TMI Blog2016 (12) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... AM Appellant by : Shri Yogesh Thar Respondent by : Shri B Pruseth ORDER Per Rajesh Kumar, AM The appeal filed by the assessee is directed against the order dated 23.2.2015, passed by the Principal Commissioner of Income Tax, Mumbai u/s 263 of the Income Tax Act for the assessment year 2010-11 setting aside the assessing order and directing the AO to withdraw the deduction allowed by the AO in respect of advance to subsidiary written off and charged to the profit and loss account. 2. Brief facts of the case are that the assessee filed return of income on 25.11.2011 declaring a total income at ₹ 89,94,00,245/-. Thereafter revised return was filed u/s 139(5) of the Act declaring a total income of ₹ 89,74,89,327/-. The return processed u/s 143(1) and thereafter the case of the assessee was selected for scrutiny under the CASS and accordingly statutory notices under section 143(2) and 142(1) were issued and served upon the assessee. Thereafter, the Commissioner of Income Tax issued notice under section 263 of the Act by observing that the order passed by the AO was erroneous and prejudicial to the interest of revenue as the AO has failed to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was holding company of Raptakos Brett Limited (UK) which in turn held 100 per cent shares in Raptakos Brett South Africa. The primary purpose of establishing and incorporating the subsidiary company was to open product of the assessee in order to expand the existing business by venturing into that market. In order to capture new market the in South Africa, heavy sale promotion expenses were needed to be incurred into order to promote the products of the company and it is only for this purpose the assessee had advanced loan to its subsidiary so as to meet the said promotional expenses over a period of time. The assessee submitted before the Commissioner that despite continuous efforts for 7 years, the assessee s plan did not got through as the desired market could not be captured and consequently the assessee had to write off the advances given to the subsidiary company by claiming it as deduction in the profit and loss account when the capital of the subsidiary was depleted and eroded completely due to continuous losses from year to year. The assessee also argued that the advances written off were allowable and admissible as deduction under the Act as being given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied. The order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. The ld.AR submitted that the advances to the subsidiary company were given over a period of time and out of commercial expediency. The ld. AR further argued that the assessee planned to establish its market through subsidiary company in South Africa for which the said subsidiary company was required to incur heavy promotional expenses and it was only in that connection, the assessee advanced money to the subsidiary company which proved beyond doubt that the advances were given out of commercial expediency and not otherwise and the observations of the Commissioner that the advances were not in the trading nature were incorrect and against the facts of the case. The ld.AR relied on the decision of Mumbai Bench of Tribunal in the case of DCIT V/s Colgate Palmolive (India) Ltd in ITA No.5485/Mum/2009 (Mum) which is confirmed by the jurisdictional High Court and reported in 2015 (370 ITR 728) (Bom) wherein an identical issue has been decided in favour of the assessee. 5. On the other hand, the ld.DR submitted before us that the AO has not examined the details as observed by the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said objective. The desired results could not be achieved and the subsidiary company was not in a position to repay the advances as whole capital was eroded and depleted. We therefore find merit in contentions of the ld. AR that the advance was given out of commercial expediency and should be allowed as deduction and accordingly, the assessee had rightly claimed the write off of said advances. In our opinion the assessment order as framed by the AO was neither erroneous as the write off of an advance given out of business expediency and exigency was neither an allowable deduction nor any prejudice was caused to the revenue. The case of the assessee is further supported by the decision of the Co-ordinate Bench of the Tribunal rendered in the case of Colgate Palmolive (India) Ltd (supra) in which it has been held that where the subsidiary company under the name and style of Camelot was set up to manufacture toothbrushes exclusively for the assessee company and that it had no other customer other than the assessee-company and assessee extended financial help to Camelot from time to time and the said financial help was clearly in assessee's own business interests. Therefore, the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d extended financial help to Camelot, purely for commercial expediency. The head under which investments in subsidiaries is shown is governed by the disclosure requirements under Schedule VI to the Companies Act, and, therefore, the fact that an asset is shown as 'investment' per se does not, and cannot, negate the fact that the such investments are made on the grounds of commercial expediency. Similarly, the head under which dividend income is assessed to tax does not also affect determination of question whether the shares are purchased on account of commercial expediency or not. It is only elementary that dividend income, whether the shares are held as investments or as any other asset, is always taxable under the head 'income from other sources'. Therefore, nothing really turns on Assessing Officer's emphasis on the fact that the Camelot shares were shown as investments in the balance sheet and that dividend income from these shares is taxable as income from other sources. We have also noted that as long as shares are acquired on the grounds of business expediency, any loss on sale thereof is also required to be treated as an admissible business deduction. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate bench held that loss on sale of shares in subsidiary was business loss in nature. We are in considered agreement with the line of reasoning thus adopted by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold the stand of the CIT(A) and decline to interfere in the matter. 7. From the facts as discussed hereinabove and the ratio laid down by the Co-ordinate Bench of the Tribunal, we find that the money advanced by the assessee to the subsidiary company which was incorporated with sole object of marketing the products of the assessee and any advances given to the said subsidiary were out of business consideration and in order to promote the interest of the assessee and thus were given out of commercial consideration and business interest of the assessee. In our opinion, during the year the writing of such advances owing to non recovery was a admissible deduction and therefore, the said advance was rightly claimed as deduction by the assessee company. Therefore, to invoke the provisions of section 263 by exercising the revisionary power by the Commissioner is not justified and cannot be sustained. Accordingly, we set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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