2018 (9) TMI 103 - AT - Income Tax

Disallowance of loss on Joint Venture in USA which was written off during the year by the appellant - Held that - The Hon ble Bombay High Court in a similar case in CIT Vs. Colgate Palmolive India Ltd 2014 (12) TMI 846 - BOMBAY HIGH COURT held the company wrote off loss on sale of shares and the facts of the case in hand show that the assessee could not recover investment amount on liquidation of joint venture company thereby sustaining a loss of ₹ 2,92,23,186/-. Finding parity in the facts of the case in hand with the facts considered by the Hon ble High Court of Bombay supra , we respectfully following the decision of the Hon ble Bombay High Court supra , set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of ₹ 2,92,31,861/-. - decided in favour of assessee

Summary

Issues:
Disallowance of loss on Joint Venture in USA written off during the year.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax [Appeals]-1, New Delhi, regarding the disallowance of a loss on Joint Venture in the USA written off during the year by the appellant for the assessment year 2006-07. The Assessing Officer disallowed the amount of &8377; 2,92,31,861/-, considering it a capital loss as the investment in the joint venture company was viewed as shares. The appellant argued that the investment was made for business purposes and not as a mere investment. The appellant's main objects included dealing in petroleum and chemical products, and the investment in the joint venture was in line with these objects. The joint venture company in the USA was liquidated, and the appellant could only recover a portion of the initial investment, resulting in the write-off. The appellant relied on judicial decisions to support their contention that the write-off represented a loss against a business investment.

The Tribunal examined the facts and noted that the appellant's investment in the joint venture was made to distribute petroleum and chemical products, in accordance with its main objects. Drawing parallels with a similar case before the Bombay High Court, where a loss on the sale of shares was considered a business loss, the Tribunal concluded that the write-off in the present case should also be treated as a business loss. The Tribunal emphasized that the investment was made for commercial expediency to further business objectives and was primarily related to the business operations of the appellant. Therefore, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the addition of &8377; 2,92,31,861/-.

The decision was based on the principle that the loss incurred on the investment in the joint venture company should be treated as a business loss, considering the appellant's business objectives and the circumstances surrounding the write-off. By aligning with the Bombay High Court's decision in a similar case, the Tribunal allowed the appeal filed by the assessee, emphasizing that the write-off represented a loss against a business investment made in furtherance of the appellant's business activities.