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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 ..... lar objects. The assessee tried to pursue its objects through its subsidiary GVL and submitted a bid for a power project abroad. Therefore the ratio of the above decision of Hon'ble Jurisdictional High Court in the case of Modi Entertainment Ltd. would be squarely applicable. In the case of S.A. Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT) held that the expression ‘commercial expediency’ is one of wide import and includes such business expenditure as a prudent businessman incurs for the purpose of business. After considering the facts of the case, we are of the opinion that the advancing of money to GVL for setting up of the power project was driven by commercial expediency and therefore, was for the purpose of business. - Decided against revenue. - ITA No.6546/Del/2015 - - - Dated:- 4-2-2019 - SHRI G.D. AGRAWAL, VICE PRESIDENT AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Ms. Paramita M. Biswas, CIT-DR. For The Respondent : Shri Gautam Jain, Advocate And Shri Lalit Mohan, CA. ORDER PER G.D. AGRAWAL, VICE PRESIDENT :- This appeal by the Revenue for the assessment year 2011-12 is directed against the order of learned CIT(A)-1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the assessee either in this year or in the preceding year. She stated that these factual findings are very clearly recorded by the Assessing Officer at page 2 paragraph 3 and further page 5 paragraph 4.3. Thus, when no business is being carried on by the assessee, the Assessing Officer rightly disallowed the loss on account of foreign exchange fluctuation loss. She further stated that the assessee claimed to have incurred this loss in respect of money advanced to its subsidiary for the purpose of setting up of the plant. Since no such plant was set up, the money was returned back by such subsidiary and in the process, the assessee suffered the loss because of the fluctuation in the rate of Dollar. That advancing of money to the subsidiary cannot be said to be a business. She, therefore, submitted that the Assessing Officer had rightly disallowed the foreign exchange fluctuation loss and learned CIT(A), without considering the facts of the case, directed to allow the same. 4. Learned counsel for the assessee, on the other hand, relied upon the order of learned CIT(A) and he stated that learned CIT(A) after considering the facts as well as legal position in detail has arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company included the business of establishing, commissioning, setting up, operating and maintaining power generating stations. He stated that learned CIT(A) has considered all this factual position at pages 23 and 24 of his order. That the main object of GVL is that of construction and maintenance of power plant. Thus, the assessee, through GVL, was pursuing its object of establishing, commissioning, setting up, operating and maintaining power plant. That unfortunately, the project of commissioning of power plant by GVL outside India could not materialize and it refunded the money to the assessee on 8th April, 2010. That as against 10,00,00,000 Dollars, it paid to the assessee 10,01,50,000 Dollars. 1,50,000 Dollars was offered as income of the assessee for the current year which is accepted by the Assessing Officer. However, due to fluctuation in the rate of Dollar vis-a-vis Rupee, for 10,00,00,000 Dollars in Indian Rupee, the assessee realized ₹ 443,07,10,000/-. The difference between the Rupee value of 10,00,00,000 Dollars advanced in 2008 and received back in 2010 was ₹ 35,42,20,000/- (478,49,30,000 minus 443,07,10,000). This difference was claimed as loss on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th December, 2011, the Assessing Officer accepted the returned loss of ₹ 75,946/-. Thus, he accepted that the assessee was carrying on the business. In assessment year 2010-11, the assessee declared the loss of ₹ 12,85,278/-. In this year, the Assessing Officer recorded the finding that the business was not commenced by the assessee and accordingly, he assessed the total income at nil. On appeal, learned CIT(A), vide order dated 20th August, 2015, held as under :- The appellants case is squarely covered by the ratio of the principles laid down in the aforesaid judicial pronouncements of Hon'ble Delhi High Court. Since the appellant company was incorporated on 25.04.2008 and thereafter, appointed Directors, incorporated a subsidiary company in Mauritius and obtained consultancy services from India Bulls Power Ltd for development of power projects. All these activities goes to prove that business of the appellant company was set up on 25.04.2008 and commenced its business on 23/07/2008 on receipt of certificate of commencement of business and incorporated a subsidiary company in Mauritius for bidding for construction of power projects in foreign countries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses of ₹ 12,96,459/- vide order no.06/2013-14 dated 20.08.2015. The AO has sent the CSR which is as under : 1. In view of the facts of the case the relief allowed by the CIT(A) which is the based on the decision of various High Courts including the jurisdictional High Court on the issue of allowability of Business expenses as reduction after the business is set up and ready to commence is acceptable on merit. 2. Further the Tax effect in this case is only notional ₹ 3,88,938/- and also below the limit prescribed by the CBDT for filing of appeal to ITAT, hence no appeal is recommended in this case. Copy of CSR sent by AO is enclosed. -- Regards Income Tax Officer Ward-2(2), C R Building, New Delhi 110002. 10. From the above, it is evident that the Assessing Officer has informed that as per Central Scrutiny Report, it is evident that the Assessing Officer has clearly mentioned that the relief allowed by the CIT(A) is based upon the decisions of various High Courts including Hon'ble Jurisdictional High Court on the issue of allowability of business expenses after the business is set up and ready to commence. He has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see claimed the difference between the interest received and the interest paid as loss under the head Business . The claim was rejected by the Assessing Officer. The Tribunal observed that having regard to the business of the assessee, which was the development of real estate, the participation in the tender represented commencement of one activity which would enable the assessee to acquire the land for development. The assessee was in a position to commence business and that meant that the business had been set up. It allowed the claim of the assessee. On these facts, Hon'ble Jurisdictional High Court held as under :- Held, dismissing the appeals, that the finding of the Tribunal was a finding of fact and it could not be said that the finding was without any basis or material. Moreover, the Tribunal did take note of the distinction between the commencement of a business and setting up of a business. The loss was a business loss. 12. Hon'ble Jurisdictional High Court has also elaborated upon the difference between setting up and commencement of the business and held as under :- There is a difference between the setting up and commencement of business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry can be said to be for the purpose of business, we find this issue to be now fairly settled by the decision of Hon ble Apex Court as well as Hon'ble Jurisdictional High Court. In the case of S.A. Builders Ltd. (supra), Hon'ble Supreme Court held as under :- In order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern (e.g., a subsidiary of the assessee) should be allowed as a deduction under section 36(1)(iii) of the Income-tax Act, 1961, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency. The expression commercial expediency is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. Decisions relating to section 37 will also be applicable to section 36(1)(iii) because in section 37 also the expression used is for the purpose of the business . For the purpose of business includes expenditure voluntarily incurred for commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such business expenditure as a prudent businessman incurs for the purpose of business. After considering the facts of the case, we are of the opinion that the advancing of money to GVL for setting up of the power project was driven by commercial expediency and therefore, was for the purpose of business. That learned CIT(A) has also considered all this factual position and held as under :- In view of the above finding, it is held that appellant company had commenced to business in F.Y. 2008-09 itself. In furtherance of its objectives appellant company has invested money of ₹ 478,49,30,000/- in its overseas subsidiary M/s Galactic Ventures Ltd. for setting up a new business venture in the line of setting up of power plant: For this the appellant company took loan from its holding company M/s Ellena Power and Infrastructure Ltd. and gave this money to the above mentioned overseas company for starting the power business. However, the holding company could not set up the business and returned back the money to the appellant. While receiving back money, the appellant company suffered a loss of ₹ 35,42,20,000/- because of the exchange rate difference. The activities und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onventional resources, tie-lines, sub-stations and transmission lines on Build, Own and Operate (BOO) and/or Build, Own and Transfer (BOT), and/or Build, Own, Lease and Transfer (BOLT) and/or Build, Own, Operate and Transfer (BOOT) basis and/or otherwise, and to carry on the business of acquiring, operating, managing and maintaining existing power' generation stations, tie-lines, sub-stations and transmission lines, either owned by the private sector or public sector or the Government or Governments or other public authorities and for any or all of the aforesaid purposes, to do all the necessary or ancillary activities as may be considered necessary or beneficial or desirable and in any manner deal with or dispose of undertaking, property, assets, rights and all other effects which in the opinion of the Company is conducive to the attainment of any or all of its business objectives or to acquire and dispose of shares, securities and interest in such Businesses. 3. To form, settle, acquire, set up, incorporate, establish, promote, subsidize, organize and assist or aid in forming, promoting, subsiding, organizing or aiding, companies, trusts, funds, entities or partnerships ..... X X X X Extracts X X X X X X X X Extracts X X X X
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