TaxTMI 
TaxTMI 
2021 (8) TMI 1440
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....5,09,01,000/- holding that the amount is of the nature of capital loss; 2. Whether on the facts and in the circumstances of the case, the impugned order of the learned Tribunal on the issue is vitiated by perversity in as much as the Tribunal has confirmed the disallowance of foreign exchange loss by setting up an entirely new case invoking the doctrine of lifting the corporate veil without any supporting facts and evidence on record and without any such finding recorded by the assessing officer. 3. Whether on the facts and in the circumstances of the case the very basis adopted by the Tribunal for confirming the disallowance namely that the acquisition of the business of Dunlop by the subsidiary of the appellant is in fact acquisition of capital asset by the appellant itself runs contrary to the separate legal entity principle endorsed by the Hon'ble Supreme Court in Azadi Bachao Andolan [263 ITR 706 (SC)] and Vodafone International Holdings [344 ITR 1 (SC). 2. The assessee is a company engaged in manufacture and sale of automobile tyres and tubes. For the assessment year 2006-07, the assessing officer computed the total income of the asessee at Rs.66,15,4....
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....tyres and easier access to raw materials at reduced costs were the advantages of the acquisition as claimed by the assessee. 5. Assessee claimed that the loan advanced by it to the subsidiary was on consideration of business expediency and that was the reason for the loss of Rs.5.09 crores for the AY 2006-07. Therefore, it claimed deduction under section 37(1) of the Act. However, the assessing officer disallowed the loss. It was held that the expenditure incurred by the subsidiary company for its business was not allowable in the hands of the holding company as the subsidiary company was a separate legal entity and also that the expenditure incurred for acquisition of a capital asset was a capital expenditure. The first appeal and even the second appeal to the Tribunal were both rejected. The Tribunal sustained the disallowance after holding that if the corporate veil of the two subsidiary companies, i.e; those at Mauritius and the other at South Africa are lifted, loss in question could be understood to be suffered during the process of acquisition of a capital asset and hence the loss ought to treated only as a capital loss. The assessee has thus preferred this appeal under s....
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....), Chandigarh and Others [(2007) 288 ITR 1], Patnaik and Co. v. Commissioner of Income Tax [(1986) 27 Taxman 287) and Union of India and Others v. Azadi Bachao Andolan and Others [(2003) 263 ITR 706:[(2004) 10 SCC 1] in support of his contentions. 11. The learned Standing Counsel for the Department, on the other hand, submitted that the loss incurred by the assessee was on account of the loan availed for purchasing a capital asset in South Africa through the subsidiary companies and as it was intended for procuring a capital asset, the loss was not allowable as a deduction since it could be termed only as a capital expenditure. It was further submitted that the floating of two subsidiary companies one in Mauritius and the other in South Africa were clear attempts to avoid payment of tax. According to the learned counsel, the two companies that were floated, as mentioned above, were sham companies. The entire loan for acquisition of assets can only be treated as a capital asset. On the aforesaid basis, it was argued that the appeal only merits dismissal. 12. We have considered the rival contentions. It is admitted that the assessee had availed the foreign exchange loan for exp....
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....er section 37 of the Act. The claim was disallowed by the Tribunal and confirmed by the High Court. However, the Supreme Court interfered with the finding. It was observed in the said decision that "the correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency". The Supreme Court further observed that "We agree with the view taken by the Delhi High Court in Commissioner of Income Tax v. Dalmia Cement (B.) Ltd. [2002 254 ITR 377] that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own ....