TaxTMI 
TaxTMI 
2021 (6) TMI 615
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....orities as well as submissions made before us. Our adjudication to the subject matter of appeals would be as given in succeeding paragraphs. 4. The assessee being resident corporate assessee is stated to be engaged in manufacturing and distribution of pharmaceutical products. An assessment was framed for AY 2011-12 u/s 143(3) r.w.s. 153A on 31/03/2016 in view of the fact that the assessee group was subjected to search action by the department on 29/08/2011. In response to notice u/s 153(1)(a), the assessee filed return of income on 07/06/2013 declaring loss of Rs. 37.19 Crores. 5. From the perusal of records, it could be gathered that the assessee had appointed a Chartered Accountant firm M/s Grant Thornton with respect to inventories and receivables. A copy of the compilation report is on record. The scope of work included compilation of closing position of receivables and inventories based on accounts as on 31/03/2011. The report has made assessment of provision of doubtful receivables as well as provision required for old / obsolete stock based on ageing analysis. This report assume importance since on the basis of this report, the assessee has written-off debtors an....
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....port dated 26/03/2019 as furnished by Ld. AO, observed that the fact of expiry of goods was not under dispute. The only contention of Ld. AO was that some of the goods expired prior to AY 2011-12. The same stood explained by the fact that the assessee undertook thorough checking of inventories during AYs 2011-12 & 2012-13 only. Further, the claim was in accordance with report furnished by M/s Grant Thornton. 6.4 The other objection of Ld. AO was that the assessee failed to furnish reconciliation of description of goods written-off and goods handed over to waste disposal entity namely M/s Trans Thane Creek Waste Management Association. The same stood explained by the fact that the waste goods were taken by the waste disposal entity by weight only. Upon enquiry by Ld. AO, that entity confirmed collection and disposal of goods from the assessee. More-so, the assessee had furnished item-wise details along with sample bills before Ld. AO which were not under dispute. Therefore, the claim was duly substantiated and the deduction of the amounts written-off was allowed to the assessee. Aggrieved, the revenue is in further appeal before us. 7. Upon careful consideration of impugned....
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....aim was backed by sufficient documentary evidences. The waste disposal management company confirmed collection of expired goods from the assessee. The expired pharmaceuticals products could not even be sold as scrap and they have to be destroyed as per FDA guidelines. Therefore, the claim was justified. Aggrieved, the revenue is in further appeal before us. 8.3.4 We find that fact as well as issue is quite identical to issue in AY 2011-12. The assessee, in our considered opinion, was successful in substantiating its claim of write-off of inventories. Following our adjudication in AY 2011-12, we dismiss this ground of revenue's appeal. 8.4 Bad Debts written-off 8.4.1 The assessee wrote-off bad debts and claimed the deduction of the same u/s 36(1)(vii). It was explained that the assessee had appointed C&F agents who were selling goods to numerous stockiest across India. Due to various problems in the marketing divisions, the realization from debtors was very low and the debtors were outstanding since long period of time. The debtors, which in the opinion of management were not recoverable, were identified and written-off in the books of accounts. The list of debtors so writt....
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....oices, the said fact was established and therefore, the claim could not be denied. Aggrieved, the revenue is in further appeal before us. 8.4.4 We find that this issue has been clinched in correct perspective in the impugned order. The assessee had filed complete list of debtors along with the copies of sales invoices which established that the conditions of Sec.36(2) were duly fulfilled by the assessee to make a valid claim u/s 36(1)(vii). Undisputedly, the debts have been written-off by the assessee in the books of accounts. Therefore, the conditions of Sec. 36(1)(vii) r.w.s. 36(2) were duly fulfilled and the claim was allowable in terms of CBDT Circular No.12/2016 dated 30/05/2016 which has been issued after considering Hon'ble Apex Court's decision in TRF Limited (323 ITR 397; 09/02/2010). Therefore finding no infirmity in impugned order on this issue, we dismiss this ground of revenue's appeal. 8.5 Investments written-off 8.5.1 It transpired that the assessee had made investment in two overseas subsidiaries entities - (i) M/s Svizera Holdings B.V. Netherlands (SHBV); & (ii) M/s Lasa Industria Farmaceutica, Brazil (LASA). During the year, the assessee wrote-off these i....
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....2012-13 to M/s SHBV and its step-down subsidiaries. Similarly, it earned interest income and foreign exchange gains aggregating to more than Rs. 143 Crores from M/s SHBV group during Financial Years 2006-07 to 2009-10 which was already offered to tax. The financial statements of M/s SHBV were furnished in support of the claim that its net-worth had been eroded to a great extent which necessitated writing-off of the said investments. The write-off were stated to be made after reducing the estimated net realizable value of the investments based on intrinsic worth of the investments. It was also submitted that the liquidation proceedings were initiated against M/s SHBV and official liquidator was appointed to carry out further proceedings for liquidating M/s SHBV. The relevant documents were furnished in support. Another fact brought to the notice of Ld. CIT(A) was that the remaining investments were written off during AY 2015-16, the deduction of which was allowed by Ld. AO to the assessee during scrutiny assessment proceedings u/s 143(3). Regarding investments in LASA, it was submitted that this entity had packing units in Brazil and was pioneer in pouch packing in Brazil. The go....
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....uld not be held to be capital loss but an allowable revenue loss. The conditions as stated in the cited decisions were fulfilled in case of investments made in M/s SHBV and accordingly, the write-off would be an allowable deduction. However, with respect to investment made in LASA, Ld. CIT(A) noted that it was an existing company having its own manufacturing and packing units and therefore, the investments were not exclusively for the business of the assessee. Once the investments were made, it was for the investee company to utilize the same according to its own need. There being no proximate direct nexus between the investment made by the assesse and the business of the assessee, the write-off for this entity could not be allowed as deduction. Aggrieved, the revenue as well as the assessee are in further appeal before us. 9. Upon careful consideration of factual matrix as enumerated in preceding paragraphs, we find that the claim of the assessee hinges on the argument that the investments were made in the subsidiaries in furtherance of business objectives and with a view to earn more revenues. The investments in the two entities were guided by commercial expediency in....
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....investments had direct nexus with assessee's business and any loss arising therefrom would be an allowable deduction. The Hon'ble Supreme Court in Patnaik & Co. Ltd. V/s CIT (161 ITR 365) held that where the government bonds or securities were purchased by the assessee with a view to increase its business, the loss incurred on the sale of such bonds or securities was allowable as 'business loss'. Relying upon this decision as well as its earlier decision in CIT V/s Investa Industrial Corp. Ltd. (9 ITR 380), Hon'ble Bombay High Court in CIT V/s Colgate Palmolive India Ltd. (370 ITR 728) held that loss in investment out of commercial expediency would be an allowable deduction. This decision has been followed by Delhi Tribunal in Sahara Global Vision Pvt. Ltd. V/s ACIT (ITA No.2514/Del/2014) to hold that the loss of investments in furtherance of business objects would be an allowable loss. Recently, this decision of Hon'ble Bombay High Court has been followed by Hon'ble Karnataka High Court in ACE Designers Ltd. V/s ADIT (120 Taxmann.com 321) wherein the assessee was engaged in the business of manufacture and export of computerized numerical controlled machines. It made inves....
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....r commercial expediency. The aforesaid decision has been upheld by the Supreme Court as has been noted by Income-tax Appellate Tribunal, New Delhi Bench in its order dated 31-12-2018 in Cosmos Industries Ltd. (supra) In Patnaik & co. Ltd. (supra), it was held that the assessee did not hold on the investment the loan indefinitely and there was no enduring advantage and the investment did not bring in an asset of a capital in nature and the loss suffered by the assessee was a revenue loss and not a capital loss. In Investa Industrial Coporation Ltd.,(supra), the division Bench of the High court dealt with a question whether the finances made by the assessee to manage the company were part of or incidental to carrying on a business by the assessee a and since, the managed company went into liquidation the advances became irrecoverable, the loss sustained by the assessee shall be regarded as trading loss. 7. In the backdrop of aforesaid well settled legal position, the facts of the case in hand may be adverted to. From the perusal of the note annexed to the income filed before the assessing officer, it is evident that assessee had set up an establishment in USA during Financia....
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....t of investment in joint venture during the course of carrying on of business would be an allowable business loss. The other case laws as enumerated in the impugned order also support the claim of the assessee. The Ld. CIT-DR has relied on the order of this Tribunal in CIT V/s Siemens Nixdorf Information Systems Gmbh (ITA No.3833/Mum/2011 dated 31/03/2016) for the submission that investment so made would constitute capital assets and accordingly, the write-off of the same could not be allowed as 'business loss'. However, after going through the order, we find that this decision deal with a situation wherein a foreign entity has granted loan to its subsidiaries which were subsequently sold and the question arose whether the loan would constitute capital asset u/s 2(14) of the Act or not. Hence, this decision is factually different since in the matter before us, the investments were made out of commercial expediency and in furtherance of assessee's business. Finally, considering the fact that since the investments were made out of commercial expediency and in furtherance of assessee's business, any losses arising therefrom would be an allowable 'business loss'. We order so. Res....
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....ation of factual matrix, we find that the assessee had given certain advance to M/s LMPL pursuant to an understanding in normal course of its business so as to acquire limited right to use and exploit the know-how for manufacturing of six drug formulations. However, the assessee was already in the business of manufacturing pharmaceutical products and the technical know-how was only in respect of six drug formulations and to get technical information which would have enabled the assessee to set up new product lines to the existing business. Nevertheless, no new manufacturing unit would have come into existence and no new asset was proposed to be acquired by the assessee. The advances were given in the normal course of business out of commercial expediency which would have improved the profit-making apparatus without disturbing the capital setup of the assessee. There is no dispute that the said advances became irrecoverable and accordingly, the same were written-off in the books of accounts. Further, it could be seen that the claim has been examined by Ld. AO only in terms of Section 36(1)(vii) r.w.s. 36(2) whereas the assessee's claim fall under Section 37(1) as well as under Secti....