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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI & AND & MS. SUCHITRA KAMBLE
PER G.D. AGRAWAL, PER G.D. AGRAWAL, VICE PER G.D. AGRAWAL, PER G.D. AGRAWAL, VICE VICE PRESIDENT VICE PRESIDENT PRESIDENT :- PRESIDENT
1. This appeal by the Revenue for the assessment year 2011-12 is directed against the order of learned CIT(A)-1, New Delhi dated 4th September, 2015.
2. The Revenue has raised the following grounds :-
“1. The ld.CIT(A) has erred on facts and in law in deleting addition of Rs.35,42,20,000/- made by the AO on account of disallowance of foreign exchange fluctuation loss, for following reasons :-
2 ITA-6546/Del/2015 a. The assessee company has not commenced its business till the end of the year under consideration as apparent from P&L account submitted during the course of assessment proceedings. Thus, the claim of the assessee towards foreign fluctuation loss is not incurred wholly and exclusively for the purpose of business and not allowable as per provision of IT Act 1961. b. The assessee company has incurred the said loss while receiving back the money which was earlier advanced to its subsidiary company. However, the assessee is neither NBFC nor engaged in the business of lending money. Thus, the loss so claimed has not been incurred towards regular business activities and not allowable as per provision of I.T. Act 1961. c. Section 37 of the I.T. Act 1961, provides for deduction of all expenditure wholly and exclusively laid out or expanded for the purpose of the business of the assessee. One of the primary conditions for the claim of deduction u/s 37 is that the expenditure must be for the business which is carried on by the assessee during the previous year. d. The assessee company is neither a NBFC nor its primary business is lending money to other companies. Accordingly, loss incurred during the course of making transactions of advancing money is not a revenue loss and is capital in nature and required to be capitalized. e. The foreign fluctuation loss incurred while advancing money to other companies is admissible against income from other sources. Section 14 of the Act clearly provides that expenditure of one head cannot be adjusted against the income of other head. Thus, foreign fluctuation loss cannot be adjusted against income from business & profession u/s 28 of the Act.”
3. At the time of hearing before us, learned DR heavily relied upon the assessment order and she stated that for the year under consideration, the assessee filed the return disclosing dividend income, interest on intercorporate deposits and profit on sale of investment.
3 ITA-6546/Del/2015 Thus, no business income was disclosed. That even otherwise, no business is being carried on by the assessee either in this year or in the preceding year. She stated that these factual findings are very clearly recorded by the Assessing Officer at page 2 paragraph 3 and further page 5 paragraph 4.3. Thus, when no business is being carried on by the assessee, the Assessing Officer rightly disallowed the loss on account of foreign exchange fluctuation loss. She further stated that the assessee claimed to have incurred this loss in respect of money advanced to its subsidiary for the purpose of setting up of the plant. Since no such plant was set up, the money was returned back by such subsidiary and in the process, the assessee suffered the loss because of the fluctuation in the rate of Dollar. That advancing of money to the subsidiary cannot be said to be a business. She, therefore, submitted that the Assessing Officer had rightly disallowed the foreign exchange fluctuation loss and learned CIT(A), without considering the facts of the case, directed to allow the same.
Learned counsel for the assessee, on the other hand, relied upon the order of learned CIT(A) and he stated that learned CIT(A) after considering the facts as well as legal position in detail has arrived at the conclusion that the business was already commenced by the assessee during the financial year 2008-09. He stated that in the assessment year 2009-10, the Assessing Officer himself has accepted the returned loss of `75,946/-, meaning thereby, the Revenue accepted that the assessee had carried on the business. In assessment year 2010-11, the Assessing Officer held that the assessee had not commenced the business in the year under consideration and accordingly, he disallowed the loss claimed at `12,85,278/-. On appeal, learned CIT(A), vide order dated 20th August, 2015 recorded the finding that the assessee had commenced the business on 23rd
4 ITA-6546/Del/2015 July, 2009. That the above order of learned CIT(A) was accepted by the Revenue and learned DR has filed the letter from the Assessing Officer accepting the fact that no appeal was filed for assessment year 2010-11 because the then Assessing Officer in the central scrutiny report has mentioned that the order of the CIT(A) is acceptable on merits. He stated that once the Revenue has accepted the order of the CIT(A) for assessment year 2010-11 holding that the assessee has commenced the business with effect from 23rd July, 2008, there would be no justification for holding in the year under consideration that no business was commenced. He has also relied upon the following decisions in support of his claim :-
(i) CIT Vs. ESPN Software India P.Ltd. – [2008] 301 ITR 368 (Del).
(ii) CIT Vs. Dhoomketu Builders and Development P.Ltd. – [2014] 368 ITR 680 (Del).
He further stated that the assessee company made investment in one subsidiary company known as M/s Galactic Ventures Limited (hereinafter referred to as ‘GVL’) of 10,00,00,000 Dollars on 22nd December, 2008. As per the prevailing rate of Dollar in Rupee terms, it worked out to `478,49,30,000/-. The above subsidiary was formed by the assessee company to explore the power business outside India. The assessee, through the above subsidiary company, filed expression of interest for power projects being developed by Oman, Barka and Sohar. The Board of Directors of the assessee company authorized it to pursue the object of development of power projects through its subsidiary company GVL. That as per object clause of the assessee company, it can carry on the business either on its own or through any other entity. Further, the object of the assessee company included the 5 ITA-6546/Del/2015 business of establishing, commissioning, setting up, operating and maintaining power generating stations. He stated that learned CIT(A) has considered all this factual position at pages 23 and 24 of his order. That the main object of GVL is that of construction and maintenance of power plant. Thus, the assessee, through GVL, was pursuing its object of establishing, commissioning, setting up, operating and maintaining power plant. That unfortunately, the project of commissioning of power plant by GVL outside India could not materialize and it refunded the money to the assessee on 8th April, 2010. That as against 10,00,00,000 Dollars, it paid to the assessee 10,01,50,000 Dollars. 1,50,000 Dollars was offered as income of the assessee for the current year which is accepted by the Assessing Officer. However, due to fluctuation in the rate of Dollar vis-a-vis Rupee, for 10,00,00,000 Dollars in Indian Rupee, the assessee realized `443,07,10,000/-. The difference between the Rupee value of 10,00,00,000 Dollars advanced in 2008 and received back in 2010 was `35,42,20,000/- (478,49,30,000 minus 443,07,10,000). This difference was claimed as loss on account of foreign exchange fluctuation. He stated that the money was advanced to the subsidiary on account of commercial expediency. The assessee was pursuing its object of generating power through its subsidiary GVL and, for this purpose, only the advance was given to the subsidiary. Therefore, giving of advance was for the purpose of assessee’s business. In support of this contention, he relied upon the decision of Hon’ble Apex Court in the case of S.A. Builders Ltd. Vs. CIT(A) and Another – [2007] 288 ITR 1 (SC).
(i) Hero Cycles P.Ltd. Vs. CIT – [2015] 379 ITR 347 (SC).
(ii) CIT Vs. Modi Entertainment Ltd. – [2014] 89 CCH 0014 (Del).
6 ITA-6546/Del/2015 He, therefore, stated that the order of learned CIT(A) should be sustained and Revenue’s appeal may be dismissed.
In the rejoinder, it is stated by the learned CIT-DR that the appeal for assessment year 2010-11 was not filed because of low tax effect and this is also mentioned by the Assessing Officer in the central scrutiny report sent by the Assessing Officer to higher authorities. Therefore, merely because no appeal was filed by the Revenue in assessment year 2010-11, it should not be concluded that the Revenue has accepted the order of the learned CIT(A) that business has been commenced by the assessee. She further stated that even otherwise, law of res judicata is not applicable to the assessment proceedings and each year should be decided on its own facts.
We have carefully considered the arguments of both the sides and perused the material placed before us. After going through the order of lower authorities as well as considering the submissions of both the sides, we are of the opinion that in this appeal, basically two issues arise – (i) whether the assessee has commenced the business and; (ii) whether the advancement of money to the subsidiary can be said to be for the purpose of business.
The Assessing Officer, in the assessment order, has recorded the finding at page 2 paragraph 3 “The assessee company during the year and prior to this has not started any business”. Similar finding is recorded by him at paragraph 4.4. However, the assessee has filed the year-wise position of events in this case. For assessment year
7 ITA-6546/Del/2015 2009-10, the assessee filed the return disclosing the loss of `75,946/- under the head ‘income from business or profession’. In the order passed u/s 143(3) dated 20th December, 2011, the Assessing Officer accepted the returned loss of `75,946/-. Thus, he accepted that the assessee was carrying on the business. In assessment year 2010-11, the assessee declared the loss of `12,85,278/-. In this year, the Assessing Officer recorded the finding that the business was not commenced by the assessee and accordingly, he assessed the total income at nil. On appeal, learned CIT(A), vide order dated 20th August, 2015, held as under :-
“The appellants’ case is squarely covered by the ratio of the principles laid down in the aforesaid judicial pronouncements of Hon'ble Delhi High Court. Since the appellant company was incorporated on 25.04.2008 and thereafter, appointed Directors, incorporated a subsidiary company in Mauritius and obtained consultancy services from ‘India Bulls Power Ltd’ for development of power projects. All these activities goes to prove that business of the appellant company was set up on 25.04.2008 and commenced its business on 23/07/2008 on receipt of certificate of commencement of business and incorporated a subsidiary company in Mauritius for bidding for construction of power projects in foreign countries.
In view of the above, it is held that business of the appellant company was set up and commenced in F.Y. 2008-09 and any expenditure incurred in the furtherance of its objective is fully allowable as business expenditure. As a result, ground of appeal no.2 and 3 are allowed.”
9. Thus, in the above order, learned CIT(A) has recorded the factual finding that the assessee commenced its business on 23rd July, 2008 on receipt of certificate of commencement of business and incorporation of a subsidiary company in Mauritius for bidding up of power projects in foreign countries. The assessee had incorporated GVL in Mauritius,
8 ITA-6546/Del/2015 and through GVL, it submitted the bid for construction of power projects in foreign countries. When it was enquired from the learned DR whether the Revenue had accepted the above order or whether any appeal is filed. The ld. CIT-DR submitted the copy of letter received from the Assessing Officer. The information as submitted by the Assessing Officer vide letter dated 14th January, 2019 is reproduced below for ready reference :-
“Required information on three questions is as under :
1. Whether Department has filed appeal on similar issues in earlier years? Ans : As per record and CSR for AY 2010-11, the assessing officer has not recommended filing of appeal for AY 2010- 11.
2. Whether Department did not file appeal on account of low tax effect? Ans : The AO in the CSR for AY 2010-11 has also not recommended filing of appeal for AY 2010-11.
3. Whether Department choose not to file appeal for AY 2010-11 &/or AY 2011-12? Ans : The Department has filed appeal before Hon’ble ITAT for AY 2011-12 as per record available in this office.
-- Regards Income Tax Officer Ward-2(2), C R Building, New Delhi – 110002 Refer to the above subject.
In this connection it is submitted that the assessee company filed its return of income for AY 2009-10, 2010-11 which were selected for scrutiny. The assessment in this case for AY 2010-11 was completed at NIL income against the declared loss of Rs.12,85,278/-. The AO had disallowed the losses claimed by the assessee based on the reason
9 ITA-6546/Del/2015 that the assessee had not commence its business activity and as such, it was not entitled for any deduction u/s 37 of the IT Act, 1961.
The CIT(A) deleted the disallowance of expenses of Rs.12,96,459/- vide order no.06/2013-14 dated 20.08.2015. The AO has sent the CSR which is as under :
In view of the facts of the case the relief allowed by the CIT(A) which is the based on the decision of various High Courts including the jurisdictional High Court on the issue of allowability of Business expenses as reduction after the business is set up and ready to commence is acceptable on merit.
Further the Tax effect in this case is only notional Rs.3,88,938/- and also below the limit prescribed by the CBDT for filing of appeal to ITAT, hence no appeal is recommended in this case. Copy of CSR sent by AO is enclosed.
-- Regards
Income Tax Officer Ward-2(2), C R Building, New Delhi – 110002.”
From the above, it is evident that the Assessing Officer has informed that as per Central Scrutiny Report, it is evident that the Assessing Officer has clearly mentioned that the relief allowed by the CIT(A) is based upon the decisions of various High Courts including Hon'ble Jurisdictional High Court on the issue of allowability of business expenses after the business is set up and ready to commence. He has also mentioned that the order of learned CIT(A) is acceptable on merits. Though thereafter, in paragraph 2, he has also mentioned that the tax effect is below the limit prescribed by the CBDT for filing of appeals to the ITAT. Thus, the fact remains that in assessment year 2009-10, the Revenue, in the order passed u/s 143(3), accepted the 10 ITA-6546/Del/2015 business loss declared by the assessee, in 2010-11, accepted the order of the CIT(A) on merits where he has given clear finding that the assessee has commenced business through its subsidiary in Mauritius for bidding up of power projects in foreign countries. After these facts, in our opinion, in assessment year 2011-12, the Assessing Officer was not justified in holding that the assessee company did not start any business either during the year or prior to the year under consideration.
The following decisions of Hon'ble Jurisdictional High Court also support the case of the assessee :-
(i) In the case of ESPN Software India P.Ltd. (supra), Hon'ble Jurisdictional High Court held as under :-
“A business is nothing more than a continuous course of activities and for commencement of business all the activities which go to make up the business need not be started simultaneously. As soon as an activity which is the essential activity in the course of carrying on the business is started, the business must be said to have commenced.”
(ii) In the case of Dhoomketu Builders and Development P.Ltd. (supra), the facts were that the assessee was a company incorporated on August 22, 2005, and according to its memorandum of association, it was to carry on the business of real estate development including purchase and sale of land. The official liquidator of the Karnataka High Court floated a tender for sale of 140 acres of land belonging to a company which had gone into liquidation. In order to participate in the tender, the assessee obtained a loan of Rs.186 crores on November 29, 2005, from its holding company and on the same day deposited the amount as earnest money in response to the tender floated by the 11 ITA-6546/Del/2015 official liquidator. The assessee was, however, not successful in purchasing the land and, therefore, the earnest money was returned to it with interest of Rs.62,28,333. On the amount borrowed from its holding company the assessee was liable to pay interest of Rs.1,79,37,534. The assessee claimed the difference between the interest received and the interest paid as loss under the head “Business”. The claim was rejected by the Assessing Officer. The Tribunal observed that having regard to the business of the assessee, which was the development of real estate, the participation in the tender represented commencement of one activity which would enable the assessee to acquire the land for development. The assessee was in a position to commence business and that meant that the business had been set up. It allowed the claim of the assessee. On these facts, Hon'ble Jurisdictional High Court held as under :-
“Held, dismissing the appeals, that the finding of the Tribunal was a finding of fact and it could not be said that the finding was without any basis or material. Moreover, the Tribunal did take note of the distinction between the commencement of a business and setting up of a business. The loss was a business loss.”
Hon'ble Jurisdictional High Court has also elaborated upon the difference between setting up and commencement of the business and held as under :-
“There is a difference between the setting up and commencement of business. When a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But three may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the 12 ITA-6546/Del/2015 business, all expenses during the interregnum, would be permissible deductions. The question as to when a business can be said to have been set up is a question of fact to be ascertained on the facts and circumstances of each case and considering the nature and type of the particular business and no universal test or formula applicable to all types of businesses can be laid down. The commencement of real estate business would normally start with the acquisition of land or immovable property. When an assessee whose business is to develop real estate, is in a position to perform certain acts towards the acquisition of land, that would clearly show that it is ready to commence business and, as a corollary, that it has already been set up. The actual acquisition of land is the result of such efforts put in by the assessee; once the land is acquired the assessee may be said to have actually commenced its business which is that of development of real estate. The actual acquisition of land may be the first step in the commencement of the business but section 3 of the Act does not speak of commencement of the business, it speaks only of setting-up of the business.”
That the ratio of the above decision of Hon'ble Jurisdictional High Court would be squarely applicable to the case of the assessee because, in the above mentioned case also, the assessee had only submitted the bid for purchase of land, which was not successful. On these facts, Hon’ble High Court has held that the assessee has set up the business. In the case of the assessee also, it submitted the bid for construction of the power plant through its subsidiary, which was not successful. In view of the history in the assessee’s case as well as the above decisions of Hon'ble Jurisdictional High Court, we are of the opinion that learned CIT(A) rightly held that the assessee has already set up the business.
Now, coming to the second issue whether the advancement of money to the subsidiary can be said to be for the purpose of business, we find this issue to be now fairly settled by the decision of Hon’ble
13 ITA-6546/Del/2015 Apex Court as well as Hon'ble Jurisdictional High Court. In the case of S.A. Builders Ltd. (supra), Hon'ble Supreme Court held as under :-
“In order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern (e.g., a subsidiary of the assessee) should be allowed as a deduction under section 36(1)(iii) of the Income-tax Act, 1961, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency. The expression “commercial expediency” is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency.
Decisions relating to section 37 will also be applicable to section 36(1)(iii) because in section 37 also the expression used is “for the purpose of the business”. “For the purpose of business” includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby.”
In the case of Hero Cycles P.Ltd. (supra), Hon'ble Supreme Court held as under :-
“Held, allowing the appeal, (i) that the advance to the subsidiary became imperative as a matter of business expediency in view of the undertaking given to the financial institutions by the assessee to the effect that it would provide additional margin to the subsidiary to meet the working capital for meeting any cash losses.”
In the case of Modi Entertainment Ltd. (supra), Hon'ble Jurisdictional High Court held as under :-
“The finding of the Tribunal was that the advancing of interest-free monies to the subsidiary companies was 14 ITA-6546/Del/2015 driven by business considerations since the subsidiaries were also engaged in the same business in which the assessee was engaged. The Tribunal accordingly held that it would be in the interest of business of the assessee and certainly would be commercially expedient for the assessee to advance interest-free monies to the subsidiaries as part of the corporate business strategy to expand its business operations through its subsidiaries. This finding of fact has not been disputed. Findings of Tribunal upheld.”
That the above decisions of Hon’ble Apex Court as well as of Hon'ble Jurisdictional High Court would squarely support the case of the assessee. No contrary decision is brought to our knowledge by the Revenue. In the case of Modi Entertainment Ltd. (supra), Hon'ble Jurisdictional High Court has stated that the advancing of interest free money to subsidiaries as part of the corporate business strategy to expand its business through its subsidiaries would be commercially expedient. The facts of the assessee’s case are identical. The assessee is in the business of establishing, commissioning, setting up, operating and maintaining power projects. That its subsidiary GVL had also similar objects. The assessee tried to pursue its objects through its subsidiary GVL and submitted a bid for a power project abroad. Therefore, on these facts, the ratio of the above decision of Hon'ble Jurisdictional High Court in the case of Modi Entertainment Ltd. would be squarely applicable. That Hon’ble Apex Court in the case of S.A. Builders Ltd. (supra) held that the expression ‘commercial expediency’ is one of wide import and includes such business expenditure as a prudent businessman incurs for the purpose of business. After considering the facts of the case, we are of the opinion that the advancing of money to GVL for setting up of the power project was driven by commercial expediency and therefore, was for the purpose
15 ITA-6546/Del/2015 of business. That learned CIT(A) has also considered all this factual position and held as under :-
“In view of the above finding, it is held that appellant company had commenced to business in F.Y. 2008-09 itself. In furtherance of its objectives appellant company has invested money of Rs.478,49,30,000/- in its overseas subsidiary M/s Galactic Ventures Ltd. for setting up a new business venture in the line of setting up of power plant: For this the appellant company took loan from its holding company M/s Ellena Power and Infrastructure Ltd. and gave this money to the above mentioned overseas company for starting the power business. However, the holding company could not set up the business and returned back the money to the appellant. While receiving back money, the appellant company suffered a loss of Rs.35,42,20,000/- because of the exchange rate difference. The activities undertaken by the appellant company for taking loan from its holding company and giving it to the overseas subsidiary for setting up a power plant in overseas amounts to the commencement of the business and these transactions were carried out in the course of normal business activities. It is not necessary that steps taken by the appellant company will result into earning of income. Sometimes, the efforts may fructify or sometime it may not fructify. But all these activities initiated by the appellant company constitute business activity. The appellant company has also given inter corporate deposits and from there it has earned interest income of Rs.4,79,86,849/-. The business model of the company is such that it can carry business on its own or by forming joint ventures or subsidiaries. In order to capture the market and extend its arm globally, the appellant invested into a company which is in the same line of business as that of appellant in accordance with its main objects. For this purpose, the object clause of the appellant company has to be read and same is reproduced hereunder:
“1. To promote, undertake, carry on either on its own or either on its own or either on its own or either on its own or through any other entity or to enter into agreements, through any other entity through any other entity through any other entity contracts, partnership, alliance or any other arrangement for technical, financial and operational assistance or sharing of profits / losses with any Person / Body / Bodies
16 ITA-6546/Del/2015
Corporate incorporated in India or abroad either under a either under a either under a either under a Strategic Strategic Strategic Strategic Alliance Alliance Alliance Alliance or or or or Joint Joint Joint Joint Ve Venture Ve Ve nture nture nture or or or or any any any any other other other other arrangement, in India or any part of the world, arrangement, in India or any part of the world, the business arrangement, in India or any part of the world, arrangement, in India or any part of the world, of generating, developing, transmitting, distributing, trading and supplying all forms of electrical power/ energy from any source whatsoever and to construct, lay down, establish, fix and carry out necessary power stations, cables, wires, lines, accumulators, lamps and works and to carry on the business of electrician, electrical and mechanical engineers, traders, suppliers of electricity for the purposes of light, heat, motive power or otherwise, and manufacturers of and dealers in apparatus and things required for or capable of being used in connection with the generation, distribution, trading, supply, accumulation and employment of electricity, Galvanism, magnetism or otherwise and business of establishing, commissioning, setting up, operating and maintaining electric power generating stations based on conventional/non- conventional resources, tie-lines, sub-stations and transmission lines on Build, Own and Operate (BOO) and/or Build, Own and Transfer (BOT), and/or Build, Own, Lease and Transfer (BOLT) and/or Build, Own, Operate and Transfer (BOOT) basis and/or otherwise, and to carry on the business of acquiring, operating, managing and maintaining existing power' generation stations, tie-lines, sub-stations and transmission lines, either owned by the private sector or public sector or the Government or Governments or other public authorities and for any or all of the aforesaid purposes, to do all the necessary or ancillary activities as may be considered necessary or beneficial or desirable and in any manner deal with or dispose of undertaking, property, assets, rights and all other effects which in the opinion of the Company is conducive to the attainment of any or all of its business objectives or to acquire and dispose of shares, securities and interest in such Businesses.
To form, settle, acquire, set up, incorporate, establish, 3. To form, settle, acquire, set up, incorporate, establish, 3. To form, settle, acquire, set up, incorporate, establish, 3. To form, settle, acquire, set up, incorporate, establish, promote, subsidize, organize and assist or aid in forming, promote, subsidize, organize and assist or aid in forming, promote, subsidize, organize and assist or aid in forming, promote, subsidize, organize and assist or aid in forming, promoting, subsiding, organizing or aiding, companies, promoting, subsiding, organizing or aiding, companies, promoting, subsiding, organizing promoting, subsiding, organizing or aiding, companies, or aiding, companies, trusts, funds, entities or partnerships of all kinds for any trusts, funds, entities or partnerships of all kinds for any trusts, funds, entities or partnerships of all kinds for any trusts, funds, entities or partnerships of all kinds for any purpose including for the purpose of accepting and purpose including for the purpose of accepting and purpose including for the purpose of accepting and purpose including for the purpose of accepting and undertaking any properties, businesses, assets, liabilities of undertaking any properties, businesses, assets, liabilities of undertaking any properties, businesses, assets, liabilities of undertaking any properties, businesses, assets, liabilities of this Company, or with objects similar in whole or part with this Company, or with objects similar in whole or part with this Company, or with objects similar in whole or part with this Company, or with objects similar in whole or part with that of Company and invest therein.” that of Company and invest therein.” that of Company and invest therein.” that of Company and invest therein.”
17 ITA-6546/Del/2015
Further, the object clause of the GVL which was an overseas subsidiary of the appellant company reads as under:
‘‘The principal activity of the company is that of ‘‘The principal activity of the company is that of ‘‘The principal activity of the company is that of ‘‘The principal activity of the company is that of construction and maintenance of power plants includin construction and maintenance of power plants including construction and maintenance of power plants includin construction and maintenance of power plants includin g g g trading in power plant equipments.” trading in power plant equipments.” trading in power plant equipments.” trading in power plant equipments.”
From the reading of the object clause of the appellant as well as its subsidiary, it is evident that the incorporation of the subsidiary company, having the business object same as of the assessee, and it was nothing but an expansion of its business and has been done as a measure of commercial expediency and accordingly the loss incurred on account of foreign exchange fluctuation on realization of investment money in subsidiary is nothing but an expenditure incurred wholly and exclusively for the business purposes of the appellant company.
Section 28 of the Income Tax Act which is a computing section for the income from the business and profession reads as under:
“The following income shall be chargeable to income-tax under the head "Profit and gains of business or profession - (iii) the profit and gains of any business profit and gains of any business profit and gains of any business or profession which profit and gains of any business was carried on by the assessee at any time during the previous year; (iv) …….”
Further, Section 37 of the Act is a residuary section which allows the claim of the expenditures which are not covered in any other section from 30 to 36 and have been incurred wholly and exclusively for the purpose of business.
Since, in the instant case, the investment has been done to promote its business globally, the same is nothing but a business activity of the appellant company and 18 ITA-6546/Del/2015 accordingly the foreign exchange fluctuation loss, incurred by the appellant company, is an expenditure incurred wholly and exclusively for the purpose of its business.”
After considering the submissions of both the sides and the facts of the case, we do not find any justification to interfere with the above finding recorded by the learned CIT(A). In view of the above, we, respectfully following the decisions of Hon’ble Apex Court in the case of S.A. Builders Ltd. (supra) and Hero Cycles P.Ltd. (supra) and of Hon'ble Jurisdictional High Court in the case of ESPN Software India P.Ltd. (supra), Dhoomketu Builders and Developers P.Ltd. (supra) and Modi Entertainment Ltd. (supra), uphold the order of learned CIT(A) and dismiss the appeal filed by the Revenue.
In the result, the appeal of the Revenue is dismissed. Decision pronounced in the open Court on 04.02.2019.