DCIT, New Delhi V. M/s. HCL Comnet Ltd., New Delhi

ITA 4809/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1429 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 08-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; TDS
• Section: 14A; 37(1); 37

Judgement Text

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 CIRCLE - 11(1) NEW DELHI (APPELLANT) VS HCL COMNET LTD. 806, SIDHARTH, 96, NEHRU PLACE NEW DELHI AAACH9667H (RESPONDENT) APPELLANT BY SH. AMIT KATOCH, SR. DR RESPONDENT BY SH. AJAY VOHRA, SR. ADV, SH. ADITYA VOHRA, ADV 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 DE LHI 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 F OREIGN 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 20 10 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 DATE OF HEARING 28.05.2019 DATE OF PRONOUNCEMENT 0 6 .0 6 .2019 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, L D. CIT(A) IS RIGHT IN DELETING THE ADDITION ON ACCOUNT OF DEFAULT AS PE R 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 C OMNET 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 PRIVAT E NETWORKS. T HE 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 T HIS 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. A S REGARDS GROUN D 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 AMO UNT 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 AC CORDANCE 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 APPELLANTS OWN CASE FOR AY 2010 - 11. THEREFORE, DISALLOWI NG 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. ACTUA L 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 B Y 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 CONSEQU ENTIAL RE LIEF. 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 HONBL E APEX COURT IN CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. 31 2 ITR 254. THUS, THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 1 OF REVENUES 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 HONBLE 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 BE EN 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 NE ED TO INTERFERE WITH THE SAME. GROUND NO. 2 OF REVENUES 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 CO NTENTION 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 APPEL LANT, 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 A VAILABLE, 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 REVENUES APPEAL IS DISMISSED. 10. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 6 T H JUNE , 2019 . S D / - S D / - (G. D. AGRAWAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 0 6 /0 6 /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 DICTATING MEMBER 28.05.2019 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 D A T E O F P R O N O U N C E M E N T : DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 0 6 / 0 6 / 1 9 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK