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TMI Blog2023 (2) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to advance the loan to its subsidiary were two fold, firstly, to extend into a similar line of business and secondly to insulate business of the assessee from the vagaries of its existing business owing to dependency primarily on one client based out of Germany. Therefore, in the instant facts we are of the considered view that the loss on account of non-payment of advance of subsidiary was a business loss in the assessee s line of business and the same is allowable as a business reduction to the assessee. Thus we are of the considered view that the above amount is allowable as a business loss in the hands of the assessee. Appeal of the assessee is allowed. - ITA No. 1225/Ahd/2016 - - - Dated:- 31-1-2023 - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Tushar Hemani, Sr. A.R. And Shri Parimalsinh B. Parmar, A.R. For the Revenue : Shri N.J. Vyas, Sr. D.R. ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-4, Ahmedabad, in proceeding u/s. 143(3) vide order dated 03/03/2016 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital advance. The Ld. Assessing Officer held that the loss of capital asset cannot be allowed as a bad debt under the provisions of section 36(1)(vii) of the Act. The Assessing Officer relied on the case of DCM Ltd vs. DCIT 123 TTJ 114 (Delhi) for the proposition that when the assessee is not in the business of advancing loan, the money advanced to its subsidiary is not in line with the normal business activity of the assessee. Thus, the amount of loan given to subsidiary cannot be termed as a money advanced during the course of normal business of the company and thereafter when there was no recovery of the same, the loss is a capital loss and cannot be allowed as deduction u/s. 28 r.w.s. 37 of the Act 5. The assessee filed appeal before CIT(A) who also dismissed the appeal of the assessee with the following observations:- DECISION: 5.3 I have carefully considered the Assessment Order and the submission filed by the Appellant. The appellant has written off advances given to its subsidiary company being Banpal Agrotech Pvt Limited for Rs 2,88,52,100 and Assessing Officer contended that such write off cannot be held to be incidental to business of appellant and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The assessee is in appeal before us against the aforesaid order passed by CIT(A) dismissing the appeal of the assessee. At the outset, the counsel for the assessee submitted that the amount was advanced by the assessee company to its subsidiary, which is in a similar line of business and therefore, such advance was on account of purely commercial considerations and hence allowable as business loss. The counsel for the assessee drew our attention to objects of the assessee as per its memorandum of association, which are reproduced as under:- The following are the objects of the assessee as per its Memorandum of Association: - Main Object: 1. To carry on business as manufacturers, processors, cultivators, importers, exporters, dealers, sellers, buyers, consignors, consignees, agents, stockiest, suppliers of castor seeds and castor oil in any grade or form, non-edible oil seeds and oils, edible oil seeds and oils all derivatives, intermediates and chemicals oil cakes oiled or deoiled, pharmaceutical, drug and medicinal chemicals, pesticides, fertilizers, manures, and all kinds of articles in the manufacture of which any form of above oil seeds or oil or its intermediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade advance for expansion of its business and to diversify its existing business into line of business which is quite similar to the assessee s line of business with a view to insulate itself from the business vagaries, this is an allowable business loss in light of various judicial precedents on the subject. The counsel for the assessee also drew our attention to the MOA of the subsidiary company and submitted that both the assessee and subsidiary were primarily engaged in the similar line of business and such advance was given by the assessee to its subsidiary company purely out of commercial reasons. Accordingly, in view of the various judicial precedents on the subject such business loss is allowable in the assessee s line of business and considering the facts of the assessee s case, the same is allowable as a business loss. In response, the ld. Departmental Representative relied upon the observations made by the Assessing Officer and the CIT(A) in their respective orders. 7. We have heard the rival contention and perused the material on record. We observe that in the instant set of facts, the assessee has set up its subsidiary in order to extend into the line of edible oils ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee made payment of guarantee on behalf of its subsidiary company, 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, eligible for deduction as business expenditure. In the case of Gulf Oil Corpn. Ltd. [2012] 24 taxmann.com 325 (Hyd.) , the ITAT held that where JVC promoted by assessee was declared sick and advance given by assessee was written off by assessee, same was to be allowed as bad debt or business loss. In the case of W.S. Industries (India) Ltd. 128ITD98 (Chennai) , the assessee-company was engaged in business of manufacturing electro porcelain products. A subsidiary company of assessee had been executing certain contracts on behalf of assessee for supply of electronic equipment - Assessee had given corporate guarantee to various banks for its subsidiary company. Consequent to subsidiary company becoming sick, assessee entered into settlements with banks by effecting one time payment and got corporate guarantees discharged. The assessee wrote off amount so paid in its books and claimed deduction for same. The Assessing Officer rejected assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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