TMI Blog2022 (2) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing capacity or any infrastructural capacity but the main purpose was to boost assessee s sales. Therefore, the investments could not be said to be in capital field rather the same were meant to improve the top line of the business by way of higher revenue profits. We find that the issue on similar factual matrix is squarely covered by the cited decision of Hon ble Bombay High Court in CIT V/s Colgate Palmolive India Ltd. [ 2014 (12) TMI 846 - BOMBAY HIGH COURT] wherein it was held that loss in investment out of commercial expediency would be an allowable deduction - Also in M/S. ACE DESIGNERS LIMITED [ 2020 (9) TMI 970 - KARNATAKA HIGH COURT] since the investment was made for enhancement of business activity of assessee in global market which primarily related to business operation of assessee and the investment was not made with a view to create capital asset in the form of holding shares, the said loss would be a business loss allowable u/s 28(i). The Hon ble Supreme Court in Patnaik Co. Ltd. V/s CIT [ 1986 (7) TMI 6 - SUPREME COURT] held that where the government bonds or securities were purchased by the assessee with a view to increase its business, the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and this principal amount being income-tax, interest is in nature of a direct tax and settlement of income-tax payable under Act and, therefore, same cannot be regarded as compensatory payment. Therefore, the same could not be allowed as business expenditure. Respectfully following the same, we confirm the disallowance and dismiss this ground of appeal - ITA Nos.2938 And 2939/Chny/2017 - - - Dated:- 7-2-2022 - Hon ble Shri V. Durga Rao, Judicial Member And Hon ble Shri Manoj Kumar Aggarwal, AM For the Appellant : Shri T. Banusekar (CA) Ld AR For the Respondent : Shri S. Palani Kumar, Ld. CIT - DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. Aforesaid appeals by assessee for Assessment Years (AY) 2011- 12 2013-14 arises out of separate orders of learned first appellate authority. However, one of the issue is common and therefore, the appeals were heard together and are now being disposed-off by way of this consolidated order for the sake of convenience brevity. First we take up appeal for AY 2011-12 which arises out of the order of Ld. Commissioner of Income Tax (Appeals) -3, Chennai, [CIT(A)] dated 29- 09-2017 in the matter of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax (Appeals) erred in contending that the cylinder returned was not put to use in the business of the appellant. 2. The Ld. AR advanced arguments, written as well as oral, to assail the orders of lower authorities. Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. CIT-DR advanced arguments in support of the impugned order and filed written submissions. Having heard rival submissions, oral as well as written and after going through the orders of lower authorities, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. The assessee being resident corporate assessee is stated to be engaged in refilling / processing of Refrigerant Hydro Fluorocarbons Gases which are used in Air Conditioners, refrigerators and refrigerating equipments. Assessment Proceedings 3.1 During assessment proceedings, it transpired that the assessee claimed administrative expenses of ₹ 1953.43 Lacs, as detailed below, as amounts written-off in the Profit Loss Account: - Particulars Amt. (Rs.) Advance writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had also given corporate guarantee for the loans taken by STPL from Axis Bank for target investment in KERPL. Since the acquisition plans were called-off, STPL was unable to pay the loan and Axis Bank invoked corporate guarantee against the assessee. Finally, the assessee had to repay a sum of ₹ 508 Lacs to the Bank. Since the same was irrecoverable, it was written-off in the Profit Loss Accounts and claimed as legitimate business loss u/s 37(1). 3.4 The last write-off of ₹ 675.26 Lacs arises due to the fact that on account of the inability of the assessee to acquire KERPL, the shares were re-transferred to KERPL. As a result, STPL was reduced to a shell company as the objective of the entire exercise was terminated midway. Since the assessee had to exit the misadventure, the losses suffered on account of investment in STPL were claimed as losses incidental to business in terms of provisions of Sec.28. 3.5 However, Ld. AO noted that the aforesaid losses / expenditure were incurred for the purpose of acquiring another entity. Therefore, the expenditure would be capital in nature which was evident by the fact that all these advances were shown as loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inders. For the said purpose, the assessee could enter into partnership or into any other arrangements for sharing of profits, co-operation, amalgamation, union of interest, joint venture, reciprocal concession or otherwise with any another entity. In line with the same, the investments were sought by the assessee. The amount advanced to STPL was in accordance with assessee s main objects and loss suffered there-from was an allowable expenditure / business loss. Reliance was placed on the favorable decision of Hon ble Bombay High Court in the case of Colgate Palmolive (India) Ltd (370 ITR 728) which was rendered after considering the decision of Hon ble Supreme Court in the case of Patnaik and Co. (161 ITR 365). Similarly, the amount of ₹ 508 Lacs paid by assessee towards corporate guarantee would be allowable deduction since the assessee stood guarantor for STPL. The guarantee was given with a view to fund the takeover of KERPL by STPL. The loss thus incurred would be allowable u/s. 37(1) of the Act as per decision of Chennai Tribunal in ACIT Vs W.S Industries (India) Ltd (ITA No. 1373/Mds/2008 dated 21-08-2009), wherein it was held that assessee had guaranteed the loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 5. First we take up the issue of various write-offs claimed by the assessee during the year. From the factual matrix as enumerated in preceding paragraphs, it could be gathered that the assessee was engaged in refrigerant gases which are used mostly in Air Conditioners, refrigerators and refrigerating equipments. With a view to expand its business and with a view to facilitate import of gases, the assessee decided to acquire a Singapore entity i.e. KERPL. Since the statutory framework did not permit the assessee to make direct investment, the assessee floated another wholly owned subsidiary i.e. STPL to facilitate the acquisition. The acquisition of KERPL would have enabled the assessee to carry on its business more smoothly and in a more profitable manner since it would have provided assessee a strong foothold in the international market and would have served larger business interest of the assessee. The same is supported by the fact that M/s KERPL was engaged in the same line of business as that of assessee. To facilitate such an acquisition, necessary permissions from statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as loss in the revenue field and not in capital field as erroneously held by lower authorities. All the above stated facts would lead to a conclusion that the investments were in furtherance of business interest of the assessee and were made out of commercial expediency. The main purpose of investment was not to acquire any manufacturing capacity or any infrastructural capacity but the main purpose was to boost assessee s sales. Therefore, the investments could not be said to be in capital field rather the same were meant to improve the top line of the business by way of higher revenue profits. 7. We find that the issue on similar factual matrix is squarely covered by the cited decision of Hon ble Bombay High Court in CIT V/s Colgate Palmolive India Ltd. (370 ITR 728) wherein it was held that loss in investment out of commercial expediency would be an allowable deduction. This decision of Hon ble Bombay High Court has been followed by Hon ble Karnataka High Court in ACE Designers Ltd. V/s ADIT (120 Taxmann.com 321) wherein the assessee was engaged in the business of manufacture and export of computerized numerical controlled machines. It made investment in equity of its who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee did not suffer from any infirmity or any statutory violations and due approvals of regulatory authorities were duly taken by the assessee to make the investments in the target company. 9. The case law of Hasimara Industries Ltd Vs CIT (230 ITR 927) (supra), as referred to by Ld. AO, deal with a loss of deposit made by the assessee to acquire a profit-making asset to carry on new business in cotton and accordingly, the loss was held to be capital loss. However, same is not the case here since in the present case the assessee intended to acquire another entity with a view of run business more profitability and the other entity was in the same line of business as that of assessee. Similarly, in the case law of Tribunal in Kwality Fun Foods Restaurants (P) Ltd. (108 ITD 274), it was finding of the bench that the expenditure was incurred towards cost of acquiring profit earning apparatus and therefore, the expenditure was held to be in capital field. The same is not the case here. 10. Finally, on the given facts and circumstances, we concur with the submissions of Ld. AR that the investments in subsidiaries were made in the normal course of assessee s business to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on cylinders by treating the transactions merely as sales return. The Ld. CIT(A) confirmed the action of Ld. AO by relying upon appellate order for AY 2011-12. Aggrieved, the assessee is in further appeal before us. Facts being pari-materia the same, our findings as well as adjudication of the issue as done in AY 2011-12 shall mutatis mutandis apply to this year also. Accordingly, Ld. AO is directed to allow the depreciation as per assessee s claim. The ground thus raised stand allowed. 13. The second ground of assessee s appeal is disallowance of interest on tax deducted at source. The assessee claimed interest on TDS for ₹ 3.04 Lacs which was disallowed by Ld. AO. The Ld. CIT(A) confirmed the disallowance by observing that interest on TDS was akin to Income Tax Payment. Aggrieved, the assessee is in further appeal before us. We find that this issue stood against the assessee by the decision of Hon ble High Court of Madras in CIT V/s Chennai Properties Inv. Ltd. (239 ITR 435) wherein it was held that interest takes color from nature of principal amount required to be paid but not paid in time and this principal amount being income-tax, interest is in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
