1 ITA No. 4809/Del/2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `C' NEW DELHI
BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A. No. 4809/DEL/2016 (A.Y 2011-12)
DCIT Vs HCL Comnet Ltd.
Circle-11(1) 806, Sidharth,
New Delhi 96, Nehru Place
New Delhi
AAACH9667H
(APPELLANT) (RESPONDENT)
Appellant by Sh. Amit Katoch, Sr. DR
Respondent by Sh. Ajay Vohra, Sr. Adv,
Sh. Aditya Vohra, Adv
Date of Hearing 28.05.2019
Date of Pronouncement 06 .06.2019
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the Revenue against the order dated 24/06/2016
passed by CIT(A)-16, New Delhi for Assessment Year 2011-12.
2. The grounds of appeal are as under:-
"1. Whether on the facts & the circumstances of the case, Id. CIT(A) is right
in deleting the disallowance of unrealized foreign exchange loss on account of
reinstatement of assets and liabilities of Rs. 68,63,845/- by ignoring the fact
that this is a notional loss and not allowable to be set off against the taxable
income in view of CBDT's instruction no. 3 of 2010 dated 23.03.2010?
2. Whether on the facts & the circumstances of the case, Id. CIT(A) is right in
deleting the addition of interest on refund of Rs. 1,35,51,996/- by ignoring the
fact that the interest income of Rs. 1,35,51,996/- was received during the
2 ITA No. 4809/Del/2016
year under consideration and cannot be deferred to further years as the
assessee is using mercantile system of accounting?
3. Whether on the facts & the circumstances of the case, ld. CIT(A) is right in
deleting the addition on account of default as per AIR information of Rs.
1,13,58,600/- by ignoring the fact that the assessee even after providing
sufficient opportunities failed to proof that there is no default of TAN either
before the AO or the CIT(A)?"
3. HCL Comnet Limited, a company incorporated under the
companies Act, 1956 is engaged in the business of providing, installing and
maintaining networking solutions. The business comprises trading in satellite
and non-satellite based communication equipment, installation and
maintenance of such private networks. The assessee filed its return of income
on 29/11/2011 for the relevant assessment year showing taxable income at
Rs. 18,20,53,408/-. The Assessing Officer made following additions:-
(i) Disallowance u/s 14A of the Act amounting to Rs. 4,13,282/-
(ii) Disallowance of principal portion of lease obligation amounting to
Rs. 22,29,927/-
(iii) Addition on account of interest paid on income tax refund
amounting to Rs. 1,35,51,996/-
(iv) Addition on account of AIR Information amounting to
Rs.1,13,58,600/-
(v) Reinvestment of foreign exchange fluctuation amounting to Rs.
68,63,845/-
(iv) Reduction in TDS credit amounting to Rs.1,44,88,862/-.
4. Being aggrieved by the assessment order, the assessee filed appeal before
the CIT(A) and CIT(A) partly allowed the appeal of the assessee.
5. The Ld. DR submitted that the CIT(A) was not right in deleting the
disallowance unreleased foreign exchange loan on account of reinstatement of
3 ITA No. 4809/Del/2016
assets and liabilities by ignoring the fact that this is a notional loss and not
eligible to be set off against the taxable income in view of the CBDT Instruction
No. 3/10 dated 23/03/2010. As regards Ground No. 2, the Ld. DR submitted
that the CIT(A) was incorrect in deleting the addition of interest on refund of
Rs. 1,35,51,996/- by ignoring the fact that the interest income was received
during the year under consideration and cannot be defer to further years when
the assessee is using mercantile systems of accounting. As regards Ground
No. 3, the Ld. DR submitted that the CIT(A) erred in deleting the addition on
account of defect as per AIR Information of Rs. 1,13,58,600/- by ignoring the
fact that the assessee even after providing sufficient opportunities fail to prove
that there is no default of TAN either before the Assessing Officer or the
CIT(A).
6. The Ld. AR relied upon the order of the CIT(A).
7. We have heard both the parties and perused the material available on
record. As regards Ground No. 1, the CIT(A) held as under:-
"I have considered all the facts and circumstances of the case.
Where the assessee carrying on the mercantile system of accounting claimed
that:
(i) The additional liability arising on account of fluctuation in the rate of
exchange in respect of loans taken for revenue purposes was allowable as
deduction u/s 37(1) in the year of fluctuation in the rate of exchange and not
in the year of repayment of such loans; and
(a) The term "expenditure" in s. 37 covers an amount which is a "loss" even
though the said amount has not gone out from the pocket of the assessee. The
"loss" suffered by the assessee on account of the exchange difference as on
the date of the balance sheet is an item of expenditure u/s 37(1);
(b) Profits and gains are required to be computed in accordance with
commercial principles and accounting standards (AS-11);
4 ITA No. 4809/Del/2016
(c) Accounts and the accounting method followed by an assessee continuously
for a given period of time needs to be presumed to be correct till the AO comes
to the conclusion for reasons to be given that the system does not reflect true
and correct profits;
(d) The fact that the department taxed the foreign exchange gains of
Rs2,00,01,430/- on fluctuation on the basis of accrual in appellant's own
case for AY 2010-11. Therefore, disallowing the loss in this year shall amount
to the double standards adopted by the Department.
(e) U/s 43A (pre-amendment), the change in the rate of exchange subsequent
to the acquisition of asset triggers the adjustment in the actual cost of the
assets. Actual payment of the liability as a consequence of the exchange
variation is not required. The amendment of s. 43A by the FA 2002 w.e.f.
1.4.2003 is not clarificatory.
Note: The judgement of the ITAT Special Bench in ONGC vs. ITO 83 1TD 151
has been approved by the Hon. Supreme Court in the case of C1T vs
Woodward Governor India Pvt. Ltd 312 ITR 254.
Respectfully, following the order of the Hon. Supreme Court in 312 ITR 254
the issue is decided in favour of the appellant. The AO is directed to allow the
consequential relief."
It is pertinent to note that a detailed explanation was submitted by the
assessee before the Assessing Officer in support of allowability of unrealized
foreign exchange loss of Rs. 68,63,845/- which assessee incurred on account
of re-statement of foreign currency denominated trade assets/liabilities. The
foreign exchange loss had been provided for by the assessee pursuant to the
mandatory Accounting Standard (AS-11) issued by the ICAI. The assessee is
consistently followed the this policy of restating foreign exchange
assets/liabilities as per the exchange rate prevailing on the last day of previous
year and accounting for the resultant profit/loss. The Assessing Officer totally
ignored this fact as well as the decision of the Hon'ble Apex Court in case of
CIT vs. Woodward Governor India Pvt. Ltd. 312 ITR 254. Thus, there is no
need to interfere with the findings of the CIT(A). Ground No. 1 of Revenue's
5 ITA No. 4809/Del/2016
appeal is dismissed.
8. As regards Ground No. 2, the CIT(A) held as under:-
"Considering all the facts and circumstances, of the case and the order of
Hon'ble Kerala High Court, in the case of Smt K. Devyani Amma vs DCIT 328
ITR 10, cited by the Ld AR, I am of the opinion, that refund should be taxed in
the AY, in which the refund is received. Therefore, an addition on account of
interest on refund is directed to be treated as income of AY 2015-16(the year
in which the refund is actually received). The AO shall grant the consequential
relief.
The records show that no refund has been received by the assessee in
A.Y. 2011-12 which was received in June 2014 after adjustment of outstanding
demands. The interest income was offered to tax in A.Y. 2015-16 by the
assessee. Therefore, the CIT(A) has given a proper finding and there is no need
to interfere with the same. Ground No. 2 of Revenue's appeal is dismissed.
9. As regards Ground No. 3, the CIT(A) held as under:-
"I have considered all the facts and circumstances of the case as well as the
submission of the Ld AR. 1 agree with the contention of the Ld. AR that the
appellant has right to receive the information or the evidence, against it, in
possession of the Assessing Officer, which the AO intends to use against the
appellant. The principle of natural justice demands, that the appellant, be
given the fullest opportunity, to be heard. Any material intended to be used
against the appellant must be provided to the appellant in full. In case any
information is available with the Assessing Officer as per AIR the details of
the same should be provided to the appellant. The addition merely on the
basis of piecemeal AIR information, cannot be sustained. The appellant has to
be provided with the opportunity to rebut such information. The plea of the
appellant, to provide it, the party wise and date wise, details of the defaults,
is not misplaced. In the present case, the AO has not made out a case for
addition of Rs.1,13,58,600/-. The same is therefore deleted. The AO, however
may resort to remedial actions as per law in case, the information available,
with him, is corroborated by further investigation."
This addition was made on account of AIR information for which the
6 ITA No. 4809/Del/2016
assessee asked the Assessing Officer to give party-wise/date-wise details of the
information as mentioned in the AIR. But the Assessing Officer did not provide
the same. Thus, without giving proper opportunity and without verifying the
details from the assessee, the Assessing Officer proceeded on the basis of AIR
information and made the addition which is not correct. The CIT(A) has rightly
deleted this addition. Ground No. 3 of the Revenue's appeal is dismissed.
10. In result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 06th June, 2019.
Sd/- Sd/-
(G. D. AGRAWAL) (SUCHITRA KAMBLE)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 06/06/2019
R. Naheed *
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
7 ITA No. 4809/Del/2016
Date of dictation 28.05.2019
Date on which the typed draft is placed before the 28.05.2019
dictating Member
Date on which the typed draft is placed before the
Other Member
Date on which the approved draft comes to the Sr.
PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
Date on which the fair order comes back to the Sr.
PS/PS
Date of pronouncement: 06/06/19
Date on which the final order is uploaded on the
website of ITAT
Date on which the file goes to the Bench Clerk
Date on which the file goes to the Head Clerk
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