TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1314
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....fore the appeal does not survive. 3. On examination of the above Form, it is correct that the dispute in appeal filed by the assessee has been settled and therefore ITA No.1082/Bang/2024 is dismissed as withdrawn. 4. Now only appeal in ITA No.1160/Bang/2024 filed by the ld. AO survives, wherein the appeal filed by the assessee against the assessment order passed by the AO u/s. 143(3) of the Act dated 20.9.2022 was partly allowed. 5. The grievance of the ld. AO is as per the following grounds of appeal :- "1. Based on the facts and circumstances of the case, the learned CIT(A) was not correct in deleting the addition made by the AO 2. The CIT (A) erred in deleting the addition made on account of write off of Sundry Advances given to M/s Adarsh Reality and Hotels P Ltd (ARHPL) without appreciating the fact that the advances had not become bad as the advances was being regularly repaid by ARHPL and the outstanding was reducing year on year. 3. The CIT(A) erred in deleting the addition made on account of write off of Sundry Advances u/s 37 when the advances made related to capital advances given on account of transfer of land and licences to ARHPL by the assessee. 4. The CIT....
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....and further the amount outstanding as on 31.3.2021 is also lower than the amount outstanding as on 31.3.2020. Therefore, according to the AO, there is no basis for write off as part of the advances is duly recovered during the current year and next financial years. The AO further noted that the assessee has further advanced the amounts to the company even after write off of advances during the year clearly indicating that assessee expects the that company to do well and repay the amount. 8. The assessee answered the query stating that the above advances are given to ARHPL for expansion of the business of the assessee and same were written off and claimed as deduction u/s. 37 as that company could not do the business profitably. It was stated that the subsidiary was funded with share capital of Rs. 15 crores and loan of Rs. 746 crores to set up for creating infrastructure in hotels and tied up with reputed brand of hotels to enhance the business. Being a new entity and on account of intense competition the business could not run successfully and subsidiary could not even break even resulting into continuous losses eroding its net worth which became negative on 31.3.2019. There were....
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....s. 468,80,84,462 for the following 5 reasons: - i. The assessee has not submitted any evidence that the loans accrued in AY 2020-21 to consider write off in that year. ii. The subsidiary started having cash profit from the year ending 2019 which is within 5 years of starting of operation. iii. The subsidiary has started repayment which reduces the outstanding liability by Rs. 119.61 crores over a period of 4 years. iv. There is no valid basis for writing of Rs. 468.81 crores. v. The only reason for write off in FY 2019-20 is to avoid payment of tax as the assessee has received certain unexpected receipts in FY 2019-20. 11. The assessee aggrieved with the same challenged this issue before the ld. CIT(Appeals) which has been dealt in as per ground no.6 in para no.8 of the appellate order. The ld. CIT(A) allowed the claim of the assessee as under :- 8.0 Ground of number 6: disallowance of advances to subsidiary written off. 8.1 During the course of the assessment proceedings, the AO noticed that in The P & L account, the appellant had claimed an amount of Rs. 468,80,84,462/- as sundry advances written off. The AO proposed to disallow this expense and issued a show cause....
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....Income Tax -6 Vs Khyati Realtors Private Limited, SA Builders etc. 8.4 Upon careful perusal and analysis of the assessment order, appellant's submissions, material available on record and the legal pronouncements, the case is adjudicated as under: Legal basis for the disallowance: The AO has relied on the judgment of the Hon'ble ITAT Hyderabad's decision in the case of VST industries Limited V/s ACIT. The AO concludes that "the Hon'ble ITAT by relying on the decisions of the apex court has held that the advances given to subsidiary cannot be allowed either u/s 36 or u/s 37 of the Income Tax Act 1961". 8.5 The appellant on the other hand during the course of appellate proceedings has submitted an analysis of the above judgment of the Hon'ble Hyderabad ITAT. It is the appellant's submission that the Hon'ble ITAT Hyderabad's judgment is distinguishable on various accounts and he submits as under: "The learned AO placed the reliance on decision of Hyderabad Tribunal in VST Industries (ITA No. 691/Hyd/2005) by the Assessing Officer in the Assessment Order is obviously misplaced and is distinguishable from the facts and is totally diverse from th....
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....re made to commence new commercial activities by GGCL as per requisition of GGCL, which had no nexus with the existing business of VST Industries The investments are made with ARHPL is for expansion of business activities of the appellant with commercial expedience of a similar business carried on by the appellant. 7 There is no single instance of Parent is a regular investor in subsidiary for expansion of its main activities. The appellant is regular investor in shares of its various group entities (Special Purpose Vehicles) engaged in similar or identical activities (Special Purpose Vehicle) and the same is held as stock in trade and generally investments are held for longer duration of time and profits on sale of the same is regularly offered as business income in the hands of the appellant 8 There is no single instance of Parent has made profit after divesting the investments in subsidiary. The appellant had divested investments in shares held in subsidiaries and offered the income derived from transfer of shares under the head business income in preceding years * (Notes 1 & 2 below) 9 In the case of VST Industries the amounts paid are trade debt and written off the sa....
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....rca 2007-2010 moved its hospitality business to ARHPL). 5. The appellant initially in the years 2002-03, 2004-05 and 2005-06 had purchased land at palace Road in its name to commence Infrastructure hospitality unit "Palace Shangri la." The details are furnished hereunder, SI No Date Name of the owner Doc registration Sy No Extent (Sq ft) Nature of Document 1 1 10/11/2005 Skand Pvt Ltd 1-02972 56/3 16,326 Sale Deed 2 29/07/2002 V Nathan 1-1719 56/1 15,510 Sale Deed 3 31/12/2004 Sandur Manganese and Iron ore Ltd 1-2441 56 55,831 Sale Deed Total 87,217 6. Subsequent to acquisition of land, the appellant had obtained approvals from various Statutory / regulatory authorities. In support of the above, we are listing out the certain documents issued by various Statutory / regulatory authorities, SI No Date Name of the authority Nature of document Remarks 1 9/7/2008 Ministry of Environment and Forests Clarification For setting up of Helipad 2 23/9/213 State level environment Impact Assessment Authority, Karnataka Meeting Invitation On environmental impact for setting up of Hotel 3 2/7/2007 Karnataka....
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....egistration Sy No Extent (Sq ft) Nature of Document 1 11/11/2009 Adarsh Developers & its partners GAN- 1-01390/2009-10 56/1,2,3,4, & 5 87217 Sale Deed 13. After moving all the infrastructures, assets and licenses to ARHPL Punjab National Bank (the leader of consortium of lenders) inter alia had given sanction letters for Rs. 395 crores on 22/03/2010 and funded the project. The details of the loan sanctioned to the project post transfer of projects to the Subsidiary Company are as under; SI. No. Bank Date of sanction ROI INR (in Crore) 1 Punjab National Bank 22/3/2010 13.00% 150.00 2 Bank of India 28/07/2010 13.00% 80.00 3 Indian Bank 19/07/2010 13.00% 75.00 4 Canara Bank (IFB) 12/8/2013 14.95% 40.00 5 Karur Vysya Bank 3/9/2010 13.00% 50.00 Total 395.00 The summary of term sheet along with the terms sheets issued by the banks is attached herewith as Annexure D. 14. Simultaneously, apart from the bank funding the appellant has also made substantial investments in ARHPL in construction and development of "Palace Shangri la" .Further the appellant has also extended financial assistances to ARHPL for its day to acti....
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....appellant has established the commercial expediency in making the investments in subsidiary company and the entire write off is allowable u/s. 37(1) of the Act ....... " 8.8 Based on an appreciation of the above facts submitted by the appellant, it can be seen that in the case on hand, there is enough material to show that the expenditure incurred for the subsidiary is incidental to the business of the appellant and is for the purposes for the business of the appellant as (a) The appellant and its subsidiary are both in the hospitality business. (b) It was the appellant who did all the ground work for setting up this business and then divested it to its subsidiary for reasons of commercial expediency. 8.9 Further, the AO assumes jurisdiction to disallow the above expense u/s. 36(2)(i) instead of section 37 based on the decision of the Hon'ble Apex Court in the case of Southern Technologies Ltd. "wherein it was held that if a provision for doubtful debt was expressly excluded from section 36(1)(vii), then such provision could not be claimed as deduction under section 37, even on the basis of 'real income theory'. Hence there is no basis for the assessee to claim ....
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....t in the case on hand, the appellant has fairly demonstrated that the expenditure incurred for the subsidiary is incidental to the business of the appellant and is for the purposes for the business of the appellant. 2. The AO's reliance on the Hon'ble Supreme Court's judgment in the case of Southern Technologies Ltd is with respect to allowability for provisions of doubtful debt and therefore, is not applicable to the case on hand. 8.14 Factual matrix of the case: Having analysed in detail the factual aspects of the case, the AO has drawn the following conclusions: "The write off is not allowable for the following reasons 1. The assessee has not submitted any evidence that the loss accrued in AY 2020-21 to consider write off in that year 2. The subsidiary as per assessee's own estimation started having cash profits from year ending 2019 which is with 5 years of starting operation 3. The subsidiary had started repayment as indicated by the amount outstanding which reduced by an amount of Rs. 119,60,94,365 over period of 4 years 4. There is no valid basis for writing off Rs. 468.81 crores 5. The only reason for write off in FY 2019-20 is to avoid pay....
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....r meeting its requirements for day to day expenses and servicing of principal and interest to the lenders has transferred back the remaining funds and tried to establish the fact that it is willing to settle the advances. On the contrary, the mounting expenses and commitments necessitated ARHPL keep borrowing funds from the appellant which resulted in repayment of funds. The learned AO without appreciating this fact have commented and concluded that, repayment of loan Rs. 119.61 crores within 5 years of standing operation, which is far beyond the truth from the facts and circumstances of the case. In this regard we are hereby submitting the summary of outstanding balances each of the 5 years of standing operation for kind consideration of your honour," (INR in crores) SI No Financial year Opening balance Closing balance Remarks 1 2015-16 417.41 584.30 Substantial investments 2 2016-17 584.30 743.38 Substantial investments 3 2017-18 743.38 766.94 Marginal increase 4 2018-19 766.94 746.15 Marginal decrease 5 2019-20 746.15 234.62 Reduction owing to write off of Rs. 468.81 crores advances There has been increase in balance of loans advances year on....
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....ng the financial year 2019-2020 which is the triggering event for arriving at the conclusion that the amounts will not be recovered and hence the appellant decided to write off the advances which is not recoverable during the financial year 2019-2020. The moment debts have been written off in the books, it is to be allowed without expecting the assessee to demonstrate whether debts have actually become bad or not same is held in favor of the assessee in Shreno Ltd and Binani Cement_case referred hereinafter. 23. The learned AO failed to appreciate the fact that, the appellant is holding substantial investments in its various group concerns engaged in the similar and identical business activities as expansion of its arms to avoid omnibus hassles and to have various commercial, business, administrative, statutory and regulatory advantages. The shares held are classified as stock in trade in its books of accounts and it is its business assets. As the net worth of the subsidiary has become negative and the revival of the company has become a challenge owing to Covid-19 pandemic and this resulted in further strain not on the appellant lead to write off of advances given to ARHPL. ....
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.... 1,02,41,86,206 u/s 143(3) rws 153A of the Act 2012-13 373,34,32,008 1,30,02,71,193 u/s 143(3) rws 153A of the Act 2013-14 502,88,96,759 1,30,22,85,135 u/s 143(3) rws 153A of the Act 2014-15 622,94,03,975 1,40,62,15,427 u/s 143(3) rws 153A of the Act 2015-16 460,59,33,927 1,29,17,66,228 u/s 143(3) rws 153A of the Act 2016-17 439,80,41,337 8,92,46,807 u/s 143(3) of the Act 2017-18 244,24,85,912 (43,77,04,681) u/s 143(3) of the Act 2018-19 762,11,78,439 (27,91,215) u/s 143(3) of the Act 2019-20 7,14,14,23,451 (17,65,12,650) u/s 143(1) of the Act 28. From the above statistics extracted from the audited financial statements of the appellant which is borne on the records of the AO, the total turnover declared by the appellant is 714.14 crores and have incurred the book loss of Rs. 17.65 Crores. The learned AO failed to appreciate the fact that in the previous year relevant to the assessment year under consideration. 29. Having stated that, even in the previous year immediately preceding impugned assessment year the appellant has declared a turnover of Rs. 762.11 crores and have incurred loss of Rs. 0.28 Crores. There is neither major addition nor dis....
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.... hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.[Explanation 3 .- For the removal of doubts, it is hereby clarified that the expression "expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law" under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,-(i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or (iii) to compound an offence under any law for the ti....
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....ary is wholly and exclusivelyfor the purposes of business. A few of these judicial pronouncements are discussed below: 32. Odissa High court in the case of Principal Commissioner of Income-tax v. Industrial Development corporation of Odisha Ltd. [2023] 147 taxmann.com 298 (Orissa) held (in para 14) write off of the commercial expediency on advances paid to subsidiaries which is akin to the case of the appellant on hand, "14. In the present case, while the nomenclature used for the expenditure incurred may have been different during AYs 1989-90 and 1990-91 where it was 'loans and advances' which were subsequently written off. the fact remains that it was an irrecoverable expenditure as far as the Assessee was concerned. In the present AYs as well, what was paid as 'compensation' by the Assessee to the very same subsidiaries was to recoup the business losses of the subsidiaries, and was again irrecoverable as far as the Assessee is concerned. Considering that the expenditure was in the nature of moneys advanced to the subsidiaries, it cannot be said that there is no intimate connection between the Assessee and the two subsidiaries as far as the business activities....
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....irectly relatable to the business of the assessee and thus eligible for deduction as business expenditure/loss in assessee's return of business income. The expenditure incurred by appellant or the debts that were recoverable from MMC, in our view, therefore, would certainly be deductible expenditure under section 28 of the Act. 35. A reference is also made in its earlier decision in the matter of Mahindra and Mahindra Ltd. v. CIT [2023] 151 taxmann.com 332/456 ITR 723 (Bom.) this Court has referred to the judgment in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) wherein the Apex Court has held as under, (para 26) "The aforesaid discussion leads to the following result: The expression for the purpose of the business' is wider in scope than the expression for the purpose of earning profits. Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment ....
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....puty Commissioner of Income-tax [2022] 139 taxmann.com 213 (Chennai - Trib.) held that (para 10) 10. Finally, on the given facts and circumstances, we concur with the submissions of Ld. AR that the investments in subsidiaries were made in the normal course of assessee's business to make business more profitable. Therefore, the resultant loss suffered by the assessee was rightly claimed as revenue expenditure/business loss by way of write-off in the Profit Loss Account. We order so. Accordingly, we direct Ld. AO to allow these three write-offs as deduction as claimed by the assessee. The grounds thus raised stands allowed. (Emphasis supplied) 36. The Bombay HC in an earlier case CIT v. Colgate Palmolive (India) Ltd. [2015] 59 taxmann.com 139 / 370 ITR 728 (Bombay HC) had held that where a taxpayer made an investment in its 100% subsidiary for business purpose, the loss on sale of investment would be treated as business loss. The aforesaid decision had been upheld by the Supreme Court (SC) CIT v. Colgate Palmolive (India) Ltd. [2017] SLP No.25987/2015 (SC) 37. Honourable Supreme Court in the Case of Principal Commissioner of Income Tax -6 Vs Khyati Realtors Private Limit....
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.... treated as having been incurred for the purpose of business and directly relatable to the business of the assessee and thus eligible for deduction as business expenditure in their return of business income. The assessing authority and the Commissioner of Income-tax (Appeals) failed to appreciate the claim in proper perspective. The alternative argument of learned senior counsel for the assessee that the claim of written off bad debts should be allowed as business expenditure or business loss, in our considered view, merit acceptance. The Tribunal has given a cogent and convincing reasons for reaching a finding of fact that expenditure incurred was directly relatable to the business of the assessee and should be allowed as business expenditure" 8.21 More importantly, the appellant relied on the Hon'ble Jurisdictional Karnataka High Court's decision in the case of in the case of M/s. Ace Designers. The operative part of this judgement is reproduced below; " .... 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 tha....
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....r answer to the first substantial question of law. In the result, the order of the Tribunal dated 14.12.2012 to the extent of the findings contained against the assessee is quashed." The AO has not accepted the judgement by distinguishing it as below "Assessee had made investment in equity of its wholly owned subsidiary; subsidiary was wound up it is loss on sale of investment" However it can be seen that both the whole of investment made in WOS and unrealized export receivables have been allowed to be written off. Therefore, respectfully following the principles as enunciated in the Hon'ble Jurisdictional Karnataka High Court's supra it is decided as under. 8.22 Based on facts of the case as discussed above and the various judicial pronouncements it can be seen that advances paid to the subsidiary is 1. Wholly for the purposes of business: (i) The appellant has transferred one of the entity business to its subsidiary for operational reasons. Therefore, there is business nexus. (ii) Income from subsidiary has been offered as business income in earlier years. (iii) The appellant has made capital contribution of Rs. 150 Crores in its subsidiary. Therefore, t....
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....PL was taken on impenitent crystallization of the liabilities during the financial year 2019-2020. Even though there is a negative net worth from the past previous years something extra in the form of Covid-19 outbreak during the financial year 2019-2020 which is the triggering event for arriving at the conclusion that the amounts will not be recovered and hence the appellant decided to write off the advances which is not recoverable during the financial year 2019-2020. The moment debts have been written off in the books, it is to be allowed without expecting the assessee to demonstrate whether debts have actually become bad or not same is held in favour of the assessee in Shreno Ltd and Binani Cement case referred hereinafter." 8.24 Apart from the above written submissions, the appellant also relies on following judicial pronouncements: 44. The appellant places further reliance on the ratio of decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. CIT [2007] 288 ITR 1/158 Taxman 74 (SC)wherein the Hon'ble Apex Court held as under : "if there is any nexus between the expenditure and purpose of the business (which need not necessarily be the busin....
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....s. The assessee has shown the interest income of Rs. 738 lakhs from F.Y.2008-09 to F.Y.2010-11. This amount was offered for taxation. If some balance outstanding remains, and written off in the accounts, then it is not for the Revenue to verify the genuineness or to ask the assessee to show whether debts have actually been become bad or not. The moment debts have been written off in the books, it is to be allowed without expecting the assessee to demonstrate whether debts have actually become bad or not. A reliance can be made to the decision of Hon'ble Supreme Court in the case of TRF Ltd. 230 CTR 14 (SC). It is altogether irrelevant, whether OFL actually paid tax or not. If a liability has ceased, then it will be added back in the taxable income of the OFL. Now, if that concern was suffering huge loss, then that cannot be the reason to disallow claim of the assessee. If this type of logic is being accepted, then every business organization was required to show profit only. This is a misplaced notion at the end of the ld. CIT(A) for rejecting the claim of the assessee. We allow this ground of appeal, and delete disallowance of bad debts. In the other words, claim of bad debt....
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....laim in the hands of assessee. 13. The ld. CIT(DR) vehemently supported the order of the ld. AO and submitted a brief synopsis dated 04.12.2024 as under :- GOA No. 1-6 (APPEAL BY REVENUE) - GOA OF REVENUE BE UPHELD AND ORDER OF Ld. CIT(A) MAY PLEASE BE SET-ASIDE FOR THE FOLLOWING REASONS : I. WRONG APPRECIATION OF FACTS BY Ld. CIT(A) (Kindly Refer PARA 8.13(1), PARA 8.17 & PARA 8.19 of order of Ld. CIT(A) - (a) Appellant is into construction business and subsidiary (ARHPL) is into hospitality business. (Kindly Refer PARA 1, PARA 6, PARA 6.1 & PARA 6.2 of order of A.O) (b) Advances "ARE NOT RELATED TO BUSINESS ACTIVITY OF APPELLANT" (c) No accounting principle permits write-off merely because net worth of borrower has become negative. (Kindly Refer PAGE 7 of order of A.O) (d) Subsidiary (ARHPL) was showing cash profits. (Kindly Refer PAGE 7 of order of A.O) (e) Repayments were made by subsidiary AS THERE WAS CONSTANT REDUCTION IN OUTSTANDING BALANCES. (Kindly Refer PARA 6.6 on PAGES 10,11 & 12 of order of A.O) (f) No evidence filed before AO/CIT(A) FOR BASIS OF WRITE-OFF of Rs. 468.81 crores. (Kindly Refer PARA 6.8 ON PAGE 12 & 13 of order of A.O) II. GLARING OMIS....
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....preme Court, specifically on para 15 to 17 of the decision in the case of CIT v. Mahindra & Mahindra Ltd., 404 ITR 1 (SC). Mainly the contention is that there is a difference between trading liability and other liabilities and same corollary to be drawn for loan given on a capital account and on a trading account. Thus, the claim of the ld. CIT(DR) is that the ld. CIT(A) deleted the disallowance by wrong appreciation of facts and glaring omission of the ld. CIT(A) in ignoring the crucial evidence brought on record by the ld. AO for the reason that assessee was to pay tax on income and therefore to reduce that particular income, this amount is written off and shown as allowable claim so as to reduce payment of taxes. Therefore she supported the order of the ld. AO and submitted that the disallowance deleted by the ld. CIT(Appeals) is incorrect. 15. The ld. AR assailing the order of the ld. AO and supporting the appellate order of the ld. CIT(A) filed a paperbook containing 753 pages along with written synopsis and event chart. The ld. AR also referred to several judicial precedents in caselaw paperbook compilation of 574 pages. First referring to list of dates & events chart, the l....
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....advantages it resulted into continuous losses resulting in erosion of net wealth of the subsidiary company. The assessee continued to lend the fund to the subsidiary and also stood as guarantor for the bank funds and loans to the subsidiary. He referred to the annual accounts of the subsidiary to show that as on 1.4.2019 the negative net worth of subsidiary company was Rs. 375.67 crores and therefore a sum of Rs. 468.80 crores being portion of the existing advances was written off, thus has made the negative net worth of the subsidiary into a positive net worth of Rs. 52.91 crores. Had this not been done, the subsidiary could be taken to liquidation by the lender, also would have resulted in to the invocation of the guarantee of the assessee. He submitted that assessee has established the write off of the advances given to the subsidiary was in the normal course of business, out of commercial expediency and was incurred wholly and exclusively for the purpose of the business and therefore the claim of the assessee is allowable u/s. 37(1) of the Act. 18. He also submitted that the allegation of the AO that write off of the advances to subsidiary was made with an intention to avoid p....
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....submission and reasons given by the ld. AO in assessment order. 25. We have carefully considered the rival contentions and perused the orders of the lower authorities with respect to claim of allowability of amount written off by assessee in part with respect to advances given to Adarsh Realty and Hospitality private Limited of Rs 468 Crores. 26. Briefly stated the facts of the case shows that assessee is a partnership, carrying on the business of property development, builders, contractors and subcontractors for construction, designing and in the commission thereof, business of property development members contractors for construction designing investment in special purpose vehicle private limited companies etc. Assessee is into the business of property development creating infrastructure, and furtherance of business to create hotels, restaurants; technology parks, commercial office places, residential infrastructure and other property development. The assessee has invested in special purpose vehicle for extension of its business to carry out the creation of infrastructure facilities and creating branded hotels, restaurants, commercial properties etc. Assessee is stated to have ....
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....This is to the extent of 60% of such advances and investment in that company. 31. Meanwhile as the borrower company has a running account with the assessee, it paid cost recharge expenses and certain expenses to the assessee, which are part of income of the assessee in respective financial years. Assessee also paid directly to the vendors and service providers of hotels, and same was recovered by assessee from borrower way of debit note which was credited in the running account of the debtor and credited as the income of the assessee company. Therefore, the assessee did receive certain sums from the borrower company which were offered as income of the assessee. This fact has not been disputed by the revenue. 32. During assessment proceedings, the assessee submitted the various details and asked the learned assessing officer to grant it as a deduction under section 37(1) of the act or as bad debt. The learned AO disallowed the claim of the assessee as business loss holding that (i) whether the loss has been incurred during the year or not is not shown, (ii) borrower has started having cash profit, (iii) borrower has started even repayment over a period of 4 years, (iv) there is no....
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.... as deduction. Similarly, when the borrower starts showing cash profits it is not always true that the allowances for losses or bad debt are not allowable to the assessee. Subsequent repayment of the party cannot also be a deciding factor for claim of losses or bad debts. If the assessee does not have any chance of recovery of the loans or advances given by the assessee company to the borrower, the assessee is entitled to write off such advances and claim either as bad debts or as a business loss provided it satisfies the condition laid down in the Income tax Act. 37. Further the learned assessing officer was of the view that assessee has received an amount of Rs. 469.78 crores as additional income during the assessment year 2020-21 and therefore as this amount is chargeable to tax, assessee was required to pay income tax, to avoid payment of such income tax, assessee has written of the above amount of loans and advances to the subsidiary company and claimed it as an allowable loss or expenditure. In response to this the assessee has clearly stated that that receipt from the sale of shares is not in the nature of any unexpected win as for earlier years also the assessee has receiv....
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.... 2020 that the amount of advances given to the company should be written off by a resolution of the partners passed during this year. Therefore the incident of incurring of the loss resulting into write-off happened during this assessment year. 42. Honourable Karnataka High Court had an occasion to consider identical issue in case of case of Ace Designers Ltd vs Additional Commissioner Of Income Tax [2020] 120 taxmann.com 321 (Karnataka) where a company engaged in the business of manufacturing and export of computerised numerically controlled machine claimed write-off of the investment in subsidiary company was allowed following decision of honourable Bombay High Court in case of Colgate-Palmolive India Ltd 59 taxmann.com 139 holding that where the assessee makes an investment in its hundred percent subsidiary for business purposes, loss on sale of investment has to be treated as business loss of the assessee. The facts of the present case are also pari materia same as assessee has by writing of the investment in subsidiary has claimed such write off as business loss. 43. Further in case of the decision of the honourable Rajasthan High Court in case of Principal Commissioner Of I....
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.... interest payable by M/s. GSB Capital Market Ltd. It was in the subject Assessment Year that a settlement was arrived at between the parties and the Respondent-Assessee received Rs. 15 lakhs from M/s. GSB Capital Market Ltd. and the balance amount of Rs. 34.82 lakhs being non-recoverable was being claimed as bad debts by writing off the same in its books of account. It would thus be noticed the amount of Rs. 34.82 lakhs which constitutes partly the principal amount of the inter-corporate deposits and partly the interest which is unpaid on the principal debt. The Assessing Officer's contention that amount of Rs. 34.82 lakhs was not offered to tax earlier and, therefore, deduction under Section 36(2)(i) of the Act is not available, is no longer re-integra. This very issue came up for consideration before this Court in Shreyas S. Morakhia (supra) wherein the assessee was a stock broker and engaged in the business of sale and purchase of shares. The brokerage payable by the client was offered for tax. Subsequently, it was found that the principal amount which was to be received from its clients would not be received. The assessee sought to claim as bad debts not only the brokerage ....