SHRI BHAGWANJI NARSI PATEL,MUMBAI vs. INCOME TAX OFFICER WARD 1(1), KALYAN

The assessee in appeal has assailed the order of CIT(A) on two counts:

The brief facts of the case are : The assessee is engaged in manufacturing and trading of cloth. During the period relevant to the assessment year under appeal, the assessee has taken unsecured loans from various persons. The Assessing Officer identified eight loan creditors, where the assessee had failed to prove genuineness of the loan transactions. Thus, the Assessing Officer made addition of Rs.13,46,600/- u/s. 68 of the Act. Further, the Assessing Officer partly accepted the assessee’s claim of exchange fluctuation loss. As against claim of Rs.1,11,738/-, the Assessing Officer accepted fluctuation loss to the extent of Rs.11,249/- and disallowed the remaining amount of Rs.1,00,489/-. The assessee carried the issue in appeal before the CIT(A). In first appellate proceedings, the CIT(A) sought remand report from the Assessing Officer with respect to the addition made u/s. 68 of the Act. Out of eight loan creditors, the Assessing Officer in remand proceedings accepted genuineness of the loan transaction from four parties. As regards the remaining four no comments were made by the Assessing Officer in the remand report. The CIT(A) deleted the addition in respect of the loan creditors which were accepted by the Assessing Officer in remand report and made addition in respect of the remaining four parties. Thus, the CIT(A) restricted the addition under section. 68 of the Act to Rs.7,88,600/-. As regards loss on foreign exchange fluctuation the CIT(A) upheld the findings of Assessing Officer in toto.

None appeared to represent the assessee. However, Shri Madan P. Makhija, Advocate has filed written submission under instructions from assessee / appellant.

Shri T. Shankar representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee.

We have heard the submissions of ld.Departmental Representative and have perused written submissions filed on behalf of the assessee. The assessee in ground No.1 & 2 of appeal has assailed the addition made u/s 68 of the Act in respect of unproved unsecured loan. The Assessing Officer during assessment proceedings made disallowance u/s 68 of the Act in respect of unsecured loans from eight parties. During First Appellate proceedings the CIT(A) sought remand report from Assessing Officer . In remand proceedings the Assessing Officer accepted loan transactions from four out of eight parties i.e.:

In ground No.3 of appeal the assessee has assailed addition of Rs.1,00,489/- on account of exchange fluctuation loss. The assessee had claimed fluctuation loss of Rs,1,11,738/-. The Assessing Officer accepted the fluctuation loss of Rs.11,249/- and disallowed the remaining. The Assessing Officer recorded that the ld. Authorized Representative for the assessee accepted the addition. The fact of admission is disputed by the assessee before CIT(A) as well as before us. The CIT(A) has confirmed the addition by merely reiterating the findings of Assessing Officer. The assessee in support of his claim has furnished copy of invoice, bank remittances and bank statements at page 39 to 50 of the paper book. The contention of the assessee is that in invoices the amounts are mentioned in US $ and the conversion rate as on date of the transaction was $44.300, thus total value of transaction in Indian Currency after applying the exchange rate was Rs.40,28,203.87. As against the said amount the assessee received Rs.38,73,026/-. The Assessing Officer while computing fluctuation loss has applied wrong conversion rate. After having examined invoices, shipping bills for export, foreign inward remittance advice and bank statement, we find merit in the submissions of the assessee. Hence, ground No.3 of appeal is allowed.

Ground No.4 & 5 of the appeal are general in nature, hence, require no adjudication.

In the result, appeal of the assessee is allowed.