In a major relief to the Karnataka Bank, the Karnataka High Court reiterated that the Foreign exchange loss while implementing the export contract is a business loss.
The assessee, Karnataka Bank filed the appeal under Section 260A of the Income Tax Act, 1961 against the order dated 19.01.2018 passed by the Income Tax Appellate Tribunal. The subject matter of the appeal pertains to the Assessment year 2008-2009.
The appellant raised the issue whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made under Section 14A read with Rule 8D(2) (ii) and (iii) of the Income Tax Act on expenditure incurred on earning exempt income even when the assessing authority rightly made disallowances as conditions for making such disallowances were satisfied and assessee failed to show flow of its own funds to those investments from which income is exempt.
The assessee relied on the decision of the Karnataka High Court in the case of Commission of Income Tax Vs Quest Global Engineering Services Pvt. Ltd.
The division bench of Justice Alok Aradhe and Justice Hemant Chandangoudar in the line of the decision in case of the CIT Vs Quest Global Engineering Services Pvt. Ltd. wherein it was held that loss sustained by assessee due to fluctuation in foreign exchange while implementing export contract was incidental to assessee’s course of business, therefore, such a loss was not a speculative loss but a business loss.
Advocate K.V. Aravind, appeared for the revenue and Advocate Mr. Balram R. Rao, appeared for the assessee.
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