Aborted IPO Expenses Allowable as Revenue, Forex Losses Not Speculative: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the aborted IPO expenses are allowable as revenue and forex losses are not speculative. The bench of Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) has observed that since the entire IPO was aborted, the expenses incurred did not result in creation of any asset and the assessee did not get any enduring benefit. The expenses made on raising the IPO is revenue expenditure and allowable under section 37(1) of the Income Tax Act. The dispute arose from orders passed by the Commissioner of Income Tax (Appeals) concerning various additions and disallowances made by the Assessing Officer (AO). The issues revolved around the nature of IPO expenses, eligibility of deduction under Section 10B, treatment of product development expenses, disallowance under Section 14A, and classification of foreign exchange forward contract losses. One of the key issues before the Tribunal was whether expenses incurred on a proposed Initial Public Offering (IPO), which was ultimately aborted, should be treated as capital or revenue expenditure. The Tribunal held that since the IPO was never completed and no asset or enduring benefit was created, the expenditure could not be classified as capital in nature. Instead, it qualified as revenue expenditure under Section 37(1) of the Income Tax Act. Rejecting the Revenue’s reliance on precedents relating to capital expansion, the Tribunal emphasized that those rulings were distinguishable as they involved successful capital augmentation. In contrast, the aborted IPO did not result in any enduring advantage to the assessee. For Assessment Year 2010–11, the Tribunal addressed the denial of deduction under Section 10B on foreign exchange differences and excess provisions written back. The ITAT ruled in favour of the assessee, holding that such income had a direct nexus with export activities of the 100% Export Oriented Unit (EOU). Even though classified as “other income” in financial statements, these items were intrinsically linked to business operations and therefore qualified as income “derived from” the undertaking. Accordingly, the Tribunal allowed the deduction under Section 10B. The department had challenged the deletion of additions made on account of product development expenses, arguing that such expenditure created enduring benefits and should be treated as deferred revenue expenditure. However, the Tribunal noted that this was a recurring issue already decided in favour of the assessee by the Delhi High Court in earlier years. Following judicial consistency, it held that such expenses are allowable as revenue expenditure and cannot be artificially spread over multiple years in the absence of statutory backing. On the issue of disallowance under Section 14A read with Rule 8D, the Tribunal upheld the principle that such disallowance cannot exceed the amount of exempt income earned during the year. Relying on established precedent, the ITAT ruled that excessive disallowance would defeat the purpose of the provision. Therefore, it directed that disallowance be restricted to the extent of exempt income. A major point of contention was whether losses arising from settlement of forward foreign exchange contracts should be treated as speculative under Section 43(5). The Tribunal ruled in favour of the assessee, holding that such contracts were entered into as hedging instruments to mitigate foreign exchange risks arising from export-import activities. As such, the losses were incidental to business operations and constituted normal business losses—not speculative losses. The ITAT relied on prior rulings in the assessee’s own case and judicial precedents affirming that genuine hedging transactions fall outside the ambit of speculative transactions. The Tribunal allowed the assessee’s appeals for Assessment Years 2009–10 and 2010–11, while dismissing all Revenue appeals across the relevant years. The ruling reinforces key principles on the distinction between capital and revenue expenditure, interpretation of “derived from” under Section 10B, and treatment of hedging transactions in tax law. Case Details Case Title: M/s Orient Craft Limited Versus DCIT Citation: JURISHOUR-450-ITA-2026(DEL) Case No.: ITA No:- 3625/Del/2015 Date: 20.03.2026 Counsel For Appellant: Salil Aggarwal, Sr. Adv. Counsel For Respondent: Ms. Monika Singh, CIT(DR) Click Here To Read Order Read More: Corporate Amendment Bill 2026: Decriminalisation of Minor Corporate Offences

Aborted IPO Expenses Allowable as Revenue, Forex Losses Not Speculative: ITAT

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