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TMI Blog2015 (7) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance for the purchase of machinery on behalf of M/s. Vinedale Ltd. The remaining amount was paid by the assessee for settlement of the accounts of M/s. Vinedale Ltd. which were on account of outstanding dues for the purchase of machinery by M/s. Vinedale Ltd. The assessee has paid the said amount on behalf of M/s. Vinedale Ltd. being its guarantor/surety which was not relating to any business or trading activity of the assessee in any manner. We therefore do not find any merit in the order of the Ld. CIT(A) and the same is therefore set aside. The action of the AO disallowing the said loss is confirmed. - Decided against assessee. Deduction on account of consumption of containers disallowed - Held that:- CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of equipment was also paid by the assessee company. Subsequently, the assessee company decided to purchase equipment worth only ₹ 3 crores from M/s Alfa Laval (India) Ltd. as against the letter of intent issued for ₹ 5.5 crores. One sister concern of the asessee M/s Vindale Distilleries Ltd. was also considering the proposal for purchase of equipment from M/s Alfa Laval (India) Ltd. However, keeping in view of its adverse financial position, it was facing difficulties in securing acceptance of its intent to purchase the machinery on its terms from M/s Alfa Laval (India) Ltd. The assessee company asked M/s. Alfa Laval (India) Ltd. to appropriate the balance amount of ₹ 2.5 crores towards M/s Vindale. M/s Alfa Laval (India) Ltd. accepted this proposal put forth by the assessee company subject to the condition that in the case of default of balance payment against purchase of equipments by M/s Vindale Distilleries Ltd , the assessee company would be liable to make good the said default. After acceptance of this condition by the assessee company, part of the advance amount paid by the assessee company was appropriated by M/s Alfa Laval (India) Ltd. towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), reliance was placed by the assessee company, inter alia, on the decision of Hon'ble Supreme Court in the case of Ramachandcr Shivnarain vs. CIT , 111 ITR 263 wherein it was held that if there is a direct and proximate nexus between business operation and the loss or it is incidental to it, then the loss is deductible. It was contended that losses incurred by the assessee company on standing surety for another company in the course of mutually beneficial business transaction arise or spring out from the business and hence the same are allowable u/s. 28 r.w.s. 29 of the Act being incidental to the business. In support of this contention, reliance was placed on behalf of the assessee company on the decision of Hon'ble Supreme Court in the case of CIT vs. Amalgamations Ltd. , 226 ITR 188 and that of Hon'ble Bombay High Court in the case of Jokhiram Ramchandra v. CIT, 61 ITR 693. After considering the submission of the assessee, the Ld. CIT(A) allowed the said expenditure as business loss u/s.28 and 29 of the Income Tax Act. Aggrieved by the order of the CIT(A), the Revenue preferred an appeal before the Tribunal(ITAT). The Tribunal vide order dated 19th June,2009 obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er that of Hon ble Madras High Court in the case of CIT vs. Spencers and Co. Ltd. [359 ITR 612]. The Ld. AR has further contended that the amount in question was utilized as a guarantee given on behalf of sister concern and therefore, any loss suffered by the assessee on account of such surety/guarantee was as allowable business loss u/s.28 read with section 29 of the Act. He has further contended that the loss suffered by assessee in this case was incidental to business of the assessee and as such was deductable as a business loss. He has relied in this respect upon the decisions of the Hon ble Supreme Court in the case of Ramchander Shivnarain vs CIT (111 ITR 263) and in the case of CIT vs. Jaganath Kissonlal Lal (41 ITR 360) and certain other case laws. He has further contended that the expenditure had been incurred by the assessee on account of commercial expediency, it was therefore, allowable as a business expenditure. He has placed reliance in this respect on catena of judicial decisions including that of Hon ble Supreme Court in the case of S.A. Builders vs. CIT (2007) [288 ITR 1] (SC) and Dhanranjgiriji Raja Narasinggirji (1973)[91 ITR 544] (SC). He has further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Memorandum of Association which for the sake of convenience are reproduced as under:- Clause 12- Guarantee- To guarantee the performance of any contract or obligations of and the payment of or dividends and interest on any stock shares or securities of any company, corporation, firm or person in any case in which such guarantee may be considered like directly or indirectly to further the objects of the company or the interests of its shareholders. Clause 13- Guarantee surety- To guarantee the payment of money unsecured and secured by or payable under or in respect of promissory notes, bonds, debentures stock, contractor, mortgages, charges, obligations, instruments and securities of any company or of incorporated or not, and generally to guarantees or become sureties for the performance of any contracts or obligations. 8. It is pertinent to mention here that the above reproduced objects of the assessee company are not the main objects of the company. The main object of the assessee is written in Article a of Memorandum of Association which is to carry on the business of brewers, maltsters, distillers etc. and further to manufacture, sale or deal etc. in mineral wat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise the money was paid by the assessee for purchase of capital asset and the loss if any on account of cut in the purchase order would otherwise be a capital loss. Under such circumstances, the advance of ₹ 81.30 lakhs paid by the assessee on behalf of its sister concern for the purchase of equipment by its sister concern Vinedale, could neither be treated as a business or trading advance on behalf of the assessee nor on behalf of its sister concern Vinedale. So far as the question as to the nature of loss suffered by the assessee is concerned, it is pertinent to note that the amount had been paid by the assessee to the creditors of M/s Vinedale Ltd., being its guarantor/surety. After paying the amount/debt of M/s Vinedale Ltd. to the creditors of the M/s Vinedale Ltd., the assessee stepped into the shoes of the creditors and the amount paid therefore can be said to be a debt only, which would otherwise fall in the definition of capital asset. The said loan on being become irrecoverable or unrealizable on account of the debtor company declared as sick unit and incurring huge losses, the nature of loss of assessee cannot be said to be a business loss or expenditure but a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even the M/s. Vinedale Ltd. had utilized the amount of loan/advance for the purpose of purchase of machinery i.e. for capital asset the said amount has never been treated or utilized by M/s. Vinedale Ltd. as business advance taken from the assessee for the purpose of its business activity nor the assessee company could explain as to how the amount of guaranty given for purchase of machinery, which liability was ultimately owned by the assessee company, can in any manner be said to be relating to the business activity of the assessee or that of the M/s. Vinedale Ltd. The loan amount was used for the purchase of machinery which even otherwise was not in any manner used for the purpose of business of the assessee. Hence, it cannot be said that the character of the amount advanced had changed from capital account to revenue account. The various case laws relied upon by the assessee as discussed above, with due respect, are not applicable to the facts and circumstances of the case of the assessee in view of our discussions made above. Even a perusal of the impugned order reveals that the Ld. CIT(A), though, held that the amount in question was earlier given as advance for purchase of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Ld. CIT(A) in rejecting the claim of the assessee was not justified. He has further relied upon the decision of the Hon ble Gujarat High Court in the case of Gujarat Gas Ltd. vs. JCIT (2000) 245 ITR 84. In the said case, the words of the Circular No.549, para 5.12, dt. 31st October, 1989, providing that the assessed income under section 143(3) shall not be less than the returned income was considered by the Hon ble High Court and it was held that as per proviso to section 119 of the Act, the Board cannot issue instructions to the Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner as well as not to interfere with the discretion of the Commissioner in exercise of his appellate functions. It was further held that the AO, while exercising his quasi judicial powers was not bound by the said circular and should have exercised his powers independently. The Hon ble High Court, therefore, directed the AO to make the assessment without keeping in mind the said circular. It may be further observed that the Hon ble Bombay High Court in the case of Pruthvi Brokers Shareholders Pvt. Ltd. ITA No.3908 of 2010 decided on 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee had made investments in National Savings Certificate (NSC), Indira Vikas Patre (IVP) and shares of Cooperative Banks. He has further submitted that the interest from NSC IVP are taxable in case of companies and further that dividend from Co-operative Banks is also not exempt under section 10(34) of the Act. He therefore has submitted that such investments were not capable of generating exempt income and therefore there was no question of disallowance under section 14A of the Act. He has further relied upon the decision of the Hon ble Allahabad High Court in the case of CIT vs. Shivam Motors to stress the point that during the year the assessee had not earned any exempt income, hence no disallowance under section 14A was warranted. We may find that the above contentions of the assessee have not been looked into by the Ld. CIT(A) while enhancing the income of the assessee on account of disallowance made under section 14A of the Act. 16. We therefore restore this issue also to the file of the Ld. CIT(A) for adjudication afresh. It is made clear that if the assessee had made no investments for earning of exempt income, no disallowance would be warranted under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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