2020 (6) TMI 287 - AT - Income Tax

Investment write-off classified as capital loss, not business loss. Tribunal rules based on accounting principles.

National Research Development Corporation Versus DCIT, Circle-13 (1), New Delhi

The Tribunal upheld the assessing officer's decision to treat the write off of a business investment as a capital loss, not a business loss. Despite the ... Nature of loss - write off of business investment resulting into loss - business loss or capital loss - DR submitted that the investment made by the assessee is a capital investment - HELD THAT:- A current investment refers to an investment that is readily realizable and is held for not more than one year from the date on which such an investment is made. Long-term investment refers to an investment other than the current investment even though such investments are readily marketable. To determine the carrying amount for current investments to be stated in the balance sheet, the lower of cost or fair value of such an investment must be considered he carrying amount of the long-term investment is typically the cost of such an investment. However, if there is a permanent reduction in the value of the long-term investment, the carrying amount of such an investment is also reduced. Such a reduction is charged to P&L statement. Such a reduction in the carrying amount is reversed when there is an increase in the value of such an investment or the reasons that lead to a reduction in its carrying amount do not exist anymore. Apparently as per accounting policy and Notes to Accounts also the investments in the above company are long-term investments. No infirmity in the orders of the lower authorities and confirmed their action. - Decided against assessee. Issues:Claim of write off of business investment as business loss or capital loss.Analysis:The appeal was filed by the assessee against disallowance of a claim for write off of business investment as a loss of Rs. 60 lacs, which was held by the assessing officer as a capital loss, not a business loss. The dispute revolved around the nature of the loss incurred by the assessee.The assessee, a public limited company involved in technology development, filed its return claiming a loss of Rs. 12100151. The assessing officer disallowed Rs. 60 lacs related to write off of equity investments in a company engaged in manufacturing lithium batteries, holding it as a capital loss. The assessee contended that the write off should be treated as a business loss.The assessee referred to its memorandum of association, investment agreement, and financial statements to support its claim that the write off was a business loss. The Revenue authorities argued that the investment was a capital investment and the write off was merely an accounting entry. They emphasized that the investment did not align with the company's authorized objectives.The Tribunal analyzed the facts and held that the investment in the company was a capital asset, not a business asset. It noted that the investment was disclosed as such in the balance sheet and did not qualify as a business loss as it was not incurred during the year. The Tribunal distinguished relevant case laws cited by the assessee, stating they were not applicable to the current scenario.Considering accounting principles, the Tribunal concluded that the investment was a long-term investment, and the write off was in line with accounting standards. Therefore, it upheld the lower authorities' decision to treat the loss as a capital loss, dismissing the appeal of the assessee.In conclusion, the Tribunal dismissed the appeal, affirming that the write off of the business investment was rightly treated as a capital loss, not a business loss, based on the nature of the investment and accounting principles.