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2024 (12) TMI 551 - AT - Income TaxWritten off of loan given to subsidiary at Indonesia - allowable expense or not u/s. 37? - whether the same is wholly and exclusively for the purposes of business of the assessee? - HELD THAT - Here we found that the facts of the case were misunderstood by the authorities below and findings in this para are a clear reflection of their misconception/ confusion about the facts of the matter. These days entering/venturing into other core areas of economy is quite common and rather the assessee entered the same in the financial year 2006-07 and faced a long gestation period to get the same matured, so after such a long period of investment, efforts and gestation the question of the revenue that the same is not the part of the assessee s business is ruled out. The assessing officer is duty bound to update him with the present business scenario going on, while framing an assessment order. These days every big corporate house is entering into the power sector as the same is the most essential cash commodity and with a growth in economy demand is also robust. Rather, to be relevant in present scenario Entrepreneurs has to think about their vertical diversification as the traditional business and business model may not be that relevant in growing competition. As astonishing for us that the Ld. DRP and the AO observed the matter in isolation without applying any knowledge of banking industry. The reference of the communication by the bank taken by the authorities below are misplaced as the facility from the Bank of India, Singapore Branch were extended on the behest of strong credentials of the assessee company and its group leader Baidyanath Group and its promoters/shareholders and directors. M/s. PT Equity Commodities and PT Bumi Bera Parkasa (PTBBP-target Company) has no value in the eyes of bankers and as the assessee wants to quit the same once for all, one has to understand their obligations and compulsions also keeping in mind the prevailing market/business practices. Based on above, we are not in agreement with the half cooked view taken by the revenue. To further strengthen the facts of matter in favour of the assessee we placed our reliance on following judicial pronouncements by the Hon ble Supreme Court as under in Industrial Development Corporation of Orissa Ltd. 2024 (9) TMI 35 - SC ORDER , Adadyn Technologies (P.) Ltd. 2024 (7) TMI 516 - SC ORDER , Nirma Ltd. 2024 (5) TMI 110 - SC ORDER and Wadia Ghandy Co. 2023 (9) TMI 392 - SC ORDER Thus issue raised by the assessee are allowed and the AO is directed to allow the bad debts claimed by the assessee u/s. 37(1) of the Act. Assessee appeal allowed.
Issues Involved:
1. Assessment of total income. 2. Disallowance of write-off of loan advanced to a step-down subsidiary in Indonesia. 3. Transfer pricing adjustment on account of corporate guarantee charges. 4. Levy of interest under section 234B of the Act. 5. Initiation of penalty proceedings under sections 270A and 271AA of the Act. Issue-wise Detailed Analysis: 1. Assessment of Total Income: The appellant contested the assessment of its total income at INR 11,35,61,343/- against the returned income of INR 2,37,09,958/-. The tribunal examined the draft assessment order, the Transfer Pricing Officer's (TPO) order, and the Dispute Resolution Panel's (DRP) directions. The tribunal concluded that the assessment was conducted based on specific risk parameters, and the adjustments made by the TPO and DRP were consistent with the statutory provisions. 2. Disallowance of Write-off of Loan Advanced to a Step-down Subsidiary in Indonesia: The appellant challenged the disallowance of the write-off of a loan of INR 8,91,78,685/- advanced to its step-down subsidiary in Indonesia. The tribunal examined whether the write-off could be considered a business expense under section 37 of the Income Tax Act. The tribunal noted that the loan was advanced for commercial expediency, aiming to support the subsidiary's coal mining operations, which were intended to benefit the appellant's business. The tribunal found that the authorities below misunderstood the facts and failed to appreciate the commercial rationale behind the loan. Citing various judicial precedents, the tribunal concluded that the write-off was indeed a business loss and allowed the deduction under section 37(1). 3. Transfer Pricing Adjustment on Account of Corporate Guarantee Charges: The appellant disputed the transfer pricing adjustment of INR 6,72,600/- related to corporate guarantee charges. The tribunal noted that the adjustment was made without considering the charges recovered from the associated enterprise (AE), which were acknowledged in the original TP order. The tribunal found merit in the appellant's contention that the adjustment should not have been made for the entire year, as the guarantee was provided only for part of the year. Consequently, the tribunal directed the assessing officer to reconsider the adjustment. 4. Levy of Interest Under Section 234B of the Act: The appellant contested the levy of interest amounting to INR 1,28,26,58,684/- under section 234B. The tribunal recognized that this issue was consequential and subject to verification based on the directions provided in the judgment. The assessing officer was instructed to verify the interest levy in accordance with the tribunal's findings on other issues. 5. Initiation of Penalty Proceedings Under Sections 270A and 271AA of the Act: The initiation of penalty proceedings under sections 270A and 271AA was challenged by the appellant. The tribunal noted that the initiation of penalty proceedings is not appealable at this stage, as it is considered premature. Consequently, the grounds related to penalty proceedings were dismissed. Conclusion: The appeal was partly allowed, with the tribunal directing the allowance of the write-off of the loan as a business loss under section 37(1). The transfer pricing adjustment was remanded for reconsideration, and the interest levy was subject to verification. The penalty-related grounds were dismissed as premature. The tribunal's decision emphasized the importance of understanding the commercial context of transactions and the necessity of aligning assessments with statutory provisions.
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