TMI Blog2021 (5) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:- We consider that there is functional dissimilarity in the case of M/s. Accentia Technology Ltd. as compared to the function performed by the assessee company that has not been specifically considered by the TPO and DRP. It is categorically demonstrated from the facts and findings of various judicial decisions as supra that M/s. Accentia Technology Ltd. has expertise in all the areas of transcription, coding, billing and collections, therefore, we direct the Assessing Officer/TPO to exclude M/s. Accentia Technology Ltd. in the set of comparables for determining arms length price of international transactions in the case of the assessee. Therefore, this ground of appeal of the assessee is allowed. Including Genesys International Corporation Ltd in set of comparables - As gone through the above referred decision in the case of Mercer Consulting (India) Ltd. [ 2016 (8) T MI 1163 - PUNJAB AND HARYANA HIGH COURT] wherein held in reference to Genesys Industrial Corporation Ltd. that it provides a full range of geospatial services to its clients. Geospatial services relate to the relative position of things on the earth s surface. This includes 3D mapping, navigation, map ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odel were quite different from the business model of the assessee. Because of significant dissimilarities it cannot be considered comparable services. After considering the facts and judicial finding as reported in the decision of DRP, we do not find any merit in the appeal of revenue and the same stands dismissed. Disallowance on claim of devolvement of guarantee against SBLCs provided by the assessee company to the IDBI Bank who in turn gave SBLCs to the Bank of India, Manchester and to seven vendors of Rosebys Operations Ltd., the subsidiary company of the assessee - Rejecting application of tests made by TPO/AO for determining nature of transaction related to devolvement of SBLCs - HELD THAT:- As assessee company had acquired its subsidiary company Rosebys Operations Ltd. to expand its textile business operations globally based on the study carried out by KSA Techno Pak, renowned global consultant. It is clear from the comprehensive written submission from the assessee and the detailed findings of the ld. DRP as elaborated supra in this order that assessee company had provided guarantee against SBLC issued by IDBI bank to BOI Manchester and directly to vendors of Roseby fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been rendered by the foreign agents outside India. The concerns were booked by them in their countries and none of the activities of procurement of orders was taken place in India. The agents have carried out all the activities on foreign soil and none of their activities was in India and therefore it cannot be said that the income has accrued or arised in India. CIT(A) has rightly held that there was no permanent establishment and business connection in India and the services were rendered outside India. It is clear from the finding of ld. CIT(A) that the commission agents have not carried out any activity in India. Non-residents commission agents were not having any permanent establishment in India. Therefore, commission paid to non-resident agents was not liable to tax under the provision of the act. Allowing long term capital loss as revenue loss claimed during the course of the appellate proceedings - AO has stated that since assessee has not filed the revised return of income therefore such loss could not be entertained - HELD THAT:- CIT(A) has discussed the submission of the assessee company stating that huge loss of subsidiary companies i.e. Indian Britain BV pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Special Bench of ITAT Delhi in the case of VIREET INVESTMENT (P.) LTD. [ 2017 (6) TMI 1124 - ITAT DELHI] wherein it is held that disallowance made u/s. 14A r.w.r. 8D of the act is not required to be added u/s. 115JB for computing book profit. Considering the above facts and circumstances and finding of ld. CIT(A), we do not find any merit in the appeal of the revenue, therefore, the same stands dismissed. - ITA No. 976/Ahd/2014, 1042/Ahd/2014, 302/Ahd/2015, 82/Ahd/2015, 2279/Ahd/2015, 2625/Ahd/2015, 1120/Ahd/2017, C.O. 29/Ahd/2018, 1121/Ahd/2017, C.O. 30/Ahd/2018, 2124/Ahd/2017 - - - Dated:- 5-3-2021 - Shri Rajpal Yadav, Vice President And Shri Amarjit Singh, Accountant Member For the Assessee : Shri S. N. Soparkar, Sr. A.R. And Shri Parin Shah, A.R. For the Revenue : Shri Mohd. Usman, CIR-D.R. And Shri Rajdeep Singh, Sr. D.R. ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- All these appeals filed by the Revenue and by the assessee on different assessment years are directed against the order of DRP and CIT(A), Ahmedabad. Since common issues and identical facts involved in these appeals, therefore, for the sake of convenience, these appeals are adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also submitted that the business model of the aforesaid companies were different from the assessee since these companies outsource significant portion of their work. After considering the assessee s submission and the judicial decision, the DRP has directed TPO to exclude these two companies from the comparable sets. Excluding the aforesaid two comparables the DRP has not rejected the other comparable used by the TPO. Accordingly, after taking into consideration, the direction of the DRP, the Assessing Officer has restricted upward adjustment to the amount of ₹ 1,93,46,224/-. In the draft assessment order, the Assessing Officer has proposed the addition on account of disallowance as per the provisions of section 37(1) of the Act of devolvement of SBLC of ₹ 30.98 crores considering capital loss and not revenue loss in nature. The assessee has raised objection before the DRP against the proposed adjustment of ₹ 30.96 crores and the DRP has sustained the objections and deleted the entire the addition of ₹ 30,96,28,781/-. Ground No. 1 (Erred in holding foreign exchange fluctuation gain should not form part of operating income for comparative analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of operational income mainly stating that receipts/expenditures are booked at the time of transaction while conversion of payment/receipts of foreign exchange occurs at a later point of time resulting into foreign exchange gain/loss due to variation in the exchange rate from the date of transaction to date of conversion of foreign exchange into Indian currency and in the second situation an exporter/importer enter into foreign contract for sale/purchase of foreign exchange to hedge itself from the fluctuation in exchange rates. The TPO has not agreed with the submission of the assessee and exluded the foreing exchange fluctution from operarting income and not cosndiered for the purpospe of comparables to determine the arms length price of the international transsctions. The DRP has agreed with the view of the TPO and stated that the gain or loss on account of foreign exchange fluctuation is not linked to the quality or quantity of the services rendered and further stated that it is difficult to ascertain exact nature of such gains in the case of comparables. In this regard, we have gone through the judicial pronouncement referred by the learned counsel. In the case of Techbooks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange gain directly emanates from the consideration received for rendering of services to its A.E, we fail to appreciate as to how such foreign exchange gain fluctuation can be considered as an item of nonoperating revenue. What is true for foreign exchange gain from the transactions of the revenue nature being considered as part of operating revenue is equally true for the foreign exchange loss being considered as part of operating costs from the transactions of the revenue nature. 4.7 The Special Bench of the Tribunal in Assn. CIT v. Prakash L Shah 120081 115 1TD 167fBom1 (SB) has held that the gain due to fluctuation in the foreign exchange rate emanating from export is its integral part and cannot be differentiated from the export proceeds simply on the ground that the foreign currency rate has increased subsequent to sale but prior to realization. It went on to add that when goods are exported and the invoice is raised in the currency of the country from where the goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports made. In fact it is only the translation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Effective Tally Services Pvt. Ltd. (2018) 90 taxmann.com 390 ITAT Ahmedabad wherein it is held that the ld. CIT(A) has rightly treated the foreign exchange fluctuation gain/loss as a operating item not to be excluded for the purpose of computing arms length price. The relevant part of the decision of ITAT is reproduced as under: - 21. We further find that the appellant company has earned foreign exchange gain on revaluation of its outstanding revenue receivables which were not considered as part of operating profit by the TPO as well as CIT(A). We find that the foreign exchange gain earned by the appellant pertained towards revaluation of its debtors as on the balance sheet 'date which means that exchange fluctuation was towards revenue item. Further, Safe Harbour Rules are only applicable to those assessee who have opted for Safe Harbour Rules and the same is made effective from A.Y. 2013- 14 onwards 22. We find support from the decision of the Co-ordinate Bench in the case of Rajratna Maul Industries Ltd. IT Appeal No. 1050 (And.) 2015, dated 12-5-2017. The relevant findings read as under:- '7. The Revenue's third and last substantive ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an operating income then same has to be taken into consideration while determining ALP of international transactions entered into by assessee. After considering the decision of the Co-ordinate Benches as supra, we consider that the amount of foreign exchange gain/loss arising out of revenue transaction is required to be considered as an item operating revenue/cost, therefore, we restore this issue to the file of Assessing Officer/TPO to compute the assessee s margin as well as comparables by considering foreign exchange gain/loss as an item of operating revenue/cost. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. Ground No. 2 (erred in holding that adjustment with respect to capacity utilization should not be given to assessee company for comparative analysis) 6. The above captioned ground no. 2 of appeal was not pressed by the ld. counsel, therefore, the same stands dismissed. Ground No. 3 (erred in additionally including Accentia Technologies Ltd. in the set of comparables although its functions are different from that of the assessee) 7. In this regard, the assessee has submitted before the TPO that this entity w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption services while the Respondent is providing BPO Services. Besides, the impugned order of the Tribunal held that high profit margins of M/s. Aecenlia Technologies Ltd.. was attributable to amalgamation which took place in the previous years relevant to subject Assessment Year. Therefore, not comparable. (iii) In fact, this Court in Pi: CIT v. Apitira Technology (P.) Ltd. [2018] 92 taxmann.com 240 has upheld the view of the Tribunal in not accepting the Aecentia Technologies Ltd., as comparable, inter alia, on account of fact that extra ordinary event such as merger/ amalgamation would affect the profitability of M/s. Accentia Technologies Ltd.. Thus, making it incomparable. (iv) Further in that case, as in this case, the Tribunal has also recorded a finding of fact that the activities of M/s. Technologies Ltd., and the Respondent are different. Thus, not comparable. The above finding of Fact is not shown to be perverse. (v) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. We have also gone through the decision of BNY Mellon International Operations India Pvt. Ltd. (2018) 93 taxman. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. v. ITO [2013] 18 taxmann.com 55 (Bang). The Revenue has not attempted to show either before the Tribunal or even before us that the merger/amalgmation which took place in the previous year relevant to subject assessment year did not have an impact on the profitability of the Accentia Technologies Ltd. Merely because both the tested and the comparable provide ITES services they do not become comparable. This is so as the nature of services provided by use of In formation-Technology is different. In any event, no challenge has been made to the finding of the Tribunal that the activities carried out by Accentia Technologies Ltd. and the Respondent- Assessee are functionally different and, therefore, not comparable. (e) Therefore, the view taken by the Tribunal in excluding Accentia Technologies Ltd. is a possible view more particularly in the absence of the same being shown to be perverse. Thus, no interference is warranted. We have gone through the decision of U.T. Star Com Inc. Industry 89 taxmann.com 90 Delhi ITAT wherein the Co-ordinate Bench of the ITAT has considered the issue on excluding M/s. Accentia Technology Ltd. in the list of comparables and held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force of over thousand employees in India, Philippines and USA. In the financial Year 2008. Oak Technologies inc. achieved a turnover of 10.3 Million USD, Oak Technologies is having its head quarters in New Jersey. 19. Comparability of the Accentia has been examined by the coordinate Bench of the Tribunal in case Exchanging Technology Services India (P.) Ltd. v, Dy. CIT [20J 5] 57Jaxmann.com_437_/DelhiJrib). copy available at pages 20 to 30 of the compendium of case laws, with Accentia which was also providing to its AE Information Technology Enabled Services and has directed to be Excluded from the final set of comparables by returning following findings :- 9.2. We have heard the rival submissions and perused the relevant material on record. We have also gone through the Annual report of this company for the year in question, which has been placed in the paper book. It can be noticed from page 31 of the Annual report that during the year under consideration this company completed the acquisition of 96% of M/s Oak Technologies Inc., a healthcare back-office processing company engaged in medical billing, coding and transcription activities and having substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, in view of what has been discussed above, we hereby direct to exclude Accentia from the final set of comparable benchmarking the international transactions qua ITES. In the light of the above facts and judicial findings, we consider that there is functional dissimilarity in the case of M/s. Accentia Technology Ltd. as compared to the function performed by the assessee company that has not been specifically considered by the TPO and DRP. It is categorically demonstrated from the facts and findings of various judicial decisions as supra that M/s. Accentia Technology Ltd. has expertise in all the areas of transcription, coding, billing and collections, therefore, we direct the Assessing Officer/TPO to exclude M/s. Accentia Technology Ltd. in the set of comparables for determining arms length price of international transactions in the case of the assessee. Therefore, this ground of appeal of the assessee is allowed. Ground No. 4 (Erred in additionally including Genesys International Corporation Ltd in set of comparabes although apart from investing heavily in research and development it s function are very different from that of the assessee 8. In the ground no. 4, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,09,224/- in respect of interest on loan guarantee provided by the assessee to its associate concern Colwell and Saloman. It was submitted to the TPO that the assessee has charged an interest rate at 4%. The TPO has adopted the rate as it was done in the last year by taking dollar dominated Libor (2.69%) + 2.5 margin + 4% risk rate and made upward adjustment of ₹ 8,09,224/-. The ld. DRP has sustained this adjustment stating that assessee has not raised any specific objections. During the course of assessment the assessee has not objected to the benchmarking of interest rate by following the procedure as in the last year. The interest rate has been calculated on the same basis as it was done in the last year. Considering the above facts and circumstances, we do not find any merit in this ground of appeal of the assessee, therefore, the same stands dismissed. Ground No. 7 (Disallowance of ₹ 3,48,322/- u/s. 14A r.w.r. 8D) 11. During the course of assessment, the Assessing Officer has made disallowance of ₹ 3,48,322/- u/s. 14A of the Act on the ground that assessee has used interest bearing fund for earning exempt income. The DRP has dismissed this gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnificant portion of their work to outside vendors and their majority of expenses were of the nature of outsourcing charges. The TPO has not agreed with the submission of the assessee. On appeal the DRP has excluded these two companies from the comparable set. 14. Heard both the sides and perused the material on record. The DRP has considered that the business model of the aforesaid companies were different from the assessee s since these companies were outsourcing significant portion of their work. The DRP has also considered the decision of Co-ordinate Bench of the ITAT in the case of the ACIT Mumbai Vs. Maersks Global Service Centre India Pvt. Ltd. ITA No. 2774/Mum/2011. In that ruling, the ITAT has held that since the particular company had significant portion of its work outsourced which was a different model from the assessee, its rejection from the comparable set was accordingly upheld by the ITAT. The DRP has also considered the other case laws in the case of Vishal Information Technology wherein these companies outsourced considerable portion of their business. On the other hand, assessee carried out entire operation by itself therefore held that these cases were rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was found that the assessee company having its subsidiary claimed Rosebys Operations Ltd. in U.K. and SBLCs devolved are in connection to this subsidiary only. During the course of assessment, the Assessing Officer issued show cause notice to the assessee as to why ₹ 30.96 crores expenses incurred towards SBLC devolvement should not be disallowed as per the provisions of the section 37 of the Income Tax Act, 1961 being SLBC are in the nature of capital contribution to the subsidiaries. In response, the assessee has furnished its reply discussed as under:- 5.2 In response to the show cause, the assessee furnished his reply in Annexure-3 of letter dtd.25.03.2013. For the sake of clarity, the relevant portion of the same is reproduced hereunder: 1.1 GHCL Ltd (GHCL) acquired Roseby Operations Ltd (Roseby) running a reputed chain in retail stores in UK in 2006 with a view to have a ready distribution channel for home textile products manufactured at its Vapi unit. Unfortunately, due to macro economic factors, recession set in Europe soon thereafter and Roseby faced significant difficulty in obtaining funds to run its operations. With a view to support the trading ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire textile value chain from spinning to retail selling, GHCL was also interested having access to retail outlets in US and European markets. With this end in view, GHCL first made acquisition of Dan River in USA in January 2006 at a cost of US $ 17.50 M which specialized in sourcing home textile products for large retailers like Bed Bath Beyond, Bloorningdale, JC Penny, Anna's linen and Wal-Mart. Dan River sourced the products for these retailers from India, Pakistan and China. If had an annual turnover of around US $ 250 M' [approx INR 1000 Cr.). 2.6 The second acquisition that GHCL made was of Roseby Operations Ltd in UK in July 2006. Rosebys was UK's largest Home Textiles Retail chain company, if had a strong presence in bedding, curtains and kids garments with over 300 retail outlets across UK. It also had an annual turnover of close to US $ 250 M (approx INR 1000 Cr.) 2.7 Since Dan River and Roseby offered significant synergies for the Vapi unit- GHCL also started evaluating efficient supply chain siructure between Vapi unit and Dan River/Roseby, The technical personnel of Dan River and Roseby visited the Vapi plant to ; appraise themselves of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perations. With a view to support the operations of Roseby and consequently to protect business of its own Vapi unit. GHCL issued Standby Letter of Credit (SBLCs) in favour of trade creditors Bank of India far providing working capital finance to Rosebys Operations as a temporary measure to tide over financial difficulties. 2.12 HOW SBCL LIMIT WAS CREATED GHCL Home Textile division was enjoyed working capital facilities with various banks as per details mentioned below : Sl. No. BANKS RS. IN CRS 1 SBT 40.00 2 Canara 35.00 3 BOI 35.00 4 SBH 30.00 5 IDBI 35.00 6 Total 175.00 2.13 FACTS The issue under consideration is in respect of SBLC issued on behalf of subsidiary ₹ 30 cr. 1. GHCL Issued SBLC on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or branch so carried on including power at any time and either temporarily or permanently to close any such branch or business.' By September 2008, 10 top retailers of UK were reported shut down or sold out. Even Roseby had to be referred to the Administrator as a sick company on 25 September 2008. As.a consequence of this, Vapi unit also ran into losses with huge unutilized capacity. Out of SBLCs issued to the tune of GBP 3.97M, SBLCs to the extent of GBP 3.94M devolved upon GHC1 on failure of Roseby to make payment to the suppliers. Being a contractual obligation, GHCL had to honour the SBLCs. The losses incurred by GHCL on this account are to the tune of ₹ 30.96 Cr in F.Y. 2008-09. No further losses are expected to be incurred since there are no further outstanding SBLCs. Roseby was placed under Administration in UK in September, 2008. Since the administration of Roseby was taken over by liquidator from that date, GHCL has no access to the funds or records of Roseby. Roseby's assets were much lesser than its liabilities at the time of being placed under Administration and GHCL saw no chances of recovery of any money. Hence the loss of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee is subservient to the status of a creditor. Therefore, the nature of funding veers more towards equity 7 Intent parties of the parties The absence of any repayment date by the associate enterprise to the assesse clearly indicate that the intent of the assessee was to provide funding to the associate enterprise, till its financial position is improved. Therefore, the intention also indicates that the nature of funding is more towards equity. 8 Ability of the corporation to obtain credit from outside sources As already discussed in detail above, the associate enterprise was not able to obtain loans without any support from the assessee. Consequently, the nature of funding by the assessee were more towards equity. 9 Use to advances were put The funds provided by the assessee were used by the associate enterprise for working capital purposes. On the basis of this test it could be argued that the nature is more towards loan, however coupled with the financial distress of the AE and other fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions and explanations, arguments of Ld. AR of the assessee-company, decisions of Hon'ble Courts and Tribunals and replies by the departmental officer, the main Issue related to claim of losses on account of devolvement of SBLCs, which is considered by AO as financial assistance to the subsidiary company Rosebys Ltd, in the nature of equity contribution or quasi equity are considered. Considering these, we are inclined with the assessee-company^s view for the following reasons: (1) Acquisition of Rosebys Operations Ltd. UK was not In isolation but was In the line of expansion after set-up of Vapi Home Textile Plant to expand (n overseas market, as the company is having its textile manufacturing units at Vapi and Madurai. (ii) The Rosebys was having working capital finance from its regular banker Barclays Bank UK at the time of acquisition, which was later on shifted to Burdle Financial Ltd, who provided 10 Mn. GBP credit facility, but as; the same was very expensive, the assessee company's textile division approached IDBI Bank India, who parted its non-fund limit and gave SBUCs in favour of Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UK to ROL for 10 Mn GBP. Whereas the new facility by BOI and IDBI was hardly for 2 Mn GBP each. Had GHCL given the guarantee for entire 10 Mn. GBP, the loss would have been much higher. (j) Working capital/SBUCs were given in the month of June-July, 2008 and the same were devolved on IDBI between October 2008 to January 2009, who charged such amount to.GHCL. (k) The assesses company has not written off Capital Contribution in ROL as business loss and also stated that they are not going to claim the same in future as business loss. The conclusion and the allegation of the Assessing Officer that funds were indirectly provided by the assessee company to the Rosebys Ltd and its Vendors In the capacity of shareholder and in the form of equity contribution or quasi equity contribution does not find support from the above mentioned facts which remained uncontroverted by the Assessing Officer in the assessment order or by the officer representing the case on behalf of the department during the course of hearing. Therefore, it is held that there was no capital contribution b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecome processing hub of home furnishing textile items, (b)The objective of the acquisition was to capture and expand Home Textile market in UK and also enter in European region. Had we not setup VAPI Home Textile Ptont, there was no need to acquire ROL in UK or Dan River in USA. (c) ROL, UK had 325 retail outlets and there was a long-term plan to aign txGiness of RDL with Vapi and make the same profitable by cheaper sourcing from India and Asia. (d) ROL, UK was not making profit at the time acquisition and our lone term plan was to make it profitable by restructuring Its product sourcing and aligning It with Vapi. This would normally take around 4-5 years for shifting major product sourcing from UK 1:0 India. (e) GHCL had started to develop the products in gradual manner for ROL, UK In 2007-08 and supplied the same and continued in 2008-09. The entire transition of replacing UK supply source with GHCL Vapi Unit were to take 5 years. (f) Had the operations continued, the plan was to achieve turnover around 75-80 Crores in 3-4 years. (g) Nobody anticipated the Global Financial Crises of 2008 wherein, a ISO year old Bank like Lehman Brothers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it insurance coverage from UK based insurance companies. However, with the onset of global recession in 2008 and insurance companies themselves being under severe financial stress, they withdrew the insurance cover from the retail sector in UK. Therefore, some of the suppliers requested for additional security to continue their credit supplies to ROL, UK. As the sales of GHCL's products were interdependent on sale of products supplied by these parties, and IDBI Bank, India rightly understanding the business connection between GHCL and ROL, UK, It directly provided SBLCs in favour of these 7 suppliers. 13. After considering the arguments and written submission of the ld. Authorised Representative and after going through the assessment order, it Is crystal clear that the subsidiary company Rosebys Operations Ltd was acquired by the assesses company to expand its textile business operations globally based on the study carried out by KSA Technopak, renowned global consultant, as the objective was to capture ready home-textile market in UK and European regions for Its manufacturing facility of Vapi Textile unit. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case, the subsidiary of the taxpayer was supplying materials which were important for the taxpayer's business. This was held to be an important circumstance supporting the action of the taxpayer i.e giving corporate guarantee as well as trade advance being incidental to the taxpayer's business. It was also noted that the giving of guarantee had due sanction of the MOA of the taxpayer which contained suitable enabling object. (C) CIT vs. Pure Beverages Ltd. (2O9 ITR 131). GUI. In this case, the taxpayer was a soft drink manufacturer who gave guarantees to the bank for loans advanced to retailers to enable them to purchase coolers to store soft drinks sold by the taxpayer. Prior to 1969, the taxpayer itself used to provide the coolers to the retailers. From 1969, the retailers were persuaded to purchase the coolers themselves. The cost of the cooler ranged between ₹ 3000 to ₹ 6000. Some of the retailers eventually defaulted in payment of the loans taken from the bank and as a result the taxpayer had to bear the loss arid make payment to the bank. The loss incurred was claimed by the assessee u/s 37 of the Act. The Tax Authority rejected the claim an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rasna is enhanced and other manufacturers of the brand are also Indirectly benefited, it cannot be said that the expenditure Incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises Its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, It is quite possible that such other manufacturers may also be benefited on account of such advertisements as the advertisements may enhance the value of the brand as a whole. In fact, such incidental benefits are bound to accrue to the owner of the brand as well as other users of the brand name when any of the users of such brand name advertises its products. However, merely because some other persons are incidentally.benefited from the advertisements issued by the assesses, the same would not change the character of the expenses from being wholly and exclusively for the purpose of its business. Therefore, it is not a relevant circumstance for the purpose of considering allow/ability of expenditure under section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sively for the purpose of the business of the assessee-company, it could be concluded that in the instant case, the excess remuneration over the sum of ₹ 12,000 paid by the assesseecompany to 'A' was wholly and exclusively expended by it for the purposes of its business and was, hence, a deductible allowance within the meaning of section 10(2)(xv) of the Act. CIT vs Williamson Magor Co Ltd, ( 117 ITR 581), Cal. In this case, the taxpayer who was acting as managing agent and secretaries of other companies was appointed as a secretary of Tukvar Co (TCO) Ltd till 1957. In 1955, TCO was in need of funds. The taxpayer provided guarantee to the bank due to which TCO was provided overdraft facilities by the bank. In 1957, TCO defaulted in repayment to the bank, which ultimately had to be settled by the taxpayer. Thus for the year under consideration le 1957, the assessee claimed a sum of ₹ 1.68 lakhs as bad debts. The Tax Authority disallowed the claim on the basis that the taxpayer's liability to pay the bank did not arise in the course of business as the taxpayer was not under an obligation to arrange funds for TCO. Further it was also contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be capital loss on the grounds that the agency was obtained with a pre-condition of giving loans and making advances to Amer. On further appeal by the-taxpayer, the SC restored the decision of the Tribunal and held that HC had wrongly concluded the said loss to be capital in nature as also disagreed the facts which had been placed on record by the Tribunal. The guarantee and advances given to managed company were well within the objects of the taxpayer (as was evident from the MOA of the taxpayer), arising from the managing agency business. Hence such loss/expense incurred would be an admissible deduction for AY 1956-57. (i) CIT vs. Delhi Safe Deposit Co. Ltd f!33 ITR 7561. In this case the tax payer was a company which was a partner of a managing agency firm which in all consisted of three partners. The managing agency firm, in turn, was managing another public limited company (managed company). During the year, at the instance of one of its major share holding partner, a huge sum was expended by the managed company to a firm located in Calcutta. The sum of money advanced was ultimately dishonored by the Calcutta firm, resulting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al were. absolutely justified in applying the ratio laid down by the Apex Court in case of Ramchandar Shivnarayan v. CIT [1978] 111 tTR 263 as also in case of Indian Aluminium Co. Ltd. V. CIT tl992] 84 ITR 735 CSC) to hold that such expenditure were needed to be spent by the assessee for the purpose of carrying on its business and are incidental to the business, therefore, any loss shall have to be considered as the revenue cost and not the capital cost. In view of the above findings, the objections (1 12) raised by the assessing company against disallowance of ₹ 30,96,28,781/- are sustained and the addition made by the Assessing Officer is directed to be deleted. 19. During the course of appellate proceedings before us, the ld. Departmental Representative has contended that expenditure incurred by way of devolvement of SBLCs of ₹ 30.96 crore was capital loss and not deductable under section 37 of the Act. The ld. Departmental Representative submitted that acquiring of retail chain Rosebys Operations Ltd. U.K. cannot be taken as the expansion business of the assessee of Vapi unit. Since the existing business of the assessee was manufacturing and not business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative has stated that no sufficient opportunities were provided by the DRP to the revenue before deciding the issue in appeal. 20. Heard both the sides and perused the material on record. The Assessing Officer has made disallowance of ₹ 30,96,28,781/- on claim of devolvement of guarantee against SBLCs by the assessee company to the IDBI Bank who in turn gave SBCLs to the Bank of India, Manchester and 7 vendors of Rosebys Operations Ltd. The assessee company has claimed the aforesaid devolvement of SBLC (Standing Business Letter of Credit) worth of ₹ 30.96 crores as expenses in relation to the business of the assessee company u/s. 37(1) of the Act. The Assessing Officer was of the view that these expenses were in the nature of capital contribution to the subsidiary, therefore, the same were not allowable as per the provisions of section 37 of the Income Tax Act, 1961. The assessee company had set up a home textile product manufacturing plant at Vapi using the latest technology. The assessee company s vision was to be a fully integrated player in the world with presence across mill to consumer operations. The Vapi unit was set up in March, 2006 at cost of ₹ 230 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quite remote. Therefore, the assessee company had written off the amount in books and claimed as business losses u/s. 37(1) of the Act. We have also gone through the explanation furnished on devolvement of SBLCs and commercial expediency furnished by the assessee company before the DRP which is discussed as under:- Allowability of SBLCs (Stand by Letter of Credit) write off as business expenditure u/s 37 (1) of Income Tax Act, 1961. Sec. 37 grants deduction In respect of expenses incurred wholly and exclusively for business purpose. However the provision specifically excludes following- (a) Expenditure of the nature described in sec. 30 to 36. (b) Capital expenditure (c) Personal expenses. On Facts: 1. Formation of Subsidiary for the sole purpose of expansion of existing textile business of GHCL. 1.1 Background: GHCL Limited ( GHCL ), incorporated in 1983, Is a leading Chemical and Textile manufacturing company. GHCL established its Soda Ash Plant at Sutrapada, Gujarat in 1989 and over a decade, it became one of the leading Soda Ash manufacturers of the country and attained position of pre eminen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... textiles which made it impossible for the Indian textile manufacturers to penetrate the US and European markets, Post 2005, the quota restrictions in US and Europe were removed pursuant to General Agreement on Trade and Tariff^ (GATT) which provided low cost manufacturing countries like India and China huge potential to tap these markets. The textile outsourcing to low cost manufacturing countries was perceived as the second wave of outsourcing after information technology. (Page no 117 of KSA Report attached as Annexure-2) KSA advised that post lifting or quota, only those textile players would survive who have :- Presence across entire textile value chain Nearness to the customer Size; and Design and development capability KSA Technopak, highlighted following factors in favour of i Home-Textiles Positive Turnover Vs Capital Investment ratio ( Annexure-3 KSA Report) Opportunities for Manifold growth Flexible Markets with possibilities of switching between Domestic and Overseas Markets depending on demand pattern. (Copy of KSA's Report is attached as Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Feet as Retail space. Annual Turnover of the business was around GBP 105 million for year ended April 2006. To match Different Social Patterns of the Customer, Stores were Located in both: a) High Streets b) Retail Parks Sourced up to 78% of Its Retail Product requirements from UK UK based Suppliers 59% of the revenue was contributed from bedding / curtain products. a) Offer a choice of Good - Better - Best products, b) Kids bedding products were sold under brand names namely Disney Princess, Butterfly, England 2006, Garden Flowers, Photo Bunnies c) 310,000 Sq.ft. Of Highly automated Distribution and Warehousing facilities connected by Rail and conveniently located for Imports d) Additional 100,000 Sq.ft. in place for expansion and launch of ePorta! Sales 1.3 Benefits for acquisition of Rosebys - Synergy with VAPI Home Textile Acquisition of Rosebys made GHCL a fully integrated Home Textile player from Spinning to Retail and also provided an immediate access to UK Market especially market for high end products of VAPI. Apart from ready distribution channel, GHCL envisaged that the acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 749 909 Total 1,071 1,O71 1240 1214 1498 1,897 2,125 Had things moved along as planned, Vapi Unit would have been substantially utilized by Roseby by sourcing some of their requirements (say, between 25 % to 35 %) from this unit. 2. Post Acquisition Rosebys Business Operations , Banking facility and need for Issuance of SBLCs by IDBI Bank. 2.1 After acquisition, Rosebys UK initiated various steps to improve its operations which included:- a. Reduced UK Sourcing from 78% to 50% in 2007-08. b. Rationaling low margin stores c. Enhancing product portfolio with global products d. Direct Sourcing from GHCL India/Stragic Vendors Based on the above, Rosebys had stable business operations. The Barclays Bank, UK had provided normal working capital facility to Rosebys considering its stable business operations. (Enclosed as Annexure - 8, page no 305 to 317 of paper book 3A). A snap shot of Rosebys flnandals is as under- Amt. In 000 GBP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 35 crore to meet working capital requirement of Rosebys. (Copy of IDBI Sanction Letter dated June 11, 2008 is enclosed as Annexure - 12, page no 396 to 399 of paper book 3A IDDI bank issued Stand By Letter of Credit (SBLC) of ₹ 16.78 crore on July 3, 2008 in favour of Bank of India, Manchester Branch (Annexure - 13, page no 400 to 404 of paper book 3A), which In turn provided working capital limit to Rosebys. Thereafter Rosebys repaid Burdale banking facility and started availing working capital facility from Bank of India on counter guarantee by IDBI Bank.. In addition to this IDBI also Issued SBLC of Rs. ₹ 14.18 crore in June 2008 to 7 vendors of Rosebys in UK as per SBLCs (Enclosed as Annexure - 14, page no 405 to 452 of paper book 3A). Thus the total amount of SBLCs issued by IDBI was Rs, 30.96 crore. 2.6 What is SBLCs and to whom these have been Issued. Standby letter of credit (SBLC) is a non fund based limit issued by Bank to provide a Guarantee to third party that in case the payment is not made by the company/party on whose behalf it Is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure 1 Wool worth 26.11.08 807 27000 296.90 20A 2 Officers Club 23.12.08 150 900 52.51 208 3 MK One 21.11.08 125 800 - 20C 4 MFI 26.11.08 110 1200 74.20 20D 5 Sleep Dejjot 01.04.08 111 367 14.14 20H 6 Willis Gambler 25.08.08 4.81 20H 7 Dolcis 21.01.08 185 800 0.62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 of Assessment Order).' Reply: The allegation by AO based on conclusion, whereas, the financial supports to Rosebys were as under: (1) Regular banker of Roseby viz. Barclays Bank which also faced financial stress could not continue its working capital facility to Rosebys and decided to withdraw the same sometime in February/March 2008. This almost coincided with the first collapse of a Bank namely Northern Bank In UK on February 22, 2008, which implied that there was a huge stress on the banking industry in UK. (ii) In this situation Rosebys approached another private bank Burdale Financial Ltd, Burdale initially provided credit line of GBP 10 million covering both cash credit and Letter of credit facility vide Agreement dated 23-04-2008. (iii) However, the cost of borrowing from Burdale was very high, expensive, therefore, GHCL asked IDBI to evaluate textiles business of Rosebys and provide working capital. (iv) The IDBI looking to the business connections with GHCL Textile Division, financial of Rosebys parted non-fund base limit of GHCL Textile Division of ₹ 16.78 crore through issuance of Standby letter of credit (SBLC) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right of retrieval, GHCL filed its claim before Liquidator for the devolvement of guarantee, which could not be sustained as there are insufficient assets in ROL, UK. (vi) When financial experts / bankers like IDBI and BO! - UK have given 16 crore and ₹ 14 crore respectively as working capital directly to ROL - UK and its suppliers, how can TPO / AO characterize working capital facility granted by banks as equity contribution. (vii) Further, at the time of providing working capital / SBL.Cs to ROL, UK, neither BOI nor IDBI advised GHCL to provide any capital contribution or Reconstruct the capital of ROL, UK. (viii) But for the global financial crises as well as huge unprecedented recession in UK resulting in administration of ROL, the aforesaid guarantees would not have devolved on GHCL. : (ix) The earlier facility of working capital was provided by Burdale Bank, UK to ROL for 10 Mn GBP. Whereas the new facility by BOI and IDBI was hardly for 2 Mn GBP each. Had GHCL given the guarantee for entire 10 Mn. GBP, the loss would have been much higher, (x) Working capital/SBLCs were given in the month of June-July, 2008 and the same were devolved on IDBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. Consequently, the funding veers more towards equity. Right of guarantee Invocation filed with Liquidator of ROL, UK 5 Participation in management as a result of advances The AE is already 100% subsidiary of the assessee. Therefore, this factor is neutral. AO/TPO has accepted our view point. 6 Status of the advances in relation to regular corporate creditors. Since the fund have been granted to make the payment to the normal creditors of the business. It is clear that the status of; funds provided by. the assessee is subservient to the status of a creditor. Therefore, the nature of funding veers more towards equity. No funds provided by assessee. IDBI directly provided SBLCs to suppliers of ROL, UK as working capital. 7 Intent of the parties The absence of any repayment date by the associate enterprise to the assessee clearly indicate that the intent of the assessee was to provide funding to the associate enterprise, till its financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s after analyzing the prospects of business of Rosebys, which include assessing of credit risk. 4. The AO has relied upon following judgments, the facts of which are not identical to appellant's case, Therefore, these judgments have no relevance: (a) VST Industries Ltd. (41 SOT 415) Hyd. \ (b) Abdullabhai Abdulkada (41 ITR 545) SC (C) Salem Mangesite (P) Ltd. (180 Taxman 545) Bom. (d) D.C.M. Limited (123 TT3 114) Del. 10, The assessee company in rejoinder furnished write-up on commercial expediency between assessee-company and its subsidiary / associated company Rosebys Operations Ltd., UK and Ld. AR argued in length that giving SBLCs to subsidiary company is in the nature of commercial expediency due to proximity in business, therefore, the losses on account of devolvement of SBLCs are in the nature of business Joss, the relevant portion Is reproduced as under: Commercial Expediency 1. The acquisition of USA and UK Home Textile chain stores were in the line of expansion after set-up of Vapi Home Textile Plant, so that from India products can be lined in USA and UK as the India become processing hub of home furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersa. Further, please note that, the product range of suppliers to whom IDBI Bank had issued SBLCs on the basis of business connection of GHCL with Rosebys Is as under: - COMFY QUILTS LTD Quilts, Pillows, Mattress covers, Bed linens DREAM 'N1 DRAPES Curtains, Blinds and Cushions curtain rods GORDON JOHN TEXTILES, UK Curtains, Blinds Cushions, Linen sets IRWIN MUTCHELL, UK Roller Blind Fabric, roman blinds and curtains RAPPORT HOME FURNISHING LTD, UK Soft furnishing like Duvet Cover SNUG COMPANY LIMITED. Pillows and mattress protectors. Duvets SPEEDY PRODUCTS LTD, UK Tracks and poles, 15.The aforesaid suppliers of Rosebys were getting protection for their dues in the form of credit insurance coverage from UK based insurance companies. However, with the onset of global recession in 2008 and insurance companies themselves being under severe financial stress, they withdrew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which it was held that deduction under section 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd. 's case (supra) that the interest, was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. The Hon ble Supreme Court in the case of CIT vs. Amalgamation (P) Ltd. 226 ITR 188 held that assessee company had incurred losses in carrying on its business which included furnishing guarantee to debt borrowed by its subsidiary company. It was further held that los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in confirming upward adjustment of ₹ 2,89,670/- on account of Arm s length interest rate on loan to AE Colwell Salmon) 21. As the facts and issue involved in ground of appeal no. 6 vide ITA No. 1042/Ahd/2014 Assessment Year 2009-10 are similar as in ITA No. 82/Ahd/2015 Assessment Year 2010-11 therefore after applying the decision adjudicated vide ITA No. 1042/Ahd/2014 as supra in this order, this ground of appeal of the assessee stands dismissed. Ground No. 2 (Erred in confirming upward adjustment of ₹ 3,09,27,000/- in respect of IT enabled services rendered to AE in cryptic manner) 22. During the course of assessment, the Assessing Officer noticed that assessee was having international transaction with associated enterprise and the TPO has made upward adjustment of ₹ 3,09,27000/- on the basis of capacity utilization adjustment and average of comparable value of services computed on ALP. The TPO has not accepted certain comparable and after considering the contention of the assessee, the TPO has selected four comparables and determined upward adjustment. The Assessee has submitted that no adjustment on account of capacity utilization differences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia P. Ltd. (2020) 116 taxmann.com 916 Delhi wherein it is held that segment account cannot be rejected as false and pretence on a mere conjecture and surmise. We have also gone through the paper book no. I wherein from page no. 168 to 200 comprising detailed submission made before the Assessing Officer during the course of assessment proceedings and enclosed annexure 3 on the issue of capacity utilization adjustment. In the annexure -3, the assessee has given the detailed information from page no. 186 to 200 in respect of capacity utilization in the case of the assessee compared to the other comparable. After perusal of the finding of TPO, A.O. and CIT(A), it is observed that the detailed information furnished by the assessee has not been considered while rejecting the claim of the assessee of under utilization of capacity. In the light of the aforesaid facts and circumstances, we restore this issue of upward adjustment to the file of the A.O. for deciding afresh after excluding the two comparables as mentioned above and considering the capacity utilization of the employees and the profit margin after verification and examination of the details furnished by the assessee. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.13 Other Income 30.71 3071 TOTAL 301.26 47.04 13.13 30.71 392.14 Personnel Expenses 124.04 22.72 38.92 127.04 312.73 Commission on Exports Lead List Data 0.17 0.17 Loss on Disposal of Asset (2.98) (2.98) Exchange Rate Fluctuation 7.49 (0.23) (23.62) (16.36) Other Operating and Administrative Expenses 102.36 18.75 32.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Erred in deleting disallowance of ₹ 63,47,445/- u/s. 14A r.w.r. 8D) 28. During the course of assessment, the Assessing Officer has made disallowance of interest and administrative expenses u/s. 14A r.w.r. 8D(3) of the act of ₹ 63, 47,445/-. The ld. CIT(A) stated that the assessee has worked out the disallowance according to the investment on which exempt income was determined at ₹ 4,74,410/-. Accoringly, the A.O. was directed to modify the addition after verfiation of calcualation. During the course of appellate proceedings before us, it is brought to our notice that total exempt income earned by the assessee during the year under consideration was only to the extent of ₹ 2,93,606/- therefore after taking into consideration the finding of the various decisions of the Tribunal on this issue, we restrict the disallowance to the extent of exempt income of ₹ 2,93,606/- and the Assessing Officer is directed to allow the sett off of muo motto disallowance if any already made by the assessee after verification. Accordingly, this ground of appeal of the assessee is partly allowed. Ground No. 2 (Erred in deleting disallowance of ₹ 1,40,60,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of assessment, the Assessing Officer noticed that assessee has made payment of foreign commission to non-residents amounting to ₹ 39,51,1251/- but no tax was deducted. On query, the assessee explained that the overseasbroker/commission agents were providing export order by search/enquiring export/import from their countries. It was submitted that commission does not accrue or arise or deemed to accrue or arise in India to such non-resident commission agents as they had rendered services outside India and commission was also paid to them outside India. In the absence of any activity being carried out in India by a non-resident commission agent, the commission does not accrue or arise in India. Therefore, such payments are not taxable in India. Accordingly, such payments do not require any deduction on tax or tax withholding. The Assessing Officer has not accepted the explanation of the assessee stating that assessee has not provided the identity and the evidences of services rendered by the foreign commission agent for which commission was paid by the assessee. Consequently, the Assessing Officer has disallowed the commission expenses paid to non-residents amounting to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business Solution Ltd. as comparables because of differences in operational activities. The Assessing Officer has made upward adjustment of ₹ 1,44,80,000/- in respect of I.T. enabled services rendered by the assessee to the associated enterprise. The assessee has filed appeal before the ld. CIT(A) which was dismissed 36. Heard both the sides and perused the material on record. The Assessing Officer has made an upward adjustment of ₹ 1,44,50,000/- in respect of I.T. enabled services rendered to the associated enterprise. The TPO has not accepted the comparable selected by the assessee in its transfer pricing study report. The TPO has selected 7 comparables and made upward adjustment. The assessee has objected for rejecting of certain comparables proposed by it. The ld. CIT(A) has sustained the finding of the Assessing Officer without specifically considering the submission of the assessee. During the course of appellate proceedings, the ld. counsel has filed paper book comprising detailed submission made before the Assessing Officer during the course of assessment proceedings. It is observed that the detailed information furnished by the assessee in respect of select ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, in respect of payment to the amount of ₹ 14,36,111/- in respect of Sari Pacific INC, the ld. CIT(A) observed that the transaction were not fully supported with the relevant details. The ld. CIT(A) was of the view that payment to this party has not been made by the assessee but some other in the U.S.A. has adjusted this payment on account of payment made to this party. Since there was no documentary evidence in support of this claim, therefore, deduction claimed by the assessee in respect of payment of Rs,. 14,36,111/- was held to be not allowable. Further, the ld. CIT(A) has held that in respect of realization of ₹ 1,61,485/- from Hareram Natbarlal was nothing but a provision made by the assessee on 28th Feb, 2011 and the entry has subsequently been reversed in the next financial year as the assessee has received the full payment. However, the ld. CIT(A) has held that during this period an amount of ₹ 1,61,485/- was not deductable. During the course of appellate proceedings before us, the ld. counsel has submitted an amount of ₹ 1,61,485/- was offered in the next year which was already taxed in the next year therefore it is incorrect to tax the same am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed commission paid to foreign agents amounting to ₹ 5,51,33,625/- by holding that the income arising on account of commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the provisions of section 5(2)(b) r.w.s. 9(1)(i) of the Act. The ld. CIT(A) deleted the addition. The part of the decision of ld. CIT(A) is discussed as under:- 4.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has disallowed the commission paid to foreign agents amounting to ₹ 5,51,33,615/- by holding lhaf the income arising on account of commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the Provisions of section 5 [2)[bJ read with section 9 (l)(i) of Incom Tax Act. it has further been observed by the AO that the appellant company had failed to comply with the Provisions of section 195 (2). He has also held, without prejudice to the main findings that, the appellant had also failed to prove the commissions paid to the agents were genuine and justified. The AO observed that the appellant has not proved the identity an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates, freight, conditions for payments, opening LCs of importers in foreign countries and informing the appellant and taking care of the deliveries of goods to the importers and follow up for final payments. 4.6. He also provided the relevant details to the AO during assessment proceedings through its letter dated 0270272016 1570272016 like name and address of the broker, name and country of buyers, items exported, bill quantity, export value in US $ and realization in INR with brokerage in US $ and brokerage in INR. Along with the aforesaid details, the appellant also provided to the AO, the broker wise payment evidences along with bank payment details realizing the export proceeds, company payment advice, Form No.lSCA and 15CB, credit note of overseas brokers, invoice for export by company with commission amount and copies of commission agreements and export contract furnished as evidences for justification of commission to overseas brokers. Thus, it was submitted that the payment of commission to overseas brokers was part of export of products and an important mediatory channel to book the export orders as well as to take care of realization of export proceeds. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia as the sales have been made from India. The provisions of Income Tax Acf clearly provide fhat the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but solicitingthe sales by commission agents. Though this activity is linked to the sales of the company but it cannot be said that the income has been derived.from sales which has been made from India. The income has been derived from the activity of soliciting the sales on behalf of the appellant company. The agents have carried out all the activity on the foreign soil and none of their activity is in India therefore, it cannot be said thct the income has accrued or arisen in India and the source of income was in India. There is no fact brought out by the AO in the order as well as observed by me during the course of appellate proceedings to indicate that the services have been rendered in India. 4.11. The judgment of honourable Supreme Court in the case of CIT vs. Toshoku Limited [125 ITR 525 (SC)] is important on the issue, whereby it has been held that commission earned by the nonresident for acting as the selling agent for the Indian exporter, wherein such non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly also. It is further observed that the payments hcve been made through banking channel and are duly documented. The appellant has made commission payment to agents during the year and it has provided copies of various evidences. The appellant has given satisfactory evidences in respect of all commission payments, and therefore, considering the overall facts and circumstances the payment made to the agents is taken as genuine. Accordingly, in rny considered opinion the appellant has given satisfactory evidences regarding the services rendered by the agents and the genuineness of payment of commission. 4.16. The AO has also placed reliance on the decision of Hon'ble Authority of Advance Rulings in the case of SKF Boilers and Driers (P.) Ltd. (2012) 18 Taxmann 325 and Rajiv Malhotra (2006) 284 ITR 564 (Delhi). The judgements are not applicable to the present facts as there are several other decisions of Hon'ble ITAT, Mumbai in the cose of ACIT [Internationa! Taxation) Vs. Star Cruise India Travel Services Pvt. Ltd. [14 ITR (T) 282 (Mum)], CLSA Limited Vs. ITO (International Taxation) [56 SOT 254], which hold that such kind of commission is not taxable in India and acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trib.) Khimji Visram Sons v. Addl. CIT (2014) 52 taxmann.com 485 (ITAT, Mumbai) Commissioner of Income-tax, Chennai v. Faizan Shoes (P.) Ltd. [2014] 48 Taxman.com 48 (Mad.) Assistant Commissioner of Income-tax, Co. Circle - 1(3) v. Comex Exports (P) Ltd. [201 4] 45 taxmann.com 406 (Chennai -Trib.) Assistant Commissioner of Income-tax, Company Circle 1 1 1(2), Chennai v. T. Abdul Wahid Tanneries (P.) Ltd. 85 [2014] 47 taxmann.com 133 (Chennai Tri.) Ajit Impex vs. DC1T 46 taxmann.com 163 [2014] Pankaj A. Shah vs. ITO, Ward - 1, Baroda [47 taxmann.com 205(2014)1 Zanav Home Collection Vs. JCIT, Range - 10, Bangalore [2015] 55 Taxman.com 200 (Bangalore Trib.) ACIT Vs. Karishma Global Minerals Pvt.Ltd. [2015] 56 Taxman.com 265 (Panaji Trib.) ACIT Vs. Shiva Texyarn Ltd. [2015] 53 Taxman.com 495 (Chennai Trib.) ITO, Wd. 2(1), Ahmedabad Vs. Excel Chemicals (1) Ltd. in ITA No. 5/Ahd/16 for A. Y. 2012-13 dated 29/07/2016 4.18. In view of the preceding discussions and the submissions of the appelant, besides the judgments / decisions of various courts, it is clear that the appellant was not liable to deduct ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the assessee company has explained that the investment in the wholly owned subsidiary Indian Britain BV was for the purpose of business and loss on account of investment in shares was purely for the purpose of business and to achieve business objectives with commercial expediency and stated that loss arising from investment in shares was allowable as business loss. However, the Assessing Officer has not accepted the submission of the assessee stating that assessee company has not filed revised return for such claim as per provisions of section 139(5) of the Act. Since, there was no revised return filed the claim of assessee company for capital loss as business loss was not entertained by the Assessing Officer after placing reliance on the decision of Hon ble Supreme Court in the case of Goetz (India) Ltd. vs. CIT 157 taxman 1 (SC) wherein it is held that there is no provision under the Income Tax Act to make the amendment in the return of income by merely on the basis of a letter at the assessment stage without revising the return. Therefore, the Assessing Officer has treated the investment as long term loss. Subsequently, the assessee has preferred appeal before the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment in subsidiaries, step-down subsidiaries and acquisition of retail chains was only to expand business globally. After such acquisitions, the sales and exports shoot up substantially and international brands started taking GHCL Textile products even after reduction in shares / liquidation of subsidiary - Indian Britain BV. Therefore, the losses due to reduction in share capital of Indian Britain BV, the wholly owned subsidiary company of ₹ 99,89,96,245/- was business loss as the investment was made for the purpose of business and was commercially expedient. 5.5. In the assessment proceedings, the appellant through the letter dated 15/02/201 6 revised its claim of loss on investment in shares of wholly owned subsidiary company Indian Britain BV of ₹ 99,89,96,245/-, which was claimed in return of income filed as capital loss and requested that this loss may kindly be allowed as business loss. In this letter, appellant explained its business strategies and business expansions in global world for making investment in subsidiary company in Netherlands from commercial prospective. As no revised return was filed by the appellant, the claim of capital loss as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been filed but the claim was made through the letter in the assessment proceedings before the AO. 5.8. Having considered the facts and submissions and also various judgments of Hon'ble Courts, whereby it has been held that even where the facts are necessary to examine such a claim were not placed in the original return of income or through the revised return of income but by way of written submissions in the assessment proceedings before the A.O., there would be no impediment in the CIT(A) entertaining such a claim. On the contrary, the case of the appellant was on a better footing for the reason that all the facts were on record before the A.O. In this regard, the binding decisions / judgments and the Circular of the CBDT are relevant to be considered in such issues. Some of them are briefly noted as under. 5.9. In the circular of CBDT Circular No. 1 4 (XL-35) dated 11 April 1955, it has been observed that the AO being the taxing authority ought to have exercised his powers, in doing so he must act in a fair manner and his judgments may not be in a partition manner. Being a quasi judicial authority, the AO is bound to determine the correct tax payable b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT Cochin bench hcve granted the deduction u/s.80HHC for the first Time before the first appellate authority claimed which the appellant has omitted to make in its return of income. Even the Hon'ble ITAT, Delhi in the case of Xerox India Ltd., New Delhi Vs. assessee in 1TA No. 1590/DEL/2010], has observed thai an officer must not take the advantage of the ignorance of the assessee. The Hon'ble Gujarat High Court in the case of CIT Vs. Milton Laminates Ltd. (2013) 37 Taxmann.com 249 have held that while giving effect to order of CIT(A) A.O con compute income lower than that returned. The Hon'ble Delhi High Court in the case of CIT Vs. Jai Parabolic Springs Limited (2008) 306 ITR 42 has also held that the decision of Honourable Court in the case of Goetze India Ltd. was limited to the power of the AO not to entertain claim for deduction, otherwise then by revised return and did not impinge on the power of the Tribunal. The Honourable Supreme Court in the cose of National Thermal Power Company Ltd. Vs. CIT (1999) 229 ITR 383 has observed that it was open to the assessee to raise 'he poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed even though such claim was not rrade through revised return of income. Even, the appellant, if entitled to a particular claim which it remained to be claimed in the return of income may claim during the appellate proceedings. Thus the decision in the case of Goetze Indi Ltd. does not restrict the appellant to make such claim in the appellate proceedings. The A.O. ought to have dealt the issue under consideration on merits which he wrongly chosen not to do so, more so when the appellant has given the written submissions, explaining the reasons and citing the judgements for acceptance of its claim. Thus, the A.O.'s action for non consideration of the claim in the assessment proceedings on merits is found not correct in view of the judicial propositions of the Hon'ble Courts and circular cited above. Therefore, the issue under consideration on merits is decided as under. 5.14. The brief background of the business of the appellant company is as under- 1. GHCL Limited ( GHCL ) was in incorporated in 1983 and started its Soda Ash Manufacturing in Gujarat in 1988. 2. Became one of the largest Soda Ash Producers of the Country and attained position of Preemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et-up a state of art Home Texlile plant comprising of weaving, processing and mode up facility at Vapi, Gujarat at a cost of 220 Crs. which was commissioned in March 2006. Vapi Plant is a fully integrated weaving and textile manufacturing unit from weaving of grey fabric, processing, dying 8, punting to manufacturing home textile consumer oroducts like bed linen, curtains^gg Lrriade_ups, comfortei L covers ^cushions, etc. 13. In the line of expansion in overseas market, GHCL looked for various acquisition opportunities which hod a strong relationship with big international retailers for its B2B business and sizable retail chain for catering to B2C business. After detailed financial, legal and commercial due diligence conducted by various professional agencies, GHCL acquired the following three (3) companies during the period Jan'2006 to March 2007: a. GHCL acquired Dan River Inc, USA in Jan'2006 - Dan River was Third Largest US Home- Textile Manufacturer with over 125 years of B2D relationship with around 100 Retailers including big names like Wall-Mart, K-Mart, J C Penny, Target etc. b. In UK. GhCL acquired Rosebys Retqjl Chain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s like P G, Saint Gobain, Unilever, etc who required soda ash for detergents and glass and provide them supply in any part of the world. ii. Further, it also gave GHCL India the opportunity to study the operational processes for manufacture and waste disposal used at GHCL Upsom and implement the same in its own plant. iii. GHCL India could also import soda ash from GHCL Upsom to cater to the local growing demand. In fact, in F.Y. 2006-07, GHCL India imported soda ash worth ₹ 9.09 Cr and sodium bicarb of Rs,0.65 Cr from GHCL Upsom c) GHCL Upsom was located about 400 KM from Capital City of Bucharest with a capacity of 2.25 Lac Per Annum d) The plant was spread over 80 hectares with a market shore of 25% of Domestic Market, e) The acquisition was completed after Financial, Legal and Environment due diligence conducted by Ernst Young, Musat Asociafii, Pricewater House Coopers respectively. 3. Home-Textiles Business Expansion: Vapi Project and Acquisition in USA and UK. a) After lurning around and stabilizing Texiile Spinning business in 2004, GHCL engaged KSA Technopak, a renowned consultant, who advised GHCL to expand its textile bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Capital Limited wherein the transaction was run over a period of two men Ins during which Grant Thornton, Delhi and Beachcroft LLP, UK were engaged to cairyout financial and legal due diligences respectively and Beachcroft and Adelshaw Goddard were the Attorneys to conclude the transactions far both the parties. Acquisition was completed in July'2006. The acquisition was done with a well crofted strategy as the product profile of Rosebys could be synergized with Vapi Plant as about 59% of the revenue was contributed from bedding / curtain products which were largely sourced from UK and UK based suppliers till then. At the time accuisition, DAN River Inc., USA and Rosebys Operations Limited (ROL), UK were not making profits and our long term plan wa; to make them profitable by restructuring their product souring and aligning it with Vapi. The acquisitions were conducting under Long Term Business. Growth Strategy and it is well proven that it normally takes around 3- 4 years to stabilize and turnaround businesses. The experience frcm the aforesaid acquisitions proved extremely helpful for Indian Textile business which is eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction therewith or which is capable of being so conducted as to directly or indirectly benefit the company. 33. To underwrite, acquire, take up and hold shares, stocks, debentures, debenture stocks, bonds, obligations and securities issued or guaranteed by any company constituted or carrying on business in India or any foreign country in connection with the business which the company is authorize to carry on and to subscribe for the same, either conditionally or otherwise, and to guarantee the subscription thereof and to exercise and enforce all rights and powers conferred by or incidental to the ownership thereof, 34. To establish or promote 01 concur in establishing or promoting any company or companies in India or anywhere else in I he world for the purpose of acquiring all or any of the properties rights and liabilities of the company or for any other purpose which may seen directly or indirectly ca culated to benefit the company and to place or guarantee the placing of, underwrite, subscribe for 01 otherwise, acquire all or any part of the shares, debentures or other securities of any such other company. 57, To carry on whether in India or else in the world a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year Source LUSD_____ Application USD 2006-07 Capital from GHCL 26,024,832^ Investment in Indian England NV 9,803 Loan from GHCL 54,200,000 Loan given to Indian England NV 30,012,900 Investment in Indian Wales NV 76,789 Loan given to Indian Wales NV 5,200,000 Investment in GHCL INC. 5,000 Loan given to GHCL INC. 42,222,065 Used for Assets/Expenses 2,698,275 TOTAL 80,224, 832 TOTAL 80,224,832 INDIAN Et\ (To^acquii Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loan from Indian Britain BV 5,200,000 Loan to Rosebys 25,162,553 Loan from Exim Bank 39,600,000 Used for Assets/Expenses 97,149 Interest and Other Income 1,191,352 TOTAL 46,068,141 TOTAL 46,068,141 5.18. The appellant also relied upon the resolutions related to acquisition and investments in Soda-ash olant SG Bega Upsom SA in Romania, Textile business of Dan River Inc USA and Home textile chain of Rosebys UK through subsidiary Indian Britain BV and step-down subsidiaries of IBBV. The brief of the above strategical acquisitions as submitted by the appellant is noted as under:- a] In board meeting on 01-09-2005, the investment up lo USD 100 Mn for acquisition of soda ash plants at Romania was approved. The proposal involves acquiring two units having current p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specialty stores, absolute synergy with Vapi Manufacturing Facility, which can immediately cater to available market. Strong and diversified portfolio of licensed brands of title entity to provide study revenue and profitability. Large production facility of target entity can be relocated to India at a much cheaper cost. Production facility in India with reduced overhands and reduced cost of production to increase margins and consequently profitability. The board was further informed that the negotiation for purchase of majority stake approximately 60% against indicative equity value of USD 60 Mn is in progress. In board meeting on 15-10-2005, the board was informed about the status of acquisition of soda ash plant in Romania and home textile business in USA was informed to the board. d) In board meeting on 19-11-2005, acquisition of business in Romania and USA and investment in wholly owned subsidiary in Netherland approved. Acquisition of Bega Upsom SA in Romania with investment of US $62 Mn approved. The acquisition of shares of Bega Upsom SA will be through the wholly owned subsidiary (WOS)/Stepdown Subsidiary, Registered in Netherlan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fully integrated player from spinning to retail. Immediate access to UK market. Market for high value items of Vapi. Increased sourcing from ndia, Pakistan and China - to improve margins. Outsourcing of back office to India - cost reduction. The investment up to UK 21 Mn for acquisition of Home textile chain Rosebys UK was approved. h) In board meeting on 17-07-2006, the board was informed that acquisition of Rosebys UK will be made through Indian Wales NV, a wholly owned suosidiary of Indian Britain BV, which is a wholly owned subsidiary of GHCL Ltd. The board was further informed that the investment of UK 27 Mn (USD 50 Mn) will be financed parfiy from debt and balance from FCCB. i) In board meeting on 30-10-2006, the board was informed about acquisition of Rosebys UK. j) In board meeting on 29-01-2007, the board was informed about acquisition of Best Manufacturing Group LLC. 5.19. The appellant also submitted the details of import and exports with the acquired undertakings and copies of abstracts of Form no. 3CEB [TP Reports). Such details of import and exports are as under: Name of acquired comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes of international price] making it unviable for GHCL Upsom to continue production. M/s. Romgaz also stopped gas supplies because of which plant had to be shut down. Further, he plant also suffered damage due to being idle in extreme cold in winter, Lenders and trade creditors of GHCL Upsom put pressure for Recovery of their dues. Recession set in Europe and US leading to all round fall in demand and prices of soda ash. GHCL also had to extend support to get the damaged plant repaired to a level essential to start functioning. GHCL also sought assistance from Romanian government to sustain the operations of GHCL Upsom. However, things did not improve and the production was stopped, employees had to be retrenched and presently GHCL Upsom is in the_process of being wound up. Since GHCL Upsom was perceived as horizontal expansion of GHCL to cater to East European and other markets and it also offered several synergetic advantages, if became necessary for GHCL to extend working capital support to enable GHCL Upsom to tide over its crisis. Failure of GHCL Upsom would have meant not only loss of opportunity to diversify into East European market but also loss of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o loss of ability to leverage upon the synergelic advantages. Dan River, inc. USA^ Rosebys Operations, UK GHCL Ltd acquired Dan River Inc [Dan River) in USA and Rosebys Operations Ltd (Rosebys) in UK to have a ready distribution channel for home tex'ile products manufactured at its Vapi unit. Unfortunately, due to macro economic factors, recession set in Europe soon thereafter and all the three companies faced significant difficulty in obtaining funds to run their operations. However, due to deepening of the financial crisis in Europe and US in 2008 and 2009, these companies were unable to recover and went into winding up Unfortunately soon after the acquisitions, recession set in US and Europe largely fuelled by the US subprime crises in 2008. The recession impacted the retail textile trade very badly. Both Dan and Rgsebys facedjdouble whgmmy of plummeting sales and shortage if liquidity jg sustain the operations. The financial lenders withdrew the credit lines to reduce their exposure to the badly affected retail sector. This was also largely on account of their own inability to raise funds. Particularly with reference to Rosebys, the sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GHCL Vapi Unit to USA and UK, as these customers were having business relations with Dan River Inc, USA and Rosebys Operations Ltd, UK. The turnover increased from Rs, 80.11 crore [F. Y. 2008-09) to ₹ 452 crore (F. Y. 2012-13). Apart from the above, the appellant exported its products to various other countries due to brand name of Dan River, USA and Rosebys Operations, UK, which gives enduring benefits io the company GHCL Ltd at large and the same will further gave benefits to the company in the coming years. The summary of exports to UK and USA in year 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 as submitted are as under: DETAILS OF EXPORT SALES TO UK AND USA SN Cuslomer name Country FY 2008-09 FY 2009- 10 FY 2010-11 FY 2011-12 FY 2012- 13 1 Edinburgh Woollen Mills Lid UK 4,039,622 - - - - 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chimes Inc. USA - - - 5.581.661 - 14 Colton Sheet LLC ^JSA - - - 169,337,585 1.438,204,714 15 Croscill Inc. USA - - 15,904,313 54,627,215 20,199,727 16 Domestications USA 10,665,489 - - - - ~^~\ E E Co. Ltd iJJSA___ - - - 17,012,570 17,262,164 18 Elite Home Products Inc [USA - 7,409,099 3,030, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - 239,513,487 742.410,831 816,003,075 30 Madison industries Inc USA 16,435,816 - - - - 31 Millwork Pie Ltd USA - - - 102,140,447 - 32 Nantucket Distributing USA - - - 3,325,754 - 33 Niki international inc. USA - - - 55,629,096 465,212 34 Pine Cone Hill USA 99,877 - - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 Startex industries, inc. USA - 4,322,718 - - - 47 Thread Trading Mak wo no USA - - - 8,684,039 - 48 U.S.Polo Assn. USA - - 54,502,548 - - 49 Wal-mart stores inc. USA - - 119,207.106 1,635,438 - 50 westport linens inc. USA - 2.267,510 - - - 51 williamssonoma, inc. USA - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, GHCL acquired Kosebys UK Ltd in United Kingdom and Dan River Inc and Best Textile International in USA during the period January 2006 to March 2007. The acquisitions of Home Textile Business in USA and Retail Chain in UK were in the line of expansion after setting-up of Vapi Home Textile Plant, so that from India products can be lined up in USA and UK as the India became processing hubof home furnishing textile Hems, Due to entering in Glcbal market through these acquisitions, the revenue of the textile segment increased from mere ₹ 90 crore in 2003-04 to (is. 900 crore in 2012-13 and the revenue of the soda ash segment increased from mere ₹ 376 crore in 2003-04 to ₹ 1200 crore in 2012-13. Through such acquisitions GHCL succeeded in establishing long term relationship with such eminent customer based like Wall-Marl, K-Marl, JC Penny, Macy's etc. which shall prove beneficial for Indian Textile operations for years to come. (x) The investment in subsidiary company, step-down subsidiaries and acquisition of retail chain was only to expand business globally; therefore, the investment in shares of Indian Brila-.n BV was made by the Appellant to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted the impugned disallowance by observing as follows: I have considered the arguments and submissions of the appellant as also that stated by the Assessing Officer, I find that the Camelot was a 100% subsidiary cf the appellant and the appellant had deep business interest in Camelot. The main reason for setting up Camelot was to manufacture toothbrushes exclusively for the appellant. The appellant was relying upon Camelot for manufacturing of toothbrushes to be traded by the appellant. The entire investment in Camelot was made by the appellant only as a measure of commercial expediency to further its business objectives and were primarily related to the business operations of the appellant. At no point of time, the investments in Camelot was made or held with an intention to realize any enhancement in value thereof over a period of time or to earn dividend income. Rather the investments were made only to separately house an integral part of the business activity of the appellant, which essentially operated as a single unified business. Thus, relying on the principles laid down by Hon'ble Supreme Court in the case of Patnaik Co Ltd (supra) and SA Builders vs. CIT (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le understanding, the assessee had invested in the Camelot, and 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 'investment1 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 ere 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 Camelo* 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 als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se facts the coordinate 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. (ii) The above decision cr ITAT Mumbai is also confirmed by Hon'ble Bombay High Court in favour of assessee in the aforesaid case CIT vs. Colgate Palmolive (India) Ltd, (2015) 370 1TR 0728, where the Hon'ble Court held that loss on saleof shares of subsidiary was business loss in nature. The revenue filed the appeal raising the question to be decided by the Honourable Court as under:- 5.1) Whether on the facts and circumstances of the case and in law, the ITAT is justified in holding that the loss incurred on the sale of shares of Camelot a wholly owned subsidiary was a business loss when the investment made in the latter was not a business asset, but investment for obtaining an enduring benefit. The Honourable Court has decided the above question as under:- 6. The facts necessary for that ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement value thereof or to earn dividend income. The nvestment 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 ₹ 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 being for commercial expediency, the view taken by the Commissioner and the Tribunal concurrently cannot be termed as perverse. That view being imminently possible in the given facts and circumstances. It does not raise any substantial question of law. (iii) Patnalk Co. Ltd, v. CIT(9861 161 ITR 365 (SC) The assessee claimed a loss of ₹ 53,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was o revenue loss and not a capital loss.-CIT vs. Patnaik Co. P. Ltd. [1979) 117 ITR 388 (Ori) : TC14R.517 reversed; CIT vs. Industry and Commerce Enterprises P. Ltd. (1979) 118 ITR 606 (Ori) : TC14R.519, Addl. CIT vs. B.M.S. (P) Ltd. (1979) 11 CTR (Mad) 146 : (1979) 119 ITR 321 (Mad) : TC14R.520 and CIT vs. Dandayuthaponi Foundry P. Ltd. (1980) 17 CTR (Mad) 338 : (1980) i23 ITR 709 (Mad) : TC14R.520#1 approved. Conclusion: Loss on sa e of securities, purchased with a view to obtain preferential treatment from the Government, is a business loss. (iv) DCIT v. Guiaral Small Industries Corporation 120041 84 TTJ 22 (Ahd) Business income-Business loss-Loss on sale of shares-Assessee, a Government Corporation, formed with the object to promote the interest of industrial units in the State and once the units became self-sufficient to sell thgm off-One GSL was promoted with the same object os a subsidiary and later on sold off when the loss started mounting-Loss on sale of shares of GSL was thus rightly allowed by C1T(A) as trading loss-Brooke Bond India Ltd. vs. CIT (1986) 57 CTR (SC) 25 : (1986) 162 ITR 373 (SC) and Rajasthan Financial Corporation Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mature. In the above context the sale of securities were only closely linked up with the business of the corporation, so that, loss suffered on account of such a sale of securities was a trading loss.-Sardar Indro Singh Sons Ltd. vs. CIT (1953) 24 1TR 415 (SC) : TC12R.837 and Punjab Co-operative Bank Ltd. vs. CIT (1940] 8 ITR 635 (PC) ; TC12R.1135 applied. Conclusion: Sale of securities effected by a State Financial Corporation only to find necessary funds for meeting certain pressing commitments being closely linked up with business of the corporation, the loss suffered on such sale of securities was only a trading loss. vi. The Hon'ble Karnataka High Court in the case of CIT Vs, Malabar Industrial Company Limited in 320 ITR 486 has held that holding of shares by the assessee in pursuance of the object ofthe company should be treated as holding of shares for the purpose of business and accordingly any loss on sale of such shares should be treated as business loss and not loss under the head capital gain and capital loss. vii. Hon'ble ITAT Chennai Bench in the case of Indian Commerce and Industries Company Pvt. Ltd. Vs. CIT (1995) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions -Allowable as (Right issue) - Assessee was a promoter and shareholder of J1SCO, which declared a right issue of secured redeemable non-convertible debentures (NOD) of ₹ 500 each - As per terms of said issue, every shareholder had to pay a sum of Rs. III per debenture on making application and balance of ₹ 389 per NCD was payable on allotment - Before right issue, JISCO made certain arrangements with UTI, according to which allottees of NCDs could surrender all NCDs to UTI after application was made and UTI agreed to pay balance allotment money (₹ 389 per NCD) to JISCO and secure NCD registered in its name - Assessee. a shareholder and promoter of JISCO, opted for arrangement entered into between JISCO and UTI and, therefore, when UTI paid balance allotment money (₹ 389 per NCD) on behalf of assessee, allotment was made in its favour - Assessee claimed that amount of application money forgone was to be allowed as business loss -Assessing Officer rejected assessee's claim - Tribunal, however, allowed said claim - Whether since assessee subscribed to right issue of NCDs as a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing in the shares of the said company. The Tribunal has come to a finding of fact that the shares were stock-intrade and has, therefore, allowed the loss. The loss, in our opinion, has to be treated as a trading loss. The mere fact that the shares were not sold is of no significance since in fact the shares could not have been sold and had become worthless. The question is accordingly answered in favour of the assessee. 4. In view of the above discussion the question referred to this court is decided in favour of the assessee and against the Revenue. The Registrar General of this court is directed to send a copy of this order to the Income-tax Appellate Tribunal. The ratio of the judgment is applicable to the facts of the appellant. The ground of appeal is accordingly allowed. During the course of appellate proceedings before us, the ld. counsel has supported the order of ld. CIT(A) after placing the reliance on the decision of Jurisdictional High Court in the case of Mitesh Impax 270 CTR 66 (Guj) and also placed reliance on the following pronouncements 1. Colgate Pamlive (In) Ltd. 370 ITR 728 (Bom) 2. Ace Designer Ltd. 120 taxman.com 321 (Kar) 3. Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness loss allowed by the ld. DRP in favour of the assessee was sustained on the ground that assessee company had acquired its subsidiary company Rosebys Operation Ltd. to expand its textile business operation globally based on the study carried out by KSA Tech Pak, renowned global consultant as stated supra in this order. Without reiterating the facts as elaborately discussed in the order of ld. CIT(A) and while adjudicating similar ground of appeal of the revenue vide ITA No. 976/Ahd/2014, it is undisputed fact that assessee has acquired S.C. Bega UPSAM (renamed as GHCL UPSAM Ltd.) at Romania in soda ash manufacturing centre and similarly the assessee acquired Rosebys U.K. Ltd. in U.K. and Ban River Inc in U.S. to expand its home textile business as the company was having plants for textile manufacturing at Madurai and Vapi. The purpose of investment in the subsidiaries was to expand its business globally. After such acquisition, the sales and export shoot up substantially and international concerns started taking assessee company product even after reduction in shares, liquidation of subsidiary Indian Britain B.V. The assessee has explained its business expansion by makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shars were in the nature of business losses. In the light of the facts and finding reported in the decision of ld. CIT(A) as elaborated in this order, we do not find any infirmity in the decision of the ld. CIT(A) in allowing the losses on reduction in value of share on investment in subsidiary company as business losses in the hand of the assessee company. Therefore, this ground of the appeal of the revenue is dismissed. Ground No. 2of CO (confirming upward adjustment of ₹ 23,81,063/- in respect of interest on loan given to subsidiary) 43. As the facts and issue involved in ground of appeal no. 6 vide ITA No. 1042/Ahd/2014 Assessment Year 2009-10 are similar as in C.O. 29/Ahd/2018 Assessment Year 2012-13 therefore after applying the decision adjudicated vide ITA No. 1042/Ahd/2014 as supra in this order, this ground of appeal of the assessee stands dismissed. ITA No. 1121/Ahd/2017 filed by revenue Cross Objection No. 30/Ahd/2018 filed by assessee A.Y. 2013-14 Ground No. 1( Disallowance u/s. 14A r.w.r. 8D of ₹ 2,38,632/- as against ₹ 38,73,085/-) ground no. 1 of cross objection 44. During the course of assessment, the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the claim of the assessee. The relevant part of pertaining to the issue in this order as discussed in the ld. CIT(A) s order is reproduced as under:- 4.15. Considering the above facts and submissions in brief, it is noticed that the entire investment in 100% subsidiary company Indian Britain BV was made by appellant for acquiring soda-ash manufacturing plants in Romania and textile business / chains in USA and UK to expand its business and acquisitions were related to the appellant's business operations in India. The appellant through 100% subsidiary company Indian Britain BV formed further step-down subsidiaries in Netherlands and USA, through such step-down subsidiaries, the appellant acquired soda-ash manufacturing plants SC Bega Upsom [renamed as GHCL Upsom Ltd) at Romania and similarly the appellant acquired Dan River Inc in USA and Rosebys UK Ltd in United Kingdom to expand its home textile business, as the company is having textile manufacturing plants at Madurai and Vapi. The appellant's objective of investment in subsidiary, step-down subsidiaries and acquisitions of retail chains was to expand its business globally and to bring Its products in internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2014-15 therefore after applying the decision adjudicated vide ITA No. 2625/Ahd/2015 as supra in this order, this ground of appeal of the revenue stands dismissed. Ground No. 3 to 3.3 (allowing claim of loss on invocation of guarantee of subsidiary company of ₹ 241,62,54,490/-) 51. The Assessing Officer has noticed that assessee company filed claim of loss on account of revocation of corporate guarantee of Exim Bank given on behalf of its subsidiary company Indian Wales, N.V. Netherland amounting to ₹ 2,41,62,54,990/- and claimed loss as business loss. In its submission, the assessee has furnished detailed submission of commercial strategy, commercial expediency that the corporate guarantee was for the purpose of global business. The assessee has explained that invocation of corporate guarantee was purely for the purpose of business to achieve business objective with commercial expediency and stated that losses arising from invocation on corporate guarantee was allowable as business loss. The Assessing Officer rejected the claim of the assessee stating that assessee has not filed revised return for such claim as per provision of section 139(5) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business loss and the same could have been allowed although the revised return of income u/s, 139(5) of the 1. T. Act has not been filed but the claim was made through the letter filed with the AO on 26/12/2016 in the assessment proceedings before the AO. For ready reference, the contents of the aforesaid letter is reproduced as under: Kindly refer to ongoing assessment proceeding in our case for AY 20H-I5. In this regards the assessee request for the allowability of claim of ₹ 24162.55 lakhs in respect of invocation of corporate guarantee by EXIM Bank given on behalf of subsidiary company i.e. Indian Wales NV, Netherlands. In this connection, we have to submit as under: Revocation of corporate guarantee of Exim Bank of ₹ 24162.55 lakh: 1. The payment on revocation of corporate guarantee of Exim Bank of ₹ 24162.55 lakh was not claimed as business loss from profit . gains of business profession. Assessee has left out claiming such loss. 2. Now in assessment proceedings, the assessee company claim that the losses arising on payment of devolvement of corporate guarantee of Exim Bank for subsidiary Indian Wales NV, Netherlands of ₹ 241, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Soda Ash Inorganic 376 431 Textile 86 94 Others 8 8 Total 470 533 5. After turning around and stabilizing its Textiles Spinning Business, GHCL decided to expand both lines of Businesses i.e. Soda Ash and Textiles in 2004. 6. In Soda Ash, GHCL envisaged to become a Global Player with a capacity of 11 Lac Tons/Annum. 7. To achieve this GHCL expanded its Domestic Production Capacity from 6 Lac Tons to 8.5 Lac Tons per annum resulting in significant growth in its business. 8. Additionally explored International Growth opportunity in Soda Ash with an eye on prominent acquisition targets in both USA and Europe. 9. With a view to have Global footprint and penetrate European Market, GHCL identified two Soda Ash Plants in Romania and acquired one of them namely Bega Upsom (subsequently renamed GHCL Upsom Limited) in December'2005 with a capacity of around 2.2S Lac Per Annum. 10. In the Textile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UK as the India became processing hub of home furnishing textile items. 15. ACQUISITION STRUCTURE - The above acquisitions were held in a well structured and identifiable group of companies as per RBl norms. These were held by INDIAN BRITAIN B.V, NETHERLANDS (NL), a 100% subsidiary of GHCL Limited , as under: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx B- Commercial expediency: Businesjjlxpansjgri 1. The aforesaid acquisitions in Romania, USA and UK were to expand GHCL's existing Soda Ash and Home-Textile business so that GHCL can become Global Player. 2. Home Textile Busienss Expansion : Vapi Project and Acquisition in USA and UK. i) After turning around and stabilizing Textile Spinning business in 2004, GHCL engaged KSA Tcchnopak, a renowned consultant, who advised GHCL to expand its textile business by entering in Home Textile Segment both in India and Overseas.GHCL Limited j) Objective of Textile expansion was to be present in the entire textile value chain right from Spinning to Retail , which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Long Term Business Growth Strategy and it is well proven that it normally takes around 3- 4 years to stabilize and turnaround businesses. 5. The experience from the aforesaid acquisitions proved extremely helpful for Indian Textile business which Is evident from the fact that the Revenue of the textile segment increased from mere ₹ 90 Crs. in 2003-04 to ₹ 900 Crores in 2012-13: Post acquisition revenue of Soda Ash and Textile GHCL India Rs. In Crs. Revenue FY 2006-07 FV 2007- 08 FY 2008-09 FY 2009-10 FV 2010-11 FY 2011-12 FY 2012-13 Soda Ash / Inorganic 708 653 857 831 927 1,148 1216 Home Textiles 363 417 383 383 571 749 909 Toial 1071 1071 1240 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, the loss arising therefrom was business loss. C1T vs. Amalgamations (V) Ltd (1991) 226 1TR 188 (SC) In this case, the Supreme Court was concerned with a case the assessee's business includes furnishing guarantee to debts borrowed by subsidiary companies'. It was held that the guarantee devolvement liability which fell upon the assessee in respect of a newly acquired subsidiary was in the course of the taxpayer's business and hence was an allowable loss. The taxpayer in this case was engaged in formation, acquisition and management of subsidiaries which, in turn, were engaged in businesses like manufacturing, trading, financing, etc. (b) CJT.ys. Pure Beverages Ltd. (1994jj;Q9_ITR_J31_(_G_ujIL In this case, the taxpayer was a soft drink manufacturer who gave guarantees to the bank for loans advanced to retailers to enable them to purchase coolers to store soft drinks sold by the taxpayer. Prior to 1969. the taxpayer itself used to provide the coolers to the retailers. From 1969. the retailers were persuaded to purchase the coolers themselves. The cost of the cooler ranged between ₹ 3000 to ₹ 6000. Some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was engaged in the manufacture of carbon paper, ink and other allied products. Due to increase in need of funds for carrying on manufacturing operations, Amer entered into a managing agreement with the taxpayer, and under the said agreement, taxpayer advanced an amount of ₹ 3.40 lakhs to Amer. Apart from lending money, taxpayer also guaranteed a sum of ₹ 2 lakhs obtained by Amer from Indian Overseas Bank. Subsequently, Amer failed in its business and incurred heavy losses because of which it was unable to pay the bank as well as the taxpayer. As a result of the guarantee, taxpayer became liable to pay the bank outstanding dues of Amer. Thus total amount due to the taxpayer in respect of the guarantee as well as advances was ₹ 4 lakhs which it claimed as a business deduction for AY 1956-57. The Tax Authority rejected the claim of the taxpayer and disallowed the loss on the ground that the management agreement did not mandatorily require the taxpayer to expend money by way of advances or give guarantees in favour of Amer. The Tribunal, by referring to the MOA of the taxpayer held that since the main objects of the taxpayer included lending of money a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Reserve Bank of India, Assessee-company, thereafter, had written off the balance. In such circumstances, both Commissioner (Appeals) as well as the Tribunal were absolutely justified in applying the ratio laid down by the Apex Court in case of Ramchandar Shivnarayan v, C1T [1978] 1 1 1 ITR 263 as also in case of Indian Aluminium Co. Ltd. v. C1T [1992] 84 ITR 735 (SO) to hold that such expenditure were needed to be spent by the assessee for the purpose of carrying on its business and are incidental to the business, therefore, any loss shall have to be considered as the revenue cost and not the capital cost. (g) CIT vs Spencers Co. Ltd. (No. 1 )(2014) 47 Taxman.com 55 Assessee offered guarantee to 'S' bank on behalf of its subsidiary company - Subsequently, on invocation of guarantee clause, assessee made payment to bank and wrote tiff said amount in its books of account believing that nothing could be recovered from subsidiary company -Assessee's claim for deduction of said amount as bad debts was rejected by revenue authorities - Tribunal, however, allowed assessee's claim -Whether since amount in question was paid for business expediency of wholly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On the contrary, the cose of the appellant was on a better tooting for the reason that all the facts with regard to justification of the claim made through the written submission were on record before the A.O. and the same have not been rebutted by the AO. In this regard, the binding decisions / judgments and the Circular of the CBDT are relevant to be considered in such issues whereby such claims have to be admitted in the appellate proceedings. Some of them are briefly noted as under. 4.6.1. In the circular of CBDT Circular No. 14 (XL-35) dated 11 April 1955, it has been observed that the AO being the taxing authority ought to have exercised his powers, in doing so he must act in a fair manner and his judgments may not be in a partition manner. Being a quasi judicial authority, the AO is bound to determine the correct tax payable by the assessee. In arriving at such correct tax, the AO is bound to allow the deductions and exemptions available to the assessee in accordance with law. The CBDT in its circular (supra) has clearly made out that the department is not supposed to take advantage of any mistake committed by the assessee or of ignorance of the assessee regarding pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that an officer must not take the advantage of the ignorance of the assessee. 4.6.8. The Hon'ble Gujarai High Court in the case of CIT Vs. Milton Laminaies Ltd. (2013) 37 Taxmann.com 249 have held that while giving effect to order of CIT(A) A.O can compute income lower than that returned. 4.6.9. The Hon'ble Delhi High Court in the case of CIT Vs. Jai Parabolic Springs Limited (2008) 306 ITR 42 has also held that the decision of Honourable Court in the case of Goetze India Ltd. was limited to the power of the AO not to entertain claim for deduction, otherwise then by revised return and did not impinge on the power of the Tribunal. 4.6.10. The Honourable Supreme Court in the case of National Thermai Power Company Ltd. Vs. CIT (1999) 229 ITR 383 has observed that it was open to the assessee to raise the points of law even before the appellate tribunal. 4.6.11. Similarly, the Honourable Ahmedabad Tribunal in the case of DCIT Vs. Zydus Wellness Limited (2016) 76 taxmann.com 328 has held as under:- 36. Further we also observe that the main reason for denial of deduction by Id. Assessing Officer was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings through written submission was on accountof uniformity in the approach of claim and the same shows the bonafide intention of the appellant. 4.8. Thus, considering the aforesaid judgements and circular, as per the legal position, the CIT(A) and ITAT have power to allow deduction of expenditure / claim to appellant which it was otherwise entitled even though such claim was not made through revised return of income'. Even, the appellant, if entitled to a particular claim which remained to be claimed in the return of income may claim during the appellate proceedings. Thus the decision in the case of Goetze Indi Ltd- does not restrict the appellant to make such claim in the appellate proceedings. The A.O. ought to have dealt the issue under consideration on merits which he wrongly chosen not to do so, more so when the appellant has given the written submissions, explaining the reasons and citing the judgements for acceptance of its ciairn. Thus, the A.O.'s action for non consideration of the claim in the assessment proceedings on merits is found not correct in view of the judicial propositions of the Hon'ble Courts and circular cited above. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. In crore Revenue FY 2003-04 FY 2004-05 Soda Ash Inorganic 376 431 Textile 86 94 Others 8 8 Total 470 533 5. After turning around and stabilizing its Textiles Spinning Business, GHCL decided to expand both lines of Businesses i.e. Soda Ash and Textiles in 2004. 6. In Soda Ash, GHCL envisaged to become a Global Player with a capacity of 11 Lac Tons / Annum, 7. To achieve this GHCL expanded its Domestic Production Capacity from 6 Lac Tons to 8.5 Lac Tons per annum resulting in significant growth in its business. 8. Additionally explored International Growth opportunity in Soda Ash with an eye on prominent acquisition targets in both USA and Europe. 9. With a view to have Global footprint and penetrate European Market, GHCL identified two Soda Ash Plants in Romania and acquired one of them namely Bega Upsom (sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the line of expansion after setting-up oLVaBJ Home Textile Plant, so that from India products con be lined in USA and UK as the India became processing hub of home furnishing textile items. ACQUISITION STRUCTURE - The above acquisitions were held in a well structured and identifiable group of companies as per RBI norms. These were held by'INDIAN BRITAIN B.V, NETHERLANDS(NL), a 100% subsidiary of GHCL Limited , as under: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxx 4.11. It has been noticed that the aforesaid acquisitions in Romania, USA and UK were to expand the existing business of the appellant company of Soda Ash and Home Textile Business to become the global player. So it was utmost required to make the investment in subsidiary company because of the requirement of business expansion and due to commercial expediency and the same is briefly discussed as under:- 1. The aforesaid acquisitions in Romania, USA and UK were to expand GHCL's existing Soda Ash and Home-Textile busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Sales (B2B) and Retail Chain. c) To fulfil the objective, at first stage, GHCL set-up a state of art Home Textile plant comprising of weaving, processing and made up- facility at Vapi, Gujarat at a cost of ₹ 220 Crores which was commissioned in March 2006. d) Subsequently GHCL carried out acquisitions of Home Textile business in USA and Retail Chain in UK which were in the line of expansion after setting-up of Vapi Home Textile Plant, so that from India products can be lined in USA and UK as the India become processing hub of home furnishing textile items. e) In Home Textile Segment, USA is the largest market with almost 40% market share with next being Europe with almost 30% market share. f) The objective of the acquisition was to capture and expand Home Textile market in USA, UK and European Region. g) Had we not setup VAPI Home Textile Plant, there was no need to acquire Dan River Inc in USA and Rosebys Operations Limited (ROL) in UK. h) DAN River Inc (DR) USA Acquisition Dan River was third largest US Home Textile Manufacturer with over 125 years design and development experience. Wos headquartered in Danville, Virgina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY 200i-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 Soda Ash / Inorganic 708 653 857 831 927 1,148 1216 Home Textiles 363 417 383 383 571 749 909 Total 1,071 1,071 1240 1214 1498 1,897 2125 Additionally, GHCL succeeded in establishing long term relationship with such eminent customer based like Wall-Mart, K-Mart, JC Penny, Macy's etc. which shall prove beneficial for Indian Textile operations for years to come. In view of the above, it is beyond doubt established that the investment in Indian Britain BV [wholly owned subsidiary) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tail. Immediate access to UK market. Market for high value items of Vapi. Increased sourcing from India, Pakistan and China - to improve margins. Outsourcing of back office to India - cost reduction. Price of the acquisition is 21 million to be paid at the time of completion for 100% equity. The pricing stated above is based upon the asset details as given in the draft MOU for the period ended April 2006 and any negative valuation impact on the same would entitle GHCL to make adjustment in the said pricing. The working capital of Rosebys is likely to increase by 3.2 million by July 31, 2006. GHCL would compensate Rosebys on this increase in working capital at actual figure to be determined at the time of the acquisition. Due diligence (financial, legal) to start immediately. Deal to be closed by July 31,2006. Thus, the investment up to UK 21 Mn for acquisition of Home textile chain Rosebys UK was approved (Pg. no. 39 to 40). b) In board meeting on 17-07-2006, the board was informed that acquisition of Rosebys UK will be made through Indian Wales NV, a wholly owned subsidiary of Indian Britain BV, which is a wholly owned sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion terms, to provide guarantee for the repayment of the above NCD issued by Indian Wales NV (Pg. no. 41 to 42). c) In board meeting on 30-10-2006, the board was informed about acquisition of Rosebys UK. Acquisition of Roscbys and its funding: The Board was informed that in line with the Board approval in its meeting held on July 17, 2006, GHCL through its step down wholly owned subsidiary GHCL Rosebys Limited registered in UK acquired Rosebys Operations Limited, Rosebys Holding Limited and Rosebys (2004) (called Rosebys '] on July 28, 2006. The Board noted mat Mr. Sanjay Dalmia, Mr. Anurag Daimia, Mr, P Sampath, Mr. R S Jalan, Mr. Sanjay Purohit, Ms Sue Tenant as CEO and Mr. Mark Dyson as CFO were appointed an the Board of the Company. The Board was also informed that Indian Wales NV a step down subsidiary of GHCL, which is the holding Company of GHCL Rosebys Limited has funded the cost of acquisition of USD 50 million of which USD 37 million has been borrowed from Exim Bank (against corporate guarantee of GHCL Limited and pledge of shares of Rosebys to the extent of 51% as approved by the Board in the meeting held on July 17, 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odself further discussed about usage of $ 40 Mn funds received from Exim Bank by Indian Wales NV, subsidiary company and further step-down subsidiaries in home textile chain Rosebys UK. As explained above, $ 40 Mn and FCCB funds from Indian Britain BV of USD 5.20 Mn were infused in home textile chain Rosebys UK. Trie position of application of funds as per balance sheet of Indian Wales NV as on 31-03-2007 is as under (Pg. no. 87 to 100): INDIAN WALES NV - STEP-DOWN SUBSIDIARY (To acquire Rosebys Ltd, UK Textile Chain) Source USD (Mn) INR (Cr) Application USD (Mn) INR (Cr) Capital from Indian Britain BV 0.080 0.36 Investment in Rosebys 20.808 89.61 Loan from Indian Britain BV 5.200 22.61 Loan to Rosebys 25.163 109.43 Loan from Exim Bank 40.000 173.96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of which suppliers became reluctant to supply goods to Rosebys in absence of adequate protection^ Due to sudden collapse of Lehman Brothers, a $650 billion investment bank in September 2008. This not only resulted in the crash of hundreds of banks in USA, UK and Europe, but also resulted in the closure of many businesses in Western World, specially the retail outlets such as Woolworth, Officers Club, MK1, MF1, Dolcis, Whittard of Chelsea, Due to the global financial crisis, more than 5 lakh people loss their jobs.__________ ___________ The regular banker of Rosebys viz. Barclay Bank which was also Financial crisis could not extend additional working capital to Rosebys. facing During the crucial period when Dan River and Rosebys were facing severe financial difficulties, the restructuring and integration plans of GHCL were required to be put on hold and the immediate focus was to keep Dan River and Rosebys afloat. GHCL's interest in supporting Dan River and Rosebys were manifold. Firstly, both these companies were perceived as major customers for Vapi unit; secondly, the acquisition of Dan River and Rosebys was with a view to fulfill the vision of GHCL to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was increase in export of home textile made-ups from GHCL Vapi Unit to ready customers for its products and direct access to consumers in UK and USA, as these customers were having business relations with Dan River Inc, USA and Rosebys Operations Ltd, UK. The summary of exports to UK and USA in year 2008-09, 2009-10, 2010-11.2011-12 and 2012-13 are as under: DETAILS OF EXPORT SALES TO UK AND USA SN Customer name County FY 2008-09 I FYJW200 FY 2010-11 FV 2011-12 FY 2012-13 1 Edinburgh Woollen Mills Ltd UK 4,039,822 . . - 2 Home Base Ltd Avehury UK - - - 55,388,535 61,328,992 3 Home Retail Group UK - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27 16 Domestications USA | 10,665,489 - - - - 17 E L Co. Ltd USA - - - 17,012,570 17,262,164 18 Elite Home Products Inc USA - 7,409,099 3,030,124 89,456,945 85,055,223 19 Fox rich textiles. Inc. USA 27,038,273 8,790,535 3,360,804 - - 20 G S Nizami USA 5,021,145 - - - - 21 Grace Home Fashions LLC USA 55,455,359 237,472,868 313,493,315 15,412.107 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65,2_L2_ 34 Pine Cone Hill USA 99,877 - - - - 35 Planet home interl LLC. USA 6,976,040 . 36 Revman International, Inc. USA 44,319;038 139,745,869 328,735,608 402,988,471 37 Robert Alien Assoctes Inc USA 10,501,068 . 38 Rockford Internl Pvt Ltd USA 1.400.6 1 7 39 Royale Linens, Inc USA 10,504,348 - - - 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 5,561,179 - - - TOTAL 801,139,799 760,573,067 1,697,066,529 3,923,843,142 4,520,334,338 Thus, due to above acquisitions in foreign, the export from GHCL Vapi Unit was increased from ₹ 80.11 crore to ₹ 452 crore. Apart from the above, the export to various other countries also increased due to ready customer chain of Dan River and Rosebys Operations, which gives enduring benefits to the company GHCL at large and the same will further give benefits to the company in the years to come. 9. After 7 years, the subsidiary Indian Wales NV due to huge losses amounting to ₹ 333.04 crore (Pg. no. 103) from business of step-down subsidiary Rosebys Operations Ltd, the company Indian Wales MV was not able to pay the borrowings and liabilities. The position of funds as per balance sheet of Indian Wales NV as on 31-03-2013 and 31-03-2014 furnished (Pg. no. 101 to 109). Therefore, as per debenture subscription agreement, NCD's funds were recovered by Exim B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as both are Indian entities. The company GHCL also requested for date of conversion, rate of conversion, exact liability in Indian Rupee and interest rate to be applied from 24-07-2013 10 till date of payment. The Exim Bank vide letter dated 02-08-2013 (Pg. no. 113) stated that 2. The Rate of Interest applicable an the crystallized Rupee Loan (Equv. USD 37 mn, plus accrued interest) far ₹ 2,21,27,05,639/- would be 12.00% p.a. from July 24, 2013 lill date of payment. Exim Bank reserves the right to increase the interest rate, if crystallized INR amount along with applicable interest is not paid by August 15, 2013. The company GHCL made payment of NCD $ 37 mn along with interesi lill valued at 24-07-2013 and interest, from 24-07-2013 to 12-08-2013 to Exim Bank in Indian Rupees vide letter dated 13-08-2013 (Pg. no. 114). where in forwarding following payment details were given to Exim Bank: Sub: - Pgyment of USD 37 mn along with interest of USD 148870.00 Value date July_2_ _20l3 This has reference to payment of USD 37 Mn on behalf of Indian Wales alongwith interest of S 148870.00 accrued upto 24.07.2013 aggregating USD 37,148,870.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USD, 3mn Please refer to your Letter no. GHCL/Dec2013/25/2013-14 dated November 22. 2013 on the captioned subject. 2. Total dues of USD 3054008.82 (Principal of USD 3 mn and Interest of USD 54008.82 upto 26.11.2013), has been crystallized into INR 19,03,32.010 on 27.11.2013, at a conversion rate of 1 USD = ₹ 62.32. 3. The Rate of Interest applicable on the crystallized amount of ₹ 19,03,32,010 (Inclusive Service tax of ₹ 6I80J would be Exim Baiik'x ITMLR +200 bps. i.e. at 12.00% p.a. (Exim Bank's LTMLR a! present is 10%) from November 27, 2013 till date of payment. Exim Bank reserves the right to increase the interest rate, if crystallized INR amount along with applicable interest is not paid by December 21, 2013. 4. Please acknowledge receipt and arrange to make paymen! by December 21,2013. (vii) The company GHCL made payment of NCD $ 3 mn along with interest till valued at 26-11-2013 and interest from 26-11-2013 to 23-12-2013 to Exim Bank in Indian Rupees vide letter dated 24-12-2013 (Pg. no. 117), where in forwarding following payment details were given to Exim Bank: Sub: - Payment of USD 37 mn along with int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r USD 37 mn and USD 3 mn to secure the aggregate NCDs of USD 40 mn shall be null and void. 10. As explained and evident in Para no. 9 above, the appellant company has paid Rs, 222,42,96,032/- (₹ 221,27,05,639/- + ₹ 115,90,393/-) against corporate guarantee of $ 37 Mn and paid ₹ 19,19,58,958/- (₹ 19,03,32,010/- + ₹ 16.26.948/-) against corporate guarantee of S 3 Mn. The payments made by GHCL for corporate guarantee of $ 40 mn are as under: Date Amount (Rs) Amount (inS) Particulars 06-08-13 to 13-08- 13 221,27,05,639 37,148,870 $ 37 Mn Principal amount of NCD and $ 148,870 interest on NCD 13-08-13 115,90,393 interest @ 12% on outstanding amount of ₹ 22U7.05.639/- from 24-07-13 to 12-08-13 Total 222,42,96,032 Payment for $ 37 Mn - Corporate Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights and powers conferred by or incidental to the ownership thereof. 34. To establish or promote or concur In establishing or promoting any company or companies in India or anywhere else in the world for the purpose of acquiring all or any of the properties rights and liabilities of the company or for any other purpose which may seen directly or indirectly calculated to benefit the company and to place or guarantee the placing of, underwrite, subscribe for or otherwise, acquire all or any part of the shares, debentures or other securities of any such other company. 57. To carry on whether in India or else in the world any business or branch of the business which the company is authorized to carry on by means, of or through the agency or any subsidiary company or companies and to enter into any agreement with such subsidiary company for sharing the profits and bearing the losses of any business or branch so carried on, or for financing any such subsidiary company or guarantying its liabilities or to make any other arrangement which may seen desirable with reference to any business or branch so carried on including power at any time and either temporarily or permanen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76,789 Loan given to Indian Wales NV 5,200,000 Investment in GHCL INC. 5,000 Loan given to GHCL INC. 42,222,065 Used for Assets/Expenses 2,698,275 TOTAL 80,224,832 TOTAL 80,224,832 INDIAN ENGLAND NV - STEP-DOWN SUBSIDIARY (To acquire SC GHCL Upsom Romania - Soda Ash Manufacturing Plants) Year Source USD Application USD 2006-07 Capital from Indian Britain BV 9,803 Investment in SC GHCL Upsorn SA 23,355,972 Loan from Indian Britain BV 30,012,900 Loan given to GHCL Ups ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- a) In board meeting on 01-09-2005, the investment up to USD 100 Mn for acquisition of soda ash plants at Romania was approved. The proposal involves acquiring two units having current production of 4.30 lakh tones in Romania - the vintage of 1 plant being 1953 and the other 1962. The board was informed that critical raw materials like salt / limestone / anthracite are available in plenty from nearby supply sources and one unit has captive steam / power generated by gas dnd other unit buys steam / power from local utility company and both plants have approximately 1000 employees each with cordial labour relationship. The board wds further informed that in order to turnout of both the plants following steps are required to be taken: Modernization /revamping of plant thereby reduction of cost of production. Scope of change of market mix to increase sole of EU by road rather than export by sea route to increase realization. Long term tie up with external parties for supply of raw materials. Reduction of labour / overhead cost. The board was informed that estimated cost of acquisition of both the plants i.e. majority stdke in both the plants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... psom SA in Romania with investmenf of US $62 Mn approved. The acquisition of shares of Bega Upsom SA will be through the wholly owned subsidiary [WOS)/Step-down Subsidiary, Registered in Netherlands. Acquisition of Dan River Inc USA with investment of US $42 Mn approved. The acquisition of shares will be through the wholly owned subsidiary (WOS)/Step-down Subsidiary, Registered in Netherlands. In this board meeting, consent accorded to make investment in wholly owned subsidiary i.e. Valdralona Investments BV (name may be changed to Indian Britain BV) registered in Netherland, not exceeding to USD 42 Mn out of the proceeds of the foreign currency convertible bonds [FCCBs) currently lying with Deutsche Bank Singapore. e) In board meeting on 19-01-2006, the board was informed that: Acquisition of SG Bega Upsom SA in Romania was completed through CEPOM (i.e. Indian England NV), a step-down subsidiary of Indian Britain BV. Acquisition of Dan River Inc USA was completed through GHCL Inc. USA. f) In board meeting on 21-04-2006, the board was informed thai the company has invested USD 80.50 Mn (proceeds of FCCBs) in its Indian Britain BV (WOS). These f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is noticed that the entire investment in 100% subsidiary company Indian Britain BV was made by appellant for acquiring soda-ash manufacturing plants in Romania and textile business / chains in USA and UK to expand its business and acquisitions were related to the appellant's business operations in India. The appellant through 100% subsidiary company Indian Britain BV formed further step-down subsidiaries in Netherlands and USA, through such step-down subsidiaries, the appellant acquired soda-ash manufacturing plants SC Bega Upsom (renamed as GHCL Upsom Ltd) at Romania and similarly the appellant acquired Dan River Inc in USA and Rosebys UK Ltd in United Kingdom to expand its home textile business, as the company is having textile manufacturing plants at Madurai and Vapi. The appellant's objective of investment in subsidiary, step-down subsidiaries and acquisitions of retail chains was to expand its business globally and to bring its products in international market, even after closure of such acquisitions, the sales and exports shoot up substantially and international brands started taking appellant's textile products. At no point of time, the investment in subsidiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss on invocation of corporate guarantee suffered by company GHCL is for the purpose of business / incidental to its business, due to commercial expediency. 4.20. In view of the above facts, the payment on invocation of corporate guarantee was given by the appellant company to Exim Bank for subsidiary company namely; Indian Wales, NV, Netherlands. Exim Bank was issued NCDs of $ 40 million for acquiring home textile produces, retail chain in the name of Rosebys Operations Ltd., UK. Since the appellant company was manufacturing home textile consumer products at Vapi Unit and it had the intention to develop business globally, AEs / subsidiaries / step down subsidiaries were incorporated or acquired with an object to capture ready market. The subsidiary namely; Indian Wales, NV issued debentures to Exim Bank for which the appellant company had given corporate guarantee. Thus, the loan given by Exim Bank to subsidiary was for the purpose of business and as per commercial expediency of the appellant company. There is direct proximity and relationship of appellant's business to the subsidiary / step down subsidiary business. The payment on invocation of corporate guarantee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. gave a corporate guarantee. The loans given by Deutsche Bank to AE in USA was for the purpose of business and as per the commercial expediency of the appellant company. There is direct proximity and relationship of the appellant's business to the AE's/subsidiaries business. The payment on invocation of corporate guarantee was on account of global financial crisis, due to which the business of the step down subsidiary, Dan River Inc suffered huge losses and finally went into liquidation. It has therefore, been submitted by the appellant that the loss on invocation of corporate guarantee suffered by the appellant company was for the purpose of business and incidental to its business, due to commercial expediency. Regarding, the observation of the AO that the transaction was capital in nature, it has been submitted by the appellant that capital contribution is always given for some specific purpose like for acquisition or purchase of capital asset, whereas working capital facility is for running day-to-day operations. The corporate guarantee was given by the appellant company for replacing high interest working capital facility of its step down subsidiary Dan River In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct proximity with the business of the appellant company. Ihe guarantee given is in the course of business and not in the natureof capital contribution. 6.4 It is relevant to mention that similar issue arose in the AY 2009-10 and AY 2010-11. In the AY 2009-10, the AO in draft assessment order treated advancement of SBLCs/loan in the nature of capital contribution and disallowed the expenditure incurred by way of devolvement of SBLCs of ₹ 30.96 crore treating the same as capital loss. It was submitted by the assessee that such proposed disallowance in draft assessment order of A.Y. 2009-10 was not accepted.by the Hon'ble DRP as the Hon'ble DRP considered such amount of devolvement of SBLCs given to subsidiary company in the nature of revenue loss and held the same as allowable u/s. 37(1) of the IT Act. The assessee further submitted that the identical issue arose in AY 2010-11 also, wherein the CIT(A| has allowed the assessee's claim of write off of loan given to ils subsidiary company i.e. Indian Britain 8V of ₹ 1406093531/-u/s 37(1) vide its order dated 10/11/2014 wherein the CIT{A) held that such amount given to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of business and the appellant felt that it was commercially expedient to do so. The same was not in the nature of capita! contribution. It is further noted that the AO has also referred to the orders of honourable DRP and the CIT(A) for A.Ys. 2009-10 and 2010-11, and it has been mentioned by him that to maintain consistency, the disallowance is made. The honourable DRP while deciding the issue for A.Y.2009-10 has discussed the issue in detail. It has also discussed various judicial pronouncements which have been relied by the appellant in support of its claim. For the sake of convenience and clarity the findings given by DRP are reproduced here under: - 13. After consideringthe arguments and written submission ofthe Id. Authorised Representative and offer going throughthe assessment order, it is crystal clear that the subsidiary company Rosebys Operations Lfd was acquired bythe assessee company fo expand its textile business operations globally based on the study carried out by KSA Technopak, renowned global consultant, as the objective was fo capture ready home-fexfi/e market in UK and European regions for its manufacturing facility of Vapi Textile unit. The Rosebys Ltd, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxpayer's business. This was held to be an important circumstance supporting the acfion of the taxpayer i.e giving corporate guarantee as well as trade advance being incidental fo the taxpayer's business. If was also noted thatthe giving of guarantee had due sanction ofthe MOA of the taxpayer which contained suifable enabling object. (c) CITvs. Pure Beverages Ltd. (209 ITR 131). Gui. In this case, the taxpayer was a soft drink manufacturer who gave guarantees fothe bank for loans advanced fo retailers to enable them fo purchase coolers fo store soft drinks sold bythe taxpayer. Prior to 1969,the taxpayer itself used fo providethe coolers fo the retailers. From 1969,the retailers were persuaded to purchasethe coolers themselves. The cost of the cooler ranged between ₹ 3000 to ₹ 6000. Some ofthe retailers eventually defaulted in payment of the loans taken fromthe bank and as o resultthe faxpayer had to bearthe toss and make payment to the bonk. The loss incurred was claimed by the assessee u/s 37 of the Act. The Tax Authority rejected the claim and held the loss to be capital in nature. The High Court (HC) held the loss could not be treated as capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said that the expenditure incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, it is quite possible that such other manufacturers may also pe benefited on account of such advertisements as the advertisements may enhancethe value of the Prand as a whole- (n fact, such incidental benefits are bound to accrue to the owner of the brand as well as other users of the brand name when any ofthe users of such brand name advertises its products. However, merely because some other persons are incidentally benefited fromthe advertisements issued by the assessee, the same would not changethe character ofthe expenses from being wholly and exclusively forthe purpose of its business. Therefore, if is not a relevant circumstance for the purpose of considering allowabilify of expenditure under section 37. The Tribunal was, therefore, wholly justified in confirming the order ofthe Commissioner (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the excess remuneration over the sum of ₹ 12,000 paid by the assessee-company to 'A' was wholly and exclusively expended by if for the purposes of its business and was, hence, a deductible allowance within the meaning of section 10(2) (xv) of the Act. (g) CIV vs. WBIlamson Mayor Co Ltd. (117ITR 858), Cal. In this case, the taxpayer who was acting as managing agent and secretaries of other companies was appointed as a secretary of Tukvar Co (TCOj Ltd till 1957. In 1955. TCO was in need of funds. The taxpayer provided guarantee to the bank due to which TCO was provided overdraft facilities by the bank. In 1957, TCO defaulted in repayment to the bank, which ultimately had to be settled by the taxpayer. Thus for the year under consideration ie 1957, the assessee claimed a sum of ₹ 1.68 lakhs as bad debts. The Tax Authority disallowed the claim on the basis that the taxpayer's liability to pay the bank did not arise in the course of business as the taxpayer was not under an obligation to arrange funds for TCO. Further it was also contended that the impugned amount was also not allowable as bad debts since the business of the assesses was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. On further appeal by the taxpayer,the SC restoredthe decision of the Tribunal and held that HC had wrongly concludedthe said loss fa be capital in nature as also disregardedthe facts which had been placed on record by the Tribunal. The guarantee and advances given to managed company were well withinthe objects ofthe taxpayer (as was evident fromthe MOA ofthe taxpayer), arising fromthe managing agency business. Hence such loss/expense incurred would be an admissible deduction for AV 1956-57. (i/1 CIT vs. Delhi Safe Deposit Co. Ltd f 133 ITR 756), SC In this casethe taxpayer was a company which was a partner of a managing agency firm which in all consisted of three partners. The managing agency firm, in turn, was managing another public limited company (managed companyj. Duringthe year, at the instance of one of its major share holding partner, a huge sum was expended bythe managea company to a firm locafea in Calcutta. The sum of money advanced was ultimate!/ dishonored bythe Calcutta firm, resulting in a net loss of ₹ 1.90 lakhs tothe managed company. Out of the total loss, a sum of ₹ 0.9 lakhs was agreed to be borne equally bythe taxpayer and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uminium Co. Ltd. v. CIT [1992] 84 ITR 735 (SCI to hold that such expenditure were needed to be spent by the assessee for the purpose of carrying on its business and are incidental to the business, therefore, any loss shall have to be considered as the revenue cost and not the capital cost. In view of the above findings, cars are the objections (1 12) raised by the assessing company against disallowance of ₹ 30,96,28,781/-are sustained and the addition made by the Assessing Officer is directed to be deleted. I am in complete agreement with the findings given by the honourable DRP for A Y 2009 - 10. If the guarantee is given for the purpose of business and is not related to any capital asset, any expenditure incurred on invocation of guarantee has to be treated as revenue expenditure- The facts are very clear in the present year. The appellant had given this guarantee for the working capital loan of its stepdown subsidiary. The subsidiary reduced its working capital facility which was at 20% interest to a lower interest rate loan and the restrictions on the earlier working capital loan were also done away with an order to facilitate the business in an easier manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that assessee has not made this claim through revised return of income as per the provision of section 139(5) of the Act after referring the decision of Hon ble Supreme Court in the case of Goetz India Pvt. Ltd. vs. CIT 157 taxman 01 (SC). The ld. CIT(A) has allowed the claim of assessee as revenue expenditure u/s. 37(1) of the act holding that guarantee has been given for the purpose of business and is not related to any asset thus payment on revocation of guarantee has to be treated as revenue expenditure. The ld. CIT(A) has discussed the detailed facts in his order as discussed above that the assessee company claimed losses on payment of devolvement of corporate guarantee of Exim Bank for subsidiary Indian Wales N.V. Netherland of ₹ 2,41,62,54,990/-. The Exim Bank has given funds to Indian Wales N.V. through NCDs of $ 40 Mn (₹ 173.96 crore) on corporate guarantee of GHCL parent company. Such loans were taken by the subsidiary for the purpose of business of assessee company precisely for setting up of supply chain system in global market i.e. overseas countries. The ld. CIT(A) has also stated in his order that in the preceding years, the claims have been made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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