TaxTMI 
TaxTMI 
2026 (6) TMI 1169
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....mises sold were held as Investment. Without prejudice, the addition is excessive." 2. Brief facts of the case as recorded by the Ld. CIT(A) are extracted as under: "2.1. The assessee is a company engaged in the business of Property development, Construction of Buildings and has filed its return of income for the A.Y. 2023-24 on 10.10.2023 declaring total income NIL. The assessee's case was selected for scrutiny through CASS for the following reasons: 1. Assessee has claimed high interest expenditure in P&L a/c and shown huge advances in balance sheet which is in excess of total proprietors/partners fund. It may be examined whether advances given are interest bearing and whether they meet the test of commercial expediency. If not, proportionate disallowance from the interest paid may be made. 2. The assessee has claimed substantial amount of refund. It is required to be verified whether the taxable income has been disclosed correctly. 3. The assessee has shown substantial expenses relating to entities not registered under GST. There is a possibility that assessee has booked bogus expenses in order to reduce its profit/taxable incom....
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.... Out of the said investment, M/s. KCTNL has purchased a plot from National Textile Corporation by availing loan of Rs. 936 crores from a consortium of banks led by State Bank of India (SBI) and had also taken additional loan to the tune of Rs. 295 crores in September, 2014. 3.7 The subsidiary company M/s. KCTNL, who is the promoter has planned to development of the said land by constructing a high rise Information Technology park, commercial office, residential, Hotel and public parking lot building to be known as Kohinoor Square developed this piece of land. As per the sanctioned plan, the said building known as Kohinoor Square consists of three level basement and three wings viz, A, B, C and a semi-detached structure known as Energy Centre. Wing B where the disputed sale happened consist of Ground and 48 upper floors. 3.8 Vide agreement of sale or transfer deed dated 25th September 2014, the appellant purchased unit B1A1 and unit B1A2 from the promoter and the subsidiary company M/s. KCTNL. It is to be noted that appellant is into the business of Property development and Construction of Buildings. To decide the exact nature of the transactions undertaken by the ....
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....ourt and after the consent terms dated 25.07.2013, the project commenced. Due to the delay in contesting the litigation M/s. KCTNL faced financial crunches and its account became NPA. The consortium of banks then transferred assets of M/s. KCTNL to Edelweiss ARC which had filed petition under IBC for recovery and the same was pending before the Hon'ble NCLT, which vide order dated 21.02.2018 accepted the resolution plan. For the above-mentioned reason, the assessee also had to face the hardship caused due to this. The assessee's contentions is that the said investment is for strategic business purpose and the write off of the investment arised due to peculiar facts and circumstances which was incidental to the business and the same amounted to loss due to commercial expediency and business necessity. The assessee has placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Colgate Palmolive (India) Ltd. (supra) which on identical facts has held that the loss on write off of investment made in subsidiary company is business loss which was for the purpose of the extension of business activity and does not entitle for creating capital asset b....
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....asons beyond its control. The assessee had to write off the said loss as revenue expenditure, for the reason that there was no capital asset introduced out of such investment. The revenue has also failed to establish that the investment was in view of creating capital asset by way of holding preference shares in the said company and also whether the investment was incurred for the enduring benefit. In the absence of the same, we find no infirmity in the order of the Id. CIT(A) in allowing the said claim of the assessee. The ground no. 2 raised by the revenue is hereby dismissed. 26.In the result, the appeal filed by the revenue is hereby dismissed." 3.11 Thus, the ratio of the above judgement clearly envisages that considering the peculiar facts and circumstances of the case, any a loss incurred from investment in subsidiary company which was engaged in the similar business is clearly relatable to business expansion of the parent company therefore, the same amounts to in continuation of business necessity and commercial expediency and accordingly treating it business expenditure is justified. 3.12 From the above judgement, it is evident that the appellant....
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....acts or the nature of the investment has been demonstrated by the appellant to justify a departure from its earlier position. The sale of units, intrinsically linked to the same pool of investment, cannot be segregated for tax purposes by changing the head of income merely to obtain a deduction. Allowing such treatment would lead to fiscal indiscipline and defeat the principle of consistency upheld in Distributors (Baroda) Pvt. Ltd. v. Union of India (1985) 155 ITR 120 (SC) and CIT v. Excel Industries Ltd. (2013) 358 ITR 295 (SC). 3.16 In light of the above judicial pronouncements and considering the principle of consistency, I find no merit in the appellant's claim. The deduction sought on the recharacterized nature of income is therefore disallowed and the action of the Assessing Officer is upheld. 3.17 Grounds No. 1 is therefore, dismissed." 4. Being aggrieved with the aforesaid decision of Ld. CIT(A), the assessee is in appeal in the instant case. 5. At the outset, Ld. Counsel of the assessee submitted that the assessee is a builder engaged in the business of construction of building, developing and selling of the same. The flats constructed by the a....
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....ital in the other company M/s. KCTNL, when capital money was lost, it was claimed by the assessee as business loss, which is allowed by the Hon'ble Tribunal, therefore, the investment in property with the said concern would also be treated as business transaction. On this issue, Ld. AR submitted that the investment in loan/ share capital was made under a business proposal in 2008-09, which has nothing to do with the impugned investment in the property. Therefore, Ld. CIT(A) was not correct in deciding the issue that claim of business loss on account of loss of capital/loan is equivalent to the transaction of investment impugned in the present matter. It is submitted that the assessee company had rightly calculated the loss on account of sale of property, shown and treated as investment under the head capital gain / loss. 8. On the issue of valuation of the sale consideration received by the assessee on impugned transaction, computed on average, taking basis of the other transactions of sale by the assessee during the year under consideration, Ld. AR furnished a written submission which is extracted as under: "Ground No.2 Under the Income Tax Laws, provision of ....
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....stment in subsidiary company as strategic investments for business purpose and accordingly, the loss arises from such investment was written off as business loss as per commercial expediency and business necessity. Therefore, the sale of two units in the same property, which is intrinsically linked with the same investment cannot be given a different treatment at the convenience of the assessee. Moreover, the assessee is also in the same line of business of property development and construction. 12. Considering the aforesaid observations of the Ld. CIT(A), after hearing Counsel of the assessee on this aspect, we find that the two transactions, one regarding investment in share capital and extending of loan to the subsidiary and second to purchase a product from the subsidiary are of different nature. The first transaction as held by the Tribunal in assessee's own case would definitely fall under the category of business transaction, being strategic investment made to meet the needs of commercial expediency and business necessity. The second investment in the units purchased, which is a product of the subsidiary company, though the same is also a product in which the assessee too....