TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 1099
X X X X Extracts X X X X
X X X X Extracts X X X X
....fully submits as follows. 1. The Commissioner of Income Tax (Appeals) has passed the order u/s 250 of the Income tax Act on 22-09-2023. Accordingly the last date for filing the appeal before Hon'ble Tribunal was 21-11-2023. The appeal has been filed on 17-02-2025. Thus there is a delay of 454 days in filing the appeal. As the identical issue was already in dispute before the Hon'ble Income Tax Appellate Tribunal, Pune for Assessment Year 2018-19 in ITA No. 425/PUN/2025 and the final order of the Hon'ble Tribunal was yet to come, therefore, we were under the impression that the final order of Hon'ble Tribunal will also apply for Assessment Year 2020-21. We were under the impression that the separate appeal is not required to be filed for Assessment Year 2020-21. 2. On 14-02-2025 the assessee received notice dated 14-02-2025 vide DIN No. INSIGHT/VER/02/Service_Letter/2024-25/ 4919123137160001 from the Verification Centre, National Faceless Assessment Unit, Income Tax Department, Delhi for levying penalty u/s. 270A of the Income Tax Act. In order to furnish reply to the above penalty notice we consulted the Senior Counsel and were advised to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../-received against sales, as unexplained cash credit u/s 68 of the Act. The addition may be deleted. 3. The Ld. CIT (A) has erred in confirming the action of the Assessing Officer in charging the higher rate of tax by invoking the provisions of section 115BBE of the Act, in respect of the addition of Rs. 99,23,830/- made to the income to the assessee by treating the advance of Rs. 99,23,830/-received against sales, as unexplained cash credit u/s 68 of the Act. The invocation of provisions of section 115BBE may be vacated/cancelled/quashed. 4. The Ld. CIT (A) has erred in upholding the action of the Assessing Officer in making the ad-hoc addition on account of the excess cost of raw material consumed, and in confirming the addition to the extent of Rs. 1,14,55,271/- on ad-hoc basis at the rate of 0.01% of the total turnover. The addition of Rs. 1,14,55,271/-confirmed by CIT (A) may deleted. 5. The Ld. CIT (A) has erred in confirming the disallowance of Rs. 10,28,087/- made by the Assessing Officer on account of excise duty balance of Rs. 10,28,087/- written off. The disallowance may be deleted. 6. The appellant craves leave to add to or amend/modi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its "WOS-BC,USA" for acquiring the shares of "LDC, USA" and also to expand the business. In the due course of time, business loans were also taken from Regions Bank, Alabama, USA and the loan was taken by "LDC, USA", "WOS-BC, USA and the personal guarantee of Mr. Bhavook Tripathi who is the common Director in "WOS-BC,USA", "LDC,USA" and also the Managing Director of the assessee company. From F.Y. 2016- 17 onwards, assessee started receiving orders from "LDC,USA" but subsequently due to local recession in the business, "LDC,USA" could not fully fund its payroll and defaulted in meeting the terms of the Credit Agreement dated 09.03.2016 with the Regions Bank. Even after the Bankruptcy being filed by "LDC,USA", the Regions Bank, USA did not agree to the bankruptcy and filed a suit against "LDC,USA", "WOSBC, USA"and Mr. Bhavook Tripathi on 09.02.2018 before the Delaware County Circuit Court, USA. Copy of Resolution passed by "WOS-BC,USA" in January 2018 also filed before the ld. AO in support of the claim that "WOS-BC,USA" is under liquidation. It was thus claimed that the investment was made to further its business objectives however it could not bring projected Revenue and profits f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nshu Industries located at Aurangabad. During F.Y. 2015-16, name of the company M/s. Sanshu Industries Pvt. Ltd. was changed to M/s. Brahm Precision Materials Pvt. Ltd. With a view to establish and expand its business into manufacturing high precision casing components for Aerospace and Industries in the USA, assessee started looking for the appropriate avenues. On due diligence, it decided to acquire the on-going business of M/s. Littler Diecast Corporation, USA which was in the similar business in USA as required by assessee. The State of Indiana is the manufacturing hub in USA. For the acquisition of "LDC, USA", a new and wholly owned subsidiary company namely M/s. Brahm Corporation incorporated in United States of America which inturn acquired 80% of the shares of "LDC, USA". For acquiring the Equity of "LDC,USA", funds from the assessee company were remitted from India to its "WOS-BC,USA" during A.Y. 2015-16 to A.Y. 2018-19 totalling to approx Rs. 53.60 crore Along with the business funds remitted by the assessee, certain more funds were required to expand the business and manufacturing activity and accordingly "WOS-BC, USA" and "LDC, USA" took business loan of USD 45,00,000 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bankruptcy and filed a legal suit against "LDC, USA", "WOS-BC,USA" and Mr. Bhavook Tripathi on 09.02.2018 before the Delaware County Circuit Court, USA for monitory judgment against the borrowers and the guarantor and for appointing a receiver over "LDC, USA" and "WOSBC, USA". Eventually, an agreed motion was reached on 21.09.2020 between the Regions Bank, "WOS-BC,USA", "LDC, USA" and Mr. Bhavook Tripathi before the Delaware County Circuit Court, USA for the sale of the remaining unliquidated intangible assets of "WOS-BC,USA" and "LDC, USA" and the assessee was required to pay huge funds. 14. Ld. Counsel for the assessee submitted that on passing of the resolution on 12.01.2018 for liquidation of some of the assets, filing of suit by Regions Bank on "WOS-BC,USA", "LDC, USA" and Mr. Bhavook Tripathi on 09.02.2018 and also before the finalisation of the Financial Statements for F.Y. 2017-18, the order of Delaware County Circuit Court, USA was passed on 09.04.2018. Assessee considering the situation and the probable huge business loss, has writen off Rs. 97,61,190/- equivalent to 1,50,000 US Dollars in its books out of the total investments made in "WOS-BC,USA" and claimed it as bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th "WOS-BC,USA" also supports this fact and even closing balance in the ledger account of "LDC, USA' has been arrived after adjustment of the opening balances and the export sales made during the year at Rs. 95,90,205/-. Also in A.Y. 2020-21 assessee has written off Rs. 10,52,66,785/- out of the investments made in its 100% wholly subsidiary company "WOS-BC,USA" and the said sum of Rs. 99,23,830/- has been adjusted during the year against it and only the net amount of Rs. 9,56,76,580/- has been claimed as bad debt. Ledger account of "WOS-BC,USA" is also placed at page 537 of paper book No.2. He submitted that since nature and source of alleged sum is duly explained with evidences, no addition for unexplained cash credit u/s. 68 of the Act is called for. 17. Ld. Counsel also referred to the various documents filed through paper book No.1 and 2 and the Index of such paper books are reproduced below : PAPER BOOK NO.-1 INDEX Sr.No. Particulars Page Nos. 1. (a) Notice u/s 142(1) of the Income tax Act dated 08-01-2020 alongwith the Questionnaire. 1-2 (b) Response to the above notice uploaded on the ITBA Portal on 10-01-2020. 3-53 2. Letter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....poration Indiana USA, M/s Littler Diescast Corporation Indiana USA and the 'Regions Bank' Alabama USA. 376-459 21. Guarantee dated 09-03-2016 by Mr. Bhavook Tripathi given to the Regions Bank USA. 460-469 22. Intercompany service agreement dated 10-03-2016 amongst Brahm Corporation Indiana USA and M/s Littler Diescast Corporation Indiana USA. 470-488 23. Intercompany service agreement dated 10-03-2016 amongst M/s. Brahm Precision Materials Pvt. Ltd. and M/s Littler Diescast company. 489-506 24. Master agreement dated 07-11-2016 amongst M/s. Littler Diescast Corporation USA, M/s. Brahm Corporation USA and the "Regions Equipment Finance LLC" Alabama USA 507-519 25. Confidential settlement agreement dated 05-10-2020 520-531 26. Ledger accounts of M/s. Brahm Corporation from the books of account of the assessee for Assessment Years (a) A.Y. 2015-16 (b) A.Y. 2016-17 (c) A.Y. 2017-18 (d) A.Y. 2018-19 (e) A.Y. 2019-20 (f) A.Y. 2020-21 532-539 27. Ledger accounts of M/s Littler Diescast USA from the books of account of the assessee for Assessment Years (a) A.Y. 2017-18 (b) A.Y. 2018-19 (c) A.Y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess objectives in USA and Europe. Subsequently, its WOS suffered losses and therefore the appellant has written of some part of the losses. On carefully considering the facts and circumstances of the case, it is observed that although the appellant has consistently claimed that it has made Investments in WOS in USA to furtherance its business objectives. However, the nature of business objective was never specified by the appellant which could clearly establish that this investment was made for generating revenue income for the appellant. In fact, the appellant failed to show that any business transaction was happened with WOS in past years. It is also a matter of fact that the appellant has shown investment under the investment head of balance sheet continuously and the appellant has not furnished any evidence to show the business arrangement between the appellant and WOS and the WOS was also conducting same line of business or supplying any materials from USA or marketing/selling products of the appellant in USA. Thus, the appellant completely failed to show the commercial expediency in investment in WOS. Since, there is loss in the appellant's WOS in USA, the appellant is tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act. In this case, the appellant has received Rs. 99,23,830/- (equivalent to 1,54,292 USD) on 19.07.2017 during the year and this amount has been shown as borrowing of money in Para 14 of Form 3CEB. The AO pointed out that the appellant has submitted that it has received loan from Littler Diecast USA and contradicted its statement in the subsequent Para of its reply dated 25.01.2021 stating that the amount of Rs. 99,23,830/- is received from Brahm Corporation as advance against sales to be made to it. It is observed that the appellant vide its subsequent reply dated 15.02.2021 filed during assessment proceeding submitted that this amount was received as advance against sales to be made and the transaction could not be completed in the subsequent years as the said concern has gone into liquidation. 4.2.1 For the above, it is seen that the appellant has submitted contradictory statement during the assessment proceedings. Further, it is observed that the appellant has wrongly classified the amount and has shown this amount as a negative amount in the list of sundry debtors and not in the head of loans or advance from customer as current liability in the Balance sheet. During....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Littler Diecast Corporation, USA" was found to be a company through which the assessee can achieve its object of increasing its business revenue. However, for acquiring the shareholding of "LDC, USA", assessee company incorporated wholly owned subsidiary "M/s. Brahm Corporation, USA". During F.Y. 2014- 15, the process of acquiring the major stake in "LDC, USA" (80%) by "WOS-BC,USA" started and the assessee started remitting funds from India to "WOS-BC,USA" and the investment started from F.Y. 2014-15 till F.Y. 2017-18 and totalled to Rs. 53.60 crore. Now once the process of acquiring the business of "LDC, USA" started, apart from the foreign investment made by assessee company in its "WOS-BC, USA" through India, assessee company through its Managing Director Mr. Bhavook Tripathi and the two concerns located in USA, i.e. "WOS-BC,USA" and "LDC, USA" also took business loans from Regions Bank, Alabama vide Credit Agreement dated 09.03.2016. Assessee also entered into Service Agreement with "LDC, USA" vide Agreement dated 10.03.2016 for providing various services namely Administration, Sales and Marketing, Technical, Intellectual Property licenses, Travel Services etc. The assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as guarantor for the business loans given by Regions Bank, USA. Thus, a suit was filed by Regions Bank, USA on 09.02.2018 for appointing a receiver ship before the "Delaware County Circuit Court, USA" and finally on 09.04.2018 the Court passed a receivership appointing the receiver. Now at this point of time in India when the books of account of the assessee were being finalised and financial statements were under preparation, assessee company foreseeing the business loss of the foreign investments made in "WOS-BC, USA" during A.Y. 2015-16 to A.Y. 2018-19, booked expenditure in the form of Foreign Investment writing off at Rs. 97,61,190/- and further kept on booking such business loss/expenditure in subsequent assessment years including the one for A.Y.2020-21 wherein also the assessee has booked revenue expenditure at Rs. 9,56,76,580/- in the form of writing off of the Foreign Investment made in "WOS-BC,USA". Now at this juncture, ld. Counsel for the assessee submitted that assessee's claim of writing off the foreign investment in "WOS-BC, USA" is purely a business loss because the investment was made with the intent of expanding the business and it was for commercial expediency a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Since the Assessee was relying on Camelot for manufacturing of tooth brushes to be traded by the Assessee, the investment is nothing but a measure of commercial expediency to further business objectives and primarily related to the business operations of the Assessee. At no point of time the investment in Camelot was made with an intention to realize any enhancement value thereof or to earn dividend income. The investment was made to separately house the integral part of the business activity. In such circumstances, the Commissioner relied upon the above judgments and allowed the Appeal. He concluded that the loss of Rs. 5.50 crores is a business loss in the hands of the Assessee. He set aside the order of the Assessing Officer. 8. The Revenue carried the matter in Appeal and the Tribunal has dealt with this issue extensively. In para 7 of its order, the Tribunal has upheld the conclusion of the Commissioner and by giving additional reason. 9. Upon perusal of this material, we are unable to agree with Mr.Pinto that question 5.1 reproduced above is a substantial question of law. Given the peculiar facts and circumstances and the nature of the investment so also be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Statutory Auditors so as to disclose the correct income for the purpose of assessment, will only be taken on or after 1-4-2004. Hence whether the same is taken on 1-4-2004 or 30- 9-2004 or any other date after 1-4-2004 will not change the nature and complexion of the entry. In the present case, when the due date for filing return came, the accounts had not been completely audited and finalized the Books were still subject to audit and open for any correction by the auditors. Hence any decision made before finalization of Accounts can in any manner effect and correct the Accounts and the decision so taken has in all circumstances to be considered as a method and procedure for placing correct income for assessment both as per the statutory provisions of Companies Act, 1956 and I.T. Act, 1961." 5. The Assessing Authority did not agree with the explanation/justification given by the Assessee and accordingly, add the same on the grounds that these debts were to be written off in the Financial Year 2004-05 relevant to the Assessment Year 2005-06, as the decision with regard to the said debt being bad and was irrecoverable had been taken on 30-3-2005. The First Appellate Authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken in the previous year itself. In other words, where account books are not closed and not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted. 9. Further, it is admitted that the original return, on the basis of unaudited accounts, was filed on 1-11-2004. After audit had taken place and report of the Auditors was accepted, revised return was filed on 18-8-2005 and it is only in the revised return, the debts to the tune of Rs. 2 crores and odd had been declared as bad. The ground taken by the Assessing Authority and Appellate Authority for not accepting the said bad debts during the assessment year under consideration, i.e. 2004-05 is contrary to the provisions of Section 36 (1) (vii) of the Income-tax Act, and further in view of the interpretation as stated here-in-above. Therefore, the Tribunal has rightly allowed the appeal of the assessee. 10. The Apex Court in the case of Kerala State Industrial Development Corpn. Lid. v. CIT [2012] 349 ITR 365/25 taxmann.com 564, while dealing with the State Public Sector Undertaking and the provisions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld 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 Financial Year 1992-93 for the exclusive purpose of marketing assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the extent of the findings contained against the assessee is quashed. Accordingly, the appeal is allowed." 25. On going through the above judgments, we notice that in the case of CIT Vs. Colgate Palmolive India Ltd. (supra) Hon'ble Jurisdictional High Court has considered the fact where the assessee claimed deduction on account of loss on sale of shares held in Camelot Investment Pvt. Ltd. amounting to Rs. 5.50 crore and that the assessee made investment in 100% wholly owned subsidiary and claimed it as loss purely for business reasons. Hon'ble Court has observed that the main reason for setting up Camelot Investment Pvt. Ltd. was to manufacture of Tooth brushes exclusively for the assessee and since the assessee was relying on Camelot Investment Pvt. Ltd. for manufacturing of Tooth brushes to be traded by the assessee, the investment in Equity of Camelot Investment Pvt. Ltd. is nothing but a measure of commercial expediency to further business objectives and primarily related to the business operations of the assessee. Hon'ble Court has further held that at no point of time the investment in Camelot Investment Pvt. Ltd. was made with an intention to realise any enh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) A.Y. 2017-18 (j) A.Y. 2018-19 (k) A.Y. 2019-20 (l) A.Y. 2020-21 532-539 27. Ledger accounts of M/s Littler Diescast USA from the books of account of the assessee for Assessment Years (e) A.Y. 2017-18 (f) A.Y. 2018-19 (g) A.Y. 2019-20 (h) A.Y. 2020-21 540-543 28. Ledger Account of M/s. BRP US in the books of Brahm Precision Materials Pvt. Ltd. 544 29. Details of purchases order and invoices issued 545-575 30. General Voucher dated 31-03-2018 in the books of M/s. Brahm Precision Materials Pvt. Ltd. 576 27. Now going through the above details furnished in the paper book and more specifically Intercompany Service Agreement dated 10.03.2016 between "WOS-BC,USA" and "LDC, USA" placed at pages 470 to 506 provides the information about services to be provided by "WOS-BC,USA" to "LDC, USA" and the scope of such services mentioned in the said Service Agreement are as under : "Scope: Service Provider shall provide all administrative services to Service Recipient as Service Recipient may from time to time request from Service Provider, including without limitation the following: 1. Support Services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that are consistent with U.S. GAAP. In addition, Service Provider shall provide such support services for Service Recipient as it may request from time to time to, including but not limited to: Accounts Payable: Invoice processing, expense report processing, vendor file maintenance, 1099 reporting. Accounts Receivable: Credit, collections, cash application. General Ledger Accounting: GL maintenance, journal entry processing, account reconciliations, month end close financials, fixed asset accounting. General Accounting: liaison governance support. PPM: Project Portfolio Management. 6. Financial Statements/Periodic Reports Service Provider shall provide such assistance to Service Recipient as may be requested from time to time by Service Recipient in the preparation of a balance sheet as at the end of each fiscal year and statements of income and results of operations and cash flows for such fiscal year (including notes thereto) of Service Recipient, which set forth in each case (in comparative form) corresponding figures for the preceding fiscal year and which are accompanied by the report thereon of the Accountants to the effe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me by Service Recipient in connection with filings by Service Recipient with any governmental authority of any periodic or other reports required to be filed by such Service Recipient under the provisions of any government rule applicable to it and in connection with maintaining compliance with all permits, licenses and governmental approvals necessary or desirable for the conduct of Service Recipient's business. Such services may include but shall not be limited to preparing any application, filing or notice relating thereto. 11.Public and Government Relations Service Provider shall provide such support services as may be requested from time to time by Service Recipient relating to public relations and government relations matters. 12. Human Resources Service Provider shall provide such support and assistance to Service Recipient as may be requested from time to time in connection with the human resources matters of Service Recipient. 13.Strategic Planning and Business Development Service Provider shall provide such support services as may be requested from time to time by Service Recipient relating to strategic planning an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r stake in "LDC, USA". Therefore, the ratio laid down by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Colgate Palmolive India Ltd. (supra) in our considered opinion is squarely applicable on the facts of the instant case with much more strength that investment in "WOS-BC, USA" is purely for business expansion purpose and increase the gross turnover and profits of the company. Further, the ratio laid down in the CIT Vs. Colgate Palmolive India Ltd. (supra) has further been followed by Hon'ble Karnataka High Court in the case of Ace Designers Ltd. Vs. ACIT (supra) where also the investments made in 100% subsidiary claimed as business loss have been held to be correct by the Hon'ble Court. 29. Under these given facts and circumstances and also considering the judicial precedents referred in the preceding para more particularly the judgment of Hon'ble Jurisdictional High Court in the case of CIT Vs. Colgate Palmolive (India) Ltd. (supra), we find that the assessee made investment in "WOSM/ s. Brahm Corporation located in USA for the purpose of expanding its business activities and the investment made in the Equity of "WOS-BC, USA" were not with the intention of earni....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... due to inadvertent mistake committed by the representative of the assessee during the course of assessment proceedings mentioning that alleged sum was received from "WOS-BC,USA", impugned addition has been made. However, since the identity of "LDC, USA" is not in dispute and that it is directly related to the assessee for its business activity and the alleged fund have been received as part of the business receipts as advance against supplies through proper banking channel. Assessee has successfully explained the nature and source of the alleged sum along with bank certificate and therefore no addition u/s. 68 of the Act r.w.s.115BBE for unexplained cash credit is called for. Finding of ld.CIT(A) on this issue is reversed. Ground Nos. 2 and 3 raised by the assessee are allowed. 32. In the result, appeal of the assessee for A.Y. 2018-19 is partly allowed. 33. Now we take up ITA No.425/PUN/2025 for A.Y.2020-21. Assessee has raised following grounds of appeal : "The following grounds of appeal are taken independently and without prejudice to one another. 1. The Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 9,56,76,580/- m....