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TMI Blog2019 (2) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... d exclusively for the purpose of business and not allowable as per provision of IT Act 1961. b. The assessee company has incurred the said loss while receiving back the money which was earlier advanced to its subsidiary company. However, the assessee is neither NBFC nor engaged in the business of lending money. Thus, the loss so claimed has not been incurred towards regular business activities and not allowable as per provision of I.T. Act 1961. c. Section 37 of the I.T. Act 1961, provides for deduction of all expenditure wholly and exclusively laid out or expanded for the purpose of the business of the assessee. One of the primary conditions for the claim of deduction u/s 37 is that the expenditure must be for the business which is carried on by the assessee during the previous year. d. The assessee company is neither a NBFC nor its primary business is lending money to other companies. Accordingly, loss incurred during the course of making transactions of advancing money is not a revenue loss and is capital in nature and required to be capitalized. e. The foreign fluctuation loss incurred while advancing money to other companies is admissible against income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finding that the assessee had commenced the business on 23rd July, 2009. That the above order of learned CIT(A) was accepted by the Revenue and learned DR has filed the letter from the Assessing Officer accepting the fact that no appeal was filed for assessment year 2010-11 because the then Assessing Officer in the central scrutiny report has mentioned that the order of the CIT(A) is acceptable on merits. He stated that once the Revenue has accepted the order of the CIT(A) for assessment year 2010-11 holding that the assessee has commenced the business with effect from 23rd July, 2008, there would be no justification for holding in the year under consideration that no business was commenced. He has also relied upon the following decisions in support of his claim :- (i) CIT Vs. ESPN Software India P.Ltd. - [2008] 301 ITR 368 (Del). (ii) CIT Vs. Dhoomketu Builders and Development P.Ltd. - [2014] 368 ITR 680 (Del). 5. He further stated that the assessee company made investment in one subsidiary company known as M/s Galactic Ventures Limited (hereinafter referred to as 'GVL') of 10,00,00,000 Dollars on 22nd December, 2008. As per the prevailing rate of Dollar in Rupee terms, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - [2014] 89 CCH 0014 (Del). He, therefore, stated that the order of learned CIT(A) should be sustained and Revenue's appeal may be dismissed. 6. In the rejoinder, it is stated by the learned CIT-DR that the appeal for assessment year 2010-11 was not filed because of low tax effect and this is also mentioned by the Assessing Officer in the central scrutiny report sent by the Assessing Officer to higher authorities. Therefore, merely because no appeal was filed by the Revenue in assessment year 2010-11, it should not be concluded that the Revenue has accepted the order of the learned CIT(A) that business has been commenced by the assessee. She further stated that even otherwise, law of res judicata is not applicable to the assessment proceedings and each year should be decided on its own facts. 7. We have carefully considered the arguments of both the sides and perused the material placed before us. After going through the order of lower authorities as well as considering the submissions of both the sides, we are of the opinion that in this appeal, basically two issues arise - (i) whether the assessee has commenced the business and; (ii) whether the advancement of money to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it submitted the bid for construction of power projects in foreign countries. When it was enquired from the learned DR whether the Revenue had accepted the above order or whether any appeal is filed. The ld. CIT-DR submitted the copy of letter received from the Assessing Officer. The information as submitted by the Assessing Officer vide letter dated 14th January, 2019 is reproduced below for ready reference :- "Required information on three questions is as under : 1. Whether Department has filed appeal on similar issues in earlier years? Ans : As per record and CSR for AY 2010-11, the assessing officer has not recommended filing of appeal for AY 2010- 11. 2. Whether Department did not file appeal on account of low tax effect? Ans : The AO in the CSR for AY 2010-11 has also not recommended filing of appeal for AY 2010-11. 3. Whether Department choose not to file appeal for AY 2010-11 &/or AY 2011-12? Ans : The Department has filed appeal before Hon'ble ITAT for AY 2011-12 as per record available in this office. -- Regards Income Tax Officer Ward-2(2), C R Building, New Delhi - 110002 Refer to the above subject. In this connection it is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not start any business either during the year or prior to the year under consideration. 11. The following decisions of Hon'ble Jurisdictional High Court also support the case of the assessee :- (i) In the case of ESPN Software India P.Ltd. (supra), Hon'ble Jurisdictional High Court held as under :- "A business is nothing more than a continuous course of activities and for commencement of business all the activities which go to make up the business need not be started simultaneously. As soon as an activity which is the essential activity in the course of carrying on the business is started, the business must be said to have commenced." (ii) In the case of Dhoomketu Builders and Development P.Ltd. (supra), the facts were that the assessee was a company incorporated on August 22, 2005, and according to its memorandum of association, it was to carry on the business of real estate development including purchase and sale of land. The official liquidator of the Karnataka High Court floated a tender for sale of 140 acres of land belonging to a company which had gone into liquidation. In order to participate in the tender, the assessee obtained a loan of Rs. 186 crores on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down. The commencement of real estate business would normally start with the acquisition of land or immovable property. When an assessee whose business is to develop real estate, is in a position to perform certain acts towards the acquisition of land, that would clearly show that it is ready to commence business and, as a corollary, that it has already been set up. The actual acquisition of land is the result of such efforts put in by the assessee; once the land is acquired the assessee may be said to have actually commenced its business which is that of development of real estate. The actual acquisition of land may be the first step in the commencement of the business but section 3 of the Act does not speak of commencement of the business, it speaks only of setting-up of the business." 13. That the ratio of the above decision of Hon'ble Jurisdictional High Court would be squarely applicable to the case of the assessee because, in the above mentioned case also, the assessee had only submitted the bid for purchase of land, which was not successful. On these facts, Hon'ble High Court has held that the assessee has set up the business. In the case of the assessee also, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the same business in which the assessee was engaged. The Tribunal accordingly held that it would be in the interest of business of the assessee and certainly would be commercially expedient for the assessee to advance interest-free monies to the subsidiaries as part of the corporate business strategy to expand its business operations through its subsidiaries. This finding of fact has not been disputed. Findings of Tribunal upheld." 17. That the above decisions of Hon'ble Apex Court as well as of Hon'ble Jurisdictional High Court would squarely support the case of the assessee. No contrary decision is brought to our knowledge by the Revenue. In the case of Modi Entertainment Ltd. (supra), Hon'ble Jurisdictional High Court has stated that the advancing of interest free money to subsidiaries as part of the corporate business strategy to expand its business through its subsidiaries would be commercially expedient. The facts of the assessee's case are identical. The assessee is in the business of establishing, commissioning, setting up, operating and maintaining power projects. That its subsidiary GVL had also similar objects. The assessee tried to pursue its objects thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market and extend its arm globally, the appellant invested into a company which is in the same line of business as that of appellant in accordance with its main objects. For this purpose, the object clause of the appellant company has to be read and same is reproduced hereunder: "1. To promote, undertake, carry on either on its own or through any other entity or to enter into agreements, contracts, partnership, alliance or any other arrangement for technical, financial and operational assistance or sharing of profits / losses with any Person / Body / Bodies Corporate incorporated in India or abroad either under a Strategic Alliance or Joint Venture or any other arrangement, in India or any part of the world, the business of generating, developing, transmitting, distributing, trading and supplying all forms of electrical power/ energy from any source whatsoever and to construct, lay down, establish, fix and carry out necessary power stations, cables, wires, lines, accumulators, lamps and works and to carry on the business of electrician, electrical and mechanical engineers, traders, suppliers of electricity for the purposes of light, heat, motive power or otherwise, and manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on account of foreign exchange fluctuation on realization of investment money in subsidiary is nothing but an expenditure incurred wholly and exclusively for the business purposes of the appellant company. Section 28 of the Income Tax Act which is a computing section for the income from the business and profession reads as under: "The following income shall be chargeable to income-tax under the head "Profit and gains of business or profession - (iii) the profit and gains of any business or profession which was carried on by the assessee at any time during the previous year; (iv) ......." Further, Section 37 of the Act is a residuary section which allows the claim of the expenditures which are not covered in any other section from 30 to 36 and have been incurred wholly and exclusively for the purpose of business. Since, in the instant case, the investment has been done to promote its business globally, the same is nothing but a business activity of the appellant company and accordingly the foreign exchange fluctuation loss, incurred by the appellant company, is an expenditure incurred wholly and exclusively for the purpose of its business." 18. After considering ..... X X X X Extracts X X X X X X X X Extracts X X X X
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