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TMI Blog2021 (5) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... n as well as comparables by considering foreign exchange gain/loss as an item of operating revenue/cost - this ground of appeal of the assessee is allowed for statistical purposes. Including Accentia Technologies Ltd. in the set of comparables - HELD THAT:- We consider that there is functional dissimilarity in the case of M/s. Accentia Technology Ltd. as compared to the function performed by the assessee company that has not been specifically considered by the TPO and DRP. It is categorically demonstrated from the facts and findings of various judicial decisions as supra that M/s. Accentia Technology Ltd. has expertise in all the areas of transcription, coding, billing and collections, therefore, we direct the Assessing Officer/TPO to exclude M/s. Accentia Technology Ltd. in the set of comparables for determining arms length price of international transactions in the case of the assessee. Therefore, this ground of appeal of the assessee is allowed. Including Genesys International Corporation Ltd in set of comparables - As gone through the above referred decision in the case of Mercer Consulting (India) Ltd. [ 2016 (8) T MI 1163 - PUNJAB AND HARYANA HIGH COURT] wherein held in refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DRP order that Coral Hub Ltd s operating cost consists 90.57% as outsourcing charges and Cosmic Global Ltd s operating cost comprises 57.31% as outstanding charges - aforesaid two companies business model were quite different from the business model of the assessee. Because of significant dissimilarities it cannot be considered comparable services. After considering the facts and judicial finding as reported in the decision of DRP, we do not find any merit in the appeal of revenue and the same stands dismissed. Disallowance on claim of devolvement of guarantee against SBLCs provided by the assessee company to the IDBI Bank who in turn gave SBLCs to the Bank of India, Manchester and to seven vendors of Rosebys Operations Ltd., the subsidiary company of the assessee - Rejecting application of tests made by TPO/AO for determining nature of transaction related to devolvement of SBLCs - HELD THAT:- As assessee company had acquired its subsidiary company Rosebys Operations Ltd. to expand its textile business operations globally based on the study carried out by KSA Techno Pak, renowned global consultant. It is clear from the comprehensive written submission from the assessee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come on account of commission paid to overseas agents was deemed to accrue or arise income and was taxable under the provision of section 5(2)(b) r.w.s. 9(1)(i) - HELD THAT:- Services have been rendered by the foreign agents outside India. The concerns were booked by them in their countries and none of the activities of procurement of orders was taken place in India. The agents have carried out all the activities on foreign soil and none of their activities was in India and therefore it cannot be said that the income has accrued or arised in India. CIT(A) has rightly held that there was no permanent establishment and business connection in India and the services were rendered outside India. It is clear from the finding of ld. CIT(A) that the commission agents have not carried out any activity in India. Non-residents commission agents were not having any permanent establishment in India. Therefore, commission paid to non-resident agents was not liable to tax under the provision of the act. Allowing long term capital loss as revenue loss claimed during the course of the appellate proceedings - AO has stated that since assessee has not filed the revised return of income therefore such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue, therefore, the same stands dismissed. Adjustment in book profit u/s. 115JB by disallowance u/s. 14A r.w.r. 8D - HELD THAT:- After considering the decision of Special Bench of ITAT Delhi in the case of VIREET INVESTMENT (P.) LTD. [ 2017 (6) TMI 1124 - ITAT DELHI] wherein it is held that disallowance made u/s. 14A r.w.r. 8D of the act is not required to be added u/s. 115JB for computing book profit. Considering the above facts and circumstances and finding of ld. CIT(A), we do not find any merit in the appeal of the revenue, therefore, the same stands dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... two companies from the comparable sets. Excluding the aforesaid two comparables the DRP has not rejected the other comparable used by the TPO. Accordingly, after taking into consideration, the direction of the DRP, the Assessing Officer has restricted upward adjustment to the amount of ₹ 1,93,46,224/-. In the draft assessment order, the Assessing Officer has proposed the addition on account of disallowance as per the provisions of section 37(1) of the Act of devolvement of SBLC of ₹ 30.98 crores considering capital loss and not revenue loss in nature. The assessee has raised objection before the DRP against the proposed adjustment of ₹ 30.96 crores and the DRP has sustained the objections and deleted the entire the addition of ₹ 30,96,28,781/-. Ground No. 1 (Erred in holding foreign exchange fluctuation gain should not form part of operating income for comparative analysis) 3. During the course of assessment, the assessee submitted that foreign exchange loss should be considered as operational in nature and submitted that foreign exchange gain/loss occurs in following two situations. (i) Receipts/expenditure are booked at the time of transaction while c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to date of conversion of foreign exchange into Indian currency and in the second situation an exporter/importer enter into foreign contract for sale/purchase of foreign exchange to hedge itself from the fluctuation in exchange rates. The TPO has not agreed with the submission of the assessee and exluded the foreing exchange fluctution from operarting income and not cosndiered for the purpospe of comparables to determine the arms length price of the international transsctions. The DRP has agreed with the view of the TPO and stated that the gain or loss on account of foreign exchange fluctuation is not linked to the quality or quantity of the services rendered and further stated that it is difficult to ascertain exact nature of such gains in the case of comparables. In this regard, we have gone through the judicial pronouncement referred by the learned counsel. In the case of Techbooks International Pvt. Ltd. 150 ITD 162, the Co-ordinate Bench of the ITAT Delhi has held that the foreign exchange gain/loss is required to be considered as part of the operating revenue cost. The relevant part of the decision of the Co-ordinate Bench is reproduced as under:- "4.4 The first issue agita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g considered as part of operating revenue is equally true for the foreign exchange loss being considered as part of operating costs from the transactions of the revenue nature. 4.7 The Special Bench of the Tribunal in Assn. CIT v. Prakash L Shah 120081 115 1TD 167fBom1 (SB) has held that the gain due to fluctuation in the foreign exchange rate emanating from export is its integral part and cannot be differentiated from the export proceeds simply on the ground that the foreign currency rate has increased subsequent to sale but prior to realization. It went on to add that when goods are exported and the invoice is raised in the currency of the country from where the goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports made. In fact it is only the translation of invoice value from the foreign currency to the Indian rupees. It held that the exchange rate gain or loss cannot have a different character than the transaction to which it relates. The Bench further found fallacy in the submission made on behalf of the Revenue that the exchange rate difference should be detac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced as under: - "21. We further find that the appellant company has earned foreign exchange gain on revaluation of its outstanding revenue receivables which were not considered as part of operating profit by the TPO as well as CIT(A). We find that the foreign exchange gain earned by the appellant pertained towards revaluation of its debtors as on the balance sheet 'date which means that exchange fluctuation was towards revenue item. Further, Safe Harbour Rules are only applicable to those assessee who have opted for Safe Harbour Rules and the same is made effective from A.Y. 2013- 14 onwards 22. We find support from the decision of the Co-ordinate Bench in the case of Rajratna Maul Industries Ltd. IT Appeal No. 1050 (And.) 2015, dated 12-5-2017. The relevant findings read as under:- '7. The Revenue's third and last substantive ground pleads that the lower appellate authority has erred in deleting arm's length price adjustment of ₹ 16.84,60,644/-; as proposed in Transfer Pricing Officer's order dated 21.01.2014 u7s.92CA(3) of the Act and accepted in the abovestated assessment order. Mr. Bidari strongly argues that the CJT(A) ought not to have rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, we restore this issue to the file of Assessing Officer/TPO to compute the assessee's margin as well as comparables by considering foreign exchange gain/loss as an item of operating revenue/cost. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. Ground No. 2 (erred in holding that adjustment with respect to capacity utilization should not be given to assessee company for comparative analysis) 6. The above captioned ground no. 2 of appeal was not pressed by the ld. counsel, therefore, the same stands dismissed. Ground No. 3 (erred in additionally including Accentia Technologies Ltd. in the set of comparables although its functions are different from that of the assessee) 7. In this regard, the assessee has submitted before the TPO that this entity was engaged in two main area being healthcare receivables cycle management services and software products for business process outsourcing. It was also submitted that this entity earns a substantial portion of its income from coding activities which is primarily related to software development. Therefore, it was submitted that this entity should not be considered as comparable. The TPO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as upheld the view of the Tribunal in not accepting the Aecentia Technologies Ltd., as comparable, inter alia, on account of fact that extra ordinary event such as merger/ amalgamation would affect the profitability of M/s. Accentia Technologies Ltd.. Thus, making it incomparable. (iv) Further in that case, as in this case, the Tribunal has also recorded a finding of fact that the activities of M/s. Technologies Ltd., and the Respondent are different. Thus, not comparable. The above finding of Fact is not shown to be perverse. (v) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained." We have also gone through the decision of BNY Mellon International Operations India Pvt. Ltd. (2018) 93 taxman.com 363 wherein the Hon'ble Mumbai High Court has also considered the issue of exclusion of M/s. Accentia Technology Ltd. from the list of comparables. The Hon'ble High Court has sustained the view of ITAT in excluding M/s. Accentia Technology Ltd as comparable on the basis of different nature of functions performed by the entity. The relevant part of the decision is reproduced as under:- "(a) The impugned order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of services provided by use of In formation-Technology is different. In any event, no challenge has been made to the finding of the Tribunal that the activities carried out by Accentia Technologies Ltd. and the Respondent- Assessee are functionally different and, therefore, not comparable. (e) Therefore, the view taken by the Tribunal in excluding Accentia Technologies Ltd. is a possible view more particularly in the absence of the same being shown to be perverse. Thus, no interference is warranted." We have gone through the decision of U.T. Star Com Inc. Industry 89 taxmann.com 90 Delhi ITAT wherein the Co-ordinate Bench of the ITAT has considered the issue on excluding M/s. Accentia Technology Ltd. in the list of comparables and held that there was functional dissimilarity in the M/s. Accentia Technology Ltd. as it was into health care receivable, management services. The relevant part of the decision of Co-ordinate Bench is reproduced as under:- "16. The taxpayer sought the exclusion of Accentia on the grounds inter alia that there was extra ordinary events which have impacted its PLI; that there is functional dissimilarity in the Accentia vis-a-vis the taxpayer as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available at pages 20 to 30 of the compendium of case laws, with Accentia which was also providing to its AE Information Technology Enabled Services and has directed to be Excluded from the final set of comparables by returning following findings :- "9.2. We have heard the rival submissions and perused the relevant material on record. We have also gone through the Annual report of this company for the year in question, which has been placed in the paper book. It can be noticed from page 31 of the Annual report that during the year under consideration this company completed the acquisition of 96% of M/s Oak Technologies Inc., a healthcare back-office processing company engaged in medical billing, coding and transcription activities and having substantial global work force. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. v. DCIT [2013] 154 TTJ(Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers./ Similar view has been taken by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. v. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the TPO and DRP. It is categorically demonstrated from the facts and findings of various judicial decisions as supra that M/s. Accentia Technology Ltd. has expertise in all the areas of transcription, coding, billing and collections, therefore, we direct the Assessing Officer/TPO to exclude M/s. Accentia Technology Ltd. in the set of comparables for determining arms length price of international transactions in the case of the assessee. Therefore, this ground of appeal of the assessee is allowed. Ground No. 4 (Erred in additionally including Genesys International Corporation Ltd in set of comparabes although apart from investing heavily in research and development it's function are very different from that of the assessee 8. In the ground no. 4, the assessee has opposed the including of Genesys International Corporation Ltd. in set of comparable on the reasoning that its functions were very different from that of the assessee. During the course of appellate proceedings before us, the ld. counsel has contended that the decision of TPO/DRP is not justified in including Genesys International Corporation Ltd. in set of comparables after placing reliance on the decision of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t raised any specific objections. During the course of assessment the assessee has not objected to the benchmarking of interest rate by following the procedure as in the last year. The interest rate has been calculated on the same basis as it was done in the last year. Considering the above facts and circumstances, we do not find any merit in this ground of appeal of the assessee, therefore, the same stands dismissed. Ground No. 7 (Disallowance of ₹ 3,48,322/- u/s. 14A r.w.r. 8D) 11. During the course of assessment, the Assessing Officer has made disallowance of ₹ 3,48,322/- u/s. 14A of the Act on the ground that assessee has used interest bearing fund for earning exempt income. The DRP has dismissed this ground of appeal of the assessee stating that assessee has not brought any specific defect in formula adopted by the Assessing Officer. 12. Heard both the sides and perused the material on record. During the course of appellate proceedings before us, the assessee brought to our notice that total exempt income earned by the assessee during the year under consideration was only to the amount of ₹ 2,46,341/- as against disallowance of ₹ 3,48,322/- made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their work. The DRP has also considered the decision of Co-ordinate Bench of the ITAT in the case of the ACIT Mumbai Vs. Maersks Global Service Centre India Pvt. Ltd. ITA No. 2774/Mum/2011. In that ruling, the ITAT has held that since the particular company had significant portion of its work outsourced which was a different model from the assessee, its rejection from the comparable set was accordingly upheld by the ITAT. The DRP has also considered the other case laws in the case of Vishal Information Technology wherein these companies outsourced considerable portion of their business. On the other hand, assessee carried out entire operation by itself therefore held that these cases were rightly excluded. In the case of Zydus Atlanta Healthcare Pvt. Ltd. (2011) 44 SOT 132 the ITAT Bench held that the function of outsourcing/administering services were not comparable to the activity of tested parties which provided services to associated enterprise itself. In the light of the above facts and finding, the DRP has excluded the aforesaid two comparables out of the comparable set. It is evident from the analysis of the annual account as per page 5-6 of the DRP order that Coral Hub Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has furnished its reply discussed as under:- "5.2 In response to the show cause, the assessee furnished his reply in Annexure-3 of letter dtd.25.03.2013. For the sake of clarity, the relevant portion of the same is reproduced hereunder: 1.1 GHCL Ltd (GHCL) acquired Roseby Operations Ltd (Roseby) running a reputed chain in retail stores in UK in 2006 with a view to have a ready distribution channel for home textile products manufactured at its Vapi unit. Unfortunately, due to macro economic factors, recession set in Europe soon thereafter and Roseby faced significant difficulty in obtaining funds to run its operations. With a view to support the trading operations of Roseby and consequently to protect business of its own Vapi unti, GHCL issued Standby Letter of Credit (SBLCs) in favour of trade creditors of Roseby as a temporary measure to tide over financial difficulties. 1.2 Roseby was unable to honour its dues due to deteriorating financial conditions and GHCL Ltd (GHCL) incurred losses of ₹ 30.96 Cr in F.Y, 2008-09 upon devolvement of such SBLCs. Rodsby went into liquidation in the same year ad GHCL has not recovered any money so far, GHCL has written o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' [approx INR 1000 Cr.). 2.6 The second acquisition that GHCL made was of Roseby Operations Ltd in UK in July 2006. Rosebys was UK's largest Home Textiles Retail chain company, if had a strong presence in bedding, curtains and kids garments with over 300 retail outlets across UK. It also had an annual turnover of close to US $ 250 M (approx INR 1000 Cr.) " 2.7 Since Dan River and Roseby offered significant synergies for the Vapi unit- GHCL also started evaluating efficient supply chain siructure between Vapi unit and Dan River/Roseby, The technical personnel of Dan River and Roseby visited the Vapi plant to ; appraise themselves of the production facilities available as also to discuss the US and European market trends, customer tastes and preferences with Vapi unit personnel. Since prior to acquisitions, Dan River and Roseby were independent entities having their own supply chain and souring structures which were in place for a long period of time, the process of integrating the Vapi unit was feasible in due course. Had things moved along as planned, Vapi Unit would have been fully utilized by Dan River and Roseby by sourcing some of their requirements [say, betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 4 SBH 30.00 5 IDBI 35.00 6 Total 175.00 2.13 FACTS The issue under consideration is in respect of SBLC issued on behalf of subsidiary ₹ 30 cr. 1. GHCL Issued SBLC on behalf of its step down subsidiary Rosebys for an amount of 30 crs through 1DB1 bank, Ahmedabad. 2. SBCL issued in favour of Bank Of India Manchester branch for ₹ 16 crs and sundry vendors of Rosebys for ₹ 14 Crores. 3. The SBLC was issued for working capital requirement of Rosebys. 4. SBLC was issued due to financial crunch faced by Rosebys on account or recession in UK in 2008. 5. Bank Of India had sanction the lo an for working capital requirement of Rosebys which can be verified from Sanction letter. 6. Due to deteriorate financial condition Rosebys could not repay the loan of BOI and vendors and therefore SBLC devolved on GHCL. 7. As Rosebys could not pay, the SBLC devolved on GHCL, and it has to honour the SBCL for commercial reasons. 8. During the year under consideration Rosebys went into liquidation and chances for recovery of ₹ 30 Crores from Rosebys were quite remote. 9. Therefore GHCL had write off the said amount in books and claimed as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities at the time of being placed under Administration and GHCL saw no chances of recovery of any money. Hence the loss of ₹ 30.96 Cr was also written off in the same year (i.e. F.Y. 2008-09)." The Assessing Officer has not accepted the submission of the assessee. The issue in appeal has been discussed by the Assessing Officer at page no. 44 to 117 of the assessment order. The main reason for disallowance of devolvement guarantee amount was that the advancement on loans were in the nature of capital contribution therefore expenditure incurred by way of devolvement of SBLC of ₹ 30.96 crores were considered as capital loss and not the revenue in nature. To support this conclusion, the Assessing Officer has referred 11 tests as reproduced in page no. 69 to 74 of the assessment order which is reproduced as under:- SN Tests Description 1 Names or labels given to the instruments This factor is neutral as no loan has been granted by the assessee directly. 2 Presence or absence of a fixed maturity date There is no fixed maturity date by which the SBLC would not be required by the associate enterprise and consequently the assessee could withdraw it. This mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g advances As already discussed above, the financial position of the associate enterprise was very risky when the funds were infused by the assessee. As a result the funds were placed at risk of the business and consequently on the business of this factor the nature of funding by the assessee were more towards equity. After taking into consideration the above referred tests, the Assessing Officer stated that provisioning the guarantee by the assessee to fund the working capital was in the nature of equity contribution or quasi equity because the independent parties were not willing to provide financial support to the associated enterprises. The Assessing Officer has also placed reliance on the following judgments:- (a) VST industries Ltd. (41 SOT 415) Hyd. (b) Abdullabhai Abduikada ( 41 ITR 545) SC (c) Salem Mangesite (P) Ltd. (180 Taxman 545) Bom. (d) D.C.M. Limited (123 TTJ 114) Del. After referring the aforesaid decisions, the Assessing Officer was of the view that the nature of funding made by the assessee was more towards equity contribution, therefore, since the funding was capital in nature, no guarantee fees, interest was required to be charged. Taking into cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business connection between ROL and GHCL. (b) Assessee company was only a guarantor for the aforesaid working capital / SBLCs and as no money was given by GHCL to Rosebys, therefore, when there are no funds given, how TPO / AO can characterize guarantee as equity / capital. (c) Assesses company acquired Rosebys, UK in July, 2006 and infused Equity contribution of 10 Mn GBP and hence, Rosebys, UK became 100% Subsidiary of GHCL Ltd. Therefore, there was no need of infusing any further equity, in 2008. (d) Capital contribution Is always given for some specific purpose like for acquisition and/or for purchase of capital assets; whereas working capital facility is for running day to day operations. (e) In case of capital contribution, there is no right of retrieval, whereas in case of guarantee, there Is a right of retrieval. GHCL filed Its claim before Liquidator for the devolvement of guarantee, which could not be sustained as there are insufficient assets In ROL, UK. (f) When financial experts / bankers like IDBI and BOI - UK have given 16 crore and ₹ 14 crore respectively as working capital directly to ROL - UK and its suppliers, how can TPO / AO characterize worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, the nature of SBLCs are for working capital finance.by IDBI Bank. The Departmental Officer was again given opportunity to controvert the rebuttal by the Id. Authorised Representative, but he could not substantiate by providing any facts regarding any money contributed by the assesses company at the time of providing guarantee against SBLCs. In view of the above facts, it is clear that the assessee company has not made any contribution towards capital, but provided guarantee against SBLCs through the bank which provided working capital to the Rosebys Operations Ltd. Now, the only question remains to be decided whether the guarantee against SBLCs to subsidiary company provided was in the nature of commercial expediency or not. The Id. Authorised Representative was provided opportunity to explain the commercial expediency In providing guarantee against the SBLCs to the subsidiary company i.e. Rosebys Operations Ltd. The Id. Authorised Representative has argued in detail and also filed a written submission to prove that the guarantee provided to the subsidiary company ROL was on account of commercial expediency and on the ground that the assessee company had business interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Whereas GHCL started supplies of Bed Linen, Curtains and. Bedding products, the other aforesaid suppliers were supplying other product categories for ROL, UK to have complete product ramie. (m) The sale of GHCL products was interdependent on sale of products by the aforesaid suppliers and vice-a'-versa Further, please note that, the product range of suppliers to whom IDBI Bank had issued SBLCs on the basis of business connection of GHCL with Rosebys is as under:- COMFY QUILTS LTD Quilts, Pillows, Mattress covers Bed linens DREAM 'N' DRAPES Curtains, Blinds and Cushions curtain rods GORDON JOHN TEXTILES, UK Curtains, Blinds Cushions, Linen sets IRWIN MUTCHELL, UK Roller Blind Fabric, roman blinds and curtains RAPPORT HOME FURNISHING LTD, UK Soft furnishing like Duvet Cover SNUG COMPANY LIMITED Pillows and mattress protectors Duvets SPEEDY PRODUCTS LTD, UK Tracks and poles. (n) The aforesaid suppliers of Rosebys were getting protection for their dues in the form of credit insurance coverage from UK based insurance companies. However, with the onset of global recession in 2008 and insurance companies themselves being under severe financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is also supported by the decisions in following cases: (a) CITvs. Amalaamated Ltd. (92 Taxmann 132) SC In this case, the Supreme Court was concerned with a case where 'the assessee's business Includes furnishing guarantee to debts' borrowed by subsidiary companies'. It was held that the guarantee devolvement liability which fell upon the assessee In respect of a newly acquired subsidiary was in the course of the taxpayer's business and hence was an allowable loss. The taxpayer in this case was engaged In formation, acquisition and management of subsidiaries which, in turn, were engaged In operating businesses like manufacturing, trading, financing, etc. (b) ACIT vs. W.S. Industries (40 DTK 1O6). Chennai Trib. The SC decision was applied by Chennai Tribunal in the case of ACIT vs. W. S. Industries (India) Ltd )(2010)[40 DTK (Chennai)(Trib) 106]. In this case, the subsidiary of the taxpayer was supplying materials which were important for the taxpayer's business. This was held to be an important circumstance supporting the action of the taxpayer i.e giving corporate guarantee as well as trade advance being incidental to the taxpayer's business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Is not for the department to consider what commercial expediency justified such expenditure, it is, therefore, not permissible for the Assessing Officer to scrutinize the claim any further to examine as to whether in the process any third party has also benefited. The mere fact that on account of the expenditure incurred by the assessee wholly and exclusively for its own business, incidentally some third party is also benefited Is no ground to disallow any part of such expenditure. In the case at hand, the assessee procured usage rights for brand "Rasna" for a valuable consideration and Incurred advertisement expenses in respect of products manufactured by it under such brand name. No part of the said expenditure was expended for any purpose other than for the assessee's business; merely because by virtue of such advertisements the brand value of Rasna is enhanced and other manufacturers of the brand are also Indirectly benefited, it cannot be said that the expenditure Incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises Its product, as a necessary corollary the brand valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t benefit was derived or was expected to be derived by the assessee-company. Applying the principle approved of by the Supreme Court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 CSC), it was clear that in the instant case, in the light of the additional materials which had been brought on the record of the case, the assessee-company did derive indirect benefit from the remuneration which it paid to its own managing director. Thus the services which A rendered to the managed company for the period commencing from 1-4-1956, were rendered by him to the managed company on behalf of the assessee-company, and as the managing director of the assessee-company, Applying the well-known decisions as regards the notions of commercial expediency and the principles to be applied as to when an amount paid can be said to be expended wholly and exclusively for the purpose of the business of the assessee-company, it could be concluded that in the instant case, the excess remuneration over the sum of ₹ 12,000 paid by the assesseecompany to 'A' was wholly and exclusively expended by it for the purposes of its business and was, hence, a deductible allowance within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k outstanding dues of Amer. Thus total amount due to the taxpayer in respect of the guarantee as well as advances was ₹ 4 lakhs which it claimed as a business deduction for AY 1956-57. The Tax Authority rejected the claim of the taxpayer and disallowed the loss on the ground that the management agreement did not mandatorily require the taxpayer to expend money by way of advances or give guarantees in favour of Amer. The Tribunal, by referring to the MOA of the taxpayer held that since the main objects of the taxpayer included lending of money as also providing guarantees, the advances made were only In pursuance of fulfilling Its stated objects. Hence, the expenditure incurred would be allowable as business expenditure for AY 1956-57. The HC reversed the decision of the Tribunal and held the loss to be capital loss on the grounds that the agency was obtained with a pre-condition of giving loans and making advances to Amer. On further appeal by the-taxpayer, the SC restored the decision of the Tribunal and held that HC had wrongly concluded the said loss to be capital in nature as also disagreed the facts which had been placed on record by the Tribunal. The guarantee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tender. However, RBI ordered for the liquidation of said bank. Accordingly, assessee-company wrote off the balance of FD and equity shares and claimed the same as business • expenditure. The Assessee had availed such bank guarantee faculties as per the prescribed norms of the bank which required the purchase of the shares and margin money for using the bank guarantee also was required to be kept as a fixed deposit. This bank, when eventually was declared as sick bank, was unable to repay the deposits, the membership of the said bank also was cancelled and the steps were taken pursuant to the order of the Reserve Bank of India. Assessee-company, thereafter, had written off the balance. In such circumstances, both Commissioner (Appeals) as well as the Tribunal were. absolutely justified in applying the ratio laid down by the Apex Court in case of Ramchandar Shivnarayan v. CIT [1978] 111 tTR 263 as also in case of Indian Aluminium Co. Ltd. V. CIT tl992] 84 ITR 735 CSC) to hold that such expenditure were needed to be spent by the assessee for the purpose of carrying on its business and are incidental to the business, therefore, any loss shall have to be considered as the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance on the judgment of Hon'ble Supreme Court in the case of CIT vs. Amalgamation Pvt. Ltd. 226 ITR 188, judgment of Hon'ble Supreme Court in the case Essen Pvt. Ltd. vs. CIT 65 ITR 625. The ld. counsel has also placed reliance on the decision of Coordinate Bench of the ITAT Chennai in the case of ACIT Chennai VS. W.S. Industries (I) Ltd. and decision of Hon'ble Gujarat High Court in the case of Pure Beverages Ltd. 209 ITR 131 and decision of Hon'ble Calcutta High Court in the case of CIT vs. Williamsons Magore Co. Ltd. 117 ITR 858, decision of Hon'ble Bombay High Court in the case of CIT Mumbai Vs. Mehta P. Ltd. 174 taxman 104. The ld. counsel further submitted that views taken by the DRP are correct and same may be confirmed. The ld. Departmental Representative has stated that no sufficient opportunities were provided by the DRP to the revenue before deciding the issue in appeal. 20. Heard both the sides and perused the material on record. The Assessing Officer has made disallowance of ₹ 30,96,28,781/- on claim of devolvement of guarantee against SBLCs by the assessee company to the IDBI Bank who in turn gave SBCLs to the Bank of India, Manchester and 7 vendors of Roseby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the GHCL on this account was to the tune of ₹ 30.96 crores in F.Y. 2008- 09. The SBLC was issued for working capital requirement of Rosebys Operation Ltd. and financial crunch faced by Roseby Operation Ltd. on account of recession in U.K. In 2008 Bank of India sanctioned loan for giving capital requirement of Rosebys Operation Ltd.. Due to deteriorating financial conditions, Rosebys Operations Ltd. could not repay the loan to the Bank of India vendors therefore SBCL devolved on the assessee company. As Rosebys Operations Ltd. could not pay SBCL devolved on assessee company and during the year under consideration the Rosebys Operations Ltd. went into liquidation and chances of recovery of ₹ 30 crores from Rosebys Operations Ltd. were quite remote. Therefore, the assessee company had written off the amount in books and claimed as business losses u/s. 37(1) of the Act. We have also gone through the explanation furnished on devolvement of SBLCs and commercial expediency furnished by the assessee company before the DRP which is discussed as under:- "Allowability of SBLCs (Stand by Letter of Credit) write off as business expenditure u/s 37 (1) of Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the export market for textiles which made it impossible for the Indian textile manufacturers to penetrate the US and European markets, Post 2005, the quota restrictions in US and Europe were removed pursuant to General Agreement on Trade and Tariff^ (GATT) which provided low cost manufacturing countries like India and China huge potential to tap these markets. The textile outsourcing to low cost manufacturing countries was perceived as the second wave of outsourcing after information technology. (Page no 117 of KSA Report attached as Annexure-2) KSA advised that post lifting or quota, only those textile players would survive who have :- Presence across entire textile value chain Nearness to the customer Size; and Design and development capability > KSA Technopak, highlighted following factors in favour of i Home-Textiles Positive Turnover Vs Capital Investment ratio ( Annexure-3 KSA Report) Opportunities for Manifold growth Flexible Markets with possibilities of switching between Domestic and Overseas Markets depending on demand pattern. (Copy of KSA's Report is attached as Annexure-2 and Annexure-3, Page no. 11 to 171 of paper book 3A) Based on the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urced up to 78% of Its Retail Product requirements from UK & UK based Suppliers > 59% of the revenue was contributed from bedding / curtain products. a) Offer a choice of Good - Better - Best products, b) Kids bedding products were sold under brand names namely Disney Princess, Butterfly, England 2006, Garden Flowers, Photo Bunnies c) 310,000 Sq.ft. Of Highly automated Distribution and Warehousing facilities connected by Rail and conveniently located for Imports d) Additional 100,000 Sq.ft. in place for expansion and launch of ePorta! Sales 1.3 Benefits for acquisition of Rosebys - Synergy with VAPI Home Textile Acquisition of Rosebys made GHCL a fully integrated Home Textile player from Spinning to Retail and also provided an immediate access to UK Market especially market for high end products of VAPI. Apart from ready distribution channel, GHCL envisaged that the acquisition of Rosebys would provide the company with below opportunities: *• Stores expansion in UK. *• Entry in to Europe and Asian markets. * Introduction of new products from GHCL, *• Other Stiles channel (e.g. e-commerce) Additionally, GHCL also envisaged following cost reductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business operations. The Barclays Bank, UK had provided normal working capital facility to Rosebys considering its stable business operations. (Enclosed as Annexure - 8, page no 305 to 317 of paper book 3A). A snap shot of Rosebys flnandals is as under- Amt. In '000 GBP) Particulars FY 2005-06 52 weeks (as on 29.04.2006) FY 2006-07 48 weeks (as on 31.03.2007) FY 2007-08 48 weeks (as on 01.03.2008) Sales 143680 117784 103151 Operating Profit (8281) (4678) (3306) 2.2 The operations of Rosebys and its banking continued smoothly till the end of calendar year 2007. However, with the onset of global financial crisis which started at the end of calendar 2007, banks in both Europe and USA started facing huge financial stress. This resulted in Banks stopping both inter-bank lending and withdrawal of banking support to many business in UK, Europe and USA, 2.3 In such turbulent global financial scenario, the regular banker of Roseby viz. Barclays Bank which also faced financial stress ( An article is enclosed as Annexure-9, page no 318 to 319 of paper book 3A) could not continue its working capital facility to Rosebys and decided to withdraw the same sometime tn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bank will grant a working capital facility other than for business purpose. As mentioned above, the facility was provided by IDBI Bank to Rosebys UK by carving out working capital limit of VAPI division of GHCL Further as stated above, IDBI had issued SBLC to Bank of India, which in turn provided working capital facility to Rosebys, UK and therefore it cannot be treated as a capital contribution. (Sanction Letter of Bank of India, Manchester is enclosed as Annexure - 15, page no 453 to 45 of paper book 3A) 2.7 Lehman Brothers Collapse and its impact on Global Economy -Also on Rosebys Business With the above financial support from IDBI, Rosebys was continuing its business operations. However, the sudden collapse of Lehman Brothers, a $ 650 billion Investment bank, proved to be major catastrophe for the entire global economy in September 2008. ( Copy of article on collapse of Lehman is attached as Annexure- 16, page no 455 to 456 of paper book 3A)Thls not only resulted in the crash of hundreds of banks in USA, UK and Europe, but also resulted in the closure of many businesses in western world, especially the retail outlets. The Impact was so severe that some of the large Reta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PI division of GHCL. The intimation received from " IDBI debiting GHCL account Is enclosed as Annexure - 23 (page no S69 to 599 of paper boo^c 3A). GHCL could not recover any money from Rosebys as the same had been put under liquidation by KMPG in UK. 9. The assessee company further submitted rebuttal to the AO's observations on financial support to Rosebys and considering SBLCs as equity contribution or quasi equity and rebutted FAR test observations of the Assessing Officer, the relevant portion is reproduced as under: "Rebuttal tQ the AQ's Observations 1. The AO alleged that: the regular banker of the associated enterprises did not provide additional working capital and in this scenario the assessee provided the stand by letter of credits in favour of suppliers of the associated enterprises by drawing up its own credit limit with the IDBI (Pg. no. 55 of Assessment Order).' Reply: The allegation by AO based on conclusion, whereas, the financial supports to Rosebys were as under: (1) Regular banker of Roseby viz. Barclays Bank which also faced financial stress could not continue its working capital facility to Rosebys and decided to withdraw the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantor for the aforesaid working capital / SBLCs and as no money was given by GHCL to Rosebys, therefore, when there are no funds given, how TPO / AO can characterize guarantee as equity / capital. (iii) GHCL acquired Rosebys, UK in July, 2006 and infused Equity contribution of 10 Mn GBP and hence, Rosebys, UK became 100% subsidiary of GHCL Ltd. Therefore, there was no need of infusing any further equity, in 2008. (iv) Capital contribution is always given for some specific purpose like for acquisition and/or for purchase of capital assets; whereas working capital facility is for running day to day operations. (v) In case of capital contribution, there is no right of retrieval, whereas in case of guarantee, there is a right of retrieval, GHCL filed its claim before Liquidator for the devolvement of guarantee, which could not be sustained as there are insufficient assets in ROL, UK. (vi) When financial experts / bankers like IDBI and BO! - UK have given 16 crore and ₹ 14 crore respectively as working capital directly to ROL - UK and its suppliers, how can TPO / AO characterize working capital facility granted by banks as equity contribution. (vii) Further, at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness" of the associate enterprise and consequently the repayment would be | when the associate enterprise would be able repay, on the basis of its improved financial As no money was given by GHCL, no repayment required. For guarantee invocation, by IDBI, claim was filed by GHCL before Liquidator. 4 Right to enforce payments There Is no indication of any enforcement of payment by the assessee. Consequently, the funding veers more towards equity. Right of guarantee Invocation filed with Liquidator of ROL, UK 5 Participation in management as a result of advances The AE is already 100% subsidiary of the assessee. Therefore, this factor is neutral. AO/TPO has accepted our view point. 6 Status of the advances in relation to regular corporate creditors. Since the fund have been granted to make the payment to the normal creditors of the business. It is clear that the status of; funds provided by. the assessee is subservient to the status of a creditor. Therefore, the nature of funding veers more towards equity. No funds provided by assessee. IDBI directly provided SBLCs to suppliers of ROL, UK as working capital. 7 Intent of the parties The absence of any rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing judgments, the facts of which are not identical to appellant's case, Therefore, these judgments have no relevance: (a) VST Industries Ltd. (41 SOT 415) Hyd. \ (b) Abdullabhai Abdulkada (41 ITR 545) SC (C) Salem Mangesite (P) Ltd. (180 Taxman 545) Bom. (d) D.C.M. Limited (123 TT3 114) Del." 10, The assessee company in rejoinder furnished write-up on commercial expediency between assessee-company and its subsidiary / associated company Rosebys Operations Ltd., UK and Ld. AR argued in length that giving SBLCs to subsidiary company is in the nature of commercial expediency due to proximity in business, therefore, the losses on account of devolvement of SBLCs are in the nature of business Joss, the relevant portion Is reproduced as under: "Commercial Expediency 1. The acquisition of USA and UK Home Textile chain stores were in the line of expansion after set-up of Vapi Home Textile Plant, so that from India products can be lined in USA and UK as the India become processing hub of home furnishing textile items. 2. The objective of the acquisition was to capture and expand Home Textile market in UK and also enter in European region. 3. Had we not setup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress covers, Bed linens DREAM 'N1 DRAPES Curtains, Blinds and Cushions curtain rods GORDON JOHN TEXTILES, UK Curtains, Blinds Cushions, Linen sets IRWIN MUTCHELL, UK Roller Blind Fabric, roman blinds and curtains RAPPORT HOME FURNISHING LTD, UK Soft furnishing like Duvet Cover SNUG COMPANY LIMITED. Pillows and mattress protectors. Duvets SPEEDY PRODUCTS LTD, UK Tracks and poles, 15.The aforesaid suppliers of Rosebys were getting protection for their dues in the form of credit insurance coverage from UK based insurance companies. However, with the onset of global recession in 2008 and insurance companies themselves being under severe financial stress, they withdrew the insurance cover from the retail sector In UK. Therefore, some of the suppliers requested for additional security to continue their credit supplies to ROL, UK. As the sales of GHCL's products were interdependent on sale of products supplied by these parties, and IDB! Bank, India rightly understanding the business connection between GHCL and ROL, UK, it directly provided SBLCs in favour of these 7 suppliers." We have gone through the judicial pronouncement in the case of S.A. Builders Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd. 's case (supra) that the interest, was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct." The Hon'ble Supreme Court in the case of CIT vs. Amalgamation (P) Ltd. 226 ITR 188 held that assessee company had incurred losses in carrying on its business which included furnishing guarantee to debt borrowed by its subsidiary company. It was further held that loss could be allowed in year in which it came to be ascertained. We have also gone through the decision of Hon'ble Supreme Court in the case of Essen (P.) Ltd. vs. CIT 65 ITR 625 wherein it is held that the loan advanced by the assessee to the managed company and the payment made by it under the terms of guarantee given to the company were in the course of assessee's business and the claim for allowance of the loss sustained by the assessee was therefore admissible u/s. 10(2)(xi) of the Act, 1922. The Co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,09,27,000/- in respect of IT enabled services rendered to AE in cryptic manner) 22. During the course of assessment, the Assessing Officer noticed that assessee was having international transaction with associated enterprise and the TPO has made upward adjustment of ₹ 3,09,27000/- on the basis of capacity utilization adjustment and average of comparable value of services computed on ALP. The TPO has not accepted certain comparable and after considering the contention of the assessee, the TPO has selected four comparables and determined upward adjustment. The Assessee has submitted that no adjustment on account of capacity utilization differences has been allowed while working out the profit margin. The assessee has objected to taking Cosmic Global Ltd. and Accentia Technology Ltd. as comparables by the TPO. The assesse has also submitted that in the last year TPO has taken Micro Land Ltd. as comparable which was also accepted by the DRP, therefore, this company should have also be taken as comparable during this year. The assessee has filed appeal before the ld. CIT(A) who has upheld upward adjustment made by the Assessing Officer/TPO. During the course of appellate pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in the case of the assessee compared to the other comparable. After perusal of the finding of TPO, A.O. and CIT(A), it is observed that the detailed information furnished by the assessee has not been considered while rejecting the claim of the assessee of under utilization of capacity. In the light of the aforesaid facts and circumstances, we restore this issue of upward adjustment to the file of the A.O. for deciding afresh after excluding the two comparables as mentioned above and considering the capacity utilization of the employees and the profit margin after verification and examination of the details furnished by the assessee. Accordingly, this ground of appeal of the assessee is partly allowed for statistical purposes. 24. Ground No. 3:- The ld. counsel has not pressed this ground of appeal therefore the same stands dismissed. 25. Ground No. 4 to 6:- Similar ground of appeal relating to objection of the assessee for taking Cosmic Global and Accentia Technologies Ltd as comparables by the TPO has been adjudicated as per ground no. 1 of the Departmental appeal in ITA No. 976/Ahd/2014 for A.Y. 2009-10 supra in this order wherein the decision of DRP excluding the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, this ground of appeal of the assessee is allowed for statistical purposes. Ground No. 9 (Erred in directing to disallow interest & administrative expenses u/s. 14A r.w.r. 8D(iii) of ₹ 3,74,410/- though appellant on earning exempt of ₹ 2,93,606/- suo-moto disallowed ₹ 1,00,000/-) 27 During the course of assessment, the Assessing Officer made disallowance of interest and administrative expenses u/s. 14A r.w.r. 8D(3) of the act of ₹ 3,74,410/- which was sustained by the ld. CIT(A). During the course of appellate proceedings before us, it is brought to our notice that total exempt income earned by the assessee during the year under consideration was only to the extent of ₹ 2,93,606/- as against disallowance of expenditure made to the extent to ₹ 3,74,410/-. After taking into consideration the finding of the various decisions of the Tribunal on this issue, we restrict the disallowance to the extent of exempt income of ₹ 2,93,606/-. Accordingly, this ground of appeal of the assessee is partly allowed. ITA No. 302/Ahd/2015 filed by revenue A.Y. 2010-11 Ground No. 1 (Erred in deleting disallowance of ₹ 63,47,445/- u/s. 14A r.w.r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exempt income. The ld. Departmental Representative could not controvert these undisputed facts considering a number of judicial pronouncements of the Co-ordinate Benches on this issue, we restrict the disallowance u/s. 14A r.w.r. 8D to the extent of exempt income of ₹ 3.55 lacs. Since the assessee has suo moto made disallowance of ₹ 1 lacs, therefore, we direct the Assessing Officer to making further disallowance of ₹ 2.55 lacs in the case of the assessee. Therefore, this ground of the assessee is partly allowed and ground of the revenue is dismissed. Ground No. 2 (Disallowance of ₹ 184,75,10,600/- u/s. 37(1) 31. As the facts and issue involved in ground of appeal nos. 5 & 6 vide ITA No. 976/Ahd/2014 Assessment Year 2009-10 are similar as in ITA No. 2625/Ahd/2015 Assessment Year 2010-11 therefore after applying the decision adjudicated vide ITA No. 976/Ahd/2014 as supra in this order, this ground of appeal of the revenue stands dismissed. Ground No. 3 (Disallowance of ₹ 3,79,13,654/- u/s. 40(a)(ia) of the Act 32. During the course of assessment, the Assessing Officer noticed that assessee has made payment of foreign commission to non-residents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment in India. Therefore, commission paid to non-resident agents was not liable to tax under the provision of the act. In view of the above facts and detailed finding of ld. CIT(A), we do not find any merit in the appeal of the revenue and the same is dismissed. ITA No. 2279/Ahd/2015 filed by assessee A.Y. 2011-12 Ground Nos. 1 and 3 to 6 (Confirming upward adjustment of ₹ 1,44,50,000/- in respect of I.T. enabled Services rendered AE in Criptic manner) 35. During the course of assessment, the TPO has proposed an upward adjustment of ₹ 1,44,80,000/- in respect of I.T. enabled services rendered by Colwell and Solman Associated Enterprise of the assessee company. The TPO has not accepted certain comparables selected by the assessee in its transfer pricing study report. The assessee submitted that 5 comparables rejected by TPO should also be selected as comparables. The assessee has objected Accentia Technology, Acroppetal Technologies Ltd, Crossdomanin Solution Pvt. Ltd., Healthcare Busienss Servies Pvt. Ltd. and Calier Point Business Solution Ltd. as comparables because of differences in operational activities. The Assessing Officer has made upward adjustment of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5(2)(b) r.w.s. 9(1)(i) of the Income Tax Act. The Assessing Officer was of the view that assessee had failed to comply with the provision of section 195(2) of the Act. The assessee submitted that commission income has been earned abroad and not taxable in India hence were booked by agents in their countries and none of the activities of procuring order was taken placed in India. The Assessing Officer has not accepted the submission of the assessee and made disallowance of ₹ 3,95,11,251/- u/s. 40(a)(ia) of the Act. The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has confirmed the disallowance to the extent of ₹ 15,97,957/- on the ground that most of the parties are those with whom the assessee has done business in earlier years and the commission paid to non-resident agent was not liable to tax under the provision of the act as the services were rendered outside India, services used outside India, payments were made outside India and there was no permanent establishment in India. However, in respect of payment to the amount of ₹ 14,36,111/- in respect of Sari Pacific INC, the ld. CIT(A) observed that the transaction were not fully suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer) & ground no. 1 of cross objection 38. During the course of assessment, the Assessing Officer made disallowance u/s. 14A r.w.r. 8D in respect of expenses incurred for earning exempt income to the amount of ₹ 39,80,621/-. In appeal, the ld. CIT(A) has restricted this disallowance to the extent of ₹ 4,69,448/-. 39. Heard both the sides and perused the material on record. Since the total exempt income earned during this year was to the amount of ₹ 5,59,000/- as against disallowance of ₹ 4,69,448/- sustained by the ld. CIT(A). therefore, we do not find any merit in the appeal of the revenue and cross objection of the assessee. However, we direct the Assessing Officer to consider the suo-moto disallowance of ₹ 1 lacs made by the assessee and this ground of appeal of revenue and ground no. 1 of cross objection both are dismissed. Ground No. 2 (Disallowance of foreign commission expenses amounting to ₹ 5,51,33,615/-) 40. The A.O. has disallowed commission paid to foreign agents amounting to ₹ 5,51,33,625/- by holding that the income arising on account of commission payable to overseas agents was deemed to accrue or ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted from such payments. The appellant claimed that it was engaged in the business of manufacturing of Soda Ash and textile products and export thereof. The details of the commission payment to the agents on export are as under:- Manufacturing items Export Sale Commission (Rs.) Soda Ash 82,58,95,71 3/- 18,13,852/- Home Textile Made-Ups / Bed Sheet 4,43,77,29,733/- 5,33,19,763/- Total 5,26,36,25,446/- 5,51,33,615/- 4.5. It was claimed that the goods were exported thiough brokers who basically were from UAE, Bangladesh, UK and USA etc. It is further claimed these overseas brokers were providing export orders by searching 7 inquiring export - import from countries spread over world wide along with other services like negotiating he rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing the appellant and taking care of the deliveries of goods to the importers and follow up for final payments. 4.6. He also provided the relevant details to the AO during assessment proceedings through its letter dated 0270272016 & 1570272016 like name and address of the broker, name and country of buyers, items exported, bill quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission paid was genuine and the services have been rendered. 4.10. Regarding the first issue r is noted from the evidences given by the appellant as well as noted by the AO in his order that the services have been rendered by the foreign agents outside India. The sales were booked by them in their country or for the country for which they have been appointed as commission agents. None of the activities soliciting the clients and procuring the orders has taken place in India. The goods were being delivered by the appellant company in the other country. The activities of procuring the paynent on behalf of the appellant company were also done abroad. The AO was therefore, incorrect to hold that the source of income lies in India as the sales have been made from India. The provisions of Income Tax Acf clearly provide fhat the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but solicitingthe sales by commission agents. Though this activity is linked to the sales of the company but it cannot be said that the income has been derived.from sales which has been made from India. The income has been derived from the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of our Ardesi B Cursetjee & Sons Ltd. 115TTJ 916. 4.14. Therefore, in view of the preceding discussion the AO was not justified to hold that the commission payable to the overseas agents was deemed to accrue or arise in India and is taxable under the Act in view of the specific provisions of sections 5 (2J(b) read with section 9 (l)[i) of Income Tax Act. 4.15. The last issue which is to be adjudicated is that whether the commission payment was genuine and the services were rendered. The AO has briefly dealt with the issue in para - 5 of his order. It has placed on record several documents whicn indicale that the agents have rendered services prior to the actual sales as well as subsequently also. It is further observed that the payments hcve been made through banking channel and are duly documented. The appellant has made commission payment to agents during the year and it has provided copies of various evidences. The appellant has given satisfactory evidences in respect of all commission payments, and therefore, considering the overall facts and circumstances the payment made to the agents is taken as genuine. Accordingly, in rny considered opinion the appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Eon Technology Pvt. Ltd. [46 SOT 323 (Delhi ITAT) Sukani Enterprises Vs. ACIT [ITA No. 1 330/Mum/201 1 ] (ITAT, Mumbai) ITO Vs. Pipavav Shipyard Limited [(2014) 42 Taxmann.com 159] ACIT 17(2), Mumbai Vs. Vilas N. Tamhankar (2015) [55 Taxmann.com 413] CIT V. Vinayak Exports 82 CCH 0032 (Guj) (2012) CIT Vs. Fluldtherm Technology (P.) Ltd. (2015) 57 taxmann.com 87 (Madras) CIT Vs. Orient Express (2015) 56 taxmann.com 331 Madras) Asst. CIT v. India Shoes Exports (P.) Ltd. (2015) 57 taxmann.com 303 (Chennai - Trib) Indo Industries Ltd. v. ITO (2015) 53 1axmann.com 458 Mumbai -Trib.) Khimji Visram & Sons v. Addl. CIT (2014) 52 taxmann.com 485 (ITAT, Mumbai) Commissioner of Income-tax, Chennai v. Faizan Shoes (P.) Ltd. [2014] 48 Taxman.com 48 (Mad.) Assistant Commissioner of Income-tax, Co. Circle - 1(3) v. Comex Exports (P) Ltd. [201 4] 45 taxmann.com 406 (Chennai -Trib.) Assistant Commissioner of Income-tax, Company Circle 1 1 1(2), Chennai v. T. Abdul Wahid Tanneries (P.) Ltd. 85 [2014] 47 taxmann.com 133 (Chennai Tri.) Ajit Impex vs. DC1T 46 taxmann.com 163 [2014] Pankaj A. Shah vs. ITO, Ward - 1, Baroda [47 taxmann.com 205(2014)1 Zanav Home Col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong term capital loss on account of loss in shares of subsidiary companies of ₹ 1,57,97,38,428/-. In the assessment proceedings, the assessee company has revised its claim relating to investment in wholly owned subsidiary company Indian Britain BV of ₹ 99,89,96,245/- and requested that loss on account of capital may be granted as business loss. In this regard, a detailed submission on business strategy and commercial expediency was filed vide letter dated 15th Feb, 2016 before the Assessing Officer. In its submission, the assessee company has explained that the investment in the wholly owned subsidiary Indian Britain BV was for the purpose of business and loss on account of investment in shares was purely for the purpose of business and to achieve business objectives with commercial expediency and stated that loss arising from investment in shares was allowable as business loss. However, the Assessing Officer has not accepted the submission of the assessee stating that assessee company has not filed revised return for such claim as per provisions of section 139(5) of the Act. Since, there was no revised return filed the claim of assessee company for capital loss as busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary - Indian Britain BV formed further step-down subsidiaries in Netherlands and USA to expand its business of soda ash and home textile globally. Through such step-down subsidiaries, the appellant acquired SC Bega Upsom (renamed as GHCL Upsom Ltd) at Romania in soda ash manufacturing sec'or and similarly, the appellant acquired Rosebys UK Ltd in United Kingdom qnd Dan River Inc in USA to expand ils home textile business, as the company is having plants for textile manufacturing at Madurai and Vapi, Investment in subsidiaries, step-down subsidiaries and acquisition of retail chains was only to expand business globally. After such acquisitions, the sales and exports shoot up substantially and international brands started taking GHCL Textile products even after reduction in shares / liquidation of subsidiary - Indian Britain BV. Therefore, the losses due to reduction in share capital of Indian Britain BV, the wholly owned subsidiary company of ₹ 99,89,96,245/- was business loss as the investment was made for the purpose of business and was commercially expedient. 5.5. In the assessment proceedings, the appellant through the letter dated 15/02/201 6 revised its claim of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. The AO did not made any observaiions on merits with regard to disallowability of such loss as business loss in the assessment order. 5.7. During the course of appellate proceedings, through the aforesaid ground, the appellant has objected the action of the AO staling that the loss claimed on account of investment in shares of the wholly owned subsidiary company was a business loss and the same could have been allowed although the revised return of income u/s. 139(5) of the I. T. Act has not been filed but the claim was made through the letter in the assessment proceedings before the AO. 5.8. Having considered the facts and submissions and also various judgments of Hon'ble Courts, whereby it has been held that even where the facts are necessary to examine such a claim were not placed in the original return of income or through the revised return of income but by way of written submissions in the assessment proceedings before the A.O., there would be no impediment in the CIT(A) entertaining such a claim. On the contrary, the case of the appellant was on a better footing for the reason that all the facts were on record before the A.O. In this regard, the binding deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sess the tax liability/ income of the assessee correctly in accordance with law and if the assessee is entitled to certain relief/deduction or benefits the assessee should not be derived or deprived of it even if the claim periaining to the same is made for the first time before the Tribunal during pendency of appeal before it. In the case of Thomas Kurian Vs. ACIT [106 ITD 158 (Coch.)], the Hon'ble ITAT Cochin bench hcve granted the deduction u/s.80HHC for the first Time before the first appellate authority claimed which the appellant has omitted to make in its return of income. Even the Hon'ble ITAT, Delhi in the case of Xerox India Ltd., New Delhi Vs. assessee in 1TA No. 1590/DEL/2010], has observed thai an officer must not take the advantage of the ignorance of the assessee. The Hon'ble Gujarat High Court in the case of CIT Vs. Milton Laminates Ltd. (2013) 37 Taxmann.com 249 have held that while giving effect to order of CIT(A) A.O con compute income lower than that returned. The Hon'ble Delhi High Court in the case of CIT Vs. Jai Parabolic Springs Limited (2008) 306 ITR 42 has also held that the decision of Honourable Court in the case of Goetze India L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in accordance to the law that is expected to be extended to the assessee by the A.O. 5.13. Considering the aforesad judgements and circular, as per the legal position, the CIT(A) and ITAT have power to allow deduction of expenditure / claim to appellant which it was otherwise entitled even though such claim was not rrade through revised return of income. Even, the appellant, if entitled to a particular claim which it remained to be claimed in the return of income may claim during the appellate proceedings. Thus the decision in the case of Goetze Indi Ltd. does not restrict the appellant to make such claim in the appellate proceedings. The A.O. ought to have dealt the issue under consideration on merits which he wrongly chosen not to do so, more so when the appellant has given the written submissions, explaining the reasons and citing the judgements for acceptance of its claim. Thus, the A.O.'s action for non consideration of the claim in the assessment proceedings on merits is found not correct in view of the judicial propositions of the Hon'ble Courts and circular cited above. Therefore, the issue under consideration on merits is decided as under. 5.14. The brief ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crs. which was commissioned in March 2006. Vapi Plant is a fully integrated weaving and textile manufacturing unit from weaving of grey fabric, processing, dying 8, punting to manufacturing home textile consumer oroducts like bed linen, curtains^ggLrriade_ups, comforteiL covers ^cushions, etc. 13. In the line of expansion in overseas market, GHCL looked for various acquisition opportunities which hod a strong relationship with big international retailers for its B2B business and sizable retail chain for catering to B2C business. After detailed financial, legal and commercial due diligence conducted by various professional agencies, GHCL acquired the following three (3) companies during the period Jan'2006 to March 2007: a. GHCL acquired Dan River Inc, USA in Jan'2006 - Dan River was Third Largest US Home- Textile Manufacturer with over 125 years of B2D relationship with around 100 Retailers including big names like Wall-Mart, K-Mart, J C Penny, Target etc. b. In UK. GhCL acquired Rosebys Retqjl Chain in July 2006 from Lloyds TSB Development Capital Limited, which was having 325 Home-Textile retail outlets across UK. c. In March 2007, GHCL acquired Best Textile Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses for manufacture and waste disposal used at GHCL Upsom and implement the same in its own plant. iii. GHCL India could also import soda ash from GHCL Upsom to cater to the local growing demand. In fact, in F.Y. 2006-07, GHCL India imported soda ash worth ₹ 9.09 Cr and sodium bicarb of Rs,0.65 Cr from GHCL Upsom c) GHCL Upsom was located about 400 KM from Capital City of Bucharest with a capacity of 2.25 Lac Per Annum d) The plant was spread over 80 hectares with a market shore of 25% of Domestic Market, e) The acquisition was completed after Financial, Legal and Environment due diligence conducted by Ernst & Young, Musat & Asociafii, Pricewater House Coopers respectively. 3. Home-Textiles Business Expansion: Vapi Project and Acquisition in USA and UK. a) After lurning around and stabilizing Texiile Spinning business in 2004, GHCL engaged KSA Technopak, a renowned consultant, who advised GHCL to expand its textile business by entering in Home Textile Segment both in India and Overseas. b) Objective of Textile expansion was to be present in the entire textile value chain right from "Spinning to Retail", which included spinning, weaving, processing, In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions far both the parties. Acquisition was completed in July'2006. The acquisition was done with a well crofted strategy as the product profile of Rosebys could be synergized with Vapi Plant as about 59% of the revenue was contributed from bedding / curtain products which were largely sourced from UK and UK based suppliers till then. At the time accuisition, DAN River Inc., USA and Rosebys Operations Limited (ROL), UK were not making profits and our long term plan wa; to make them profitable by restructuring their product souring and aligning it with Vapi. The acquisitions were conducting under "Long Term Business. Growth Strategy" and it is well proven that it normally takes around 3- 4 years to stabilize and turnaround businesses. The experience frcm the aforesaid acquisitions proved extremely helpful for Indian Textile business which is evident from the fact that the Revenue of the textile segment increased from mere ₹ 90Crs. in 2003-04 to ₹ 900 Crores in 2012-13: Post acquisition revenue of Soda Ash and Textile GHCL India Rs. In Crs. Revenue FY 2006- 07 "TV 2007- 08 FY 2008- 09 FY 2009- 10 FY 2010- 11 FY 2011- 12 FY 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose which may seen directly or indirectly ca culated to benefit the company and to place or guarantee the placing of, underwrite, subscribe for 01 otherwise, acquire all or any part of the shares, debentures or other securities of any such other company. 57, To carry on whether in India or else in the world any business or branch of the business which the company is authorized to carry on by means, of or through the agency or any subsidiary company or companies and to enter into any agreement with such subsidiary company for sharing the profits and bearing the losses of any business or branch so carried on, or for financing any such subsidiary company or guarantying its liabilities or to make any other arrangement which may seen desirable with reference to any business or branch so carried on including powei al any time and either temporarily or permanently to close any such brarch or business. [Adopted under Main objects of the company vide Resolution No. 6 passed at the 11th Annual General Meeting of the company held on 27-09-1994J. 57. The appellant submitted that the initiation of process for acquiring chain of business / plant in foreign countries through subsidiaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -07 Capital from Indian Britain BV 76,789 Investment in Rosebys 20,808,439 Loan from Indian Britain BV 5,200,000 Loan to Rosebys 25,162,553 Loan from Exim Bank 39,600,000 Used for Assets/Expenses 97,149 Interest and Other Income 1,191,352 TOTAL 46,068,141 TOTAL 46,068,141 5.18. The appellant also relied upon the resolutions related to acquisition and investments in Soda-ash olant SG Bega Upsom SA in Romania, Textile business of Dan River Inc USA and Home textile chain of Rosebys UK through subsidiary Indian Britain BV and step-down subsidiaries of IBBV. The brief of the above strategical acquisitions as submitted by the appellant is noted as under:- a] In board meeting on 01-09-2005, the investment up lo USD 100 Mn for acquisition of soda ash plants at Romania was approved. The proposal involves acquiring two units having current production of 4,30 lakh tones in Romania - the vintage of 1 plant being 1953 and the other 1962. The board was informed that crilical raw materials like salt / limestone / anthracite are available in plenty from nearby supply sources and one unit has captive steam / power generated by gas and other unit buys steam / pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility in India with reduced overhands and reduced cost of production to increase margins and consequently profitability. The board was further informed that the negotiation for purchase of majority stake approximately 60% against indicative equity value of USD 60 Mn is in progress. In board meeting on 15-10-2005, the board was informed about the status of acquisition of soda ash plant in Romania and home textile business in USA was informed to the board. d) In board meeting on 19-11-2005, acquisition of business in Romania and USA and investment in wholly owned subsidiary in Netherland approved. > Acquisition of Bega Upsom SA in Romania with investment of US $62 Mn approved. The acquisition of shares of Bega Upsom SA will be through the wholly owned subsidiary (WOS)/Stepdown Subsidiary, Registered in Netherlands. > Acquisition of Dan River Inc USA with investment of US $42 Mn approved. The acquis'tion of shares will be through the wholly owned subsidiary (WOS)/Step-down Subsidiary, Registered in Netherlands. > In this board meeting, consent accorded to make investment in wholly owned subsidiary i.e Valdralona Investments BV [name may be changed to Indian Brhain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s informed that acquisition of Rosebys UK will be made through Indian Wales NV, a wholly owned suosidiary of Indian Britain BV, which is a wholly owned subsidiary of GHCL Ltd. The board was further informed that the investment of UK £ 27 Mn (USD 50 Mn) will be financed parfiy from debt and balance from FCCB. i) In board meeting on 30-10-2006, the board was informed about acquisition of Rosebys UK. j) In board meeting on 29-01-2007, the board was informed about acquisition of Best Manufacturing Group LLC. 5.19. The appellant also submitted the details of import and exports with the acquired undertakings and copies of abstracts of Form no. 3CEB [TP Reports). Such details of import and exports are as under: Name of acquired company Product details Amount (Rs) Amount (Rs) Amount (Rs) Yr 2006-07 Yr 2007-08, Yr 2008-09 Dan River Inc, USA Textile Export 343791548 782710393 0 Dan River Inc, USA Trading Exports (bed sheets) 91579264 0 0 SC GHCL Upsom SA Import of Soca Ash 90971227 0 0 SC GHCL Upsom SA Import of Sodium Bicarbonate 6544852 0 0 Rosebys Operations Ltd Textile Exports 0 46769133 35443627 5.20. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upsom would have meant not only loss of opportunity to diversify into East European market but also loss of ability to leverage upon the synergelic advantages. Dan River, inc, USA & Rosebys Operations, UK GHCL Ltd acquired Dan River Inc [Dan River] in USA and Rosebys Operations Ltd [Rosebys) in UK to have a ready distribution channel for home textile products manufactured at its Vapi unit. Unfortunately, due to macro economic factors, recession set in Europe soon thereafter and all the three companies faced significant difficulty in obtaining funds to run their operations. However, due to deepening of the financial crisis in Europe and US in 2008 and 2009, these companies were unable to recover and went into winding up. Unfortunately soon after the acquisitions, recession set in US and Europe largely fuelled by the US subprime crises in 2008. The recession impacted the retail textile trade very badly. Both Dan River and Rosebys faced double whammy of plummeting sales Cost of production turned to be higher than the sale realizations leading to persistent cash losses. The production had to be curtailed to 50% of installed capo city The price of gas supplied by M/s. Romgaz, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds. Particularly with reference to Rosebys, the suppliers of Rosebys were getting protection for their dues in the form of insurance coverage from insurance companies. With the onset of recession and insurance companies themselves being under severe financial stress, they withdrew from the retail sector as a result of which suppliers became reluctant to supply goods to Rosebys in absence of adequate protection. Due to sudden collapse of Lehman Brothers, a $650 billion investment bank in September 2008. This not only resulted in the crash of hundreds of banks in USA, UK and Europe, but also resulted in the closure of many businesses in Western World, specially the retail outlets such as Woolworth, Officers Club, MK1, MFI, Dolcis, Whittard of Chelsea. Due to the global financial crisis, more than 5 lakh peoplejost their jobs. The regular banker of Rosebys viz. Barclay Bank which was also facing financial crisis could not extend additional working capital to Rosebys. During the crucial period when Dan River and Rosebys were facing severe financial difficulties, the restructuring and integration plans of GHCL were required to be put on hold and the immediate focus was to keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nc USA 9,477,860 1 ,021 ,539 10,677,994 - - 7 Anna's Linens USA 11,851,837 - - - - 8 AQ Textiles LLC USA - - - 76,013,355 39,534,624 9 Babies R US USA____, - - - - 5,494,484 10 Beco Induslries Limited USA - - - 7,438,008 - 11 Big Lols Stores Inc, USA - _ - 49,135,879 21,439.916 12 Bristol Associates Lid USA 5,409,909 - - - - 13 Chimes Inc. USA - - - 5.581.661 - 14 Colton Sheet LLC ^JSA - - - 169,337,585 1.438,204,714 15 Croscill Inc. USA - - 15,904,313 54,627,215 20,199,727 16 Domestications USA 10,665,489 - - - - ~^~\ E& E Co. Ltd iJJSA___ - - - 17,012,570 17,262,164 18 Elite Home Products Inc [USA - 7,409,099 3,030,124 89,456,945 85,055,223 ~\9 ' Fox rich textiles. Inc, HJSA 27,038,273 _8790,535l 3,360,804 - - 20 G S Nizarni USA 5,021,145 - - - - 21 Grace Home Fashions LLC USA 55,455,359 237,472,868 313,493,315 15,412.107 - 22 Heritage Linen Crait Inc. USA r^7704T3T3 ~~ 20.183,157 78,513,581 - - 23 Hudson Bay Company USA - - 13,669,944 24 Integrated Textile Group USA - - - 518,336,957 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inaxi Mills" at Madurai. After turning around and stabilizing its Textiles Spinning Business, GHCL deckled to expand both lines of Businesses i.e. Soda Ash and Textiles in 2004. (ii) To enter in Global Market, GHCL identified two Soda Asli Plants in Romania and acquired one of them namely llega Upsoni (subsequently renamed GHCL Upsom Limited) in December 2005. (iii) In the Textile segment, GHCL decided to be a Global Player and engaged KSA Technopak a renowned consultant, who advised GHCL io expand its Textile Business by entering in Home Textile Segment both in India and Overseas especially USA and European Market. (iv) GHCL set up home textile made-ups plant comprising of weaving, processing and madeup facility at Vapi in March 2006. This unit manufacture products like bed linen, curtains and made ups, comforter covers, cushions, etc. (v) For expansion in overseas market, GHCL. Ltd incorporated 100% subsidiary namely Indian Britain BV. Netherlands (ML). (vi) GHCL through this wholly owned subsidiary - Indian Britain BV formed further step-down subsidiaries in Netherlands and USA to expand its business of soda ash and home textile globally. Through such step-down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective of investment in subsidiary, step-down subsidiaries and acquisitions of retail chains was to expand its business globally and to bring its products in international market, even after closure of such acquisitions, the sales and exports shoot up substantially and international brands started taking appellant's textile products. At no point of time, the investment in subsidiary company was made with a intention to realize any enhancement in value thereof over a period of time or to earn dividend income. The investment was made by the appellant from commercial prospective in the course of business on the grounds of commercial expediency, therefore, the losses on reduction in value of shares of investment in subsidiary company is allowable as business loss in the hands of the appellant. In other words, the losses from investment in subsidiary company of ₹ 99,89,96,245/- is held to be business loss as the investment was made for the purpose of business as the same was commercially expedient to do so. 5.25. This view has been taken respectfully following the judgments / decisions of Hon'ble Courts and Tribunals. Some of such judgments are briefly noted as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve continued to exist, and all these losses incurred by Camelot were essentially relatable to doing business with assessee alone, i.e. Camelot's only customer. The loans and advances so given by the assessee were therefore wholly incidental to its business and could not be treated in isolation of its legitimate business interests. When the grant of loan itself is justified on the ground of commercial expediency, it is only corollary thereto that even write off of such a loan is incidental to business. It is, therefore, not really correct to say that write off of the loans granted by the assessee to Camelot would have been an inadmissible business ceduction and the entire transaction was devised to avoid legitimate tax liability. We see substance in the plea of the company that anyone buying a company would like to buy o company with minimum liabilities, it was considered appropriate to first pay off the dues by the company, even by raising the funds through fresh issue, and then sell the company. This explanation is in consonance with the ground business realities and we find no infirmity in the same. The advances given by the assessee were finally converted into equity, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of carrying on the assessee's business and that, therefore, the loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. Upholding the stand of the Tribunal, Hon'ble Supreme Court held that the Tribunal was right in its view. It is thus clear that as long as investment is justified on the grounds of commercial expediency, the loss on sale of such investment is to be considered a business loss. The nature of business expediency could vary from case to case but what is important is that there must be an underlying motive to serve business interests of the assessee in making such investment. Let us now turn to the facts of the case before us. The compan/ in which shares are subscribed is engaged only in the business of manufacturing the toothbrushes for the assessee company. Any investment in such a company is justified for pure commercial considerations, and, therefore, loss on sale of such shares is admissible as business losses. In the case of DCIT Vs Gujarat Small Industries Corporation [84 TTJ 22), a coordinate bench of this Tribunal was dealing with a situation in which " from the facts on record, it is obvious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee and engaged in the manufacturing of tooth brushes exclusively for the sole client namely the Assessee. Shares purchased of Carnelot were also sold by the Assessee to one Ramesh Sukharam Vaidya for consideration of ₹ 45,00,000/-. The Assessing Officer held that the sum of ₹ 5,50,00.000/- which was invested by the Assessee in the equity of Camelot on 1 7 March 2003 and which have been used to repay the loan to the Assessee company, amounting to ₹ 5.5 crores, before 1 March 2003 would demonstrate that the purpose of investment was to give a Long Term Enduring Benefit to the Assessee. Merely because it was made in the normal course of business, it cannot be termed as anything but long term investment. This conclusion of the Assessing Officer was challenged in the Appeal before the Frst Appellate Authority and the Commissioner concluded that the main reason for setting up Camelot was to manufacture tooth brushes exclusively for the Assessee. Since the Assessee was relying on Camelot for manufacturing of tooth brushes to be traded by the Assessee, the investment is nothing but a measure of commercial expediency to further business objectives and primarily r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for motor vehicles required by the various Government departments and to the further benefit of an advance from the Government up to 50 per cent of the value of the orders placed. Pursuant to that understanding, an advance to the extent of ₹ 18,37,062 was received by the assessee and a circular was also issued by the State Government to various departments to make purchases of the vehicles required by them from the assessee. Because of the advance received from the Government, the assessee was able to save ₹ 45,000 as bank interest during the year. It was also noticed that the sales shot up substantially. 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 investment was made in order to further the sales of the assessee and boost its business. In the circumstances, the Tribunal held that the investment was made by way of commercial expediency for the purpose of carrying on the assessee's business and that, therefore, the loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. The invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue, then it cannot be predicted that the dominant intention stood transformed from that of advancing loans to one of saving the loss on securities or for earning more interest. As this money had to be advanced within a year, there is nothing wrong if it was contemplated that if not disbursed the money would be deposited in short term deposits with banks. It was also expected that new loans were tc be floated in which ₹ 10 lakhs might be invested, but this agair is nothing but a proposal for utilisation of money if it ever were to remain unutilised after disbursement of the sanctioned loans. In dealing with the instant case one could not legitimately ignore the statutory functions that the corporation had to discharge, which was, of helping industrial concerns, and in doing so it had to have due regard to the interest of the industry, commerce and the general public. It had not been provided that the avowed object of the corporation was money- making as such, though in trying to advance loans to the industries, it would certainly earn interest. Functions envisaged under the State Financial Corporation Act, were nothing but those of a Welfare Stafe and, therefore, the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely entailing certain loss-Whether tribunal right in holding that impugned loss was incidental to business and allowable as revenue loss-Held, yes x. Commissioner of Income-tax-8, Mumbai v. Chemosyn Ltd. [2015] 64taxmann.com 219 (Bombay High Court) II - Section 37(1) of the Income-tax Act, 1961 - Business expenditure -Allowability of (Purchase of shares) - Assessment year 2007-08 - As a consequence of differences between brothers who together owned assessee cornpcny, assessee was directed by CLB to buy 34 per cent of shareholding of one of warring group and cancel same - Assessee claimed before Assessing Officer that said amount being difference between consideration paid and face value of shares acquired for cancellation, was revenue expenditure - However, Assessing Officer did not accept same and held expenditure to be of capital nature - Whether amounts which were paid by assessee was an expenditure incurred only to enable smooth running of business and, therefore, was a deductible expenditure - Held, yes [Para 11] [In favour of assessee] The ratio of the judgment is applicable to the facts of the appellant. xi. Commissioner of Income-tax v. Abhinandan Investment Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and the subsidiary company was also a government owned company. The subsidiary company was wound up under the orders of the State Governmem since it has incurred heavy debts and had accumulated losses of more than ₹ 3 crores. The winding up petition was allowed by a company judge of this court on May 19, 1993. The assessee decided to write off the value of the shares held by it in the subsidiary company which was wound up. The Commissioner of Income-tax held that it was not feasible to revive the subsidiary company and the assessee had no other option but to write off the amount invested in the shares of the company. In fact a decision to waive off the interest recoverable from the subsidiary company had already been taken on July 27, 1981. The Tribunal treated the shades of the assessee Corporation as stock-in-trade and held that since the subsidiary company has gone into liquidation there was no question of selling off the shares. 3. Shri Kuthiala urged that in fact there was no trading in the shares and therefore this amount could not have been allowed as a deduction. We are not in agreement with this contention. Once a company has been ordered to be wound up ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up of supply chain system and manufacturing units in global market i.e. overseas countries. The assessee has submitted such investment was made for business reasons for expansion of the assessee company in global market. The assessee company was incorporated in 1983 and started its soda ash manufacturing in Gujarat in 1988. It entered in textile business in 2001. The entire investment in wholly owned subsidiary Indian Britain B.V. was made by the assessee company acquiring global units of soda ash manufacturing and textile business- chain as a measure of commercial expediency to further its business objective. In the line of expansion in overseas market, the assessee company has looked for various acquisitions of home textile business in U.S and retail chain in U.K. In the line of expansion after setting up of Vapi home textile plant show that from India product can be in U.S. and U.K. as such India became processing hub of home furnishing textile items. We have adjudicated the issue determining the nature of transaction relating to business loss of acquiring of Rosebys Retail chain in the appeal of the revenue vide ITA No. 976/Ahd/2014 for assessment year 2009-10 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of ld. CIT(A), the assessee has given the detailed submission pointing out that there was recession in Europe and USA due to continued financial difficulty and other adverse factor, its subsidiaries has incurred huge losses and become sick units. The ld. CIT(A) has also produced the submission of the assessee company in his finding pertaining to financial crisis of different subsidiaries. The ld. CIT(A) has also discussed the submission of the assessee company stating that huge loss of subsidiary companies i.e. Indian Britain BV passed resolution to reduce its share capital of Euro 18564400 (185644 shares) to 18545835.60 (185644 Shares) out of 221586 shares so that such amount can be set off against the accumulated deposit. This has resulted in loss amounting to ₹ 99,89,96,245/- due to reduction in value of share of its subsidiary company. Without reiterating the fact it is demonstrated from the finding of the ld. CIT(A) as supra in this order that assessee company has made investment in the subsidiary company on account of business development out of commercial expediency and thus on reduction of capital of the said subsidiary company, the loss incurred in the value of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m capital loss on account of loan in shares of subsidiary of ₹ 33,17,43,211/-. In the assessment proceedings, the assessee company revised its claim of loss in subsidiary company as Indian Britain of ₹ 39,34,53,008/-. The assessee has explained that the investment in wholly owned subsidiary Indian Britain B.V. was for the purpose of business and the loss on account of investment in share is purely for the purpose of business and to achieve business objectives with commercial expediency and stated that losses arising from investment in shares are allowable as business loss. The Assessing Officer has rejected the claim of the assessee stating that assessee company has not filed revised return for such claim as per provision of section 139(5) of the act. In the appeal, the ld. CIT(A) has allowed the claim of the assessee after following the decision of his predecessor on the same issue in assessment year 2012-13 as elaborated in the finding of ld. CIT(A) in page no. 56 to 129. 47. Heard both the sides and perused the material on record. After giving detailed finding of assessment year 2012-13 on this issue, the ld. CIT(A) has allowed the claim of the assessee. The relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. ITA No. 2124/Ahd/2017 filed by revenue A.Y. 2014-15 Ground No. 1 (Disallowance u/s. 14A r.w.r. 8D) 48. During the course of assessment, the Assessing Officer has made disallowance of ₹ 41,73,538/- u/s. 14A r.w.r. 8D as expenditure earned for earning exempt income. In the appeal the ld. CIT(A) has restricted the disallowance to the extent of ₹ 5,20,878/- 49. Heard both the sides on this issue. It is noticed that ld. CIT(A) has restricted the disallowance to the amount of ₹ 5,20,878/- after considering the fact that assessee was having sufficient interfere free fund for making investment on which the exempt income was earned. However, the Assessing Officer is directed to consider the claim of suo-moto disallowance of ₹ 1 lac made by the assessee for itself. This ground of appeal of the revenue is dismissed. Ground No. 2 (Deleting disallowance of foreign commission expenses amounting to ₹ 1,93,51,867/-) 50. As the facts and issue involved in ground of appeal no. 3 vide ITA No. 2625/Ahd/2015 Assessment Year 2014-15 are similar as in ITA No. 2124/Ahd/2017 Assessment Year 2014-15 therefore after applying the decision adjudicated vide ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the AO disallowed the business loss claimed by the appellant for invoking the corporate guarantee at the assessment stage in view of the decision of Apex Court in the case of Goetze (India) Ltd. vs. CIT Reported in 157 taxman 1 (SC) and rejected request of the appellant to grant as business loss. 4.4. As discussed above, the AO did not accept the contention of the appellant for the reason that the appellant company has not filed the revised return of income for such claim as per the provisions of section 139(5) of the. T. Act and therefore, such loss could not be entertained by following the judgment of Hon'ble Court in the case of Goetze India Ltd. and thereafter, the same was not considered as business loss while completing the assessment. The AO did not made any observations on merits with regard to disallowability of such loss as business loss in the assessment order. 4.5. During the course of appellate proceedings, through the aforesaid ground, the appellant has objected the action of the AO stating that the loss claimed on account of invocation of corporate guarantee was a business loss and the same could have been allowed although the revised return of income u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of write off of losses of ₹ 24162.55 lakh on account of invocation of corporate guarantee given to Exim Bank (USD 40 Mn) in favor of Indian Wales NV, we submit as under for your kind perusal: "ABrief facts ofGHCL's Business Background: 1. GHCL Limited ("GHCL") was in incorporated in 1983 and started ils Soda Ash Manufacturing in Gujarat in 1988. 2. Became one of the largest Soda Ash Producers of the Country and attained position of Preeminence in Soda Ash Industry by year 2000. 3. Entered in Textile Business in 2001 by acquiring and merging a sick spinning mill "Sree Meenakshi Mills" based at Madurai in the State of'Tamil Nadu. GHCL turned around this unit by downsizing labour cost, upgrading technology and modernization and made it profitable in a short span of time. 4. Total revenue of Soda Ash and Textile segment of GHCL in FY'2003-04 and FY'2004-05 as under: Rs. In crore Revenue FV 2003-04 FY 2004-05 Soda Ash & Inorganic 376 431 Textile 86 94 Others 8 8 Total 470 533 5. After turning around and stabilizing its Textiles Spinning Business, GHCL decided to expand both lines of Businesses i.e. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired Rosebys Retail Chain in July 2006 from Lloyds TSB Development Capital Limited, which was having 325 Home-Textile retail outlets across UK. c. In March'2007, GHCL acquired Best Textile International, USA who was a premier supplier of re-usable textiles and garments to Institutional laundry industry (hospitals and hotel), with the key product category of Table Linen, Chefs Apparel, Aprons. 14. Thus, the the acquisition of Home Textile Business in USA and Retail Chain in UK were in the line of expansion after setting up of Vapi Home Textile Plant. so that from India products can be lined in USA and UK as the India became processing hub of home furnishing textile items. 15. ACQUISITION STRUCTURE - The above acquisitions were held in a well structured and identifiable group of companies as per RBl norms. These were held by INDIAN BRITAIN B.V, NETHERLANDS (NL), a 100% subsidiary of GHCL Limited , as under: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx B- Commercial expediency: Businesjjlxpansjgri 1. The aforesaid acquisitions in Romania, USA and UK were to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '2006. • The acquisition was done with a well crafted strategy as the product profile of Rosebys could be synergized with Vapi Plant as about 59% of the revenue was contributed from bedding / curtain products which were largely sourccd from UK and UK based suppliers till then. 3. At the time acquisition, DAN River Inc., USA and Rosebys Operations Limited (ROL), UK were not making profits and our long term plan was to make them profitable by restructuring their product souring and aligning it with Vapi. 4. The acquisitions were conducting under "Long Term Business Growth Strategy" and it is well proven that it normally takes around 3- 4 years to stabilize and turnaround businesses. 5. The experience from the aforesaid acquisitions proved extremely helpful for Indian Textile business which Is evident from the fact that the Revenue of the textile segment increased from mere ₹ 90 Crs. in 2003-04 to ₹ 900 Crores in 2012-13: Post acquisition revenue of Soda Ash and Textile GHCL India Rs. In Crs. Revenue FY 2006-07 FV 2007- 08 FY 2008-09 FY 2009-10 FV 2010-11 FY 2011-12 FY 2012-13 Soda Ash / Inorganic 708 653 857 831 927 1,148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Amalgamations (V) Ltd (1991) 226 1TR 188 (SC) "In this case, the Supreme Court was concerned with a case the assessee's business includes furnishing guarantee to debts borrowed by subsidiary companies'. It was held that the guarantee devolvement liability which fell upon the assessee in respect of a newly acquired subsidiary was in the course of the taxpayer's business and hence was an allowable loss. The taxpayer in this case was engaged in formation, acquisition and management of subsidiaries which, in turn, were engaged in businesses like manufacturing, trading, financing, etc." (b) CJT.ys. Pure Beverages Ltd. (1994jj;Q9_ITR_J31_(_G_ujIL "In this case, the taxpayer was a soft drink manufacturer who gave guarantees to the bank for loans advanced to retailers to enable them to purchase coolers to store soft drinks sold by the taxpayer. Prior to 1969. the taxpayer itself used to provide the coolers to the retailers. From 1969. the retailers were persuaded to purchase the coolers themselves. The cost of the cooler ranged between ₹ 3000 to ₹ 6000. Some of the retailers eventually defaulted in payment of the loans taken from the bank and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n need of funds for carrying on manufacturing operations, Amer entered into a managing agreement with the taxpayer, and under the said agreement, taxpayer advanced an amount of ₹ 3.40 lakhs to Amer. Apart from lending money, taxpayer also guaranteed a sum of ₹ 2 lakhs obtained by Amer from Indian Overseas Bank. Subsequently, Amer failed in its business and incurred heavy losses because of which it was unable to pay the bank as well as the taxpayer. As a result of the guarantee, taxpayer became liable to pay the bank outstanding dues of Amer. Thus total amount due to the taxpayer in respect of the guarantee as well as advances was ₹ 4 lakhs which it claimed as a business deduction for AY 1956-57. The Tax Authority rejected the claim of the taxpayer and disallowed the loss on the ground that the management agreement did not mandatorily require the taxpayer to expend money by way of advances or give guarantees in favour of Amer. The Tribunal, by referring to the MOA of the taxpayer held that since the main objects of the taxpayer included lending of money as also providing guarantees, the advances made were only in pursuance of fulfilling its stated objects. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner (Appeals) as well as the Tribunal were absolutely justified in applying the ratio laid down by the Apex Court in case of Ramchandar Shivnarayan v, C1T [1978] 1 1 1 ITR 263 as also in case of Indian Aluminium Co. Ltd. v. C1T [1992] 84 ITR 735 (SO) to hold that such expenditure were needed to be spent by the assessee for the purpose of carrying on its business and are incidental to the business, therefore, any loss shall have to be considered as the revenue cost and not the capital cost." (g) CIT vs Spencers Co. Ltd. (No. 1 )(2014) 47 Taxman.com 55 "Assessee offered guarantee to 'S' bank on behalf of its subsidiary company - Subsequently, on invocation of guarantee clause, assessee made payment to bank and wrote tiff said amount in its books of account believing that nothing could be recovered from subsidiary company -Assessee's claim for deduction of said amount as bad debts was rejected by revenue authorities - Tribunal, however, allowed assessee's claim -Whether since amount in question was paid for business expediency of wholly owned subsidiary company, it was to be regarded as directly relatable to business of assessee and, thus, eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to justification of the claim made through the written submission were on record before the A.O. and the same have not been rebutted by the AO. In this regard, the binding decisions / judgments and the Circular of the CBDT are relevant to be considered in such issues whereby such claims have to be admitted in the appellate proceedings. Some of them are briefly noted as under. 4.6.1. In the circular of CBDT Circular No. 14 (XL-35) dated 11 April 1955, it has been observed that the AO being the taxing authority ought to have exercised his powers, in doing so he must act in a fair manner and his judgments may not be in a partition manner. Being a quasi judicial authority, the AO is bound to determine the correct tax payable by the assessee. In arriving at such correct tax, the AO is bound to allow the deductions and exemptions available to the assessee in accordance with law. The CBDT in its circular (supra) has clearly made out that the department is not supposed to take advantage of any mistake committed by the assessee or of ignorance of the assessee regarding provision of law and that the department is duty bound to even assist the assessee so as to make him aware of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have held that while giving effect to order of CIT(A) A.O can compute income lower than that returned. 4.6.9. The Hon'ble Delhi High Court in the case of CIT Vs. Jai Parabolic Springs Limited (2008) 306 ITR 42 has also held that the decision of Honourable Court in the case of Goetze India Ltd. was limited to the power of the AO not to entertain claim for deduction, otherwise then by revised return and did not impinge on the power of the Tribunal. 4.6.10. The Honourable Supreme Court in the case of National Thermai Power Company Ltd. Vs. CIT (1999) 229 ITR 383 has observed that it was open to the assessee to raise the points of law even before the appellate tribunal. 4.6.11. Similarly, the Honourable Ahmedabad Tribunal in the case of DCIT Vs. Zydus Wellness Limited (2016) 76 taxmann.com 328 has held as under:- "36. Further we also observe that the main reason for denial of deduction by Id. Assessing Officer was thai ossessee has not filed revised return of income to make rightful claim. Ld. AR took us through the judgment of Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholders (supra) wherein it has been categorically held that Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o allow deduction of expenditure / claim to appellant which it was otherwise entitled even though such claim was not made through revised return of income'. Even, the appellant, if entitled to a particular claim which remained to be claimed in the return of income may claim during the appellate proceedings. Thus the decision in the case of Goetze Indi Ltd- does not restrict the appellant to make such claim in the appellate proceedings. The A.O. ought to have dealt the issue under consideration on merits which he wrongly chosen not to do so, more so when the appellant has given the written submissions, explaining the reasons and citing the judgements for acceptance of its ciairn. Thus, the A.O.'s action for non consideration of the claim in the assessment proceedings on merits is found not correct in view of the judicial propositions of the Hon'ble Courts and circular cited above. Therefore, the issue under consideration on merits is decided as under. Firstly the background of the appellant company with regard to its investments in the form of subsidiary companies abroad made for the purpose of business and commercial expediency is briefly discussed as under. 4.9. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer with a capacity of 11 Lac Tons / Annum, 7. To achieve this GHCL expanded its Domestic Production Capacity from 6 Lac Tons to 8.5 Lac Tons per annum resulting in significant growth in its business. 8. Additionally explored International Growth opportunity in Soda Ash with an eye on prominent acquisition targets in both USA and Europe. 9. With a view to have Global footprint and penetrate European Market, GHCL identified two Soda Ash Plants in Romania and acquired one of them namely Bega Upsom (subsequently renamed GHCL Upsom Limited) in December'2005 with a capacity of around 2.25 Lac Per Annum. 10. In the Textile segment, GHCL decided to be a Global Player and engaged KSA Technopak a renowned consultant, who advised GHCL to expand its Textile Business by entering in Home Textile Segment both in India and Overseas especially USA and European Market. 11. Objective of Textile expansion was to be present in the entire textile value chain right from "Spinning to Retail", which included spinning, weaving, processing, and Institutional Sales (B2B) and Retail chain (B2C business). 12. To fulfill the above objectives, at first stage, GHCL set-up a state of art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Business to become the global player. So it was utmost required to make the investment in subsidiary company because of the requirement of business expansion and due to commercial expediency and the same is briefly discussed as under:- 1. The aforesaid acquisitions in Romania, USA and UK were to expand GHCL's existing Soda Ash and Home-Textile business so that GHCL can become Global Player. 2. Soda Ash: SC Bega Upsom Romania [GHCL Upsom Limited) Acquisition and Developments. a) In Soda Ash, GHCL had a leading presence in India in 2005 with a capacity of around 6 Lac Ton per annum. With to view to have Global footprint and penetrate East European markets like Romania, Hungary, Croatia, Moldova, Yugoslavia, Slovakia and Czech Republic, it acquired SC Bega Upsom (renamed as GHCL Upsom Limited) through Indian Britain. b) It also entered into agreement to acquire majority interest in only other Soda Ash manufacturing Company in Romania- The intent was to have a monopolistic advantage of Soda Ash manufacturing in Romania and competitive advantage in East European region. The acquisition had several commercial advantages for GHCL India some of which were as follows: i. Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no need to acquire Dan River Inc in USA and Rosebys Operations Limited (ROL) in UK. h) DAN River Inc (DR) USA Acquisition Dan River was third largest US Home Textile Manufacturer with over 125 years design and development experience. Wos headquartered in Danville, Virgina. Strong B2B relationship 100 Retailers like Wall-Mart. K-Mart, Bed Bath and Beyond and J C Penny etc. Revenue - US$250 Million • Financial and Legal Due Diligence done by E&Y and Stockle Greene LLP • Acquisition completed in Jan'2006 Strong Product alignment with GHCL's Home Textile Vapi Division Post acquisition, GHCL Vapi unit India made sales of around ₹ 33 Crore and ₹ 78 Crore to Dan River in FY'2006-07 and FY'2007-08. i Rgsebys Operations LimitedJJK (ROL) Acquisition • ROL was one of the largest Home Textile Retailers in UK with 325 Retail outlets. • Headquartered in Manchester's UK Revenue - US$250 Million Retail space around 7,70,000 sq.ft. • ROL also had a highly automated distribution and warehousing facility well connected by Rail and convenient located for Imports. • The business was acquired from Lloyds TSB De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced as under:- (i) Acuisiton Structure - The above acquisitions were held in a well structured and identifiable group of companies as per RBI norms. These were held by Indian Britain BV, Netherlands (ML), a 100% subsidiary of GHCL Limited, as under: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Acquisition__of _Rgsgbys - The subsidiary Indian Britain BV acquired Rosebys through Indian Wales INV, through following resolutions: a) Inboard meeting on 18-06-2006, the board was informed that GHCL forayed in home textile segment by setting up production facilities at Vapi to manufacture bed sheets and curtains with an investment of ₹ 2.2 Billion. The plant was commissioned in the month of March 2006. The board was further informed that by acquiring US based Dan River Inc. GHCL entered in the distribution segment with USD 250 Mn top line. Dan River is the third largest supplier in the bedding product...... The next step in the value chain of manufacturing to customer is the retail. The company is in discussion with the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cute necessary agreements and disclosure. Guarantee for RosebyS Acquisition: The Board was informed that in line with the approval of the Board of Directors in their meeting held on June 18, 2006 for making investment directly / indirectly of approximately £ 27 million plus expenses, if any and subject to due diligence and necessary approvals. The Board was further informed that the acquisition to be done through Indian Wales NV in Netherlands and Company has finalized the financing of US Dollar 37 million with Export Import Bank of India in the Netherlands entity. The borrowing is at an Interest cost of 6M LIBOR + 3.50% with an upfront fees of 1%. The security for the same is the corporate guarantee of GHCL and pledge of 51% equity of Rosebys. The arrangement with the Exim Bank is 80% funding of acquisition cost which translated to USD 40 million. Hence, discussion with Exim Bank for enhancing this financing to USD 40 million is in progress and if approved, the total borrowing may reach to USD 40 million and the Banking & Operations Committee of the Company will be authorized to take all necessary actions. After deliberation, Board passed following resolutions: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arclays Bank Pl.C and its associates against the security of Debenture on the bank's standard form and a letter of comfort from GHCL Limited. EXIM Bank Funding The Board noted that Exim Bank had agreed to provide USD 30 million 10 Indian England NV which will be used for the purpose of acquisition of soda ash business in Romania as Informed and approved in the Board Meetings dated January 19, 2006 and April 21, 2006. However, the total funding has been realigned as Follows, in view of the increase in funding for Rosebys acquisition. The Board further noted the summary of funding arrangement with Exim Bank as follows: Original New Nature of Indian England NV For GHCL Upsom SA 14 13 Debt/ Corporate Guarantee Debt/Corporate Guarantee 30 77 Indian Wales NV For Rosebys 37 40 Pledge on 51% of Rosebys, shares and Corporate guarantee Total 67 67 The Board authorised the Banking & Operation Committee of Directors to take all necessary actions in this behalf (Pg. no. 43). 4. The Exim bank has given $ 37 Mn through Debenture Subscription Agreement dated 19-07-2006 (Pg. no. 44 to 65) and S 3 Mn through Debenture Subscription Agreement dated 17-11-2006 (Pg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he credit lines to reduce their exposure to the badly affected retail sector. This was also largely on account of their own inability to raise funds._______.__________ _______________ Particularly with reference to Rosebys, the suppliers of Rosebys were getting protection for their dues in the form of insurance coverage from insurance companies. With the onset of recession and insurance companies themselves being under severe financial stress, they withdrew from the retail sector as a result of which suppliers became reluctant to supply goods to Rosebys in absence of adequate protection^ Due to sudden collapse of Lehman Brothers, a $650 billion investment bank in September 2008. This not only resulted in the crash of hundreds of banks in USA, UK and Europe, but also resulted in the closure of many businesses in Western World, specially the retail outlets such as Woolworth, Officers Club, MK1, MF1, Dolcis, Whittard of Chelsea, Due to the global financial crisis, more than 5 lakh people loss their jobs.__________ ___________ The regular banker of Rosebys viz. Barclay Bank which was also Financial crisis could not extend additional working capital to Rosebys. facing During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as these customers were having business relations with Dan River Inc, USA and Rosebys Operations Ltd, UK. The summary of exports to UK and USA in year 2008-09, 2009-10, 2010-11.2011-12 and 2012-13 are as under: DETAILS OF EXPORT SALES TO UK AND USA SN Customer name County FY 2008-09 I FYJW200 FY 2010-11 FV 2011-12 FY 2012-13 1 Edinburgh Woollen Mills Ltd UK 4,039,822 . . - 2 Home Base Ltd Avehury UK - - - 55,388,535 61,328,992 3 Home Retail Group UK - - - 56,505,359 70,573,052 4 House of Fraser (Stores) Ltd UK 25,112,469 66,449,555 127.370,228 73,867,269 47,661,636 5 Rosebys Operations Ltd UK 35,443,627 - - - - 6 American Dawn Inc USA 9,477,860 1,021,539 10,677,994 - - 7 Anna's Linens USA 11,851,837 - - - - 8 AQ Textiles LLC USA - - - 76,013,355 39,534,644 9 Babies R US USA - - - - 5494,484 10 Bee a Industries Limited USA - - - 7,438,008 - 11 Big Lots Stores Inc, USA - - - 49,135,879 21,439,916 12 Bristol Associates Ltd USA 5,409,909 - - - - 13 Chimes Inc. USA - - - 5,581,661 - 14 Cotton Sheet LLC USA - - - 169,337,585 1,438,204,714 15 Croscill Inc. USA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn, the export from GHCL Vapi Unit was increased from ₹ 80.11 crore to ₹ 452 crore. Apart from the above, the export to various other countries also increased due to ready customer chain of Dan River and Rosebys Operations, which gives enduring benefits to the company GHCL at large and the same will further give benefits to the company in the years to come. 9. After 7 years, the subsidiary Indian Wales NV due to huge losses amounting to ₹ 333.04 crore (Pg. no. 103) from business of step-down subsidiary Rosebys Operations Ltd, the company Indian Wales MV was not able to pay the borrowings and liabilities. The position of funds as per balance sheet of Indian Wales NV as on 31-03-2013 and 31-03-2014 furnished (Pg. no. 101 to 109). Therefore, as per debenture subscription agreement, NCD's funds were recovered by Exim Bank from guarantor GHCL Ltd, the holding company. Correspondence and payments in this regard are as under: (i) NCD of $ 37 mn - The Exim Bank demanded for payment of USD 37 inn along with interest of $ 148,870 up to 24-07-2013 vide letter dated 16-07-2013 (Pg.no. 110 to 111). The Exim Bank mentioned as under: "Sub: - Subscription to NCDs o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quv. USD 37 mn, plus accrued interest) far ₹ 2,21,27,05,639/- would be 12.00% p.a. from July 24, 2013 lill date of payment. Exim Bank reserves the right to increase the interest rate, if crystallized INR amount along with applicable interest is not paid by August 15, 2013." The company GHCL made payment of NCD $ 37 mn along with interesi lill valued at 24-07-2013 and interest, from 24-07-2013 to 12-08-2013 to Exim Bank in Indian Rupees vide letter dated 13-08-2013 (Pg. no. 114). where in forwarding following payment details were given to Exim Bank: "Sub: - Pgyment of USD 37 mn along with interest of USD 148870.00 Value date July_2_&_20l3 This has reference to payment of USD 37 Mn on behalf of Indian Wales alongwith interest of S 148870.00 accrued upto 24.07.2013 aggregating USD 37,148,870.00 The total liability in foreign currency i.e. USD 37,148,870.00 has been into rupees and the amount comes. to Rs, 221,27,05,639,00 which has been remitted to Exim Bank, Ahmedabad-in following trenches: Sr. No. Amount In Rupees Date of Payment 1 50,00,00,000 06.08.1013 2 50,00,00.000 07.08.2013 j 511,00,00.000 08.08.2013 1 71,27.05,639 13.08.2111 Total 221 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge receipt and arrange to make paymen! by December 21,2013." (vii) The company GHCL made payment of NCD $ 3 mn along with interest till valued at 26-11-2013 and interest from 26-11-2013 to 23-12-2013 to Exim Bank in Indian Rupees vide letter dated 24-12-2013 (Pg. no. 117), where in forwarding following payment details were given to Exim Bank: "Sub: - Payment of USD 37 mn along with interest of USD 54008.82 - Value date 26.11.2013 This has reference to payment of USD 3 Mn on behalf uf Indian Wales ulongwiih interest of $ 54008.82 accrued upto 26.11.2013 aggregating USD 3,054,008.82 The total liability in foreign currency i.e. USD 3,054,008.82 has been converted into rupees and the amount comes to Rs, 19,03,32,010.00 (including service tax of ₹ 6180.00) which has been remitted to Exim Bank, Ahmedabad on23.12.2013 In addition, interest amount of₹ 16,26,948.00 from 26.11.2013 to 23.12.20J3 has also been paid by us on 23.12.2013 With ihe above, the total liabilities of USD 3 million stands Nit / repaid. Therefore, we hereby request yon to provide us the following: 1. No Due Certificate 2. Cancellation of NCD 3. Handover the original title de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13 19,03,32,010 3,054,008,82 $ 3 Mn Principal amount of NCD and $ 54,008.82 interest on NCD 13-08-13 16,26,948 Interest @ 12% on outstanding amount of ₹ 9,03,32,010/- from 26-1 1-13 to 23-12-13 Total 19,19,58,958 Payment for $ 3 Mn - Corporate Guarantee Grand Total 241,62,54,990 Payment by GHCL to Exim Bank for corporate guarantee for subsidiary - Indian Wales NV Thus, the appellant company GHCL paid ₹ 241,62,54,990/- during financial year 2013-2014 (AY 2014- 2015} to Exim Bank due to invocation of corporate guarantee given for subsidiary company, Indian Wales NV." 4.13. The appellant has further submitted that the investment in 100% subsidiary company Indian Britain BV was for the purpose of expansion of its existing business of soda-ash and textile in the global world. The object authorizes company to carry business in the global world through any subsidiary company or companies and to financing such subsidiary company or guarantying its liabilities, and thus the acquisitions were made as per the objects of the appellant company. For ready reference the objects of the appellant company are noted as under- "32. To acquire and undertake the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from September 2005, the appellant identified soda-ash plants in Romania for acquisition and home textile business in USA for such acquisition the appellant issued 1% convertible bonds (FCCBj of USD 78,20 Mn in September 2005, which were listed in Singapore out of such funds USD 26 Mn were invested in shares of 100% subsidiary company Indian Britain BV for acquisitions related to Soda ash and textile businesses in Romania, USA and UK and USD 54.20 Mn were invested as loan for acquisitions. Such funds were infused in Indian Britain BV (WOSj, which were further infused in step-down subsidiaries of 1BBV for acquiring soda ash business and home textile business. Summary of investment is as under; GHCL LIMITED Year Source USD Application USD 2006-07 Own Funds (FCCB) 80,224,832 Investment In Indian Britain BV 26,024,832 Loan given to Indian Britain BV 54,200,000 TOTAL 80,224,832 TOTAL 80,224,832 INDIAN BRITAIN BV, NETHERLANDS - SUBSIDIARY Year Source USD Application USD 2006-07 Capital from GHCL 26,024,832 Investment in Indian England NV 9,803 Loan from GHCL 54,200,000 Loan given to Indian England NV 30,012,900 Investment in Indian Wales NV 76,789 Loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther informed that in order to turnout of both the plants following steps are required to be taken: > Modernization /revamping of plant thereby reduction of cost of production. > Scope of change of market mix to increase sole of EU by road rather than export by sea route to increase realization. > Long term tie up with external parties for supply of raw materials. > Reduction of labour / overhead cost. The board was informed that estimated cost of acquisition of both the plants i.e. majority stdke in both the plants, cost of debt to be taken over and indicated investments (over 2 years| would not exceed to USD lOOMn. b] In board meeting on 01-09-2005, the investment up to USD 60 Mn tor strategic acquisition in Home textile business in USA was approved. The proposal involves strategic acquisition business in USA in the line with the overall marketing strategy for the home textile products at Vapi. The board was informed that the target entity is one of the third largest bedding product manufacturer in USA. The home fashion revenue of the target entity is exceeding USD 300 Mn annually with the advantage of huge market presence and distribution network with 4 warehousin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with Deutsche Bank Singapore. e) In board meeting on 19-01-2006, the board was informed that: > Acquisition of SG Bega Upsom SA in Romania was completed through CEPOM (i.e. Indian England NV), a step-down subsidiary of Indian Britain BV. > Acquisition of Dan River Inc USA was completed through GHCL Inc. USA. f) In board meeting on 21-04-2006, the board was informed thai the company has invested USD 80.50 Mn (proceeds of FCCBs) in its Indian Britain BV (WOS). These funds are invested as equity of USD 26 Mn and debt of USD 54.20 Mn. Acquisition of SC Bega Upsom SA, Romania through Indian England NV was completed. Similarly, acquisition of Dan River Inc, USA has been completed through GHCL Inc. g) In board meeting on 18-06-2006, the board was informed that GHCL forayed in home textile segment by setting up production facilities at Vapi to manufacture bed sheets and curtains. The board was further informed that by acquiring US based Don River Inc, GHCL entered in the distribution segment with USD 250 Mn top line. The next step in the value chain of manufacturing to customer is the retail. The company is in discussion with Ihe shareholders of the retail chain namely Rosebys. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts at Madurai and Vapi. The appellant's objective of investment in subsidiary, step-down subsidiaries and acquisitions of retail chains was to expand its business globally and to bring its products in international market, even after closure of such acquisitions, the sales and exports shoot up substantially and international brands started taking appellant's textile products. At no point of time, the investment in subsidiary company was made with a intention to realize any enhancement in value thereof over a period of time or to earn dividend income. The investment was made by the appellant from commercial prospective in the course of business on the grounds of commercial expediency. 4.17. The investment in subsidiary company, step-down subsidiaries and acquisition of retail chain was only to expand business globally; therefore. the acquisition of Rosebys Operations in UK was to expand its business and to achieve business objectives as a measure of commercial expediency and such investment is related to the business operations of the appellant company GHCL. 4.18. For acquisition of Rosebys through step down subsidiary Indian Wales, NV, the appellant company has given fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to Exim Bank for which the appellant company had given corporate guarantee. Thus, the loan given by Exim Bank to subsidiary was for the purpose of business and as per commercial expediency of the appellant company. There is direct proximity and relationship of appellant's business to the subsidiary / step down subsidiary business. The payment on invocation of corporate guarantee was on account of global financial crisis due to which the business of step down subsidiary namely; Rosebys Operations Limited suffered huge losses and finally went into liquidation. Thus, the loss on invocation of corporate guarantee suffered by the appellant company was for the purpose of business / incidental to the business due to commercial expediency and such business loss is allowable u/s. 37(1) of the I. T. Act, 1961. 4.21. Further, on going through the facts of the case, it is noticed that identical issue on similar facts has been decided by this office in A. Y. 2011-12 vide appellate order No. CIT[AJ-2/507/DCIT, Cir. 2(1](1)/2014-15 dated 11/06/2015, whereby issue has been decided in favour of the appellant. The relevant findings given therein are reproduced hereunder:- "5.3. Decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been submitted by the appellant that capital contribution is always given for some specific purpose like for acquisition or purchase of capital asset, whereas working capital facility is for running day-to-day operations. The corporate guarantee was given by the appellant company for replacing high interest working capital facility of its step down subsidiary Dan River Inc, USA. The AE and step down subsidiary utilised the funds from Deutsche bank in repayment of higher interest funds. In TP proceedings and the assessment proceedings, the complete details of the usage of funds received on guarantee by AE were explained and necessary evidences were filed. It has been submitted by the appellant that none of the funds were used for acquisition of any capital asset. The funds have not been used for the purpose of equity contribution for acquisition of the AE/subsidiary or for acquisition of capital asset. The appellant has also given a tabular rebuttal of the AO's observation which are reproduced here for the sake of convenience and clarity: - Para No. AO's observations Rebuttal by Appellant Company 6.3 This issue had been examined at length by the TPO, Ahmedabad as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the assessee's claim of write off of loan given to ils subsidiary company i.e. Indian Britain 8V of ₹ 1406093531/-u/s 37(1) vide its order dated 10/11/2014 wherein the CIT{A) held that such amount given to subsidiary company is in the nature of revenue and held the same as allowable u/s. 37(1) of the IT Act. Though, the disallowances made on similar issue in AY 2009-10 (rejected by Hon'ble DRP considering such loss as revenue in nature) and similarly in AY 2010-11 (wherein, the C1T(A) held such loss as revenue in nature) were decided in favour of the assessee, the Department has preferred appeals against such orders giving relief to the assessee for both AY 2009-10 and 2010-11 before Ihe Hon'ble ITAT, which are yet to be adjudicated. Therefore, to maintain the consistency, disallowance of ₹ 1847510600/- is made in this year also and the same is added back to the totgjincome of tjig assessee company.___ The Id. AO has considered the submission ol Ihe assesses company, but as against the DRP's order in AY 2009-10 and CIT(A)'s Order in AY 2010-11, the Department has preferred further Appeals before Hon'ble ITAT, which are yet to be adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Technopak, renowned global consultant, as the objective was fo capture ready home-fexfi/e market in UK and European regions for its manufacturing facility of Vapi Textile unit. The Rosebys Ltd, having 325 retail outlets in UK was deaiing in variety of home furnishing products including the products manufactured by Vapi unit of ossessee company and therefore it was commercially expedient fo provide guarantee against SBLCs issued by IDS/ bank fo SOI Manchester and directly to vendors of Rosebys forthe working capifai of Rosebys so thatthe business of Rosebys and consequentlythe business of assessee company can be further expanded. Therefore, it is held that the assessee company provided guarantee against SBLCs for its business purpose and same was commerciaily expedient. The guarantee provided by the assessee company is also authorised as per clause 57 ofthe Memorandum of Association and resolution passed by the assesses company. The devo/vemenf of guarantee was on account of unforeseen global financial crises trigged by the collapse of global bankers and retail businesses in the western world particularly in September 2008. Nobody including the assessee company and bankers could a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee u/s 37 of the Act. The Tax Authority rejected the claim and held the loss to be capital in nature. The High Court (HC) held the loss could not be treated as capital in nature since there was no intention of the taxpayer to acquire any asset of enduring nature. The amount expended was in the course of business, and hence was revenue in nature. Thus such expenditure would be allowable u/s 37(1) of the Act. (d) S.A. Builders vs. C1T (288 ITR 1). SC. In this regards, at the outset, it would be necessary to understand the meaning of the term 'commercial expediency'. In the context of allowability of an expenditure, the Supreme Court in the case of S. A. Builders Ltd. {288 ITR 1)(SC) has stated that the expression 'commercial expediency is an expression of wide import and includes such expenditure as a prudent business man incurs for the purposes of the business. The expenditure may not be incurred under any legal obligation but yet is admissible as a business expenditure if it was incurred on the grounds of commercial expediency. (e) CITvs. Khambhata Family Trust (34 TQxman.com 36), Guj. In this case Honouarbte Highcourt held that that while examining a claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering allowabilify of expenditure under section 37. The Tribunal was, therefore, wholly justified in confirming the order ofthe Commissioner (Appeals] allowing such expenditure under section 37. There being no legal infirmity in the impugned order, the same does not give rise to any question of law, much less, a substantial question of law so as to warrant interference. (f) J.K. Patef & Sons fP) Ltd, vs. Cir (69 ITR 782), GUJ In this case Honouable High court held that the Tribunal erred in law in holding that an indirect benefit flowing fo the managing agents could not justify the employment of a person, who rendered services to the managed company, as being in the interest ofthe business ofthe managing agency. As has been observed in J.R. Pafel and Sons (P.; Ltd. v, CIT [I964J 51 ITR 717, the correct approach should be whether the payment was made on grounds of commercial expediency for the ultimate benefit ofthe assessee-company, whether that benefit was to accrue immediately or fo accrue after a lapse of time, directly or indirectly. Even if the benefit which flows fo the assessee-company came fo if indirectly, that payment could be considered on grounds of commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her it was also contended that the impugned amount was also not allowable as bad debts since the business of the assesses was not that of money lending, and more so since such debt had never been taken into account for computing income of earlier years. The HC noted that furnishing of guarantee was incidental to taxpayer's business and that the debt due from TCO in respect of amount devolved on the taxpayer had become bad in the year under consideration and that these factual, findings had not been challenged by the Tax Authority. The HC. therefore, held that the findings of the Tribunal could not be interfered and the impugned loss was allowable. (h) Essen (P) Ltd vs. CIT (65 ITR 625). SC. In this case, the taxpayer was a private limited company which was a managing gent of several concerns and it also derived income from an insurance agency. The taxpayer was managing a company named Amer Hind Manufacturers (Amen1 which was engaged in the manufacture of carbon paper, ink and other allied products. Due to increase in need of funds for carrying on manufacturing operations, Amer entered into a managing agreement with the taxpayer, and under the said agreement, taxpayer ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total loss, a sum of ₹ 0.9 lakhs was agreed to be borne equally bythe taxpayer and its partner. The share of the taxpayer of ₹ 0.47 lakh was claimed as business expenditure, inthe relevant year, u/s 37 ofthe Act. The Tax Authority disallowedthe said expenditure and held thatthe taxpayer was not legally bound to make such payment on behalf of the firm. Further, if also held that the loss had been borne bythe taxpayer for personal considerations and more so as the loss belonged tothe firm,the partners were in no way connected to such loss. The taxpayer onthe other hand contended thatthe settlement made was purely to protect its interest inthe firm as well as to protect its business reputation which if had built over a period of years. Hence such expenditure ought to have been allowed as deduction on the basis of principles of commercial trading and commercial expediency. On appeal, the HC accepted the contentions of the taxpayer which was upheld by the SC.the SC held that taxpayer had rightly incurred expenditure to protect its interest in the managing agency as well as to protecting its name, which would have otherwise been tarnished had the expenditure not been incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re also done away with an order to facilitate the business in an easier manner. The appellant was doing business and exporting goods manufactured at its Vapi plant through that company in USA. It did good business in the initial few years but however due to some external factors beyond the control of the appellant, the company had to be closed and the bank invoked the guarantee given by the appellant company. In view of the above discussion, I amof the considered opinion that claimof the appellant of ₹ 184.75 crores is allowable under section 37(1) of the Act as it is revenue expenditure. The ground of appeal is accordingly allowed. 4.22. Further, on the identical issue in appellant's own case, the Dispute Resolution Panel vide its order u/s. 144C(5) of the. T. Act, 1961 dated 27/12/2013 rejected the proposition of the AO and held the guarantee against SBLCs was for its business purpose and was commercially expedient. Therefore, the loss suffered by the appellant on account of devolvement of guarantee / SBLC is to be considered as revenue loss as allowable u/s. 37(1) of the. T. Act, 1961. The same cannot be considered as capital loss. 4.23. Since the guarantee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the preceding years, the claims have been made by the assessee in the return of income itself but in the year under consideration due to over sight this claim remained to be made in the return of income and therefore the same was claimed through the written submission in the assessment proceedings before the Assessing Officer. The ld. CIT(A) has also stated that nature of claim was not new but had been made in the preceding years and same has been allowed in the appellate proceedings. The ld. CIT(A) has also elaborated the brief background of the business of the assessee company in his order and the nature of investment and the nature of guarantee extended by the assessee company. The loan given by Exim Bank to subsidiary Wales N.V. was for the purpose of business and as per commercial expediency of the assessee company. The ld. CIT(A) has also stated that there was direct proximity and relationship of assessee's business to the subsidiaries' business. The ld. CIT(A) has also stated that on identical issue in assessee's own case the dispute resolution panel vide its order u/s. 144C(5) of the I.T. Act, 1961 dated 27th December, 2013 held that the guarantee against SBLC was for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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