2019 (6) TMI 541 - AT - Income Tax

Allowability of advances written off - amount due from the subsidiary not recoverable - business loss OR capital loss - assessee is in hospitality business - CIT(A) deleted the advances - HELD THAT - We note that learned CIT(A) has found that advance was very much in line of the assessee s business. He also found due nexus between advances given to the subsidiary and assessee s business. He found that these advances to the subsidiary cannot be treated as advances which could derive benefit of enduring nature. Learned CIT(A) placed reliance upon several case laws for the proposition that advances to the subsidiary in line of assessee s business and non-recovery thereof should be allowed as business loss. Hence, learned CIT(A) deleted the advances. We find that the above action of learned CIT(A) does not suffer from any infirmity. Assessee s advance to subsidiary which was also engaged in the hospitality industry was revenue in nature as mentioned here in above. Non-recovery thereof is liable to be allowed as revenue expenses. While disallowing assessee s claim the AO has commented that by giving those advances to the subsidiary the assessee was doing charity at the cost of revenue. This we find is unsustainable proposition. It is settled law that Revenue should not sit in the shoes of businessmen and decide what is appropriate for the business of the assessee. No infirmity in the order of CIT(A). Disallowance for delay in payment of contribution received from employees towards PF and ESIC - AO disallowed impugned payments on the ground that these payments were not made within stipulated time under respective Act - HELD THAT - These payments were made before the due date of filing of return. Learned CIT(A) has decided the issue in favour of the assessee by referring to Hon'ble Jurisdictional High Court decision in the case of CIT Vs. Hindustan Organics Chemicals Ltd. 2014 (7) TMI 477 - BOMBAY HIGH COURT and CIT Vs. Ghatge Patil Transport Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT .

Summary

Issues Involved:
1. Deletion of disallowance of business loss on account of advances to a subsidiary company.
2. Disallowance made under Section 36(1)(va) on account of delayed payment of contributions received from employees towards PF/ESIC.

Detailed Analysis:

1. Deletion of Disallowance of Business Loss on Account of Advances to Subsidiary Company

Brief Facts:
The assessee, engaged in the hospitality business, formed a subsidiary company with M/s. Casinos Austria International, Vienna, named M/s. Advani Pleasure Cruise Pvt. Ltd. (APCCP) to boost its hospitality business through casino gaming services. Initially, the subsidiary’s casino operations significantly boosted the assessee’s business. However, due to increased competition, the subsidiary suffered huge losses. The assessee provided substantial loans and advances to the subsidiary to cover its expenses and liabilities. Eventually, the assessee sold its shares in the subsidiary and claimed the unrecovered amount as a business loss. The Assessing Officer (AO) disallowed this claim, treating it as a capital loss, not admissible under "income from business."

CIT(A) Findings:
The CIT(A) deleted the disallowance, emphasizing the following key points:
- The appellant was in the hospitality business, including casino services, before forming the joint venture (JVC) with CAI.
- The JVC was formed to enhance the appellant's business, with the appellant providing various services and incurring expenses that were reimbursed.
- The appellant's expenditure on behalf of the subsidiary had a direct nexus with its main business activity and was necessary for the subsidiary’s operations.
- The nature of the expenses (e.g., gaming license fee, jetty fee, food, and beverage costs) did not create any enduring benefit or asset for the appellant, thus qualifying as revenue expenditure.
- The investments in the subsidiary were for commercial expediency to further the appellant's business objectives, supported by legal precedents such as CIT v. Colgate Palmolive (India) Ltd. and S.A. Builders vs CIT.

Tribunal’s Decision:
The Tribunal upheld the CIT(A)’s order, agreeing that:
- The advances were in line with the assessee’s business and had a direct nexus with it.
- The non-recovery of these advances should be allowed as a business loss.
- The AO’s view that the advances were charitable actions at the cost of revenue was unsustainable, as it is settled law that the Revenue should not dictate business decisions.

2. Disallowance under Section 36(1)(va) for Delayed Payment of PF/ESIC Contributions

Brief Facts:
The AO disallowed payments towards PF/ESIC contributions, citing delays beyond the stipulated time under the respective Acts. However, these payments were made before the due date of filing the return.

CIT(A) Findings:
The CIT(A) ruled in favor of the assessee, referencing decisions from the Hon'ble Jurisdictional High Court, including:
- CIT Vs. Hindustan Organics Chemicals Ltd. (2014) 48 taxmann.com 421
- CIT Vs. Ghatge Patil Transport Ltd. (ITA No. 1022 of 2012 and 1034 of 2012)

Tribunal’s Decision:
The Tribunal upheld CIT(A)’s decision, noting no infirmity since it was based on jurisdictional High Court rulings.

Conclusion:
The appeal filed by the Revenue was dismissed. The Tribunal upheld the CIT(A)’s decisions on both issues, affirming the deletion of the disallowance of business loss on advances to the subsidiary and the disallowance under Section 36(1)(va) for delayed PF/ESIC contributions, aligning with established legal precedents.