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The ITAT upheld the disallowance of the loss claimed by the appellant on cancellation of a forward contract with Citi Bank NA, entered to hedge foreign exchange fluctuations on funds advanced to its foreign subsidiary. The tribunal affirmed that the loss was capital in nature, as the underlying transaction aimed at acquiring a capital asset, namely Dunlop Tyres International Pvt. Ltd. The expenditure was directly connected to acquiring a source of income and creating a long-term business advantage. Established principles confirm that expenses incurred for acquisition or creation of capital assets retain their capital character regardless of any subsequent profit enhancement. Consequently, the loss could not be allowed as a deduction under business income. The appellant's appeal was dismissed, maintaining the assessment's treatment of the loss as capital expenditure and rejecting its claim for revenue deduction.
The ITAT upheld the disallowance of the loss claimed by the appellant on cancellation of a forward contract with Citi Bank NA, entered to hedge foreign exchange fluctuations on funds advanced to its foreign subsidiary. The tribunal affirmed that the loss was capital in nature, as the underlying transaction aimed at acquiring a capital asset, namely Dunlop Tyres International Pvt. Ltd. The expenditure was directly connected to acquiring a source of income and creating a long-term business advantage. Established principles confirm that expenses incurred for acquisition or creation of capital assets retain their capital character regardless of any subsequent profit enhancement. Consequently, the loss could not be allowed as a deduction under business income. The appellant's appeal was dismissed, maintaining the assessment's treatment of the loss as capital expenditure and rejecting its claim for revenue deduction.
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