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Facts
The assessee filed its return of income for AY 2020-21, declaring a total income of Rs. 30,00,39,160/-. The CPC processed this under Section 143(1) and made an adjustment of Rs. 2,52,868/- for foreign exchange fluctuation gain related to machinery import. The assessee appealed this, arguing it was not an error apparent from the record and thus not covered under Section 143(1).
Held
The Tribunal held that the assessee had rightly excluded the exchange gain while filing the return of income, as it was related to the cost of assets and not revenue. The adjustment made by the CPC was therefore directed to be deleted. The Tribunal relied on the fact that Section 43A of the Act provides for calculating such gains/losses and that these are not revenue in nature.
Key Issues
Whether the addition of foreign exchange fluctuation gain as an adjustment under Section 143(1) is permissible when it relates to the cost of assets and requires specific calculations under Section 43A, rather than being an error apparent from the record.
Sections Cited
143(1), 143(3), 43A, 139
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Income Tax Appellate Tribunal, MUMBAI “D” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
Assessment Year : 2020-21 Mahakoshal Refractories Deputy Commissioner of Private Limited, Income Tax-15(1)(1), E-309, Crystal Plaza, vs. Mumbai. Opposite Infinity Mall, Andheri West, Mumbai-400053. PAN : AAECM4903B (Appellant) (Respondent) For Assessee : NONE For Revenue : Shri Annavaram Kosuri Date of Hearing : 02-06-2025 Date of Pronouncement : 11-06-2025 ORDER PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Ld.Addl/JCIT(A)-Panchkula[„Ld.CIT(A)‟], dated 16-10-2024, pertaining to Assessment Year (AY) 2020-21, wherein the assesseehas taken the following grounds of appeal:
“1. That the learned Add/JCIT/A (Appeal) should not have retained addition of Rs 2,52,868 made by the learned A.C.I.T being gain on exchange rate fluctuation as it was not an error apparent from record and therefore not covered u/s 143(1).
2. That the computation sheet enclosed with the assessment order under section 143(3) referred to current order which was order u/s 143(3), in which no addition to income was made and the returned income as such was accepted, but the learned CIT(Appeals) took into account income intimated under section 143(1).”
Briefly the facts of the case are that the assesseefiled its return of income declaring a total income of Rs.30,00,39,160/- which was processed u/s.143(1) of the Income Tax Act, 1961 („the Act‟) determining the income at Rs. 30,03,74,050/-, after making an adjustment of Rs. 2,52,868/- towards exemption claimed by the assessee on account of foreign exchange fluctuation gain related to import of machinery. The assessee, thereafter carried the matter in appeal before the Ld.CIT(A), NFAC, which was rejected and against the said order, the assessee is in appeal before us.
3. None appeared on behalf of the assessee. However, as per the letter dt. 21-01-2025 received by the Registry on 27-01-2025, the assessee has submitted its written submissions and has prayed that the matter be decided based on the written submissions.
In its written submissions, the assessee has submitted that the return for the AY.2020-21 was submitted on 30-01-2021 declaring total income of Rs.30,00,39,160/-. An intimation u/s.143(1) of the Act was received by the assessee on 18-12-2021 assessing income at Rs.30.03,74,050/-after making the following additions -
Addition of Rs 12,500 on account of VAT and GST late fees; 2. Additions of Rs 2,52,868 on account of deduction claimed by the appellant on account of exchange fluctuation gain related to import of machinery;
Additions of Rs 69,625 due to a clerical error about the date of deposit of P.F.
It has been submitted that the assessee filed an appeal before the Ld.CIT/faceless, which was decided on 16-10-2024 vide Din & order No. ITBA/APL/S/250/2024-25/1069697304(1). Subsequently, the case was selected for scrutiny proceedings vide notice dated 29-06-2021 u/s. 143(2) of the Act raising issues about inventory and deposits. The assessment order u/s. 143(3) was passed on 22-09-2022 making no additions to the income and the returned income as declared was accepted. However, in the computation sheet attached with the order, the income of Rs. 30,02,92,025/- was stated which included addition of Rs 2,52,868/- to the returned income of Rs 30,00,39,160/- andtax was calculated on the above income.
Against the intimation order dated 18-12-2021 u/s 143(1) of the Act, it has been submitted that the assessee filed an appeal before the faceless appellate center on 10-01-2022, objecting to the additions made. The instant appeal was decided on 16-10-2024 vide Din and order No. ITBA/APL/S/250/2024-25/1069697304(1). The Ld. appellate authority while deleting additions of Rs 12,500/- and Rs 69,625/- retained the disallowance of Rs 2,52,868/-.
During the course of first appellate proceedings, the assessee had argued and submitted that once order u/s. 143(3)of the Act was passed, theintimation u/s. 143(1)of the Act had no relevance as it was supposed to be subsumed into the order u/s 143(3)of the Actand reliance was placed on the judgement of the Hon‟ble Allahabad High Court in case of Khandelwal Rubber products Pvt ltd vs CIT (2024) 162 Taxmann.com 897 (Allahabad) wherein it was held as under: "21. On general principle, it is fundamental to the scheme of the Act that there may only arise one assessment order for one assessment year in the case of any assesses. Once that order came to be passed under section 143(3) of the act, it is only that assessment order that may be enforced against the assesses. The intimation issued under section 143(1)(a) of the act, prior in time lost its effect and stood subsumed in the subsequent assessment order. Therefore, it could never be looked at independently for the purpose of imposition of demand of additional tax."
It was further submitted that the Ld. appellate authority, however, did not agree with the contention of the assessee, stating that the issues examined by the AO during the assessment proceedings u/s.143(3) of the Act were different from those intimated u/s.143(1)of the Act and that the computation sheet is integral part of the order and, therefore, the income intimated u/s.143(1)of the Act is to be taken into account for calculating tax etc.
The assessee reproducedthe below chart as made out in pare 5.0 of the assessment order u/s 143(3) dated 22-09-2022 which is headed "final computation of taxable income". Sl. No. Description Amount in INR 1 Income as per return of income filed Rs 30,00,39,160 2 Income as computed u/s 143(1) - 3 Variation in respect of issue if any - 4 Variation in respect of issue of if - any 5 Total income/ loss determined as Rs 30.00,39,160 per the above Proposal From the above table it would as found that against Serial No.2, no income has been shown and total income shown against SerialNo.5 has been shown as Rs 30,00,39,160/- which is the returned income.
The computation sheet attached with the order u/s 143(3) of the Act reported income as follows - Sl. No. Reporting heads Amount as per CURRENT order (In Rs) 1 INCOME FROM HOUSE PROPERTY - 2 INCOME FROM BUSINESS OR 30,02,92,025 PROFESSION 3 INCOME FROM CAPITAL GAIN - 4 INCOME FROM OTHER SOURCES - 5 INTRA HEAD ADJUSTMENTS - 6 TOTAL (AFTER INTRA HEAD 30,02,92,025 ADJUSTMENT) 6=(1+2+3+4)-5 7 LOSSESS OF CURRENT YEAR SET - OFF AGAINST 6 8 BALANCE AFTER SET OFF CURRENT 30,02,92,025 YEAR LOSSESS (6-7) 9 BROUGHT FORWARD LOSSESS SET - OFF -AGAINST 6 10 GROSS TOTAL INCOME (INCLUDING 30,02,92,025 SPECIAL INCOME) 11 (I) INCOME CHARGEABLE TO TAX AT - SPECIAL RATE UNDER SECTION 115BBE (II) INCOME CHARGEABLE TO TAX AT - SPECIAL RATE OTHER THAN 115BBE INCLUDING SECTION 111A, 112 ETC 12 DEDUCTIONS UNDER CHAPTER - VI A (a) PART-B OF CHAPTER VI-A - (b) PART-C OF CHAPTER VI-A - (c) TOTAL (12A-12B) - 13 DEDUCTION U/S 10AA - 14 TOTAL INCOME AFTER DEDUCTIONS 30,02,92,030 (10AA AND CHAPTER VIA) 14= (10- 12(c)-13)
It was submitted that the above table obviously refers to the order u/s. 143(3) as it clearly mentions "the current order" which is order u/s 143(3) and nowhere refers to the order u/s. 143(1). Therefore, the returned income as accepted in the order u/s 143(3) which is Rs. 30,00,39,160/- should be the assessed income and tax payable should be calculated thereon.
As far as Ground No.2 is concerned, it was submitted that the Ld. appellate authority has also not considered the second ground of appeal filed in Form No. 35 which stated as below- "Adjustment with regard to exchange fluctuation of Rs 2,52,868 added back, it is based on the calculations under section 43A. The same is not apparent from records and therefore cannot be added back in intimation u/s 143(1) by the learned I.T.O.
12. It was submitted that under section 143(1)(a), the returned income could be processed after making additions as specified under the sub clause(a) (i to vi). a) The total income or loss shalt be computed after making the following adjustments, namely
(i) Any arithmetical error in the return. (ii) An incorrect claim, if such incorrect claim is apparent from any information in the return. (iii) Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139.
(iv) Disallowance of expenditure (or increase in income) indicated in the audit report but not taken into account in computing the total income in the return. (v) Disallowance of deduction claimed under (section 10AA or under any of the provision of chapter VI-A under the heading "C.--Deductions in respect of certain incomes", if) the return is furnished beyond the due date specified under sub-section (1) of section 139: ог (vi) Addition of income appearing in form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode: 13. It was submitted that the disallowance if at all can be covered only under sub clause (ii), but as stated above the exchange fluctuation requires calculations and is certainly not apparent from records.
It was further submitted that in the present case, the bank loan in foreign currency was taken for purchase of foreign and domestic assets and it required complex calculation to arrive at fluctuation loss/gains separately for purchase of both domestic and foreign assets. In fact, a specific section 43(A) has been provided in the act for calculating loss/gain in foreign exchange.
It wasfinally submitted that the income of Rs 30,00,39,160/- be treated as the assessed income and addition of Rs 2,52,268/- retained by the Ld.CIT be deleted.
Per contra, the Ld.DR has relied on the findings of the Ld.CIT(A) and our reference was drawn to the relevant findings of the Ld.CIT(A), wherein he has stated that “in the computation of income which is integral part of assessment order, income of Rs. 30,02,92,025/- has been taken against returned income of Rs. 30,00,39,160/- which is equal to the difference of amount (in round figure Rs. 2,52,865/-) added u/s. 143(1) on account of exchange fluctuation. Therefore, this contention of the appellant is not acceptable.”
It was further submitted that the Ld.CIT(A) has also examined the provisions of Section 43A of the Act and has held that “in view of the same, when foreign currency loans are utilized for acquisition of imported assets being assets purchased from outside India, the same is to be added to the cost of the asset or to be capitalized. The appellant in this case has imported machinery and the CPC therefore has rightly disallowed the loss on exchange rate fluctuation not being revenue in nature. In view of the above facts, this ground of appeal is dismissed.”
We have heard the Ld.DR and perused the material available on record including the written submissions filed by the assessee. In the return of income, an amount of Rs 2,52,869/- which has been credited in the profit/loss account related to exchange gain on import of machinery, has been claimed as exempt while computing the business income as reported under clause 5(c) of Annexure – Business and Profession. The CPC while processing the return of income has not allowed the exemption which has resulted in adjustment to the returned income. The factum of exchange gains relates to import of machinery has not been disputed by either of the parties and as per the findings of the ld CIT(A), the same has to be adjusted and form part of cost of asset as per provisions of section 43A of the Act. In view of the same, we find that the assessee has rightly excluded the exchange gain while filing the return of income and the adjustment so made by the CPC is hereby directed to be deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11-06-2025.