AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 381
X X X X Extracts X X X X
X X X X Extracts X X X X
....uestionnaire. In the instant case, assessee was having transactions with its AE therefore, the matter was referred for determination of ALP of international transaction to the TPO who vide its order dated 13.10.2022 proposed adjustment of INR 53,24,17,100/- on account loan written off. Thereafter, AO passed the draft assessment order dated 30.12.2023 u/s 144C(1) of the Act wherein AO has proposed the following additions/disallowances:- S. No. Particulars Amount (INR) 1. T.P. adjustment of loan written off 53,24,17,100/- 2. Disallowance of expenses on Research and Development 6,59,31,449/- 3. Disallowance of expenses pertaining to Unit eligible for deduction u/s 80-IA 42,16,800/- 4. Disallowance of deduction u/s 80-IA of the Act 21,84,942/- 5. Addition on account of interest on loans given to sister concern 30,28,138/- Accordingly, total income of the assessee was proposed to be assessed at INR 60,99,40,303/-. 3. Against the draft order, assessee filed objections before the ld. DRP who vide its order dated 30.09.2024, sustained the additions proposed on account of written-off of loan amount given to its AE and with respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mined at 'NIL' by Id. TPO, ignoring the status of RBI proceedings. * That without prejudice to the above, Id. AO and Ld. DRP erred on facts and circumstances of the case in confirming the adjustment proposed by Id. TPO in determining the ALP of loan write-off to its WOS at 'NIL' without disputing/discrediting the documents submitted by the Assessee during the course of Transfer Pricing proceedings. * That on facts and circumstances of the case, Id. AO erred in disallowing the loan write-off without appreciating that the loan extended to WOS was for the purpose of Business of the Assessee/Appellant. * __________That on facts and circumstances of the case and in law, Id. AO erred in not appreciating that since the Assessee/Appellant had advanced the loan to its WOS for the purpose of business expansion in Jordan and due to incapacity of the foreign entity, i.e., Indo Jordan Clothing LLC, the loan became irrecoverable and was written off, hence the same is allowable as a business deduction. * That on facts and circumstances of the case, Id. AO erred in disallowing loan write-off despite the fact that the said loan was advanced to WOS....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-18. * That on facts and circumstances and in law, Id. AO erred in making the disallowance by arbitrarily holding that no claim under section 37(1) of the Act has been made by the Assessee/Appellant in the Income Tax Return. * That without prejudice to the above, the claim of expenditure incurred on scientific Research & Development undertaken by the Assessee/Appellant ought to be allowed under section 37(1) of the Act. Re: Disallowance of Deduction under section 801A of the Act * The on facts and circumstances of the case and in law, the action of Ld. AO and Ld. DRP in disallowing the deduction of Rs. 21,84,942/- under section 801A and expenditure of Rs. 42,16.800/- is erroneous and bad in law. * That Ld. AO and Ld. DRP erred on facts and circumstances and in law in making the addition of Rs. 42.16,800/- and Rs. 21,84,942/- under section 801A of the Act, merely on surmises and conjectures, without affording adequate opportunity of being heard to the Assessee. * That on facts and circumstances of the case and in law, Ld. AO erred in disallowing the deduction under section 801A of the Act without disputing and discrediting the do....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * That on facts and circumstances of the case, the action of Id. AO in making addition of notional interest on interest fee loans/advances given by the Assessee/Appellant to its subsidiary, Matrix Horizons Pvt. Ltd., of Rs. 30,28,138/-is erroneous and bad in law. * That on facts and circumstances of the case, the action of Id. AO in imputing rate of interest @10.75% on the amount of loan advanced, i.e. Rs. 2,81,68,722/-, to its subsidiary for commercial expediency, is arbitrary, erroneous and bad in law. * That on facts and circumstances of the case and in law, Id. AO erred in making the addition of notional interest without disputing/discrediting the submissions regarding availability of own funds with the Assessee/Appellant during the course of assessment proceedings. * That without prejudice to the above, on facts and circumstances of the case and in law, Id. AO erred in stepping into the shoes of the business of the Appellant/Assessee which is contrary to the well-established principles of law. * That without prejudice to the above, Id. AO erred in facts and circumstances of the case and in law in arbitrarily holding that similar addit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e company. The copy of the relevant documents filed by the M/s. Nygard International, USA are placed at page 292 to 295 of the Paper Book. Ld.AR submits that due to this sudden change in the circumstances resulting into almost closure of the business/heavy losses to Jordan LLC and in turn to Matrix Jordan, the management of the assessee has decided to sell the shareholding in Jordan LLC held through SPV i.e. Matrix Jordan. 8. As per share purchase agreement dated 14.02.2021, placed at page 246 to 286, assessee has entered into an agreement for sale of shares with one company namely United Creations Apparel Manufacturing LLC to whom entire shareholding Jordan LLC was transferred for a sum of 35,95,025 USD. 8.1. Thereafter, assessee has worked out the amount of outstanding loans as on the date of sale of sale of shares of Jordan LLC in terms of AS-28 which was claimed as written off during the year. The said amount is tabulated as under:- Particulars Amount in Rs. Outstanding loan to Matrix Jordan on the date of SPA (14.02.2021) 71,02,12,802 Add: Interest on outstanding loan 3,59,98,457 Total Outstanding (A) 74,62,11,259 Less: Estimated re-sale value ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plication of provision of section 92 of the Act are 'income' and 'international transactions'. * Sub-section (2) of section 92 of the Act further provides that, where in an international transaction, two or more associated enterprises enter into a mutual agreement or arrangement for allocation or apportionment or contribution to any cost or expenses incurred or to be incurred in connection with the benefit, service or facility provided or to be provided by one or more enterprises, the cost or expense allocated or apportioned or contributed by such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility as the case may be. * The term "International transaction" is defined in section 92B of the Act to mean a transaction between two or more 'associated enterprises, either of whom is a non-resident and covers the following: (a) Any 'transaction' having a bearing on profits, income, losses or assets of the enterprise; (b) A mutual agreement or arrangement between two or more associated enterprises for allocation or apportionment of any contribution, any cost or expense....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ite off the loans in the books of accounts for the year ended 31.03.2021. In the instant case, the assessee is primarily in the business of manufacturing of manufacturing garments, etc. and held investments in WOS engaged in the same business. The assessee, it is submitted, held a deep business interest in the said WOS by way of controlling interest. Since the WOS was also engaged in similar business, the assessee, with the sole intent of promoting its business interest, advanced working capital loans to the said WOS. It would be appreciated that the functions performed by an overseas entity were integrated and are part of the functions/business operations of the assessee. The assessee, for that purpose, as a shareholder and in furtherance of its own interest, was required to provide funds to the said company by way of loans." 10. Ld.AR further submits that written-off of loans was a commercial decision taken in the interest of business and under commercial expediency which needs to be considered. For this, reliance is placed on the judgment of Hon'ble High Court in the case of CIT vs Cotton Naturals (I) Pvt. Ltd. 276 CTR 445 (Delhi) and, claimed that the writt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to Matrix Jordan in the month of January and February-2021 which clearly established that the assessee knowingly gave the fresh funds. Ld. CIT DR further submits that assessee has not taken the approval prior to the written off of the loans from RBI and thereafter had compounding of offence of not obtaining the approval in due course, cannot be termed as deemed approval of written off of loan. As per ld. CIT DR such compounding is towards the offence committed of delay in filing the application for approval of writing off of loan and therefore, claim of the assessee that RBI has granted the approval for written off of loan is not correct. Ld. CIT DR further submits detailed written submissions in addition to the oral arguments on this issue which is reproduced as under:- "During the hearing in respect of the above-mentioned appeal before the Hon'ble ITAT arguments were made by the undersigned that the orders of lower authorities (TPO, AO and DRP) are justified and may be upheld by the Hon'ble ITAT. The undersigned had also put forth several arguments rebutting the contentions raised by the assessee before the Hon'ble ITAT. Additionally, the following written....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the paper book submitted on 30.10.2025), the disallowance made by AO in this regard may be deleted. 1.4 As regards the assessee's first contention at para 1.3(1) above, I had highlighted certain facts during the hearing before the Hon'ble ITAT to establish that these contentions of the assessee are contrary to the facts on record (including those submitted before the AO during the assessment proceedings) and these are merely self-serving contentions of the assessee, I am briefly highlighting some of those facts as below: (i) As per details submitted by the assessee, the assessee has given huge amount of loan of Rs. 83,03,95,425/- to Matrix Jordan without any agreement whatsoever in this regard. It is important to note that the assessee and Matrix Jordan are separate legal entities located in different countries. For the impugned huge loan to Matrix Jordan, the assessee didn't enter into an agreement with Matrix Jordan. inter alia, in respect of loan repayment schedule, loan recovery plans in case of default in the repayment schedule, charging of interest and its recovery, legal rights & legal obligations/responsibilities of Matrix Jordan and the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee was apparently trying to create some façade of repayment in this regard in FY 2020-21 with the intention to justify its scheme under which the loan has been written-off during the impugned FY 2020-21. (v) It is surprising and contrary to any business prudence to note that during the impugned FY 2020-21, the assessee has written off the loan of Rs. 53,24,17,100/-given to Matrix Jordan, while during the impugned FY itself the assessee has also given a huge amount of fresh loan of Rs. 33.98 crore to Matrix Jordan, despite their extremely precarious financial condition. (vi) As per page 198 of the paper book filed by the assessee on 30.10.2025 which is statement of financial position of IJC Jordan as on 31 March 2019 and 31" March 2020, IJC Jordan had huge accumulated losses of 34,36,697 Jordanian Dinar and 38,43,388 Jordanian Dinar as on 31st March 2019 and 31 March 2020 respectively (i.e. before the COVID). It may kindly be noted that 1 Jordanian Dinar was more than INR 100 during that time. These documents do not suggest at all that IJC Jordan was doing well before the COVID. In fact, these documents suggest that IJC Jordan was making persisten....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;s contention at para 1.3(ii) above that the disallowance was made by AO solely for want of RBI's approval, it could be seen that as per AO's discussion on page 19 of his order (page 28 of the initial paper book filed with the appeal memo), the AO appears to have taken cognizance of the RBI's compounding order dated 31.10.2023 which the assessee is claiming as RBI's approval for write-off of the loan. 1.6 As regards the assessee's contention at para 1.3(ii) that the sole reason for disallowance of write-off of the loan was lack of RBI's approval, this is factually incorrect submission on the part of the assessee as I had also submitted during the hearing before the Hon'ble ITAT. The AO has discussed this issue quite elaborately at para 2.14 on pages 12 to 19 of his order (pages 21-28 of the initial paper book filed with the appeal memo) wherein the AO has analyzed this issue from multiple relevant perspectives. At the starting para on page 13 of his order (page 22 of the initial paper book), the AO has mentioned that despite the said entity (Jordan-based subsidiary) continuously making losses, the assessee advanced another loan of Rs. 33.98 cro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue of applicability of the provisions of sections 36, 36(1)(vii), 36(2) and 37(1) of the Act in this regard quite elaborately on pages 15-19 of his order (pages 24-28 of the initial paper book filed with the appeal memo) and he has clearly held that none of the conditions of these sections are fulfilled in the assessee's case and therefore, the said write-off of the loan cannot be allowed under any of these sections of the Act. I would just like to add that allowance u/s 36(1)(vii) is subject to the provisions of section 36(2) of the Act, and the provisions of section 36(2) requires that such debt must have been taken into account in computing the income of the assessee or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee. The said debt, being a capital loan, is never taken into account in computing the assessee's income. Further, the assessee is not in the business of banking or money-lending. Therefore, none of the conditions of section 36(1)(vii) read with section 36(2) of the Act are fulfilled in the assessee's case. In the context of section 37(1) of the Act, I would just like to add that on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue to persistent losses suffered by Jordan LLC due to Covid-19 pandemic, the capital invested in Jordan LLC was eroded and ultimately investment was disposed at a huge loss leading to the situation where the Matrix Jordan has not been able to repay the loans taken from the assessee. Therefore, the major part of such loans including interest as on date was claimed as written off during the year under appeal which was disallowed by the AO and such disallowance was confirmed by ld. DRP. 14. The loans given to Matrix Jordan on various dates by the assessee after getting approval of the Board in terms of Board resolutions passed is tabulated as under:- Sl.No. Particulars Amount (In INR) FY 2020-21 1. Board Resolution dated 27.01.2021 5,83,92,000 2. Board Resolution dated 18.01.2021 12,44,88,000 3. Board Resolution dated 11.01.2021 8,05,75,000 4. Board Resolution dated 25.12.2020 3,15,19,000 5. Board Resolution dated 22.10.2020 2,58,23,000 6. Board Resolution dated 15.06.2020 1,90,02,500 TOTAL 33,97,99,500 FY 2019-20 7. Board Resolution dated 04.11.2019 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 35,95,025 USD. However, from the perusal of financial statements of Matrix Jordan as well as of the assessee company, it is not clear whether the said sale consideration was received by assessee nor any entry in this regard is found recorded. During the course of hearing, bench has specific raised query to ld. AR in this regard but no logical submission to our satisfaction was tendered. Further not a single penny of corresponding Indian Rupee of the said sale consideration was received by the assessee which is clear from the detailed computation of written off claimed as reproduced above, where this sum was never claimed as received by the assessee nor the end use of this sum is ever explained. Assessee further claimed that it has given guarantee to the financial institutions against the working capital and other short terms finance taken by Matrix Jordan and to repay such obligations, fresh loans were advanced however, consideration received from the sale of shares of Jordan LLC was never claimed as utilized for making the payment of such outstanding liabilities by Matrix Jordan. Rather the outstanding loan of INR 71,02,12,802/- claimed was the total amount of loan outstanding a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... per USD) was never claimed to have been received by the assessee. All these facts raised serious doubts about the claim of the assessee and it appears that the assessee never come with clean hands while making claim of written off of bad debts out of the total loans given including outstanding interest. 20. Now coming to the allowability of claim of written off of loan u/s 36(1)(vii)/36(2) of the Act, the relevant provision of section 36(1)(vii) and 36(2) of the Act are reproduced as under:- 36(1)(vii) "subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year: Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause: Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; (v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause." 21. From the above, it is clear that to claim bad debt, Two conditions have to be fulfilled (i) amount claimed as bad debt has to suffer tax and (ii) necessary entry of write-off should be passed in the books of accounts of the assessee. This proposition is confirmed by Hon'ble Supreme Court in the case of TRF Ltd. (supra). Now coming to the facts of the present case, assessee has to establish that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as been arisen during the course of the business of assessee; and it should have occurred during the year under concern. 4.8. In the present case the write off of loss has not arisen during the course of business of assessee as money lending is not the activity that is carried on by assessee and it has never been the claim of assessee nor it has been proved before the authorities below. There has been no evidence that is placed on record to prove that the loss has occurred during the year. Therefore the claim of loss by assessee does not hold good on both these counts. The reasons given by Ld. CIT (A) to allow the claim as business loss are irrelevant and is without considering the provisions of the Act. Ld. CIT (A) also accepted that the issue stands covered in the favour of assessee by the decision of Page 11 of 12 Hon'ble Gujarat High Court in the case of Manohar N Shah reported in 280 ITR 462. We have perused the said decision of the Hon'ble Gujarat High Court, and it is observed that the loss was proved to have been arisen during the year which was actually a business loss. 4.9. Therefore, we are inclined to reverse the findings of Ld. CIT (A) and restore the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ime and again, in cases of financial and economic fraud, assessee has raised questions about the legitimacy of evidence rooted in circumstances, and the test of human probability. Though, in this case, given the detailed facts and circumstances of the case outlined above, there is little room for the assessee to do so. The Hon'ble Supreme Court in the case of Commissioner Of Income-Tax vs. Durga Prasad More reported in 214 ITR 801 (SC) held that human probability and circumstantial evidence must be kept in mind to decide the genuineness of the transactions. The Hon'ble court observed as under: "Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal, Therefore the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law." 26. The coordinate bench of ITAT, Delhi in the case of Harsh Win Chadha Vs DCIT in I.T.A. Nos. 3088 to 3098 & 3107/Del/2005, held as under: "The admissibility of documents, e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed approval grant the immunity for claiming incorrect claim under Income tax Act which is a separate code and every claim made under the Income Tax Act has to be examined as per the provision of Income Tax Act independently. 30. Accordingly, we find no error in the orders of the lower authorities in not allowing the claim of written off of loans given. The Ground of appeal No. 3 raised by the assessee with respect to the transfer pricing adjustments is hereby, dismissed. 31. The next Ground of appeal No.4 raised by the assessee is with respect to the disallowance of deduction of INR 6,59,31,499/- u/s 35(2AB) of the Act. 32. Before us, Ld.AR for the assessee submits that the assessee has not claimed weighted deduction u/s 35(2AB) of the Act which is very much clear from the perusal of the computation of income placed at page 1 of PB. It is further submitted that the assessee had claimed normal deduction for the expenses incurred on scientific research and development u/s 37(1) of the Act which are wholly and exclusively incurred for the purpose of business therefore, the same should be allowed as claimed. In the alternate, the assessee submits that Auditor has certified exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act which in the instant case was not followed by AO. However, on perusal of the facts of the impugned AY 2021-22 as discussed by the AO at paras 3.1 to 3.15 on pages 22-33 of his order (pages 31-42 of the initial paper book filed with the appeal memo) make it clear that despite AO's request to provide relevant documents including Form 3CL and Form 3CM, the assessee failed to provide such documents to AO during the assessment proceedings. Considering the assessee's failure to provide these documents during the assessment proceedings, the AO had to resort to inquiry under section 133(6) of the Act to obtain relevant documents from DSIR directly. This aspect has been specifically discussed by AO at paras 3.6 and 3.7 on page 25-26 of his order (pages 34-35 of the initial paper book filed with the appeal memo) wherein the AO has clearly held that from the reply of DSIR, it was clear that Form 3CM in the case of the assessee was valid till 31.03.2020 only. Further, as per para 3.7 of the AO's order (page 35 of the initial paper book filed with the appeal memo), the assessee failed to produce copy of Form 3CL that forms the basis of expenditure incurred on R&D activitie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act, it is submitted that the assessee never claimed this expenditure u/s 37(1) of the Act in its Income Tax Return (ITR) filed for the impugned AY 2021-22. On page 29 of AO's order (page 38 of the initial paper book filed with the appeal memo), relevant part of the assessee's ITR's screenshot is duly placed which clearly shows that the expense has been claimed u/s 35(2AB), and not u/s 37(1) in the ITR. Further, the AO at para 3.8 on page 27 of his order (page 36 of the initial paper book filed with the appeal memo) has mentioned about survey proceedings u/s 133A(1) of the Act conducted on 27.03.2019 in the assessee's case and subsequent investigations which led to the findings about bogus claim of R&D expenses by the assessee. Also, the AO at paras 3.12 to 3.13 on pages 30-31 of his order (pages 39-40 of the initial paper book filed with the appeal memo) has discussed about the claim of bogus R&D deduction. In view of these facts and without prejudice to the above, the said expense cannot be allowed to the assessee u/s 37(1) of the Act also. Therefore, it is requested that the assessee's aforesaid ground may be dismissed by the Hon'ble ITAT." 34. Hear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allation in the Assessment Year 2012-13 and was allowed consistently without raising any doubts in the assessment orders passed u/s 143(3) of the Act for the income generated from Wind Mill Plants. As per ld. AR, the assessment year under appeal is the last year of eligibility of claiming deduction. Ld.AR further submits that assessee has managed separate books of accounts of specified business of electricity generation and the Audit Report in Form 10CCB statutorily prescribed for claiming deduction u/s 80-IA of Act was obtained from the Auditors and filed alongwith the return of income filed. It is thus, submitted that AO has wrongly apportioned the expenditure which has resulted into reduction of amount of deduction of INR 21,84,942/- which is contrary to the settled history of the assessee and thus deserves to be allowed as claimed. The necessary copy of Audit Report is placed at pages 811 to 837 of PB for the year under appeal and for preceding Assessment Years, placed at Pages 811 to 888 of the Paper Book. He prayed accordingly. 39. On the other hand, Ld.CIT DR for the Revenue supports the orders of the lower authorities and submits that principal of res- judicata is not ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... two preceding Assessment Years i.e. AY 2009-10 & AY 2010-11 which stood deleted by Ld. CIT(A) and such orders were upheld by the Tribunal and further by the Hon'ble Delhi High Court. The assessee placed the copies of these orders at pages 1047 to 1050 of the Paper Book. 44. On careful consideration of the facts available on record, we find that the assessee is having sufficient interest free funds out of which funds were advanced to the sister concern and necessary chart of the funds available with the assessee which are submitted before the AO in terms of cash flow statement filed during the course of assessment proceedings is placed at pages 936 of PB which is reproduced as under:- Particulars Amount A Opening Balances Cash & Cash Equivalents 1,297.15 B Net Profit for the year (Before Depreciation) 739.19 Foreign Currency Translation Reserve -553.30 185.89 C Cash Inflows Decrease in Non Current Investments 141.93 Increase in Other Current Liabilities 302.90 Decrease in Trade Receivable 1,031.40 Decrease in Long Term Loans & Adva....