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TMI Blog2021 (6) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... as successful in substantiating its claim of write-off of inventories. Bad Debts written-off - debts written-off were taken into account in relevant previous year or earlier previous years while computing the income of the assessee - Since the assessee furnished the details of debts written-off along with copies of sales invoices, the said fact was established and therefore, the claim could not be denied.HELD THAT:- We find that this issue has been clinched in correct perspective in the impugned order. The assessee had filed complete list of debtors along with the copies of sales invoices which established that the conditions of Sec.36(2) were duly fulfilled by the assessee to make a valid claim u/s 36(1)(vii). Undisputedly, the debts have been written-off by the assessee in the books of accounts. Therefore, the conditions of Sec. 36(1)(vii) r.w.s. 36(2) were duly fulfilled and the claim was allowable in terms of CBDT Circular No.12/2016 dated 30/05/2016 which has been issued after considering Hon ble Apex Court s decision in TRF Limited [ 2010 (2) TMI 211 - SUPREME COURT] . Therefore finding no infirmity in impugned order on this issue, we dismiss this ground of revenue s a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay and proceed with adjudication of the appeal on merits. 3. Both the sides advanced arguments and filed written submissions along with supporting case laws. We have carefully considered the orders of lower authorities as well as submissions made before us. Our adjudication to the subject matter of appeals would be as given in succeeding paragraphs. 4. The assessee being resident corporate assessee is stated to be engaged in manufacturing and distribution of pharmaceutical products. An assessment was framed for AY 2011-12 u/s 143(3) r.w.s. 153A on 31/03/2016 in view of the fact that the assessee group was subjected to search action by the department on 29/08/2011. In response to notice u/s 153(1)(a), the assessee filed return of income on 07/06/2013 declaring loss of ₹ 37.19 Crores. 5. From the perusal of records, it could be gathered that the assessee had appointed a Chartered Accountant firm M/s Grant Thornton with respect to inventories and receivables. A copy of the compilation report is on record. The scope of work included compilation of closing position of receivables and inventories based on accounts as on 31/03/2011. The report has made assessment of prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that most of the expired goods were purchased during financial years 2008-08 and 2009-10 and had already reached expiry dates and therefore, the same were destroyed. 6.3 The Ld. CIT(A), after considering remand report dated 26/03/2019 as furnished by Ld. AO, observed that the fact of expiry of goods was not under dispute. The only contention of Ld. AO was that some of the goods expired prior to AY 2011-12. The same stood explained by the fact that the assessee undertook thorough checking of inventories during AYs 2011-12 2012-13 only. Further, the claim was in accordance with report furnished by M/s Grant Thornton. 6.4 The other objection of Ld. AO was that the assessee failed to furnish reconciliation of description of goods written-off and goods handed over to waste disposal entity namely M/s Trans Thane Creek Waste Management Association. The same stood explained by the fact that the waste goods were taken by the waste disposal entity by weight only. Upon enquiry by Ld. AO, that entity confirmed collection and disposal of goods from the assessee. More-so, the assessee had furnished item-wise details along with sample bills before Ld. AO which were not under dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion except to destroy the same. 8.3.3 The Ld. CIT(A), after considering assessee s documents / submissions as well as remand report, similarly observed that there was no dispute that the stock had already expired and the claim was backed by sufficient documentary evidences. The waste disposal management company confirmed collection of expired goods from the assessee. The expired pharmaceuticals products could not even be sold as scrap and they have to be destroyed as per FDA guidelines. Therefore, the claim was justified. Aggrieved, the revenue is in further appeal before us. 8.3.4 We find that fact as well as issue is quite identical to issue in AY 2011-12. The assessee, in our considered opinion, was successful in substantiating its claim of write-off of inventories. Following our adjudication in AY 2011-12, we dismiss this ground of revenue s appeal. 8.4 Bad Debts written-off 8.4.1 The assessee wrote-off bad debts and claimed the deduction of the same u/s 36(1)(vii). It was explained that the assessee had appointed C F agents who were selling goods to numerous stockiest across India. Due to various problems in the marketing divisions, the realization from debtors was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bts written-off were taken into account in relevant previous year or earlier previous years while computing the income of the assessee. Since the assessee furnished the details of debts written-off along with copies of sales invoices, the said fact was established and therefore, the claim could not be denied. Aggrieved, the revenue is in further appeal before us. 8.4.4 We find that this issue has been clinched in correct perspective in the impugned order. The assessee had filed complete list of debtors along with the copies of sales invoices which established that the conditions of Sec.36(2) were duly fulfilled by the assessee to make a valid claim u/s 36(1)(vii). Undisputedly, the debts have been written-off by the assessee in the books of accounts. Therefore, the conditions of Sec. 36(1)(vii) r.w.s. 36(2) were duly fulfilled and the claim was allowable in terms of CBDT Circular No.12/2016 dated 30/05/2016 which has been issued after considering Hon ble Apex Court s decision in TRF Limited (323 ITR 397; 09/02/2010). Therefore finding no infirmity in impugned order on this issue, we dismiss this ground of revenue s appeal. 8.5 Investments written-off 8.5.1 It transpire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worldwide to establish its strong foothold in the foreign market leading to increased export revenues. The same was evident from the fact that the assessee made export sales of over ₹ 422 Crores during Financial Years 2006-07 to 2012-13 to M/s SHBV and its step-down subsidiaries. Similarly, it earned interest income and foreign exchange gains aggregating to more than ₹ 143 Crores from M/s SHBV group during Financial Years 2006-07 to 2009-10 which was already offered to tax. The financial statements of M/s SHBV were furnished in support of the claim that its net-worth had been eroded to a great extent which necessitated writing-off of the said investments. The write-off were stated to be made after reducing the estimated net realizable value of the investments based on intrinsic worth of the investments. It was also submitted that the liquidation proceedings were initiated against M/s SHBV and official liquidator was appointed to carry out further proceedings for liquidating M/s SHBV. The relevant documents were furnished in support. Another fact brought to the notice of Ld. CIT(A) was that the remaining investments were written off during AY 2015-16, the deduction of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusively for the purpose of marketing its products. The assessee had set up enough manufacturing facility and it required presence in foreign market. For the same, it made the investments in the subsidiaries. This being so, the loss incurred therein could not be held to be capital loss but an allowable revenue loss. The conditions as stated in the cited decisions were fulfilled in case of investments made in M/s SHBV and accordingly, the write-off would be an allowable deduction. However, with respect to investment made in LASA, Ld. CIT(A) noted that it was an existing company having its own manufacturing and packing units and therefore, the investments were not exclusively for the business of the assessee. Once the investments were made, it was for the investee company to utilize the same according to its own need. There being no proximate direct nexus between the investment made by the assesse and the business of the assessee, the write-off for this entity could not be allowed as deduction. Aggrieved, the revenue as well as the assessee are in further appeal before us. 9. Upon careful consideration of factual matrix as enumerated in preceding paragraphs, we find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the net worth of investee entities had been eroded to a greater extent which was supported by their financial statements as supplied by the assessee during appellate proceedings. The given factual matrix would support the assessee s claim that the investments had direct nexus with assessee s business and any loss arising therefrom would be an allowable deduction. The Hon ble Supreme Court in Patnaik Co. Ltd. V/s CIT (161 ITR 365) held that where the government bonds or securities were purchased by the assessee with a view to increase its business, the loss incurred on the sale of such bonds or securities was allowable as business loss . Relying upon this decision as well as its earlier decision in CIT V/s Investa Industrial Corp. Ltd. (9 ITR 380) , Hon ble Bombay High Court in CIT V/s Colgate Palmolive India Ltd. (370 ITR 728) held that loss in investment out of commercial expediency would be an allowable deduction. This decision has been followed by Delhi Tribunal in Sahara Global Vision Pvt. Ltd. V/s ACIT (ITA No.2514/Del/2014) to hold that the loss of investments in furtherance of business objects would be an allowable loss. Recently, this decision of Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in its 100% subsidiary for business purpose, the loss on sale of investment would be treated as business loss. The aforesaid issue was answered in the affirmative by the Bombay High Court in Colgate Palm Olive (India) Ltd. ( supra ) and it was held that investment was made for commercial expediency. The aforesaid decision has been upheld by the Supreme Court as has been noted by Income-tax Appellate Tribunal, New Delhi Bench in its order dated 31-12-2018 in Cosmos Industries Ltd . ( supra ) In Patnaik co. Ltd. ( supra ), it was held that the assessee did not hold on the investment the loan indefinitely and there was no enduring advantage and the investment did not bring in an asset of a capital in nature and the loss suffered by the assessee was a revenue loss and not a capital loss. In Investa Industrial Coporation Ltd. ,( supra ), the division Bench of the High court dealt with a question whether the finances made by the assessee to manage the company were part of or incidental to carrying on a business by the assessee a and since, the managed company went into liquidation the advances became irrecoverable, the loss sustained by the assessee shall be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset to any third party. In view of preceding analysis, the first substantial question of law is answered in the negative and in favour of the assessee. Similar is the decision of Mumbai Tribunal in Camlin India Pvt. Ltd. (ITA No.928/Mum/1988) which held that the loss arising out of investment in joint venture during the course of carrying on of business would be an allowable business loss. The other case laws as enumerated in the impugned order also support the claim of the assessee. The Ld. CIT-DR has relied on the order of this Tribunal in CIT V/s Siemens Nixdorf Information Systems Gmbh (ITA No.3833/Mum/2011 dated 31/03/2016) for the submission that investment so made would constitute capital assets and accordingly, the write-off of the same could not be allowed as business loss . However, after going through the order, we find that this decision deal with a situation wherein a foreign entity has granted loan to its subsidiaries which were subsequently sold and the question arose whether the loan would constitute capital asset u/s 2(14) of the Act or not. Hence, this decision is factually different since in the matter before us, the investments were made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the books of accounts. The same being in the course of business, were an allowable deduction. 10.3 However, not convinced, Ld. CIT(A), treating the advances as nontrade advance, confirmed the action of Ld. AO. Aggrieved, the assessee is in further appeal before us. 10.4 Upon careful consideration of factual matrix, we find that the assessee had given certain advance to M/s LMPL pursuant to an understanding in normal course of its business so as to acquire limited right to use and exploit the know-how for manufacturing of six drug formulations. However, the assessee was already in the business of manufacturing pharmaceutical products and the technical know-how was only in respect of six drug formulations and to get technical information which would have enabled the assessee to set up new product lines to the existing business. Nevertheless, no new manufacturing unit would have come into existence and no new asset was proposed to be acquired by the assessee. The advances were given in the normal course of business out of commercial expediency which would have improved the profit-making apparatus without disturbing the capital setup of the assessee. There is no dispute that th ..... 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