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TMI Blog2012 (5) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction, on account of loss on sale of shares held in 'Camelot Investment Pvt Ltd.,' amounting to Rs. 5,50,00,000. As stated in the notes to accounts, the assessee has made investments in 100% owned subsidiary, i.e. Camelot Investment Pvt. Ltd. (Camelot, in short), and the said investment was made purely for business reasons. The stand taken by the assessee was that since investment was made in the course of and for the purposes of business, the loss on sale of such investment is required to be treated as business loss in nature. Reliance was placed on Hon'ble Madras High Court's judgment in the case of Indian Commerce and Industries Co. P. Ltd. vs. CIT (213 ITR 513), on Hon'ble Calcutta High Court's judgment in the case of CIT vs. Gillanders Arbuthnot and Co. Ltd (138 ITR 765), on Hon'ble Supreme Court's judgment in the case of Patnaik and Co. Ltd vs. CIT (161 ITR 365), and on Hon'ble jurisdictional High Court's judgment in the case of CIT vs. Investa Industrial Corporation Ltd (119 ITR 360). Without prejudice to this stand, it was contended that in the event of this loss not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business asset from which an accruing loss can be classified and claimed as business loss, to suit the tax needs of the assessee company'. The judicial precedents relied upon by the assessee were discussed and distinguished. As regards Indian Commerce and Industries Co Ltd' decision (supra), the Assessing Officer noted that in the said case the assessee had to buy shares in a company to get more business from it, but the facts of this assessee's case are entirely different. With regard to Investa Industrial Corp Ltd's decision (supra), the Assessing Officer's objection was 'in this case also facts are completely different' inasmuch as 'a loan was given by a managing agency company to another company (not its wholly owned subsidiary) under the same management' and 'lending company earned interest on the loan which was offered to tax as business income'. Similarly, the Assessing Officer distinguished Gillanders Arbuthnot and Co Ltd (supra) on the ground that 'the issue here was pertaining to write off of a loan represented by running account of the expenses incurred by the holding company for its subsidiary, and it was held that it was a trading loss incurred in the course of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court in the case of Patnaik and Co Ltd (supra) and SA Builders vs CIT (supra), since the investment in Camelot was made by the appellant from a commercial perspective only in the course of business. Keeping in view the commercial expediency of the transaction, I hold that the loss of Rs. 5.50 crores, incurred upon sale of shares in Camelot, should be allowed as a business loss in the hands of the appellant, and the action of the Assessing Officer denying the deduction as business loss stands reversed. 5. Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 7. We find that Camelot was set up to manufacture toothbrushes exclusively for the assessee company and that it had no other customer than the assessee. It was said to have been set up as a small scale industrial undertaking with a view to certain preferential treatment in the excise laws, but whatever it manufactured was bought by the assessee company alone. Camelot did incur the losses but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns on Assessing Officer's emphasis on the fact that the Camelot 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 also required to be treated as an admissible business deduction. Hon'ble Supreme Court's judgment in the case of Patnaik and Co (supra) deals with a situation in which the assessee had subscribed to certain Government security but incurred a loss on sale of that security. The stand of the assessee was that the assessee had made the said investment with a view to promote its business interests and as subscription to the Government Loan was conducive to its business, the loss arose in the course of the business, and that, therefore, the assessee was entitled to a deduction of the loss claimed by it. A coordinate bench of this Tribunal upheld the claim made by the assessee. The Tribunal found that having regard to the sequence of events and the close proximity of the investment with the receipt of the Government orders, the conclusion was inescapable that the investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars and gained by way of remission/cessation of sales tax liability to that amount which is assessable u/s.41(1) of the Act. 10. Facts in brief are as follows. Under 1983 and 1988 Deferred Scheme of incentives framed by the Government of Maharashtra to incentivize entrepreneurs to set up industries in relatively backward areas, various forms of capital subsidy was given to entrepreneur. As per this scheme, the assessee was entitled to defer the sales tax liability for a period of 7 years. Accordingly, the assessee had availed the benefit of the Sales Tax Deferral Scheme for its tooth powder and soap plant at Waluj, Aurangabad. The Assessing Officer noticed that the assessee opted for the repayment of total liability of Rs.7,97,06,177 on 1.1.2003 at the net present value. The total amount of prepayment was Rs.3,53,93,265 and an amount of Rs.4,38,12,912 was credited to the assessee's account. The Assessing Officer also noticed that the assessee has claimed deduction in respect of sales tax in the earlier years and gained by way of remission/cessation of sales tax liability to the tune of Rs.4,38,12,912. It was in this background that the Assessing officer added the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in law, the ld CIT(A) erred in directing the AO that the amount of Rs.65,325 being reduction of 90% of foreign exchange gain has to be included for the calculation of deduction u/s. 80HHC. 17. So far this issue is concerned, the Assessing Officer has observed that the assessee company has not included the exchange gain of Rs. 65,325 in its total turnover whereas the same is clearly a part of the business turnover of the assessee company. In appeal, the CIT(A) gave relief by relying upon his order for the assessment year 2002-03. 18. Having heard the rival contentions and having perused the material on record, we find that the issue is now covered against the assessee by Special Bench decision in the case of ACIT vs Prakash L Shah (115 ITD SB 167). Respectfully following the same, we uphold the grievance of the Assessing Officer and vacate the impugned relief granted by the CIT(A). 19. Ground No. 4 is thus allowed. 20. In Ground No.5, the Assessing Officer has raised the following grievance: On the facts and circumstances of the case and in law, the ld CIT(A) erred in directing the AO not to reduce 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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