Case Law Details
PCIT Vs United Spirits Ltd. (Karnataka High Court)
Conclusion: Loss suffered by an assessee on account of foreign exchange difference as on the date of balance sheet was an item of expenditure under Section 37(1) as the view of AO and CIT (A) that the investments were made on, from the FNCR loans was not based on any supporting material and was only a presumption.
Held: Assessee claimed towards the foreign exchange fluctuation loss. AO disallowed the same holding that assessee had not established the nexus for utilization of the funds raised in FNCR were used for the business purposes. AO held that the loan had been used for certain investments into share capital of various companies. The same had been confirmed by CIT (A). Tribunal however allowed a deduction. It was held that assessee had demonstrated before Tribunal that increase in investments from Rs.102.92 crores to Rs.380.32 crores was on account of investment of Rs.287 crores in 8% redeemable preference shares which was made on 31.03.2005 i.e., on the last day of the year and therefore the working capital obtained on various dates between 02.04.2004 and 31.03.2005 could not have been utilized from the same. Moreover, interest paid on the loans were allowed by AO himself as a deduction, however no loss in connection thereto was allowed. The action of AO accepting the Foreign Exchange but disallowing the loss appeared to be erroneous. Therefore, the loss suffered by an assessee on account of foreign exchange difference as on the date of balance sheet was an item of expenditure under Section 37(1). The view of AO and CIT (A) that the investments were made on, from the FNCR loans was not based on any supporting material and was only a presumption. Hence, the question was decided in favour of assessee.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Since common and akin issues are involved in these appeals, they are heard together and disposed of by this common judgment.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
