TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 998
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....ment of Rs. 56,42,738/- made in book profit u/s 115JB of the Act without appreciating the clause(f) of Explanation 1 to section 115JB(2) of the Act 3. Whether on facts and circumstances and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 4,12,18,805/- made on account of disallowance os loss incurred due to written off irrevocable loan from the subsidiary company without appreciating the facts that the same is not allowable as revenue expense u/s 37(1) of the Act. 3.1 This amount is also not bad debt with the meaning of provision of section 36 of the Act as mentioned by the assessee before CIT(A) because the loan is given to its subsidiary company "Apollo Maschineban GMBH" based in Germany and not established to have become bad debt. 4. Whether on facts and circumstances and in law, the Ld.CIT(A) has erred in deleting the disallowance of Rs. 4,32,91,717/- made in book profit u/s 115JB of the Act without appreciating the facts o the case. 3. In this case, the assessee-company filed its original return of income for the year under consideration on 19.10.2018, declaring total income of Rs. 10,96,53,560/-. The assessee subsequently filed rev....
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....he claim of expenditure/loss incidental to business of Rs. 4,12,18,805/- which represents write off of loan given to 100% subsidiary Apollo Maschineban GMBH based in Germany. The Assessing Officer has held that since the assessee is not in the business of money lending, it is a capital loss. On appeal, the Ld. CIT(A) held that the write off of Rs. 4,12,18,805/- is clearly allowable as a business deduction u/s 28/37 of the Act and thus deleted the addition made by the Assessing Officer relying on the various judicial precedents cited in his order. 7.1 The brief history and development with regard to this issue are that, * The assessee received an offer from a German local Co, K S Holding Ltd forgiving the necessary technical assistance against the fees as well as to assist to have a local manufacturing facility there. * Looking to that, the assessee has taken one unit on rent cum ownership basis at their premises having the required existing facility. * It was decided by the assessee that all the assembly/parts which involve high labour-intensive cost, will be manufactured in India and will be sold to the German subsidiary. * The German Subsidi....
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....ere was a lack of confidence of Indian manufactured products, hence all the assembly/parts which involve high labour intensive cost were manufactured in India and were sold to this German subsidiary. This German Subsidiary took the orders of such machines there and did the rest of the work with the assembly and finishing of these and invoiced from there to ultimate foreign customers. By promoting the Foreign Subsidiary, the company aimed at increasing the business prospect of Indian Company and its expansion of business and opportunity in other part of the world. It is also on record that the assessee sold various products to this subsidiary in the past years and also bought various imported machinery parts from the said subsidiary. The chart furnished by the assessee clearly establishes the close business connection between the assessee and its foreign subsidiary. But, unfortunately for the assessee companies that even after putting much effort in establishing the business scope in European countries, the viability in the business could not be gained and the foreign subsidiary kept incurring losses. |t is also evident that after trying for some good years, the losses kept rising a....
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.... 29 of the Act. It is settled law that loans advanced in the course of or incidental to the business of the assessee are allowable when they become irrecoverable. Coming to the legal aspect of the; case, the judgment relied by the AO on page- 7 of the assessment order in the case of Hasimara Industries Limited/ CIT (1998) 147 CTR 70 (SC) is clearly distinguishable on facts. In the said judgment, the amount was advanced in connection with a totally new line of business, not at all connected to assessee business and that too for acquiring new machinery & apparatus. Hence it was held that the amount given was not in the nature of a loan transaction or a money lending transaction and on these facts it was held that the irrecoverable amount was a capital loss and not allowable as business loss. However, in the present appeal, as discussed above, the nature of advance is a loan and the business connection is also clearly established as discussed in detail herein above. The present assessee case is squarely covered by the ratio and principle laid down by the Judgments cited by the appellant in its submissions quoted in this order. For ready reference, the ratio of each judgment a....
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....e expression used is 'for the purpose of business'. It has been consistently held in decisions relating to section 37 that the expression 'for the purpose of business' includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. [Para 22] In Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. [Para 23] The expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. [Para 25] (2020) 120 Taxmann.com 321 (Karnataka) Ace Designers Ltd. Section 28(i) of the Income-tax Act, 19....
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.... effected the business of the assessee, since they were selling products manufactured by the assessee. There is.no doubt therefore that the advancement of loans to these associate concerns, was; incidental to the business of the assessee. Further the fact that the loans were advanced during the course of business to help the concerns tide over their financial crises, reveals that the said loans were not for capital purposes. Write off of the same, was clearly therefore business loss to the assessee, which it was entitled in law to claim under section 28 read with section 29 of the Act. It is settled law that loans advanced in the course of or incidental to the business of the assessee are 'allowable when they become irrecoverable." "The Hon'ble apex court laid down the principles relating to allowance of business losses in its decision in the case of Badridas Daga Vs CIT 34 ITR 10(SC). Dealing with the issue in the context, of the Income Tax Act, 1922, in the backdrop of allowability of claim of loss by an assessee in money lending business, on account of embezzlement of money by employees, the Hon'ble court held that for allowability of business losses it should spring di....