INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Foreign exchange fluctuation loss - AO alleged non utilization of funds raised in FNCR for business purposes -

Assessee claimed an amount of Rs. 1,80,22,000 towards foreign exchange fluctuation loss. AO disallowed the same holding that assessee had not established utilization of funds raised in FNCR for business purposes. It was assumed by AO that the loan had been used for certain investments into share capital of various companies. Tribunal deleted disallowance. AO approached High Court.Held: Assessee had demonstrated before the Tribunal that increase in investments from Rs. 102 crores to Rs. 380 crores was on account of investment of Rs. 287 crores in 8% redeemable preference shares of Phipso Ltd., which was made on 31-3-2005, i.e., on last day of the year and, therefore, working capital obtained on various dates between 2-4-2004 and 31-3-2005 could not have been utilized from the same. Also, interest paid on the loans was allowed by AO himself as a deduction, however, no loss in connection thereto was allowed. The loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet was an item of expenditure under section 37(1). The view of AO that investments were made from FNCR loans was not based on any supporting material and was only a presumption. Hence, disallowance was deleted.

Followed:CIT v. Woodward Governor India (P.) Ltd. (2009) 179 Taxman 326 (SC) : 2009 TaxPub(DT) 1628 (SC).

REFERRED : Taparia Tools Ltd., v. Jt. CIT (2015) 372 ITR 605 (SC) : 2015 TaxPub(DT) 1438 (SC), CIT v. Reliance Industries Ltd., (2019) 102 Taxmann.com 52 (SC) : 2019 TaxPub(DT) 659 (SC) and CIT v. Reliance Utilities and Power Ltd. (2009) 178 Taxman 135 (Bom-HC) : 2009 TaxPub(DT) 1275 (Bom-HC).

FAVOUR : In assessee's favour.

A.Y. : 2008-09

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