2022 however, in the said order of the tribunal inadvertently the tribunal had not decided ground of appeal
No. 8(i) & 8(ii) taken by the assessee, therefore, a Misc. application (MA) was filed by the assessee. While allowing the application of the assessee in MA No. 459/Del/2022, the coordinate bench of tribunal in terms of order dated 10.01.2024 recalled its order dt. 05.08.2022 for limited purpose of adjudicating Grounds of appeal No.
8. (i) and 8(ii) only. Thereafter the present appeal is listed before us for hearing to decide Ground of appeal No.8 of the assessee.
M/s. NTPC Limited vs. Addl. CIT 3. The ground of appeal
No. 8 as taken by the assessee is as under: “8(i). On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 255,40,00,000 made by the AO in respect of exchange difference as per the account policy adopted by the assessee. (ii) That the above said disallowance has been confirmed ignoring the explanation and evidences submitted by the assessee and without there being any adverse material on finding against the assessee.”
4. Brief facts relating to this ground of appeal are that during the year under appeal in terms of para 14 sub para (a) & (b) of schedule 27 of notes on accounts to the Balance Sheet, it is stated by the assessee that in compliance to AS-11, the assessee recognized the income / expenses in respect of exchange difference on loans in the P&L Account, reducing its profits by 0.2 crores. As per sub para (b), the assessee based on opinion given by the expert advisory committee of the Institute of Chartered Accountants of India (ICAI) accounted for variation in foreign currency loans on restatement by creating deferred liability / asset. As per the opinion given by the ICAI, the effect was computed from 01.04.2004 as prior period Income / expenditure by debiting to prior period sales and credited to deferred Fluctuation reserve. As a result, an adjustment in the profit was made of Rs. 255.4 crores which were debited in the Profit & Loss account by the assessee. The AO observed that assessee has failed to file the copy of the opinion of advisory committee of ICAI and further observed that assessee failed to file all the necessary evidences and working with respect to such claim. The AO, therefore made the addition of Rs. 255.40 crores in the hands of the assessee.
In first appeal, the assessee has reiterated the same argument as were made before the AO and no documents were filed in support of the claim, therefore, ld. CIT(A) had not interfere in the order of the AO thus the assessee came up before the tribunal by taking ground of appeal No. 8 in this regard.
6. Before us, the ld. AR of the assessee submitted the copy of audited financial statements and the copies of the submissions made before the lower authorities. Copy of regulations issued by CERC dated 26.03.2004 is also filed which has been made basis for making such adjustments. Assessee further M/s. NTPC Limited vs. Addl. CIT filed a copy of opinion given by expert advisory committee of ICAI. The assessee has also filed a table showing balances of reserves account as on 31.03.2007 and 31.03.2008. The ld. AR submits that the adjustments have been made on the basis of opinion expressed by the expert advisory committee of ICAI. The ld. AR further submits that the amount claimed as deduction were recovered from the customers in subsequent assessment years where the same was offered for tax and were accepted by the revenue also. For this he drew our attention to paper book page 79 where in subsequent assessment years a sum of Rs. 189,40,00,000/- was shown as income in this regard. He thus submits that the assessee made this adjustment in terms of CERC regulations and change in the method of accounting is bonafide and consistently followed by the assessee company therefore, he requested for deletion of the addition made.
7. On the other hand, ld. CIT-DR vehemently supported the orders of the lower authorities and submits that the assessee claimed a notional loss which is not allowable in terms of the provisions of the law. He further submits that substance should prevail over form and since the assessee has not filed all the details before the lower authorities, the claim of the assessee should not be accepted. The ld. AR also relied upon the judgements of Hon’ble Supreme Court in the case of CIT Vs. Woodward Governor (I) Pvt. Ltd. (2009) 312 ITR 254 (SC) wherein it is held that a system accounting consistently followed is ordinarily expected to be accepted, unless the system does not reflects true profits. The ld. CIT-DR thus submit that since the system of accounting already followed by the assessee reflects the true profit therefore, there is no reason for change in method of accounting and thus the lower authorities has rightly disallowed the claim of the assessee. He prayed accordingly.
Heard both the parties and perused the material available in record. We find that the assessee has changed the method of accounting solely for the reason that there was change in regulations made by CERC vide order dated 26.03.2004. Thereafter the assessee company obtained an opinion from the Expert Advisory Committee of ICAI who had recommended the to change the M/s. NTPC Limited vs. Addl. CIT method of accounting and entries to be passed in the books of account and worked out the year-wise figures to be charged to the revenue in this regard. As is evident from the observations of the lower authorities, such working as well as the report / opinion of the expert advisory committee of the ICAI were not filed before the lower authorities therefore, in absence of such details, they had not commented upon the veracity of the claim of the assessee.
In view of these facts, without commenting upon the legality of the claim, we restore this issue to the file of AO to examine the details filed by the assessee after considering the regulations of CERC and the opinion of expert advisory committee of ICAI and decide the issue in accordance with law. The assessee is also directed to file all the necessary details and evidences in support of the claim and to participate in the proceedings.
With these directions, the ground of appeal No. 8 of the assessee is partly allowed for statistical purposes.
In the result, the appeal of the assessee as recalled vide MA No. 459/Del/2022 is partly allowed.