ITAT Restores ICDS-Based Forex Provision Disallowance, Condones Delay Caused by Portal Glitches

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) held that a genuine delay in filing an appeal due to technical glitches on the Income Tax portal deserves to be condoned and remitted a dispute relating to an ICDS-based foreign exchange provision back to the Assessing Officer for fresh verification.

The assessee, Astormueller Shoes Private Limited, engaged in the manufacture of footwear, leather goods, textiles and apparel, filed its return for AY 2018-19 declaring income of Rs 1.09 crore. During scrutiny proceedings, the Assessing Officer issued multiple notices, but according to the department, no effective compliance was made. On examining the return, the AO noticed that the assessee had reduced its profit by Rs 14.19 lakh on account of adjustments made under the Income Computation and Disclosure Standards (ICDS). Since supporting details were not furnished, the AO disallowed the amount and completed the assessment under Section 143(3) read with Section 144B.

The assessee’s appeal before the CIT(A) was dismissed at the threshold on the ground that it was filed with a delay of two months and twenty-one days. The assessee had explained that the delay occurred due to technical issues on the Income Tax portal and that grievances had been raised before the concerned authorities. However, the CIT(A) held that no specific evidence of such glitches had been furnished and refused to condone the delay.

Before the Tribunal, the assessee argued that the delay was bona fide and arose from portal-related difficulties during the Covid-19 period. The Tribunal observed that the assessee had specifically mentioned technical glitches in Form No. 35 and had also stated that grievances had been lodged with the department. It noted that the alleged glitches were attributable to the department’s systems and not to the assessee. The Tribunal further remarked that the CIT(A) had no basis to conclude that there were no technical issues during the relevant period and that nothing would have been gained by the assessee by deliberately filing the appeal late.

On merits, the Tribunal examined the disallowance relating to a provision of Rs 14.19 lakh created under ICDS-VI dealing with the effects of changes in foreign exchange rates. It noted that ICDS permits recognition of exchange differences and amortisation of premiums or discounts arising from foreign exchange contracts. Since the provision appeared to have been made in accordance with ICDS requirements, the Tribunal observed that such an adjustment could not be automatically added back to income.

Therefore, the Tribunal condoned the delay, set aside the issue to the Assessing Officer for fresh examination, and directed that if the provision is found to have been created in accordance with ICDS provisions, the addition should be deleted.

To Read Full Order, Download PDF Given Below.