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2021 (12) TMI 455 - ITAT DELHIDisallowance on account of foreign exchange fluctuation loss - HELD THAT:- As the purpose of the assessee to borrow the amount from Standard Chartered Bank is concerned, there is no dispute that it was for acquiring 70% stake in Vimercati SPA, which also deals in auto spare parts. By purchase of 70% shares in Vimercati SPA, the assessee stood to benefit in the shape of enhancement of export. It, therefore, establishes the fact that the purchase of shares of Vimercati SPA by the assessee was for commercial expediency and in view of the decision of Hon’ble Supreme Court in the case of SA Builders [2006 (12) TMI 82 - SUPREME COURT], such expense shall be deemed to have been incurred for the business purpose and the assessee has got right to decide their affair. So long as the method of repayment does not impact the cost of the asset, which would enhance the benefit in revenue field, we find it difficult to hold that such an expense is not allowable u/s. 37 Even if a capital asset is acquired, the interest or for that matter reinstatement of foreign exchange fluctuation loss could have been capitalized only till the acquisition of capital asset, i.e., acquisition of shares in this case. In the instant case, admittedly the shares were acquired in the financial year ended 31.03.2012 and therefore, the capitalization of the foreign exchange fluctuation loss could, at the most, be relevant for the financial year 2011-12 relevant to assessment year 2012-13 and there is no occasion to treat any part of the interest or for that matter exchange rate fluctuation gain or loss to treat the same as in the capital field during the year under consideration. It is an undisputed fact that for the assessment year 2012-13, 2013-14 and 2016-17, the assessee declared loss on account of foreign exchange fluctuation which was accepted by the Assessing Officer; whereas for the assessment year 2015-16, there was a gain to the tune of ₹ 4.65 crores, which the assessee offered to tax. Having accepted the same for two assessment years earlier and two years subsequent to the current assessment year, it is not open for the Revenue to take an altogether different stand for the current year and the Revenue is expected to follow the rule of consistency - we hold that the loss incurred by the assessee on account of foreign exchange fluctuation is allowable as revenue expenditure and we direct the Assessing Officer to delete the same. Disallowance u/s. 14A read with Rule 8D - Suo moto addition made by assessee - HELD THAT:- No borrowed fund on which interest was paid was utilized for purchase of shares, inasmuch as, the own funds of the assessee including the share holding funds, reserves and surplus were to the tune of ₹ 92.62 crores far exceeding the investments during the year, as observed by the ld. CIT(A). It is, therefore, clear that the assessee did not incur any interest expense for investing the amounts in shares so as to earn the exempt income - where the interest component u/r. 8D(2)(ii) has to be deleted straight by restoring only the disallowance u/r. 8D(2)(iii), which is ₹ 1,65,703/- both according to the assessee and the Assessing Officer. In this scenario, the question of restricting the disallowance to the amount of dividend earned does not arise. In such case, instead of restriction, it amounts to expansion which is not permissible under law. We, therefore, hold that the entire addition is liable to be deleted. By observing so, we allow ground of assessee’s appeal Disallowance of interest paid on borrowings - According to the Assessing Officer the assessee borrowed loans from its directors, share holders by paying interest at 9% - HELD THAT:- There is no dispute and the Revenue did not prove before us that the own funds of the assessee for the relevant year are falling short of the funds lent to its subsidiary. Further in the preceding paragraphs, we held that the subsidiary is also in the same business and the business interests of the assessee are deep in the conduct of business of subsidiary. Therefore, disallowance of interest expense does not appear to be sound and as a matter of fact the findings of the ld. CIT(A) are firmly entrenched into the facts. Inasmuch as the assessee advanced loans to its subsidiary, out of its surplus funds, that too after business expediency, we find that the conclusions reached by the ld. CIT(A) are legal and does not warrant any interference. Addition u/s. 40A(3) - Payment to a person in a day exceeding ₹ 20,000/- -HELD THAT:- Since the payment or aggregate of payments made to any person in cash in a day does not exceed ₹ 20,000/-, ld. CIT(A) held that no disallowance u/s. 40A(3) was called for. There is no material contrary to this finding of the ld. CIT(A) and there is no reason for us to take a different view from the view taken by the ld. CIT(A). We, therefore, confirm the same. Consequently, this ground of Revenue’s appeal is dismissed.
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