TaxTMI 
TaxTMI 
2022 (2) TMI 390
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....of Income Tax (Appeals) is contrary to the law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant and is opposed to the principles of equity, natural justice and fair play. 2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction. 3. For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of the write off of the advance of Rs. 7,70,16,147/- made to subsidiary company. 4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the advance to the subsidiary company was towards expenditure incurred in the ordinary course of business of the subsidiary company. 5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the advance to the subsidiary company written off was loss incidental to the business of the appellant. 6. For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of the investment made in subsidiary written off to the extent of Rs. 6,75,26,999/- 7. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the write of....
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....y (WOS) i.e., Sherisha Technologies (S) Pte. Ltd. (STPL) based at Singapore. It was submitted that in order to have a strong foothold in the international market which would serve assessee's larger business interest, the assessee decided to acquire a company i.e., M/s Kaltech Engineering & Refrigeration Pte. Ltd. (KERPL) in Singapore which was carrying on similar business as that of assessee. As the laws in Singapore did not permit direct investment, the assessee floated WOS M/s STPL through which it started acquiring the shares of KERPL. For the same, due compliance was made with the requirement of the Companies Act, 1956, RBI & SEBI etc. As the target business was in another country, the assessee and STPL took steps to conduct due diligence and thorough background check of KERPL and its promoters before the deal could be finally concluded. Since STPL had no funds, the assessee incurred aggregate expenses of Rs. 770.16 Lacs on account of professional fee, legal fee, travelling etc. These were grouped under the head 'Loans and Advances' in the Balance Sheet with an intention to recover the same from STPL. However, the assessee could not acquire 90% stake in KERPL but stopped at 51%....
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....y the assessee to fund take-over of another entity and therefore, the expenditure would be capital in nature. The investment made by the assessee was capital in nature and the diminution in the value of the same could not be claimed as revenue expenditure and the loss thus suffered was not in the normal course of assessee's business. 3.6 To reject the assessee's claim, reliance was placed on the decision of Hasimara Industries Ltd Vs CIT [230 ITR 927 (SC)], wherein irrecoverable advances made by assessee to licensor / lessor was held to be capital loss since the investment was made to start new business and hence, not deductible. Reliance was also placed on the decision of Tribunal in Kwality Fun Foods & Restaurants (P) Ltd. (108 ITD 274) wherein the assessee had advanced certain amounts to a contractor for construction of cold storage plant at its factory. The project could not be executed and the advances lost by the assessee were claimed as loss. However, it was held that the advances were made to secure capital advantage and the expenditure was incurred towards the cost of acquiring new profit earning apparatus. Therefore, it was held to be in capital field and not allowable a....
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....al expediency in trying to retrieve its investments in subsidiary would be allowable deduction. 4.2 Regarding depreciation on cylinders, it was submitted that the cylinders were earlier sold out and repurchased this year. The Ld. AO mistakenly took this transaction as sales return. It was reduced from the block of asset in earlier years when it was sold and when the buyer returned the same, the same was added to the block of asset and depreciation was claimed on the same. The same was stated to be in accordance with the provisions of law. 4.3 The assessee's submissions were subjected to remand proceedings and a remand report was received from Ld. AO which was countered by the assessee. 4.4 After considering the material on record including the remand report, the Ld. CIT(A) observed that the assessee had advanced amount to its subsidiary for acquiring shares in another company which was in the nature of investment. Therefore, any advances thus lost and writtenoff as irrecoverable would be loss of capital and not loss in regular course of business and therefore, it could not be allowed as business expenditure. The sole purpose of the investment was to acquire shares of another com....
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....ated expenditure. The expenditure of Rs. 770.16 Lacs was spent by the assessee towards professional fee, legal fee, travelling etc. Such expenditure was grouped under the head 'Loans and Advances' in the Balance Sheet with an intention to recover the same from STPL. However, unfortunately, the assessee could not acquire 90% stake in KERPL as planned but stopped at 51% which resulted into disagreement between the assessee and KERPL. Consequently, entire transaction was reversed and in the process, the assessee suffered losses. The amount of Rs. 770.16 Lacs as due from STPL became irrecoverable and the assessee had no option but to write-off of the same. Similarly, the assessee had advanced bank guarantee on behalf of STPL so as to fund the acquisition. But since the acquisition did not happen and STPL was unable to pay the Bank Loan, the guarantee against the assessee was invoked and the assessee had to pay an amount of Rs. 508 Lacs on account of bank guarantee. The last write-off of Rs. 675.26 Lacs arises on account of assessee's inability to acquire KERPL, the shares were re-transferred to KERPL. As a result, STPL was reduced to a shell company as the objective of the entire exerc....
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....e form of holding shares, the said loss would be a business loss allowable u/s 28(i). 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'. The decision of Hon'ble High Court of Madras in CIT V/s Amalgamation Pvt. Ltd. (108 ITR 895) also support the same view. In this decision, it was also held by Hon'ble Court that loss arising to assessee out of guarantee given on behalf of subsidiary sprang out of normal business transaction and the loss was an allowable deduction. This decision of Hon'ble Court has been followed by Chennai Tribunal in ACIT Vs W.S Industries (India) Ltd (ITA No. 1373/Mds/2008 dated 21- 08-2009) and held that guarantee given by the assessee was in the course of its carrying on of business and the loss was admissible deduction as business loss. Similar is the ratio of other decisions of Tribunal as placed on record by Ld. AR. 8. The Ld. CIT-DR, in the written submissions has sought to counter the arguments of Ld. AR. It has been submitted ....
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.... the paper book), it could be seen that the assessee has reduced gross block of 60% by an amount of Rs. 836.91 Lacs. The reduction include sale of cylinders by the assessee on 31.03.2009 to two parties i.e. M/s Vijay Traders & M/s Silver Lining Enterprises. For the same, the assessee had raised excise invoices and also charged applicable VAT on sale of cylinders. However, these cylinders have subsequently been returned on 15.06.2010 by these two parties which is quite evident from the copies of credit notes issued by the assessee to both these parties. Consequently, the block for this year has been increased to that extent and depreciation, as applicable, has been claimed on the same by the assessee. These transactions are duly evidenced by Tax Audit Report and Extracts of financial statements as placed on record. The Ld. AO has denied the depreciation on the ground that the same represent sales return. However, the said reasoning could not result into denial of depreciation to the assessee since upon sale of cylinders, the block of asset was reduced whereas on receipt of the same back by the assessee, the gross block was increased accordingly. Therefore, we find no infirmity in th....