PRUDENT AGRI COMMODITIES INDIA PVT LTD vs. ASSISTANT COMMISSIONER OF INCOME TAX SPECIAL RANGE 7 NEW DELHI
What did the High Court hold?
The High Court admitted the appeal, questioning whether the ITAT erred in sustaining the disallowance under Section 14A for foreign exchange loss. It also questioned if the ITAT missed the distinction between 'loss' and 'expenditure' in its application of Section 14A.
What were the facts?
The assessee claimed a foreign exchange fluctuation loss. The ITAT held that there was a direct nexus between the foreign advance and the purchase of mutual fund units, allowing disallowance under Section 14A up to the extent of exempt income.
What were the issues?
Whether foreign exchange fluctuation loss can be disallowed under Section 14A, and if a 'loss' is conceptually different from 'expenditure' for the purpose of this section.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(1)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- PCIT v. Caraf Builders and Constructions Pvt. Ltd.69 citing414 ITR 122 · 2019 · HC · Read judgment
$~193 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 251/2024
PRUDENT AGRI COMMODITIES INDIA PVT LTD ..... Appellant
Through: Mr.Rohit Jain and Mr.Aditya
Vohra, Advs.
versus
ASSISTANT COMMISSIONER OF INCOME TAX SPECIAL
RANGE 7 NEW DELHI
..... Respondent
Through: Mr.Aseem Chawla, Sr.SC with
Ms.Pratishtha Chaudhary, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
O R D E R %
01.05.2024
Having heard Mr. Jain and Mr. Chawla, learned counsels appearing for respective sides, we find that the appeal would merit further consideration. 2. One of the principal questions which appears to have arisen was with respect to the applicability of Section 14A of the Income Tax Act, 1961 ["Act"] in respect of foreign exchange fluctuation loss. The Commissioner of Income Tax (Appeals) ["CIT(A)"] had categorically found that the same would fall beyond the scope of Section 14A of the Act since it clearly could not be viewed as expenditure. 3. The Income Tax Appellate Tribunal ["ITAT"], however, while passing the impugned order has observed as follows:- "17. Considering the facts of the case in totality we are of the considered view that there is a direct nexus between the foreign advance and the purchase of mutual fund units, therefore, disallowance u/s. 14A cannot be ruled out. However, since the exempt income is Rs.5067645/-, therefore, the disallowance u/s.14A This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:11:44
cannot exceed the exempt income as held by Hon’ble Jurisdictional High Court of Delhi in the case of Caraf Builders and Construction 414 ITR 122. The AO is directed to restrict the disallowance to the extent of exempt income of the revenue.
The aspect of whether it could constitute expenditure and was of criticality clearly appears to have been missed. The matter requires consideration. 5. We accordingly admit the instant appeal under the following questions of law:- A. Whether on facts and circumstances of the case, the ITAT erred in law in sustaining the disallowance to the extent of exempt income of INR 50,67,645 under Section 14A of the Act, by holding that foreign exchange loss suffered by the Appellant on repatriation of foreign advance had ‘direct nexus’ with earning of exempt income?
B. Whether on facts and circumstances of the case, the ITAT erred in law in not appreciating that ‘loss’ is conceptually different from ‘expenditure’ and only the latter and not the former, is covered within the scope of Section 14A of the Act? 6. Let the matter be called again on 20.08.2024.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J. MAY 01, 2024/MJ
This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:11:44
More judgments on Section 14A
- Blacksoil Capital Private Limited (As… vs DCIT, Circle-1(1), HyderabadITA 2217/HYD/2026[2017-18]Status: Disposed9 Oct 2026AY 2017-18
- Hiral Construction, Mumbai vs ITO Ward 42(1)(2), MumbaiITA 8431/MUM/2025[2017-18]Status: Disposed8 Oct 2026AY 2017-18
- The Dy DIT (It) 1(2), Mumbai vs M/S Citi Bank N.A, MumbaiITA 4981/MUM/2007[2002-2003]Status: Disposed8 Oct 2026AY 2002-2003
- M/S. Citi Bank N.A., Mumbai vs The Addl DIT (It) RG-1, MumbaiITA 4970/MUM/2007[2002-2003]Status: Disposed8 Oct 2026AY 2002-2003
- M/S American Express Bank Ltd., Mumbai vs The Jt DIT (It)1(1), MumbaiITA 9414/MUM/2004[2000-2001]Status: Disposed8 Oct 2026AY 2000-2001
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