TaxTMI 
TaxTMI 
2022 (4) TMI 694
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.... 2. Briefly stated, the appellant company submitted returns of income on 29.11.1997 for the assessment year 19971998, mentioning loss of income, amongst others, owing to exchange fluctuation of Rs. 1,10,53,909/. After processing the return under Section 143(1)(a) of the Income Tax Act, 1961 for short, "the 1961 Act", the assessment was completed on 16.3.2000. As against the loss declared by the appellant due to exchange fluctuation, the assessment was concluded by positive taxable income. Against that decision, the matter was carried in appeal by the appellant before the Commissioner of Income Tax (Appeals) for short, "CIT(A)" and eventually, by way of appeal before the Income Tax Appellate Tribunal for short, "ITAT" being I.T.A. No. 795 (Bang)/2000. 3. In the appeal before the ITAT, the appellant not only claimed deduction in respect of loss of Rs. 1,10,53,909/arising on account of exchange fluctuation, but also set up a fresh claim in respect of revenue expenses to the tune of Rs. 2,46,04,418/, erroneously capitalised in the returns. The ITAT entertained this fresh claim set forth by the appellant and recorded in its judgment that the department's representative ....
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....ngent in nature as the loss on account of foreign exchange fluctuation has been quantified in terms of rule 115 of IT Rules and further the liability is real as per terms of the agreement with CDC. Just because the liability is payable in future does not covert the actual liability into contingent liability as held by the Supreme Court in Calcutta Co Ltd. vs. CIT - 37 ITR 1 and Bharat Earth Movers Ltd. vs. CIT - 245 ITR 428. Similar view has been expressed by ITAT special bench in ONGC case 83 ITR 51 (SB). Looking from any angle the claim on this issue is allowable. Accordingly, we allow the entire claim of Rs. 3,56,57,727/. We direct the AO to do so. This issue is held in favour of the assessee." (emphasis supplied) 4. The matter was carried before the High Court by the department. Amongst others, following questions were formulated for consideration as substantial questions of law concerning subject deduction claimed by the appellant. The same read thus: "(3) Whether on facts and in the circumstances of the case, the Tribunal is justified in deleting the disallowance of claim to the tune of Rs. 1,10,53,509/for the assessment year 199798 in respect of....
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....orporation, the same was in the nature of borrowing money by the appellant, which was necessary for carrying on its business of financing. It was certainly not for creation of asset of the appellant as such or acquisition of asset from a country outside India for the purpose of its business. In such a scenario, the appellant would be justified in availing deduction of entire expenditure or loss suffered by it in connection with such a transaction in terms of Section 37 of the Act. For, the loan is wholly and exclusively used for the purpose of business of financing the existing Indian enterprises, who in turn, had to acquire plant, machinery and equipment to be used by them. It is a different matter that they may do so because of the leasing and hire purchase agreement with the appellant. That would be, nevertheless, an activity concerning the business of the appellant. In that view of the matter, the ITAT was right in answering the claim of the appellant in the affirmative, relaying on the dictum of this Court in India Cements Ltd. vs. Commissioner of Income Tax, Madras AIR 1966 SC 1053. The exposition in this decision has been elaborated in the subsequent decision of this Court i....
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....e applied blindly and mechanically without regard to the particular facts and circumstances of a given case. ..... xxx xxx xxx 11. ..... "What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted is the process." The question must be viewed in the larger context of business necessity or expediency. ....." (emphasis supplied) 9. A priori, we are of the considered opinion that the analysis done by the ITAT and the conclusion arrived at in respect of the subject claim of the appellant being the correct approach consistent with the exposition of this Court, needs to be upheld. In our opinion, the High Court missed the relevant aspects of the analysis of the ITAT concerning the fact situation of the present case. As a matter of fact, the High Court has not even adverted to the aforementioned reported decisions, much less its usefulness in the present case. 10. The learned ASG appearing for the department had faintly argued th....