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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 31.12.2014. Assessment was framed by DCIT, Circle- 2, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2011for assessment year 2009-10. The grounds raised
by the Revenue as per its appeal are as under:-
1. That Ld. CIT(A) has erred in law in allowing relief to the assessee company on account of ‘Foreign Exchange Loss’ amounting to Rs.1,05,27,486/-,without providing any opportunity to the AO to examine the fresh evidences submitted by the assessee-company during the appellate proceedings in violation of provisions of Rule 46A(1) & 46A(3) of the IT Rules.
A.Y. 2009-10 DCIT Cir-2(1) Kol. Vs. M/s CAE India Pvt. Ltd. Page 2 2. That Ld. CIT(A) has erred in law in allowing relief to the assessee company on account of ‘Legal & Professional charges’, amounting to Rs.22,19,764/- without providing any opportunity to the AO to examine the fresh evidences submitted by the assessee company during the appellate proceedings in violation of provisions of Rule 46A(1) & 46A(3) of the IT Rules.
3. That Ld. CIT(A) has erred in law in allowing relief to the assessee company on account of ‘Sundry Creditors’, amounting to Rs.9,28,125/-, without providing any opportunity to the AO to examine the fresh evidences submitted by the assessee company during the appellate proceedings in violation of provisions of Rule 46A(3) of the IT Rules.”
At the time of hearing none appeared on behalf of assessee though notice of hearing was sent to assessee through RPAD. It was also observed that nobody from the side of the assessee has appeared on the earlier occasion when the case was fixed for hearing. Therefore we decided to hear the present appeal without the appearance of assessee or by Ld. AR.
First issue raised by Revenue in ground No.1 is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹1,05,27,486/- on account of foreign exchange loss on the basis of fresh evidence admitted by him in contravention to the provision of Rule 46A(1) and 46A(3) of IT Rules,1962.
Briefly stated facts are that assessee is a private limited company and engaged in business of integration of hardware and software in the field of simulation and services. The assessee in its profit and loss account has claimed expenses on account of foreign exchange loss for ₹48,41,100/- and ₹56,86,386/- only under the head project contract expenses and operating and administrative expenses aggregating to ₹1,05,27,486/-. The AO treated the foreign exchange loss as notional loss and accordingly called upon the assessee why such loss should not be disallowed but the assessee failed to furnish any suitable reply. Therefore, the AO treated the loss claimed by assessee as notional loss and disallowed the same by adding to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that loss is representing the difference in the rate of foreign exchange between date of invoice accounted in the books and the date on which balance-sheet is prepared. The impugned loss has arisen on account of revenue expenses incurred by the assessee. Thus the impugned loss is allowed eligible for A.Y. 2009-10 DCIT Cir-2(1) Kol. Vs. M/s CAE India Pvt. Ltd. Page 3 deduction as per the Accounting Standard 11 the effects of changes in the Foreign Exchange Rates issued by the Institute of Chartered Accountant of India. The assessee also submitted that the loss was determined after considering the gain on account of foreign exchange fluctuation. Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “3.2 The submissions of the Appellant have been considered. It is seen that the issue in this ground of Appeal
is regarding the Exchange rate loss claimed at the end of the financial year by the Appellant to the extent of Rs.1,05,27,486/-.The AO has disallowed the loss by applying Circular No.3 of 2010. It is, however, seen from the details filed by the Appellant that the Foreign Exchange Loss was arising from payments to creditors who provided goods/services related to projects or contracts which is apparent from the head of expenses under which the same have been included i.e. ‘Project and Contract Expenses’ and ‘Operating and Administrative Expenses’. It is also seen that the Instruction No. 3 of 2010 dated 23.03.2010 is in respect o Speculative or derivative Transactions and in this case cannot be the sole basis for disallowance. This instruction would be applicable only in situations where the loss has incurred on the basis of Speculative transactions which is not the case here. In addition, considering the decision of the jurisdictional High Court in CIT vs. Martin & Harris (P) Ltd. 154 ITR 460 as well as that of Supreme Court in CIT Vs. Woodward Governor India (P) Ltd 312 ITR 254,the trading liability would vary at the end of the financial year due to exchange rate fluctuations at the end of the accounting year i.e.as on 31st March of the financial year has to be accounted for. In the Appellant’s case, it is seen that the exchange rate fluctuations in respect to transactions relating to the trading activities/creditors of the Appellant. Therefore, considering the above, it is held that he notional loss due to exchange rate variations calculated as on 31st March, 2009 in the case of the Appellant was an allowable expenditure and the disallowance made by the AO is deleted.” The Revenue, being aggrieved, is in appeal before us.
7. Ld. DR before us vehemently relied on the order of AO and he left the issue at the discretion of the Bench.
8. We have heard Ld. DR and perused the material available on record. In the instant case, assessee has claimed loss of ₹1,05,27,486/- on account of foreign currency fluctuation and said loss was treated by AO as notional. Accordingly, same was disallowed by him. However, Ld. CIT(A) reversed the order of Assessing Officer by observing that the impugned loss represents the difference in foreign currency in relation to revenue transactions and therefore eligible for deduction. 8.1 In the ground of appeal the grievance of the Revenue is that relief was granted by Ld. CIT(A) on the basis of additional evidence which was admitted in contravention to the provision of Rule 46A of the IT Rules, 1962. However, Ld. DR A.Y. 2009-10 DCIT Cir-2(1) Kol. Vs. M/s CAE India Pvt. Ltd. Page 4 before us has not pointed out any additional evidences which were admitted by Ld. CIT(A). We also note that the AO disregarded the loss claimed by assessee by observing that the reply made by assessee was not suitable. Therefore, it cannot be said that the no documentation / explanation was offered by the assessee during the course of assessment proceedings. The relevant extract of AO is reproduced below:- “… …In support of its claim, the assessee company could not furnish any suitable explanation.” In view of the above, we hold that no additional evidence has been admitted by Ld. CIT(A) in contravention to the provision of Rule 46A of the IT Rules, 1962. Consequently, ground raised by Revenue is dismissed.
9. Next issue raised by Revenue in ground No.2 is that Ld. CIT(A) erred in deleting the addition for ₹22,19,764/- on account of legal and professional charges on the basis of fresh evidence admitted in contravention to the provision of Rule 46A(1) and 46A(3) of the IT Rules, 1962.
During the course of assessment proceedings, AO observed on the basis of agreement that assessee was liable to make the payment to five consultants for ₹2,44,400/- per month for 10 months. Thus, the total expense of consultancy charges comes to ₹24,44,000 lakh but assessee has claimed an expense of ₹46,64,764/- in its profit and loss account. Therefore the Assessing Officer disallowed the excess expenses of ₹22,19,764/- (46,54,764 – 24,45,000) and added to the total income of assessee. 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the office was shifted from Kolkata to Bengaluru during the period of 2009-10. Therefore, all the agreements were not located and accordingly these were not submitted before the AO during assessment proceedings. The assessee further submitted that all the payments were made after the deduction of TDS through banking channel. The amount of expense has been duly shown in the audited accounts and no defect whatsoever has been reported by Tax Auditor. Thus, simply the relevant agreements were not produced before the AO cannot be basis for disallowance. The other evidence which are available on record cannot be ignored. A.Y. 2009-10 DCIT Cir-2(1) Kol. Vs. M/s CAE India Pvt. Ltd. Page 5 Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “4.2 … … It has been explained that Rs.46,64,764/- related to payment of consultancy charges and the Appellant has given details in the form of agreement with the presence of whom consultancy charges had been paid. It is further seen that the Appellant had duly deducted TDS in respect of such consultancy charges it is also explained that some agreements were not produced due to incorrect understanding of the AO’s requirements. In this regard, the details provided by the Appellant including the information regarding deduction of TDS have been considered. Therefore, in view of the submissions of the Appellant and the information regained payments including deduction of TDs made on such payments. It is held that the AO was not justified in restricting the payments only to the extent of the agreements s8ubmitted before him if at all the disallowance was to be made. The AO should have obtained the requisite details and made the disallowance after duly verifying such payments from the recipients the details of whom were available with the Appellant as also their TDS returns. Accordingly, disallowance on this ground made by the AO to the extent of Rs.22,19,764/-is deleted.” The Revenue, being aggrieved, is in appeal before us. 12. Before us Ld. DR vehemently relied on the order of AO. 13. We have heard Ld. DR and perused the material available on record. In the instant issue, AO made the disallowance of the legal and professional expenses claimed by assessee on the basis of non-submission of documentary evidence in support of its claim. However, Ld. CIT(A) granted relief to assessee by observing that expenses were incurred by assessee after deducting the TDS and through baking channel. Now the grievance of Revenue before us is that relief was granted by Ld. CIT(A) on the basis of additional evidence which were admitted in contravention to the provision of Rule 46A of the IT Rules, 1962. It is undisputed fact that the agreement in support of legal and professional expenses were not submitted by assessee either before the AO or before Ld. CIT(A). In the absence of agreement the AO made the addition of legal and professional charges. However, Ld. CIT(A) deleted the addition after having reliance that the impugned expenses were incurred after deducting the TDS and all the necessary details of TDS were duly reflected in the Tax Audit Report. Thus, we find that the relief was granted by Ld. CIT(A) on the basis of evidences/ information provided in the tax audit report. Thus, it can be inferred that no additional evidence had been admitted by Ld. CIT(A) while passing the appellate order in contravention of provision of Rule 46A of IT Rules, 1962. In the back ground A.Y. 2009-10 DCIT Cir-2(1) Kol. Vs. M/s CAE India Pvt. Ltd. Page 6 of the above discussions and precedent we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. Consequently, Revenue’s ground is dismissed. 14. Last issue raised by Revenue in ground No.3 is that L. CIT(A) erred in deleting the addition made by AO for ₹9,28,125/- on account of sundry creditors on the basis of fresh evidence which were admitted in contravention to the provision of Rule 46A of the IT Rules, 1962. 15. During the course of assessment proceedings, AO observed that assessee has shown credit balance of ₹9,28,125/- only in the name of M/s Anugraha Agencies whereas the party has confirmed debit balance in its books of account at nil in response to the notice issued to it u/s. 133(6) of the Act. Thus, the amount of liability was treated by the AO as bogus and accordingly amount of ₹9,28,125/- was added to the total income of assessee. 16. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the AO has inadvertently observed that it has shown a balance of ₹9,28,125/-in the name of M/s Anugraha Agencies. As per the record of assessee no balance has been shown in the name of M/s Anugraha Agencies. Therefore, the observation made by AO that there was a difference in the ledger of M/s Anugraha Agencies for ₹9,28,125/- only is incorrect. Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “6.1 The submissions of the Appellant have been considered. It is seen from the records and the documents submitted by the Appellant that the alleged balance of Rs.9,28,125/- in the name of Anugraha Agencies was not there in the books of accountant and it appears that the above amount has been taken incorrectly by the AO. Therefore, considering the above facts that the AO was not justified in holding that this party had shown Nil balance as against the balance of Rs.9,28,125/- in the books of account of the Appellant. Accordingly, it is held that the addition of this amount by the AO was factually incorrect and accordingly the same is deleted.” The Revenue, being aggrieved, is in appeal before us. 17. Ld. DR before us supported the order of AO and left the issue at the discretion of the Bench.