2025 (7) TMI 1729

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....come for AY 2007-08 was filed on 30.10.2007 declaring total income of Rs. 1,20,37,04,790/-. The same was revised on 24.03.2009 disclosing total income of Rs. 67,05,209/-. Against the said return of income, the assessment was completed by the DCIT- 1(1), Range-1, Ernakulam (hereinafter called "the AO") vide order dated 21.10.2011 passed u/s. 143(3) r.w.s. 144C of the Act at a total income of Rs. 1,44,11,03,740/- after making several disallowances. The disallowances, inter alia, includes addition on account disallowance of loss on account of foreign exchange fluctuations on investments in foreign subsidiary companies of Rs. 45,58,79,524/-, with which we are concerned. 3. The factual background leading to the above disallowance is that the as....

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..... The loss had not been debited to Profit &Loss Account of the assessee and the value of investment in preference shares of AMHPL had been reflected at Rs 232.92 crores in its books as per Schedule 5 of the Balance Sheet (Annual Report enclosed as Annexure 3). The foreign exchange loss had not been claimed in the original Return of Income filed by the assessee for assessment year 2007-08, but in the revised return of income. 4. The AO had disallowed the claim by holding that foreign exchange loss was incurred on capital account as it is for acquisition of capital asset and it is a mere notional loss. 5. The appellant filed objection before the Dispute Resolution Panel (DRP). The DRP confirmed the action of the AO. Accordingly, the AO in t....

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....ue expenditure. Thus, he submits that based on the decision of the Hon'ble Supreme Court in the case of SA Builders Ltd. v. CIT 288 ITR 1 (SC) the loss is allowable as revenue expenditure. The appellant also placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Tulip Star Hotels [2011] 338 ITR 482 and he also placed reliance on a plethora of decisions in support of this proposition. 12. On the other hand, the learned CIT-DR vehemently opposed the above submissions and submits that the loss cannot be allowed as deduction, as it is incurred on capital account. Thus, he submits that no interference is called for. 13. We have heard the rival contentions and perused the material available on record. The ....

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....f trade, such expenditure is attributable to capital as held by the House of Lords in the case of Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 tc 155(HL). This decision was consistently followed by the Hon'ble Supreme Court, for example in the case of CIT v. Madras Auto Services Pvt. Ltd. 233 ITR 468 (SC). 15. It is the settled principle of law that the aim and object of the expenditure would determine the character of the expenditure whether it is capital expenditure or revenue expenditure as held by the Hon'ble Supreme Court in the case of M.K. Bros v. CIT 86 ITR 38. Similarly, if the expenditure is made for acquiring a source of income, by bringing into existence an asset or advantage for the benefit of the busin....