Syed Asif Ali Vs ACIT (ITAT Lucknow)
Summary: The ITAT Lucknow partly allowed the assessee’s appeal for Assessment Year 2013-14 against the order of the CIT(A)-1, Lucknow. The principal dispute concerned an addition of Rs.1,31,59,222/- arising from foreign exchange fluctuation gain. The assessee had earned an aggregate foreign exchange fluctuation gain of Rs.2,82,92,784/- but credited only Rs.1,51,33,562/- to its Profit and Loss Account, explaining that Rs.1,31,59,222/- had been passed on to the buyer as rebate pursuant to a pre-existing agreement. The Assessing Officer treated the amount as diversion of the assessee’s income and added it back, while the CIT(A) sustained the addition on the ground that sharing of the gain was not allowable expenditure under section 37(1).
The Tribunal noted that the existence of the prior agreement with the buyer was undisputed. Under that agreement, foreign exchange gains exceeding 2% of remittances were to be shared with the buyer in the ratio of 55:45. The buyer’s share had been accounted for as rebate and discount, while the assessee’s own share of the gain had already been credited to its Profit and Loss Account. The actual payment of rebate and its genuineness were also not disputed. The Tribunal held that merely because the agreement provided for sharing foreign exchange gains but not losses, it did not become invalid. The Revenue was unable to point to any provision of law prohibiting such an arrangement. The assessee was contractually obliged to pass the agreed share of the gain to the buyer, and the nomenclature adopted in the books was immaterial.
