9911796707
TMI Blog2010 (11) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... was to be allowed as a deduction in computation of assessee's business income. 3. The issue in appeal is set out in a narrow compass of material facts. The assessee has received certain advances from the customers and there is no dispute that the amounts so received by the assessee were diverted, in the sense that one Shri N.D. Modi, who was a partner in the assessee firm, had withdrawn these amounts through his capital account. It is thus an undisputed position that the amounts received by the assessee as advances from customers were, in fact, used by the partner by way of withdrawing the same through his capital account. On these facts, the AO required the assessee, during the course of assessment proceedings, to show cause as to why th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Shri Nirav D. Modi. (vi) Advances received are not available with the assessee firm but have been withdrawn by the partner resulting a debit balance of capital account. (vii) Withdrawals made by one of the partners have actually been used for personal purpose of Shri Nirav Modi such as an amount of Rs. 27.00 cr. (Last Year Nil) has been given to Rohin Trust for purchase of property." 4. Aggrieved by the stand so taken by the CIT(A), the assessee carried the matter in appeal before the CIT(A). The ld. CIT(A) took note of the fact that advances were received from the customers during the course of the business and the assessee had sold goods to one of these customers, i.e., Brilliant Diamond Ltd., in this very year. The CIT(A) also note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that the transactions entered into by the assessee were not genuine and bona fide business transactions but were primarily accommodation entries. Based primarily on these arguments, as also relying upon the order of the AO, the ld. D.R. urges us to vacate the finding of the CIT(A) and restore the order of the AO. 6. The ld. counsel for the assessee, on the other hand, submits that it is not the use of funds by the business which will govern deductibility of the impugned exchange loss, such as is the case for interest on borrowings, but what is essential is whether or not the moneys have been received during the course of business and exchange loss has been incurred in the course of the business operations. The ld. counsel very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of foreign currency and this loss has nothing to do with the fact as to whether the money has been utilized for the purposes of business or not. The exchange loss, according to the ld. counsel, is notional in the sense that the transactions are in US Dollars, whereas the accounting is done in Indian rupees. Even when the assessee refunds the same amounts in terms of US Dollars to the customers, there would be some loss or profit because of inherent fluctuation in exchange rate. The ld. counsel finally concludes by pointing out that it is not the case of the Revenue, and rightly so, that the assessee has influenced the foreign buyer to send moneys for personal use of the partner. He has thus urged us to uphold the order of CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related funds being used for the purposes of business, the exchange loss on refund of business advances has no such usage requirements. As long as the moneys are received in the course of business and as long as the moneys are refunded in the course of business, exchange loss on the same will constitute an admissible expenditure being incidental to the business operations. In other words, it is a fact of receiving and refunding the advances which is required to be for the purposes of business rather than the use of funds so received and subsequently refunded "for the purposes of business". The requirement of sec. 37 thus ends with transactions for the purposes of business and it is not essential that the funds received during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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