Exchange Gain can be Adjusted from Total Income by Reducing it from Block of Assets u/s 43A and ICDS: ITAT [Read Order]

The Surat Bench of the Income Tax Appellate Tribunal ( ITAT ) held that exchange gain can be adjusted from total income by reducing it from the block of assets under section 43A of the Income Tax Act and Income Computation and Disclosure Standards ( ICDS ).

Meri Life Sciences Private Limited (assessee) is a company that filed an Income Tax Return ( ITR ) for the Assessment year 2018-2019 and declared an income of Rs. 39,24,06,630. The Assessing Officer ( AO ) selected the case for complete scrutiny and accepted the assessee's total income.

The Principal Commissioner of Income Tax ( PCIT ) issued a notice under Section 263 of the Income Tax Act and sought an explanation from the assessee regarding the net foreign exchange gain of Rs. 2,63,509, which was not added to the total income.

Know Practical Aspects of Tax Planning, Click Here

The assessee filed a reply to the PCIT but the PCIT did not accept the assessee's explanation. The PCIT set aside the AO's assessment order and remanded for a fresh assessment. Aggrieved by the order, the assessee filed an appeal before ITAT.

The counsel for the assessee argued that as per section 43A of the Income Tax Act, 1961, exchange gain on capital assets can be adjusted from the actual cost of the asset and also submitted that it was therefore adjusted from a block of assets and capital work in progress. The counsel also stated that it cannot be treated as income as per income computation and disclosure standards ICDS.

Whereas, the counsel for Revenue relied on the findings of the PCIT and submitted that Rs. 2,63,509 should be added to the total income and sought to dismiss the appeal.

The two-member bench comprising Pawan Singh ( Judicial Member ) and Bijayananda Pruseth ( Accountant Member ) observed that under section 43A of the Income Tax Act and ICDS, the exchange gain of capital assets can be reduced from the block of assets or capital work in progress ( CWIP ). Therefore, the tribunal held that Rs. 2,63,509 cannot be considered as income of the assessee. The appeal was allowed.  

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates