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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 ..... above appeal either before or during the course of hearing of the appeal." 3. The brief facts of the case are that the assessee company is engaged in the business of non-edible castor oil. The assessee set up wholly owned subsidiary named Banpal Agro-Tech Pvt. Ltd with the object to produce/manufacture/export or import of edible oils like groundnut, sesame and mustard etc. The reason behind incorporating the subsidiary was that the assessee has specialized technology namely "cold press technology" for manufacture of mustard oil from mustard seeds. However, the product of the assessee was exported to Germany and sales of the assessee were primarily dependent on one major buyer M/s. Alberdingk Boley, Germany. In order to insulate from market risk, the assessee decided another set up another manufacturing unit of virgin edible oil for export by employing the same "cold press technology". For the above business, the assessee advanced a sum of Rs. 2,88,52,100/- to the subsidiary company incorporated for the above purpose. However, the business of the subsidiary company could not take off and it was unable to repay the aforesaid loan. Accordingly, the assessee company during the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purpose but nor established any commercial expediency of loan given to its subsidiary company. The appellant has even not established that there was any business transactions with such subsidiary company and even not proved which even has happened in year under consideration which lead to appellant to write of such advances on year under consideration. The appellant has not submitted treatment given in the hands of subsidiary companies on account of such write off of claim by it. Thus, it is proved that appellant has failed to prove business nexus of giving business advance to subsidiary company. The Hon'ble Hyderabad ITAT in the case of Krishna Drugs Limited V/s ACIT (ITA no 1091/Hyd/2012) vide its order dated 27/11/2012 has held as under: ................................................................................................................. ................................................................................................................. ......................................................................................................... 5.3.2 The appellant company is not engaged in the business of granting loans or not doing money lend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 47. To carry on any branch of business whether in India or outside India which this Company is authorised to carry on by means or through the agency of any subsidiary company or companies and to enter into any arrangement with such subsidiary company... for finance any such subsidiary, guaranteeing Us liabilities or to make any other arrangement which seem desirable with reference to any business or branch so carried on including the power and provision at any time either temporarily or permanently to close any such branch or business, (pg.7 of Addl. P/B) - Other Objects: 12. To carry on the business of a finance company and to finance industrial enterprises and to promote companies engaged in industrial manufacturing and trading business whether in India or out of India and subject to provisions of law, receive and give short term/long term loans with and/or without security and interest, (pg. 11 of Addl. P/B) > In pursuance of such objects of the assessee, it incorporated a Wholly Owned Subsidiary - Banpal Agrotech Pvt. Ltd. and also made advances to it. The main object of Banpal Agrotech Pvt. Ltd. is: >1. To carry on the business as manufacturers, processors, cultivato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of advancing such loan was further expansion/diversification into similar/associate line using the "cold press technology". From the facts it is evident that the purpose of assessee 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. 7.1 It would be useful to refer to some judicial precedents which have held that loss on account of non-repayment of loan advanced for the purpose of expansion of business is an allowable business loss. In the case of Vaibhav Global Ltd [2022] 138 taxmann.com 506 (Rajasthan), the High Court held that investment made in subsidiary company in order to expand business with view to earn higher profit, being driven by business expediency, merited deduction under section 37 of the Act. In the case of V ..... X X X X Extracts X X X X X X X X Extracts X X X X
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