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Issues: Appeal against dismissal of application under section 154 of the IT Act for exchange rate difference treatment.
Analysis: The case involves an appeal against the dismissal of the assessee's application under section 154 of the IT Act, 1961, regarding the treatment of exchange rate differences. The assessee, a registered firm engaged in the business of jewelry, imported rough Kharad on credit and made payments in due course. The assessee maintained its accounts on a mercantile system but accounted for exchange rate differences on a payment basis. The Income Tax Officer (ITO) did not accept the claim for exchange rate differences on a mercantile basis for certain assessment years, including 1984-85. The assessment for 1984-85 was completed with a total income of Rs. 79,280, and the foreign exchange difference was debited to the Profit & Loss Account. The assessee sought rectification of the assessment order to allow the liability of Rs. 57,669 for the year under consideration, which had been paid during that year but was not allowed in the previous year. The IT authorities held that there was no rectifiable mistake and the issue was debatable, thus rejecting the claim. The counsel for the assessee argued that since the payment of Rs. 57,669 for foreign exchange difference was made in the year under appeal and the assessee had consistently accounted for such differences on a payment basis, it should be allowed in the current year by rectifying the assessment order. The Departmental Representative acknowledged the reasonableness of the assessee's claim but pointed out that the matter was sub judice as the assessee had approached the High Court in reference to a previous year's order. However, the tribunal found that the assessee had been consistently accounting for exchange rate differences on a cash basis, which had been accepted by the Department and higher authorities in previous appeals. The tribunal held that the assessee's contention was reasonable and directed the ITO to modify the assessment order to allow the exchange rate difference of Rs. 57,669 for the year under consideration. In conclusion, the tribunal allowed the appeal, directing the allowance of the exchange rate difference to the assessee for the relevant year.
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