Case Number: ITA 441/DEL/2019
Appellant: Nikunj Jajodia, New Delhi
Respondent: ITO, Ward- 52(5), New Delhi
Assessment Year: 2015-16
Case Filed On: 2019-01-22
Order Type: Final Tribunal Order
Date of Order: 2019-07-08
Pronounced On: 2019-07-08
Nikunj Jajodia, a resident of New Delhi, filed an appeal against the order dated 22nd November 2018 passed by the Commissioner of Income Tax (Appeals) [CIT(A)], New Delhi, for the assessment year 2015-16. The appeal was heard by the Delhi ‘SMC’ Bench of the Income Tax Appellate Tribunal (ITAT), with Shri R.K. Panda, Accountant Member, presiding. The appellant was represented by Shri V.K. Jain, Advocate, and Shri Ashwani Seth, CA, while the respondent was represented by Shri S.L. Anuragi, Senior DR.
The appellant raised several grounds of appeal, challenging the disallowance of a foreign exchange loss of Rs. 3,22,725/- claimed under Section 37(1) of the Income-tax Act, 1961. The primary contentions were that the CIT(A) erred in confirming the disallowance despite it being outside the scope of limited scrutiny, and that the loss was related to the investment activity, hence should be allowable.
The appellant’s counsel argued that the foreign exchange loss was related to investments and should be considered an allowable expenditure. The counsel pointed out that the income from foreign investments was included in the profit and loss account, and therefore, the corresponding loss should also be allowable.
The revenue representative maintained that the loss was not allowable as it was not directly linked to any business activity of the appellant.
Upon reviewing the case, the ITAT observed that the assessee had shown dividend income from foreign investments in the profit and loss account. It noted that the assessee had repatriated an amount sent to Singapore, resulting in a foreign exchange loss. The ITAT agreed with the appellant’s argument that if the income from foreign investments was offered to tax, the related foreign exchange loss should also be allowed.
The ITAT found merit in the appellant’s contention and concluded that the foreign exchange loss was related to the investment activity carried out by the assessee. The Tribunal emphasized that since the income from the investments was taxed, the related expenses, including the foreign exchange loss, should be allowed as a deduction.
The ITAT set aside the order of the CIT(A) and directed the Assessing Officer to delete the addition of Rs. 3,22,725/-. It ruled that the foreign exchange loss was an allowable expenditure related to the investment activity of the appellant.
The appeal by Nikunj Jajodia against the order of the CIT(A), New Delhi, was allowed. The ITAT directed the Assessing Officer to consider the foreign exchange loss as an allowable expenditure and delete the corresponding addition. The decision was pronounced in the open court on 8th July 2019.
This decision highlights the importance of recognizing losses related to investment activities as allowable expenditures. It underscores the principle that if income from investments is taxed, the related expenses, including losses, should also be allowed as deductions.
The ruling in this case sets a precedent for future cases involving foreign exchange losses and investment activities. It ensures that taxpayers can claim deductions for expenses directly related to their investment income, promoting fairness and consistency in tax assessments.
The case of Nikunj Jajodia vs. ITO, New Delhi, highlights the importance of a thorough and fair assessment of expenses related to investment activities. The ITAT’s decision ensures that taxpayers are allowed to claim legitimate deductions, thereby promoting equitable tax practices and reinforcing the principles of natural justice.
Nikunj Jajodia vs ITO: Allowability of Foreign Exchange Loss – ITA 441/DEL/2019
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