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TMI Blog2022 (2) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and were made out of commercial expediency. The main purpose of investment was not to acquire any manufacturing capacity or any infrastructural capacity but the main purpose was to boost assessee s sales. Therefore, the investments could not be said to be in capital field rather the same were meant to improve the top line of the business by way of higher revenue profits. We find that the issue on similar factual matrix is squarely covered by the cited decision of Hon ble Bombay High Court in CIT V/s Colgate Palmolive India Ltd. [ 2014 (12) TMI 846 - BOMBAY HIGH COURT] wherein it was held that loss in investment out of commercial expediency would be an allowable deduction - Also in M/S. ACE DESIGNERS LIMITED [ 2020 (9) TMI 970 - KARNATAKA HIGH COURT] since the investment was made for enhancement of business activity of assessee in global market which primarily related to business operation of assessee and the investment was not made with a view to create capital asset in the form of holding shares, the said loss would be a business loss allowable u/s 28(i). The Hon ble Supreme Court in Patnaik Co. Ltd. V/s CIT [ 1986 (7) TMI 6 - SUPREME COURT] held that where the government b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... color from nature of principal amount required to be paid but not paid in time and this principal amount being income-tax, interest is in nature of a direct tax and settlement of income-tax payable under Act and, therefore, same cannot be regarded as compensatory payment. Therefore, the same could not be allowed as business expenditure. Respectfully following the same, we confirm the disallowance and dismiss this ground of appeal X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Appeals) erred in contending that the cylinder returned was not put to use in the business of the appellant. 2. The Ld. AR advanced arguments, written as well as oral, to assail the orders of lower authorities. Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. CIT-DR advanced arguments in support of the impugned order and filed written submissions. Having heard rival submissions, oral as well as written and after going through the orders of lower authorities, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. The assessee being resident corporate assessee is stated to be engaged in refilling / processing of Refrigerant Hydro Fluorocarbons Gases which are used in Air Conditioners, refrigerators and refrigerating equipments. Assessment Proceedings 3.1 During assessment proceedings, it transpired that the assessee claimed administrative expenses of ₹ 1953.43 Lacs, as detailed below, as amounts written-off in the Profit & Loss Account: - Particulars Amt. (Rs.) Advance written off ₹ 770.16 Lacs Invocation of corporate guarantee ₹ 508 Lacs Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan and Axis Bank invoked corporate guarantee against the assessee. Finally, the assessee had to repay a sum of ₹ 508 Lacs to the Bank. Since the same was irrecoverable, it was written-off in the Profit & Loss Accounts and claimed as legitimate business loss u/s 37(1). 3.4 The last write-off of ₹ 675.26 Lacs arises due to the fact that on account of the inability of the assessee to acquire KERPL, the shares were re-transferred to KERPL. As a result, STPL was reduced to a shell company as the objective of the entire exercise was terminated midway. Since the assessee had to exit the misadventure, the losses suffered on account of investment in STPL were claimed as losses incidental to business in terms of provisions of Sec.28. 3.5 However, Ld. AO noted that the aforesaid losses / expenditure were incurred for the purpose of acquiring another entity. Therefore, the expenditure would be capital in nature which was evident by the fact that all these advances were shown as 'loans and advances' in the Balance Sheet of the assessee company up to 31.03.2010. These advances were not in the nature of trade advances which were made during the normal course of business and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise with any another entity. In line with the same, the investments were sought by the assessee. The amount advanced to STPL was in accordance with assessee's main objects and loss suffered there-from was an allowable expenditure / business loss. Reliance was placed on the favorable decision of Hon'ble Bombay High Court in the case of Colgate Palmolive (India) Ltd (370 ITR 728) which was rendered after considering the decision of Hon'ble Supreme Court in the case of Patnaik and Co. (161 ITR 365). Similarly, the amount of ₹ 508 Lacs paid by assessee towards corporate guarantee would be allowable deduction since the assessee stood guarantor for STPL. The guarantee was given with a view to fund the takeover of KERPL by STPL. The loss thus incurred would be allowable u/s. 37(1) of the Act as per decision of Chennai Tribunal in ACIT Vs W.S Industries (India) Ltd (ITA No. 1373/Mds/2008 dated 21-08-2009), wherein it was held that assessee had guaranteed the loan in its carrying on of business and the loss was admissible deduction. For the same, the Tribunal had followed the decision of Hon'ble High Court of Madras in CIT Vs Amalgamations P. Ltd (108 ITR 895) which was affir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n preceding paragraphs, it could be gathered that the assessee was engaged in refrigerant gases which are used mostly in Air Conditioners, refrigerators and refrigerating equipments. With a view to expand its business and with a view to facilitate import of gases, the assessee decided to acquire a Singapore entity i.e. KERPL. Since the statutory framework did not permit the assessee to make direct investment, the assessee floated another wholly owned subsidiary i.e. STPL to facilitate the acquisition. The acquisition of KERPL would have enabled the assessee to carry on its business more smoothly and in a more profitable manner since it would have provided assessee a strong foothold in the international market and would have served larger business interest of the assessee. The same is supported by the fact that M/s KERPL was engaged in the same line of business as that of assessee. To facilitate such an acquisition, necessary permissions from statutory authorities viz. RBI, SEBI etc. were taken and due compliance was made with the requirement of the Companies Act, 1956. For the same, the assessee took steps to conduct due diligence and thorough background check of KERPL and its prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of commercial expediency. The main purpose of investment was not to acquire any manufacturing capacity or any infrastructural capacity but the main purpose was to boost assessee's sales. Therefore, the investments could not be said to be in capital field rather the same were meant to improve the top line of the business by way of higher revenue profits. 7. We find that the issue on similar factual matrix is squarely covered by the cited decision of Hon'ble Bombay High Court in CIT V/s Colgate Palmolive India Ltd. (370 ITR 728) wherein it was held that loss in investment out of commercial expediency would be an allowable deduction. This decision of Hon'ble Bombay High Court has been followed by Hon'ble Karnataka High Court in ACE Designers Ltd. V/s ADIT (120 Taxmann.com 321) wherein the assessee was engaged in the business of manufacture and export of computerized numerical controlled machines. It made investment in equity of its wholly owned subsidiary company situated in USA. However, the said subsidiary could not perform and was wound up. The loss so suffered was claimed as 'business loss' on the ground that investment was made for purpose of business. The Hon'ble Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 927) (supra), as referred to by Ld. AO, deal with a loss of deposit made by the assessee to acquire a profit-making asset to carry on new business in cotton and accordingly, the loss was held to be capital loss. However, same is not the case here since in the present case the assessee intended to acquire another entity with a view of run business more profitability and the other entity was in the same line of business as that of assessee. Similarly, in the case law of Tribunal in Kwality Fun Foods & Restaurants (P) Ltd. (108 ITD 274), it was finding of the bench that the expenditure was incurred towards cost of acquiring profit earning apparatus and therefore, the expenditure was held to be in capital field. The same is not the case here. 10. Finally, on the given facts and circumstances, we concur with the submissions of Ld. AR that the investments in subsidiaries were made in the normal course of assessee's business to make business more profitable. Therefore, the resultant loss suffered by the assessee was rightly claimed as revenue expenditure / business loss by way of write-off in the Profit Loss Account. We order so. Accordingly, we direct Ld. AO to allow these three write-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as well as adjudication of the issue as done in AY 2011-12 shall mutatis mutandis apply to this year also. Accordingly, Ld. AO is directed to allow the depreciation as per assessee's claim. The ground thus raised stand allowed. 13. The second ground of assessee's appeal is disallowance of interest on tax deducted at source. The assessee claimed interest on TDS for ₹ 3.04 Lacs which was disallowed by Ld. AO. The Ld. CIT(A) confirmed the disallowance by observing that interest on TDS was akin to Income Tax Payment. Aggrieved, the assessee is in further appeal before us. We find that this issue stood against the assessee by the decision of Hon'ble High Court of Madras in CIT V/s Chennai Properties & Inv. Ltd. (239 ITR 435) wherein it was held that interest takes color from nature of principal amount required to be paid but not paid in time and this principal amount being income-tax, interest is in nature of a direct tax and settlement of income-tax payable under Act and, therefore, same cannot be regarded as compensatory payment. Therefore, the same could not be allowed as business expenditure. Respectfully following the same, we confirm the disallowance and dismiss this grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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