ITAT directs Fresh Adjudication on Disallowance of Foreign Exchange Loss in respect of Buyer’s Credit payable by Assessee [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai directed fresh adjudication on the disallowance of foreign exchange loss in respect of the buyer’s credit payable by the assessee.

The assessee, K. Uttamlal, and Company is a firm and is engaged in the business of purchasing and sale of chemicals. For the assessment year 2012 – 13, the assessee filed its return of income declaring a total income of Rs. 73,72,654. During the course of assessment, it was noticed that the assessee has debited an amount of Rs. 1,58,19,171 as foreign exchange loss. On verification of records, it was ascertained that from the above amount of Rs. 1,58,19,171, an amount of Rs. 13,62,115 has been attributed towards the foreign exchange on purchase.

It was further noticed that foreign exchange loss on the value of payments to be made has only been restated by the assessee and thus the assessee firm has debited the transaction in its books in rupee terms by converting the same at the prevailing rate of exchange. The Assessing Officer (AO) passed an order under section 143 (3) of the Act and treated the loss of Rs. 13,62,115 as notional loss and added the same to the total income of the assessee. The Commissioner of Income Tax (CIT)upheld the addition in respect of the buyer’s credit payable on the basis that the assessee has failed to demonstrate how the same is related to any revenue expenditure. Being aggrieved, the assessee is in appeal before the Tribunal.

Pramod Kumar, Vice President, and Sandeep Singh Karhail, Judicial Member observed that “The foreign exchange loss has arisen on the amount payable as buyer’s credit, which was restated at the exchange rate, after setting off the gain. Further, the buyer’s credit was in respect of the import of items traded by the assessee and the assessee is having import letter or credit (buyer credit) limit of Rs. 14 crores with the bankers. The assessee also referred to the details in respect of its claim, which are forming part of the paper book. As these details, due to delay in filing, were not considered by the Assessing Officer and also have not been taken note of by the CIT, while upholding the addition, we deem it appropriate to remand this issue to the file of the Assessing Officer for de novo adjudication after consideration of the details filed by the assessee.”

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