Cosmos Industries Ltd., Ghaziabad V. DCIT, New Delhi

ITA 3730/DEL/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 7958 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 08-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KATOCH
• Keywords: Capital asset; Business income; Retrospective amendment; Question of law; Bad and doubtful debts; Commercial expediency; Capital expenditure
• Section: 2(14); 115JB; 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.3730/DEL/2015 ASSESSMENT YEAR: 2010-11 COSMOS INDUSTRIES LTD., C/O GARG R. KUMAR & ASSOCIATES, CAS, 7, ADVOCATE CHAMBERS, RAJ NAGAR DISTRICT CENTRE, ABOVE DOMINOS PIZZA, GHAZIABAD. PAN: AAACC6682R VS. DCIT, CIRCLE-3(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKHILESH KUMAR, ADVOCATE REVENUE BY : SHRI ANIL KATOCH, SR.DR DATE OF HEARING : 17.12.2018 DATE OF PRONOUNCEMENT : 31.12.2018 ORDER PER R.K. PANDA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18 TH MARCH, 2015 OF THE CIT(A)-14, NEW DELHI, RELATING TO ASSESSMENT YEAR 2010-11. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF SUGAR. IT FILED ITS RETURN OF INCOME ON 31 ST MARCH, 2011 DECLARING TOTAL INCOME OF RS.3,36,93,4 30/- AND INCOME U/S 115JB AT RS.4,01,70,500/-. THIS CASE WAS SELECT ED FOR SCRUTINY BY ISSUE OF STATUTORY NOTICES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED FROM THE P&L ACCOUNT OF THE ASSESS EE THAT THE ASSESSEE COMPANY HAS CLAIMED A SUM OF RS.71,69,290/- AS LOSS ON SALE OF INVESTMENT. ON BEING ASKED BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY THE L OSS AS CLAIMED ON SALE OF INVESTMENT BE NOT DISALLOWED BEING CAPITAL IN NATUR E AND ADDED BACK TO THE TAXABLE INCOME, THE ASSESSEE REPLIED AS UNDER:- 1. THE ASSESSEE COMPANY HAS MADE INVESTMENT IN SHARES OF TWO SUBSIDIARY COMPANIES WHICH ARE ENGAGED IN THE BUSINESS OF GENE RATION OF POWER & IN REAL ESTATE RESPECTIVELY. 2. THE COMPANYS MANAGEMENT DECIDES TO INVOLVE IN THE SE BUSINESS THROUGH SPV (SPECIAL PURPOSE VEHICLE). THUS TWO SUBSIDIAR Y COMPANIES WERE FORMED TO IMPLEMENT SUCH OBJECTS WITH THE SOLE OBJECT OF EARN ING BUSINESS PROFIT THOUGHT SUCH SPV.' 3. THE ENTIRE INVESTMENT IS SUCH COMPANIES WAS MADE B Y THE ASSESSEE COMPANY ONLY AS MEASURE OF COMMERCIAL EXPEDIENCY TO FURTHER IS BUSINESS OBJECTIVES AND WERE RELATED TO THE BUSINESS OPERATI ONS OF THE ASSESSEE COMPANY. 4. THE POWER PLANET RUN BY ONE OF THE SUBSIDIARY COMPA NY COULD NOT COME INTO OPERATION DUE TO CERTAIN RESTRICTIONS AND NON AVAILABILITY OF PERMISSION FROM VARIOUS GOVERNMENT AUTHORITIES OF GOVERNMENT OF HIM ACHAL PRADESH. IN FACT THE TOTAL INVESTMENT MADE BY SUCH SUBSIDIARY COMPANY RE PRESENTS APPLICATION FEES RS. 200000/-, PROCESSING CHARGES RS. 800000/- AND 50% O F UPFRONT FEES OF RS. 850000/- WITH A STIPULATION THAT 50% OF UPFRONT FEE S WILL BE PAID AFTER START OF THE PROJECT BESIDES RS. 1700000/- WAS GIVEN TO GOVERNME NT OF HIMACHAL PRADESH AS SECURITY DEPOSIT. AS THE PROJECT COULD NOT BE START ED HENCE NEITHER ANY EXPENSE HAVE ANY REALIZABLE VALUE NOR THE SECURITY IS REFUN DABLE HENCE THE PROJECT IS UNDER TOTAL LOSS. IN THESE CIRCUMSTANCES THE COMPANY IS B OUND TO SELL ITS INVESTMENT AT A PRICE WHATEVER AVAILABLE TO GET RID OFF TOTAL LOSS. SIMILARLY IN THE OTHER SUBSIDIARY COMPANY THERE IS PRELIMINARY & PRE OPERATIVE EXPENS ES AGGREGATING TO RS. 8.50 LAKH APPROX AND ITS ASSET INCLUDES A DISPUTABLE ADV ANCE OF RS. 15.13 LAKHS BESIDES OTHER RISKS. HENCE COMPANY ALSO SOLD ITS SHARES AT A LOSS. 5. HENCE SUCH LOSS ON SALE OF SHARES OF SUBSIDIARY CO MPANIES MAY KINDLY BE ACCEPTED AS BUSINESS LOSS. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE HAS SH OWN THE AMOUNT AS INVESTMENT IN THE BALANCE SHEET AND, THEREFORE, IT IS A CAPITAL A SSET WITHIN THE MEANING OF SECTION 2(14) OF THE IT ACT. THEREFORE, THE LOSS ON INVEST MENT IS A CAPITAL LOSS. SINCE THE ASSESSEE HAS HELD THE ASSET FOR A PERIOD OF MORE TH AN 12 MONTHS, THEREFORE, IT IS A LONG- TERM CAPITAL ASSET AND THE LOSS IS A LONG-TERM CAPI TAL LOSS. HE NOTED THAT THE PROVISIONS OF SECTION 37 PROVIDES THAT NO CAPITAL EXPENDITURE IS ALLOWED IN THE COMPUTATION OF BUSINESS INCOME. HE, THEREFORE, DISALLOWED THE AMO UNT OF RS.61,69,290/- CLAIMED BY THE ASSESSEE AS LOSS ON SALE OF INVESTMENT. 4. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SA ME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER. RELYING ON VARIOUS DECISION S, IT WAS ARGUED THAT THE ACTION OF THE ASSESSING OFFICER IN TREATING THE LOSS INCURRED ON SALE OF SHARES OF SUBSIDIARY COMPANY AS LONG-TERM CAPITAL LOSS AS AGAINST BUSINE SS LOSS TREATED BY THE ASSESSEE IS UNJUSTIFIED AND NOT AS PER LAW. 5. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE A RGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFF ICER BY OBSERVING AS UNDER:- 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE B Y THE LD.AR AND HAVE GONE THROUGH THE ASSESSMENT ORDER. IT IS NOTICED TH AT THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF RS. 71 .69.290/- ON ACCOUNT OF LOSS ON SALE OF INVESTMENTS BY HOLDING THAT SUCH LOSS IS A LONG TERM CAPITAL LO SS AND AS SUCH, IS NOT ELIGIBLE FOR SETTING OFF AGAINST THE BUSINESS INCOME DECLARE D BY THE APPELLANT. HOWEVER, THE ASSESSING OFFICER HAS SPECIFICALLY ALLOWED CARR Y FORWARD OF LONG TERM CAPITAL LOSS OF RS. 71,69,290/- AS PER THE PROVISIO NS OF INCOME TAX ACT, 1961. THUS, THE GENUINENESS AND INCURRING OF THE LOSS BY TH E APPELLANT COMPANY HAS NOT BEEN DENIED IN THE ORDER OF ASSESSMENT; THE DISPUTE IS TO THE NATURE AND ALLOWABILITY OF THE LOSS SO AS TO SET OFF THE SAME AGAINST THE BUSINESS INCOME DECLARED BY THE APPELLANT COMPANY. IN REGARD TO THE SAME, IT IS NOT DENIED BY THE APPELLANT THAT THE SHARES HELD BY THE APPELLANT IN TWO SUBSIDIARY COMPANIES NAMELY M/S. COSMOS HYDRO POWER LTD. AND M/S. COSMOS HOSPITALITY AND STATES PVT. LTD. HAD BEEN SHOWN AS INVESTMENT IN TH E BALANCE SHEET. IT HAS BEEN STATED THAT BOTH THESE COMPANIES WERE SUBSIDIARIES OF THE APPELLANT COMPANY UNDER THE COMPANIES ACT, 1956 SINCE THE APPELLANT C OMPANY HELD 97.5% SHAREHOLDING OF M/S. COSMOS HYDRO POWER LTD. AND 85 % SHAREHOLDING OF M/S. COSMOS HOSPITALITY AND STATES PVT. LTD. IT WAS SUBM ITTED THAT BOTH THESE INVESTMENTS IN SUBSIDIARY COMPANIES WERE NOT MADE W ITH AN INTENTION TO REALIZE ANY ENHANCEMENT IN VALUE OVER A PERIOD OF TIME AND/ OR TO EARN DIVIDEND THERE FROM. IT HAS BEEN STATED THAT SUCH INVESTMENTS WERE WITH THE BUSINESS OBJECTIVES TO EARN BUSINESS PROFITS THROUGH SUCH SPECIAL PURPO SE VEHICLE. IN SUPPORT OF THE CLAIM, THE APPELLANT HAS REFERRED TO THE DECISION O F BOMBAY BENCH OF HONBLE ITAT IN THE CASE OF DCIT VS. COALGATE PAMOLIVE PVT. LTD. AND IT IS THEREFORE, SUBMITTED THAT MERE DISCLOSURE REQUIREMENT AS INVE STMENT IN SUBSIDIARIES UNDER SCHEDULE VI OF THE COMPANIES ACT, 1956 SHOULD NOT B E A GROUND TO DENY THE ELIGIBILITY OF LOSS INCURRED ON SALE OF INVESTMENT. IN CASE OF COALGATE PAMOLIVE PVT. LTD., THE FACTS WERE THAT ASSESSEE CLAIMED A L OSS ON ACCOUNT OF SALE OF SHARES HELD IN CAMOLATE INVESTMENT PVT. LTD. IN THE SAID CASE, IT WAS CONTENDED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS IN T HE FULLY OW NED SUBSIDIARY OF THE ASSESSEE COMPANY WHICH WAS ENGAGED IN MANUFACTURING ACTIVITY EXCLUSIVELY FOR THE ASSESSEE. ON SUCH FACTS, THE I TRIBUNAL HELD THAT INVESTMENT IN SUBSIDIARY WAS ONLY AS A MATTER OF COMMERCIAL EX PEDIENCY TO FURTHER ITS BUSINESS OBJECTIVES AND WERE RELATED TO PRIMARY BUS INESS OPERATION OF THE ASSESSEE. IN VIEW THEREOF, HONBLE TRIBUNAL CONCLUD ED THAT THE HEAD UNDER WHICH, INVESTMENT IN SUBSIDIARIES IS SHOWN DOES NOT AND CANNOT NEGATE THE FACT THAT SUCH INVESTMENTS ARE MADE ON THE GROUND OF COM MERCIAL EXPEDIENCY. IT WAS ALSO HELD THAT HEAD UNDER WHICH, DIVIDEND INCOM E HAS BEEN ASSESSED TO TAX DOES NOT AFFECT THE DETERMINATION OF THE QUESTION W HETHER SHARES ARE PURCHASED ON ACCOUNT OF COMMERCIAL EXPEDIENCY OR NOT. IT WAS CONCLUDED THAT SO LONG AS THE SHARES ARE ACQUIRED ON THE GROUNDS OF BUSINESS EXPEDIENCY, LOSS ON SALE OF SHARES IS TREATED AS AN ADMISSIBLE BUSINESS DEDUCTI ON. A REFERENCE WAS MADE TO THE JUDGMENT OF THE HONBL E SUPREME COURT IN THE CASE OF PATNAYAK AND COMPANY AND WHERE TOO, THE ASSESSEE HAD SUBSCRIBED TO CERTAIN GOVERNMENT SECURITY BUT INCURRED A LOSS ON SALE OF THAT SECURITY. IN THAT REGARD, IT HAS BEEN NOTED AS UNDER:- THE STAND OF THE ASSESSEE WAS THAT THE ASSESSEE HAD MADE THE SAID INVESTMENT WITH A VIEW TO PROMOTE ITS BUSINESS INTE RESTS AND AS SUBSCRIPTION TO THE GOVERNMENT LOAN WAS CONDUCIVE TO ITS BUSINESS, THE LOSS AROSE IN THE COURSE OF THE BUSINESS, AND THAT, THEREFORE, THE ASSESSEE WAS ENTITLED TO A DEDUCTION OF THE LOSS CLAIMED BY IT. A COORDINATE B ENCH OF THIS TRIBUNAL UPHELD THE CLAIM MADE BY THE ASSESSEE. THE TRIBUNAL FOUND THAT HAVING REGARD TO THE SEQUENCE OF EVENTS AND THE CLOSE PROXIMITY OF THE I NVESTMENT WITH THE RECEIPT OF THE GOVERNMENT ORDERS, THE CONCLUSION WAS INESCAPAB LE THAT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE ASSES SEE AND BOOST ITS BUSINESS. IN THE CIRCUMSTANCES, THE TRIBUNAL HELD THAT THE INVES TMENT WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CARRYING O N THE ASSESSEE'S BUSINESS AND THAT, THEREFORE, THE LOSS SUFFERED BY THE ASSES SEE ON THE SALE OF THE INVESTMENT MUST BE REGARDED AS A REVENUE LOSS. UPHO LDING THE STAND OF THE TRIBUNAL, HON'BLE SUPREME COURT HELD THAT THE TRIBU NAL WAS RIGHT IN ITS VIEW. IT IS THUS CLEAR THAT AS LONG AS INVESTMENT IS JUST IFIED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY, THE LOSS ON SALE OF SUCH INV ESTMENT 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 UNDE RLYING MOTIVE TO SERVE BUSINESS INTERESTS OF THE ASSESSEE IN MAKING SUCH I NVESTMENT. LET US NOW TURN TO THE FACTS OF THE CASE BEFORE US. THE COMPANY IN WHI CH SHARES ARE SUBSCRIBED IS ENGAGED ONLY IN THE BUSINESS OF MANUFACTURING THE T OOTHBRUSHES 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 THAT THE GIRNAR SCOOTER LTD. WAS FLOATED FOR THE SAME PURPOSE AS A SUBSIDIARY AND LA TER ON SOLD OFF WHEN THE LOSS STARTED MOUNTING' AND ON THESE FA CTS THE COORDINATE BENCH HELD THAT LOSS ON SALE OF SHARES IN SUBSIDIARY WAS BUSINESS LOSS IN NATURE. WE ARE IN CONSIDERED AGREEMENT WITH THE LINE OF REASON ING THUS ADOPTED BY THE COORDINATE BENCH. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE STAND OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5.1 IN THE ABOVE JUDGMENT, IT IS EVIDENT THAT HONB LE TRIBUNAL REFERRED TO DECISION OF DCIT VS. GUJARAT SMALL INDUSTRIES CORPO RATION 84 TTJ 22 WHERE THE HONBLE TRIBUNAL HAD APPROVED THE STAND OF THE CIT(A) IN FOLLOWING THE JUDGMENTS OF THE APEX COURT IN BROOK BOND INDIA LTD . VS. CIT REPORTED IN 162 ITR 373 AND RAJASTHAN HIGH COURT IN THE CASE OF RAJ ASTHAN FINANCIAL CORPORATION VS. CIT REPORTED IN 65 ITR 117 WHEREIN TOO IT HAS BEEN HELD THAT IF THE INVESTMENTS IN SHARES AND SALE THEREOF ARE CLOS ELY LINKED WITH THE BUSINESS OF THE ASSESSEE, THE LOSS SUFFERED WOULD BE TRADING LOSS. IT WAS HELD IN THE ABOVE DECISIONS AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED RECORDS AND GONE THROUGH THE ORDERS OF THE LOWER AU THORITIES. SOME ADMITTED FACTS NOTICED BY US ARE THAT AS PER THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE-CORPORATION, THE MAIN OBJECT OF THE COMPAN Y WAS TO PROMOTE THE INTEREST OF SSI UNITS IN GUJARAT STATE. THE MAIN OB JECT OF THE CORPORATION WAS TO HELP INDUSTRIAL CONCERNS IN VARIOUS WAYS AND HEL P INDUSTRIAL GROWTH OF THE STATE. FROM THE FACTS ON RECORD, IT IS OBVIOUS THAT THE GIRNAR SCOOTER LTD. WAS FLOATED FOR THE SAME PURPOSE AS A SUBSIDIARY AND LA TER ON SOLD OFF WHEN THE LOSS STARTED MOUNTING. FROM THIS FACTS, WE FIND SOME FOR CE THAT INVESTMENT IN SHARES OF GIRNAR SCOOTER LTD. BY THE ASSESSEE-COMPANY WAS IN THE NATURE OF TRADE INVESTMENT. ON PERUSAL OF THE ORDER OF THE CIT(A), WE FIND THAT THE CIT(A) HAS CORRECTLY FOLLOWED THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (1986) 57CTR (SC) 25 : (1986) 162 ITR 373 (SC). THE LEARNED CIT(A) HAS ALSO FOLLOWED THE JUDG MENT OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF RAJASTHAN FINANCIAL CORPO RATION VS. CIT (1967) 65 ITR 112 (RAJ), WHEREIN IT WAS HELD THAT IF THE INVE STMENT IN SHARES AND SALE THEREOF IS CLOSELY LINKED WITH THE BUSINESS OF THE ASSESSEE, THE LOSS SUFFERED ON ACCOUNT OF SUCH SALE WOULD BE A TRADING LOSS. 6.2 IN LIGHT OF THE ABOVE, FIRST PRINCIPLE THAT EMERGES IS THAT DISCLOSURE BY THE ASSESSEE BY ITSELF CANNOT BE A GROUND TO DETERMINE THE NATURE OF THE ASSET HELD BY THE ASSESSEE AND CONSEQUENTLY THE LOSS INCURRED ON SALE OF SUCH AN A SSET. THIS HAS ALSO BEEN STATED BY THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. KEDARNATH JUTE MFG. CO. LTD. 82 ITR 363 WHEREIN IT HAS BEEN HELD AS UNDER: 'WE ARE WHOLLY UNABLE TO APPRECIATE THE SUGGESTION THAT IF AN ASSESSEE UNDER SOME MISAPPREHENSION OR MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT AND ALTHOUGH, UNDER THE LAW, A DEDUCTION MU ST BE ALLOWED BY THE INCOME-TAX OFFICER, THE ASSESSEE WILL LOSE THE RIGH T OF CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THAT DEDUCTION. WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PR OVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGH T TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER. 5.3 SIMILAR VIEW WAS ALSO EXPRESSED IN THE CASE OF TUTI CORIN ALKALI CHEMICALS AND FERTILIZERS LTD.VS. CIT 227 ITR 172 W HEREBY IT HAS BEEN HELD AS UNDER: 'IT IS TRUE THAT THIS COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMPANY OR VA LUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRI NCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PR ACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION OF THE ACT. AS WA S POINTED OUT BY LORD RUSSELL IN THE CASE OF B . S. C. FOOTWEAR LTD. ( 19 70 ) 77 ITR 857, 860 ( CA ), THE INCOME-TAX LAW DOES NOT MARCH STEP BY STEP IN T HE FOOTPRINTS OF THE ACCOUNTANCY PROFESSION. 5.4. IN VIEW OF THE ABOVE BINDING PRECEDENTS, IT IS EVIDENT THAT THE DISCLOSURE BY ITSELF CANNOT BE A GROUND TO REGARD THE NATURE O F LOSS CLAIMED AS CAPITAL LOSS. HOWEVER, WHAT IS NECESSARY AND ESSENTIAL FOR DETERM INATION OF LOSS IS THAT INVESTMENT MUST BE MADE BY THE ASSESSEE FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE. THUS, THERE HAS TO BE COMMERCIAL EXPEDIEN CY IN INCURRING SUCH EXPENDITURE. IN THE INSTANT CASE, IN MY OPINION, THE AFORESAID T EST HAS NOT BEEN SATISFIED. IT HAS NOT BEEN ESTABLISHED IN WHAT MANNER AND ON WHAT BASIS THESE TWO COMPANIES WERE SET UP AS A MEASURE OF COM MERCIAL EXPEDIENCY. M/S. COSMOS HYDRO POWER LTD. AND M/S. COSMOS HOSPITALITY AND STATES PVT. LTD. WERE NOT IN THE NATURE OF BUSINESS CARRIED ON BY TH E APPELLANT. ON THE CONTRARY, THEY WERE ENGAGED IN DISTINCT LINE OF BUSINESS OF G ENERATION OF POWER AND REAL ESTATE RESPECTIVELY WHICH ARE NOT IN ANY WAY RELATE D TO THE EXISTING BUSINESS OF MANUFACTURING AND TRADING OF SUGAR. IN VIEW THEREOF , THE CLAIM OF LOSS BY THE APPELLANT ON SALE OF SUCH INVESTMENT CANNOT BE REGA RDED AS BUSINESS LOSS. IN ARRIVING AT THE ABOVE CONCLUSION, I AM ALSO SUPPORT ED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF UNIT ED BREWERIES LTD. VS. ACIT REPORTED IN 229 TAXMAN 113. IN THE SAID CASE, ASSESSEE CARRIED ON BUSINESS ACTIVITIES AND SALE OF POWER AND REGULAR. IT ESTABLISHED A SUBSIDIARY COMPANY NAMELY UB RESORT LTD. WITH A VIEW TO EXTEND THE BUSINESS OF THE ASSESSEE COMPANY WHICH WAS TO PUT UP RESORTS AT IMP ORTANT TOURIST DESTINATIONS. THE ASSESSING OFFICER HELD THAT EXPENDITURE ON INVE STMENT OF SAID COMPANY WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS AND THEREFORE, DISALLOWED THE CLAIM DESPITE THE FACT TH AT SUBSIDIARY COMPANY HAD BECOME DEFUNCT UNDER SECTION 560 OF THE COMPANIES A CT, 1956. THE CIT(A) DISMISSED THE APPEAL BY HOLDING THAT EXPENDITURE RE LATED TO SETTING UP OF AN ALTOGETHER NEW BUSINESS WHICH WAS SEPARATE AND DIST INCT FROM EXISTING BUSINESS AND THEREFORE, LOSS WAS A CAPITAL LOSS AND NOT BUSI NESS LOSS. THE TRIBUNAL ALSO AFFIRMED THE CONCLUSION OF THE AUTHORITIES BELOW. O N FURTHER APPEAL, HONBLE HIGH COURT ALSO REJECTED THE CLAIM BY HOLDING AS UN DER:- THEREFORE, WHEN THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF BEER AND LIQUOR, IF THEY HAVE LENT MONEY TO A SI STER CONCERN, MAY BE A SUBSIDIARY, FOR THE PURPOSE OF SETTING UP A NEW LIN E OF BUSINESS, IT CANNOT BE SAID THAT THE MONEY LENT BY THEM TO THE SUBSIDIARY COMPANY AS AN ASSISTANCE COULD BE CHARACTERIZED AS AN EXPENDITURE LAID DOWN AND EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. IN FACT, THE MATERIAL ON RECORD DISCLOSES THAT THE SUBSIDIARY COMPANY WAS IN EXISTENCE FROM 1994 TO 2001. THE ENTIRE MONEY IS LENT AND SPENT ONLY TOWAR DS PAYMENT OF SALARY AND TRAVELLING EXPENSES OVER A PERIOD OF FOUR TO FIVE Y EARS AND NO DEDUCTIONS WERE CLAIMED IN EACH YEAR WHEN SUCH PAYMENTS WERE MADE. ON THE CONTRARY, FOR THE FIRST TIME THE CLAIM WAS PUT FORTH AS BAD DEBTS. AF TER WRITING OFF THE SAME WHEN THEY COULD NOT SUBSTANTIATE THE SAID CLAIM, THEN AS AN ALTERNATIVE, A CLAIM WAS PUT FORTH UNDER SECTION 37 OF THE ACT. THOUGH MERE MENTIONING OF A WRONG PROVISION WOULD NOT DEPRIVE THE ASSESSEE OF THE BEN EFIT OF DEDUCTIONS OR EXEMPTIONS, IN TRYING TO FIND OUT THE REAL NATURE O F TRANSACTION, INTENTION OF THE PARTIES AT AN UNDISPUTED POINT OF TIME, CLEARLY GO TO SHOW THAT THIS EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE. THE SAID CLAIM IS ONLY MADE AFTER THE CLA IM WAS NOT ACCEPTED UNDER SECTION 36(1)(VII) OF THE ACT. IF THE ARGUMENT OF T HE ASSESSEE IS TO BE ACCEPTED, WHENEVER A HOLDING COMPANY LENDS MONEY TO A SUBSIDI ARY COMPANY, THEN THE HOLDING COMPANY WOULD BE ENTITLED TO THE SAID BENEF IT. THAT IS NOT THE INTENT OF THE LAW. THOUGH THERE IS NO PROHIBITION IN LAW FOR STARTING SUBSIDIARY COMPANY, TO GET THE BENEFIT OF SECTION 37, THE MONEY LENT SH OULD BE LAID OUT AND EXPENDED ONLY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. T HERE SHOULD BE A DIRECT NEXUS BETWEEN THE ASSESSEE AND THE BUSINESS FOR WHICH THE MONEY IS LENT. IF THAT CONNECTION IS NOT THERE, MERELY BECAUSE THE MONEY WAS L ENT TO A SISTER CONCERN OR TO A SUBSIDIARY COMPANY WOULD NOT ENABLE THE ASS ESSEE TO CLAIM SUCH DEDUCTION. THE ASSESSING OFFICER AND THE APPELLATE AUTHORITIES ON CAREFUL CONSIDERATION OF THE MATERIAL ON RECORD HAVE RECORD ED THE FINDING OF FACT. IN THE CIRCUMSTANCES, WE DO NOT SEE ANY JUSTIFICATION TO INTERFERE WITH THE SAID CONCURRENT FINDING OF FACT RECORDED. 5.5. IN VIEW OF THE ABOVE, I AGREE WITH THE CONCLUS ION OF THE ASSESSING OFFICER THAT THE LOSS INCURRED ON SALE OF SHARES IS A CAPIT AL LOSS AND NOT A BUSINESS LOSS AS THE SAME HAS NO PROXIMITY MUCH LESS CLOSE PROXIM ITY TO THE BUSINESS SO AS TO REGARD THE SAME TO BE EITHER INTEGRAL OR ESSENTIAL PART OF CARRYING ON THE BUSINESS OR INCIDENTAL TO THE BUSINESS OF THE APPEL LANT. THE HONBLE SUPREME COURT IN THE CASE OF A.V. THOMAS & COMPANY LTD. VS. CIT 48 ITR 67 HELD THAT WHEN THE ASSESSEE IS NEITHER A BANKER NOR A MONEY L ENDER, THE ADVANCE MADE BY ASSESSEE TO A PRIVATE COMPANY TO PURCHASE A SHARE C OULD NOT BE SAID TO BE INCIDENTAL TO THE TRADING ACTIVITY OF THE ASSESSEE. 5.6 IN VIEW THEREOF, FOR THE REASONS AFORESAID, THE LOSS IS HELD TO BE LONG TERM CAPITAL LOSS AND AS SUCH, GROUNDS RAISED BY THE APP ELLANT ARE REJECTED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE HAS COME IN APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS:- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) W AS NOT JUSTIFIED IN HOLDING THAT LOSS INCURRED ON SALE OF SHARES OF SUB SIDIARY COMPANIES IS TO BE TREATED AS CAPITAL LOSS. AS THESE INVESTMENT MADE O NLY AS A MEASURE OF COMMERCIAL EXPEDIENCY AND TO FURTHER ITS BUSINESS O BJECTIVES, HENCE SHOULD BE TREATED AS BUSINESS LOSS. 2. THAT CIT (APPEALS) IGNORED THE DECISION PRONOUNC ED BY VARIOUS COURTS WHEREIN IT WAS HELD THAT SHARES ACQUIRED ON GROUND OF COMMERCIAL EXPEDIENCY, ANY LOSS ON SALE THEREOF IS TO BE TREATED AS ADMISS IBLE BUSINESS LOSS, INSPITE OF THE FACT THAT THESE SHARES WERE NOT CONVERTED INTO STOC K IN TRADE AND THE FACT THAT AN ASSET SHOWN AS INVESTMENT PER SE DOES NOT, AND CAN NOT NEGATE THE FACT THAT SUCH INVESTMENTS ARE MADE ON THE GROUND OF COMMERCIAL EX PEDIENCY. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGE D THE ORDER OF THE CIT(A). REFERRING TO PARA 5 OF THE ORDER OF THE CIT(A), HE SUBMITTED THAT HE HAS ACCEPTED THAT GENUINENESS OF THE INCURRING OF THE LOSS BY THE ASS ESSEE COMPANY HAS NOT BEEN DENIED BY THE ASSESSING OFFICER. HE HAS ALSO ACCEPTED THE PLEA OF THE ASSESSEE OF REVENUE LOSS BY HOLDING THAT THE DISCLOSURE BY ITSELF (AS INVEST MENT) CANNOT BE A GROUND TO REGARD THE NATURE OF LOSS AS CAPITAL LOSS BY RELYING ON TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING LTD., 82 ITR 363 AND TUTICORIN ALKALI CHEMICALS, 227 ITR 172 (SC). HOWEVER, HE SUSTAINED THE DISALLOWANCE OF LOSS ON THE BASIS THAT THE TEST OF COMMERCIAL EXPEDIENCY WAS NO T SATISFIED. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS TAKEN A DECISION OF INVESTMENT IN SUBSIDIARY COMPANIES ONLY AS A MEA SURE OF COMMERCIAL EXPEDIENCY TO DO THE BUSINESS OF POWER GENERATION AND HOSPITALITY /REAL ESTATE BY WAY OF TWO SPECIAL PURPOSE VEHICLE WITH THE SOLE OBJECT OF EARNING PRO FIT, THAT TOO IN FURTHERANCE OF OBJECTS ITA NO.3730/DEL/2015 9 OF COMPANY WHICH IS RELATED TO BUSINESS OPERATIONS UNDER SEPARATE ENTITIES. REFERRING TO THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON INCORPORATION AND THE OBJECTS ANCILLARY OR INCIDENTAL TO THE ATTAINMENT OF MAIN O BJECTS, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO VARIOUS CLAUSES OF THE MEMORANDUM OF ASSOCIATION. REFERRING TO THE DECISION OF THE HON' BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, VIDE ITA NO.2 24 OF 2013, ORDER DATED 24.07.2015, HE SUBMITTED THAT WHEN THE HOLDING COMPANY INVESTS AMOUNTS FOR BUSINESS OF ITS SUBSIDIARY, IT MUST BE HELD FOR BUSINESS EXP EDIENCY. THE HON'BLE HIGH COURT, RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS (P) LTD. VS. CIT, 288 ITR 1 (SC), HAS HELD THAT TWO COMPANIES MAY BE IN DIFFERENT LIN ES OF BUSINESS, STILL IT MAKES NO DIFFERENCE. HE DREW OUR ATTENTION TO PARAS 34 AND 35 OF THE SAID ORDER WHICH READ AS UNDER:- 34. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 254 ITR 377 THAT ONCE I T IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE O F THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITS ELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT . THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AN D SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOO K AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. A S ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE P OINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 35. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPI NION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTAN CES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UT ILIZE THE AMOUNT ADVANCED TO IT ITA NO.3730/DEL/2015 10 BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUS LY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPED IENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERA TED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INT EREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONE Y TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PU RPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. 9. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF DCIT VS. COLGATE PALMOLIVE INDIA LTD., ITA NO.5485/ MUM/2009, ORDER DATED 25 TH OCTOBER, 2011, HE SUBMITTED THAT THE TRIBUNAL IN TH E SAID DECISION HAS ALLOWED THE LOSS OF RS.5.5 CRORE INCURRED UPON SALE OF SHARES OF CAM ELOT AS BUSINESS LOSS. IT WAS HELD THAT AS LONG AS INVESTMENT IS JUSTIFIED ON THE GROU NDS OF COMMERCIAL EXPEDIENCY, THE LOSS OF SALE OF SUCH INVESTMENT IS TO BE CONSIDERED AS BUSINESS LOSS. IT WAS FURTHER HELD THAT THE NATURE OF BUSINESS EXPEDIENCY COULD VARY F ROM CASE TO CASE, BUT, WHAT IS IMPORTANT IS THAT THERE MUST BE AN UNDERLYING MOTIV E TO SERVE BUSINESS INTERESTS OF THE ASSESSEE IN MAKING SUCH INVESTMENT. HE SUBMITTED T HAT THE ABOVE DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON'BLE BOMBAY HIGH COURT REPORTED IN 370 ITR 728 AND THE SLP FILED BY THE REVENUE WAS DISMISSED BY T HE HON'BLE SUPREME COURT VIDE SLP NO.25987/2015 DATED 21.12.2017. HE ALSO RELIED ON THE FOLLOWING DECISIONS:- (I) APOLLO TYRES LTD. VS. ACIT, ITA NO.223/COCHIN/2015, ORDER DT.10.01.2017; & (II) DCIT VS. GUJARAT SMALL INDUSTRIES, 84 TTJ AHD 22. 10. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THERE IS NO PROXIMATE RELATIONSHIP B ETWEEN THE NATURE OF BUSINESS AND ITA NO.3730/DEL/2015 11 INVESTMENT. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11. THE LD. COUNSEL FOR THE ASSESSEE, IN HIS REJOINDER SUBMITTED THAT THE LD.CIT(A) HAS ONLY DENIED THE BENEFIT ON ACCOUNT OF COMMERCIA L EXPEDIENCY WHICH IS DISCERNIBLE FROM PARA 5.4 OF THE ORDER OF THE CIT(A). THE GENU INENESS AND INCURRING OF THE LOSS BY THE ASSESSEE COMPANY IS NOT IN DOUBT. THE DISPUTE IS ONLY REGARDING THE NATURE AND ALLOWABILITY OF THE LOSS SO AS TO SET OFF THE SAME AGAINST THE BUSINESS INCOME. HE SUBMITTED THAT IN THE LIGHT OF THE VARIOUS DECISION S CITED EARLIER, THE CASE OF THE ASSESSEE IS SQUARELY COVERED IN ITS FAVOUR. 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS AND PER USED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A). WE HAVE ALSO CONSIDE RED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER DISALLOWE D THE AMOUNT OF RS.71,69,290/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF LOSS ON SALE OF INVESTMENTS BY HOLDING THAT SUCH LOSS IS A LONG-TERM CAPITAL LOSS AND, THEREFORE, IS NOT ELIGIBLE FOR SETTING OFF AGAINST THE BUSINESS INCOME DECLARED BY THE ASSESSEE. TREATING THE SAID LOSS AS LONG-TERM CAPITAL LOSS, THE ASSESSING OFFICER HAS ALLOWED THE CARRY F ORWARD OF THE SAME AS PER THE PROVISIONS OF THE INCOME-TAX ACT. WE FIND THE LD.C IT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER, THE REASONS OF WHICH HAVE ALREAD Y BEEN REPRODUCED IN THE PRECEDING PARAGRAPHS. IT IS THE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE THAT LOSS ON SALE OF SHARES HELD AS INVESTMENT IN SUBSIDIARY COMPANIES I S A REVENUE LOSS. IT IS ALSO HIS ARGUMENT THAT WHEN HOLDING COMPANY INVESTS AMOUNTS FOR BUSINESS OF ITS SUBSIDIARY, IT ITA NO.3730/DEL/2015 12 MUST BE HELD FOR BUSINESS EXPEDIENCY. WE FIND MERIT IN THE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA), WHILE DECIDING THE ISSUE OF COMMERCIAL EXPEDIENCY HAS OBSERVED AS UNDER:- 14. THE APPELLANT'S CASE MEETS EACH OF THE TESTS ST IPULATED BY THE DIVISION BENCH. IN FACT, IT MEETS A HIGHER TEST. WHEN A HOLDING COM PANY INVESTS AMOUNTS FOR THE PURPOSE OF THE BUSINESS OF ITS SUBSIDIARY, IT MUST OF NECESSITY BE HELD TO BE AN EXPENSE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. A FINA NCIAL BENEFIT OF ANY NATURE DERIVED BY THE SUBSIDIARY ON ACCOUNT OF THE AMOUNTS ADVANCED TO IT BY THE HOLDING COMPANY WOULD NOT MERELY INDIRECTLY BUT DIR ECTLY BENEFIT ITS HOLDING COMPANY. IN THE CASE BEFORE US, THE SUBSIDIARY HAD TO BE FUNDED TO A LARGE EXTENT FOR OTHERWISE IT WOULD NOT HAVE SURVIVED. IF IT HAD NOT SURVIVED AND HAD GONE INTO LIQUIDATION, THE APPELLANT WOULD HAVE SUFFERED DIRE CTLY ON ACCOUNT OF AN EROSION OF ITS ENTIRE INVESTMENT IN THE SUBSIDIARY. IN THIS CASE, THE FINANCIAL ASSISTANCE WAS NOT ONLY PRUDENT BUT OF UTMOST NECESSITY FOR WITHOU T IT THE SUBSIDIARY WOULD HAVE SUFFERED GRAVE FINANCIAL PREJUDICE. 15. THE TRIBUNAL, THEREFORE, ERRED IN COMING TO THE CONCLUSION THAT THE CIT (APPEALS) HAD NOT CONSIDERED THE JUDGMENT OF THE SU PREME COURT IN THE CORRECT PERSPECTIVE. WITH RESPECT, WE FIND THAT THE TRIBUNA L HAS NOT EVEN ANALYZED THE JUDGMENT OF THE SUPREME COURT IN S.A. BUILDERS LTD. VS. COMMISSIONER OF INCOME-TAX (APPEALS) AND ANOTHER (SUPRA). 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.1 0.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDG MENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD ., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTE REST FREE FUNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTE REST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 17. THE ASSESSING OFFICER'S VIEW THAT THE ADVANCE W AS NOT FOR BUSINESS PURPOSES AS THE APPELLANT HAD NO BUSINESS DEALINGS WITH THE SISTER COMPANY IS ERRONEOUS. COMMERCIAL EXPEDIENCY IN ADVANCING LOANS DOES NOT A RISE ONLY ON ACCOUNT OF THERE BEING TRANSACTIONS DIRECTLY BETWEEN THE HOLDI NG COMPANY AND THE SUBSIDIARY COMPANY OR BETWEEN THE GROUP COMPANIES INTER SE. TH E TWO COMPANIES MAY EVEN BE IN A DIFFERENT LINE OF BUSINESS. IT WOULD MAKE N O DIFFERENCE. IT WOULD STILL BE COMMERCIALLY EXPEDIENT FOR ONE GROUP COMPANY TO ADV ANCE AMOUNTS TO ANOTHER GROUP COMPANY, IF, FOR INSTANCE, AS A RESULT THEREO F THE FORMER BENEFITS. IN THE PRESENT CASE, AS WE HAVE ALREADY DEMONSTRATED, THER E WOULD BE A DIRECT BENEFIT ON ITA NO.3730/DEL/2015 13 ACCOUNT OF THE ADVANCE MADE BY THE APPELLANT TO ITS SISTER COMPANY IF THE SAME IMPROVES THE FINANCIAL HEALTH OF THE SISTER COMPANY AND MAKES IT A VIABLE ENTERPRISE. WE HASTEN TO ADD THAT IT IS NOT NECESSA RY THAT THE ADVANCE RESULTS IN A POSITIVE TANGIBLE BENEFIT. SO LONG AS THE AMOUNT IS ADVANCED WITH THAT VIEW IN MIND OR WITH ANY OTHER COMMERCIALLY EXPEDIENT VIEW IN MIND THAT IS SUFFICIENT. 13. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS. COLGATE PALMOLIVE (SUPRA) HAS DECIDED AN IDENTICAL ISSUE WH ERE THE LOSS INCURRED ON SALE OF SHARES OF THE SUBSIDIARY COMPANY WAS DISALLOWED AS BUSINESS LOSS. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND ON APPEAL BY THE REVENUE, THE TRIBUNAL UPHELD THE ACTION OF THE ASSESSING OFFICER AND DISMISSED T HE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER:- 7. WE FIND THAT CAMELOT WAS SET UP TO MANUFACTURE T OOTHBRUSHES EXCLUSIVELY FOR THE ASSESSEE COMPANY AND THAT IT HAD NO OTHER CUSTO MER THAN THE ASSESSEE. IT WAS SAID TO HAVE BEEN SET UP AS A SMALL SCALE INDUSTRIA L UNDERTAKING WITH A VIEW TO CERTAIN PREFERENTIAL TREATMENT IN THE EXCISE LAWS, BUT WHATEVER IT MANUFACTURED WAS BOUGHT BY THE ASSESSEE COMPANY ALONE. CAMELOT D ID INCUR THE LOSSES BUT THE ASSESSEE COMPANY EXTENDED FINANCIAL HELP TO CAMELOT FROM TIME TO TIME. THIS FINANCIAL HELP WAS CLEARLY IN ASSESSEE'S OWN BUSINE SS INTERESTS BECAUSE, IF THE ASSESSEE COMPANY WAS NOT TO DO SO, CAMELOT COULD NO T HAVE CONTINUED TO EXIST, AND ALL THESE LOSSES INCURRED BY CAMELOT WERE ESSEN TIALLY RELATABLE TO DOING BUSINESS WITH ASSESSEE ALONE, I.E. CAMELOT'S ONLY C USTOMER. THE LOANS AND ADVANCES SO GIVEN BY THE ASSESSEE WERE THEREFORE WH OLLY INCIDENTAL TO ITS BUSINESS AND COULD NOT BE TREATED IN ISOLATION OF I TS LEGITIMATE BUSINESS INTERESTS. WHEN THE GRANT OF LOAN ITSELF IS JUSTIFIED ON THE G ROUND OF COMMERCIAL EXPEDIENCY, IT IS ONLY COROLLARY THERETO THAT EVEN WRITE OFF OF SUCH A LOAN IS INCIDENTAL TO BUSINESS. IT IS, THEREFORE, NOT REALL Y CORRECT TO SAY THAT WRITE OFF OF THE LOANS GRANTED BY THE ASSESSEE TO CAMELOT WOULD HAVE BEEN AN INADMISSIBLE BUSINESS DEDUCTION AND THE ENTIRE TRANSACTION WAS D EVISED TO AVOID LEGITIMATE TAX LIABILITY. WE SEE SUBSTANCE IN THE PLEA OF THE COMP ANY THAT ANYONE BUYING A COMPANY WOULD LIKE TO BUY A COMPANY WITH MINIMUM LI ABILITIES, 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 CO MPANY. THIS EXPLANATION IS IN CONSONANCE WITH THE GROUND BUSINESS REALITIES AND W E FIND NO INFIRMITY IN THE SAME. THE ADVANCES GIVEN BY THE ASSESSEE WERE FINAL LY CONVERTED INTO EQUITY, AS THE ASSESSEE COMPANY SUBSCRIBED TO THE CAMELOT SHAR ES TO ENABLE CAMELOT TO PAY OFF ITS DUES TO THE ASSESSEE COMPANY. ON THESE FACT S, IN OUR HUMBLE UNDERSTANDING, THE ASSESSEE HAD INVESTED IN THE CAM ELOT, AND EXTENDED FINANCIAL ITA NO.3730/DEL/2015 14 HELP TO CAMELOT, PURELY FOR COMMERCIAL EXPEDIENCY. THE HEAD UNDER WHICH INVESTMENTS IN SUBSIDIARIES IS SHOWN IS GOVERNED BY THE DISCLOSURE REQUIREMENTS UNDER SCHEDULE VI TO THE COMPANIES ACT, AND, THEREF ORE, THE FACT THAT AN ASSET IS SHOWN AS 'INVESTMENT' PER SE DOES NOT, AND CANNOT, NEGATE THE FACT THAT THE SUCH INVESTMENTS ARE MADE ON THE GROUNDS OF COMMERCIAL E XPEDIENCY. SIMILARLY, THE HEAD UNDER WHICH DIVIDEND INCOME IS ASSESSED TO TAX DOES NOT ALSO AFFECT DETERMINATION OF QUESTION WHETHER THE SHARES ARE PU RCHASED ON ACCOUNT OF COMMERCIAL EXPEDIENCY OR NOT. IT IS ONLY ELEMENTARY THAT DIVIDEND INCOME, WHETHER THE SHARES ARE HELD AS INVESTMENTS OR AS AN Y OTHER ASSET, IS ALWAYS TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEREFO RE, NOTHING REALLY TURNS ON ASSESSING OFFICER'S EMPHASIS ON THE FACT THAT THE C AMELOT SHARES WERE SHOWN AS INVESTMENTS IN THE BALANCE SHEET AND THAT DIVIDEND INCOME FROM THESE SHARES IS TAXABLE AS INCOME FROM OTHER SOURCES. WE HAVE ALSO NOTED THAT AS LONG AS SHARES ARE ACQUIRED ON THE GROUNDS OF BUSINESS EXPEDIENCY, ANY LOSS ON SALE THEREOF IS ALSO REQUIRED TO BE TREATED AS AN ADMISSIBLE BUSINE SS DEDUCTION. HON'BLE SUPREME COURT'S JUDGMENT IN THE CASE OF PATNAIK & CO (SUPRA ) DEALS WITH A SITUATION IN WHICH THE ASSESSEE HAD SUBSCRIBED TO CERTAIN GOVERN MENT SECURITY BUT INCURRED A LOSS ON SALE OF THAT SECURITY. THE STAND OF THE ASS ESSEE WAS THAT THE ASSESSEE HAD MADE THE SAID INVESTMENT WITH A VIEW TO PROMOTE ITS BUSINESS INTERESTS AND AS SUBSCRIPTION TO THE GOVERNMENT LOAN WAS CONDUCIVE T O ITS BUSINESS, THE LOSS AROSE IN THE COURSE OF THE BUSINESS, AND THAT, THER EFORE, THE ASSESSEE WAS ENTITLED TO A DEDUCTION OF THE LOSS CLAIMED BY IT. A COORDIN ATE BENCH OF THIS TRIBUNAL UPHELD THE CLAIM MADE BY THE ASSESSEE. THE TRIBUNAL FOUND THAT HAVING REGARD TO THE SEQUENCE OF EVENTS AND THE CLOSE PROXIMITY OF T HE INVESTMENT WITH THE RECEIPT OF THE GOVERNMENT ORDERS, THE CONCLUSION WAS INESCA PABLE THAT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE ASSES SEE AND BOOST ITS BUSINESS. IN THE CIRCUMSTANCES, THE TRIBUNAL HELD THAT THE INVES TMENT WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CARRYING O N 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 S TAND OF THE TRIBUNAL, HON'BLE SUPREME COURT HELD THAT THE TRIBUNAL WAS RIGHT IN I TS VIEW. IT IS THUS CLEAR THAT AS LONG AS INVESTMENT IS JUSTIFIED ON THE GROUNDS OF C OMMERCIAL EXPEDIENCY, THE LOSS ON SALE OF SUCH INVESTMENT IS TO BE CONSIDERED A BU SINESS LOSS. THE NATURE OF BUSINESS EXPEDIENCY COULD VARY FROM CASE TO CASE BU T WHAT IS IMPORTANT IS THAT THERE MUST BE AN UNDERLYING MOTIVE TO SERVE BUSINES S INTERESTS OF THE ASSESSEE IN MAKING SUCH INVESTMENT. LET US NOW TURN TO THE FACT S OF THE CASE BEFORE US. THE COMPANY IN WHICH SHARES ARE SUBSCRIBED IS ENGAGED O NLY IN THE BUSINESS OF MANUFACTURING THE TOOTHBRUSHES FOR THE ASSESSEE COM PANY. ANY INVESTMENT IN SUCH A COMPANY IS JUSTIFIED FOR PURE COMMERCIAL CON SIDERATIONS, AND, THEREFORE, LOSS ON SALE OF SUCH SHARES IS ADMISSIBLE AS BUSINE SS 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 ' FR OM THE FACTS ON RECORD, IT IS OBVIOUS THAT THE GIRNAR SCOOTER LTD. WAS FLOATED FO R THE SAME PURPOSE AS A SUBSIDIARY AND LATER ON SOLD OFF WHEN THE LOSS STAR TED MOUNTING' AND ON THESE FACTS THE COORDINATE BENCH HELD THAT LOSS ON SALE O F SHARES IN SUBSIDIARY WAS BUSINESS LOSS IN NATURE. WE ARE IN CONSIDERED AGREE MENT WITH THE LINE OF ITA NO.3730/DEL/2015 15 REASONING THUS ADOPTED BY THE COORDINATE BENCH. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOL D THE STAND OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. ................................................... ................................................... ....................... ................................................... ................................................... ..................... 24. HAVING HEARD THE RIVAL CONTENTIONS, WE FIND THA T THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT DELHI (SB) IN THE CASE OF ITO V. EKTA PROMOTERS (P)LTD., (2008) 113 ITD 719 (DELHI)(SB), WHEREIN, IT HAS BEEN HELD THAT SECTION 223D WILL HAVE APPLICATION ONLY W.E.F. A.Y. 2004-05 AND CANNOT BE APPLIED TO A.Y. 2003-04. THE ASSESSMENT YEAR UNDER CONSIDERATION IN THIS CASE IS 2003-04. WE ALSO FIND THAT HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE CIT V. M/S. BAJAJ HINDUSTAN LTD IN INCOME TAX APPEAL NO.19 8 OF 2009 , HELD THAT THE PROVISIONS OF SECTION 234D INSERTED W.E.F. 1.6.2003 HAVE NO RETROSPECTIVE EFFECT. RESPECTFULLY FOLLOWING THE DECISION IN THE CASE OF EKTA PROMOTERS (SUPRA), AND ALSO IN THE CASE OF BAJAJ HINDUSTAN LTD (SUPRA), WE UPHOLD THE ACTION OF THE CIT(A) AND DECLINE TO INTERFERE. 14. WE FIND THE DECISION OF THE TRIBUNAL WAS UPHELD BY THE HON'BLE BOMBAY HIGH COURT REPORTED IN 370 ITR 728. THE RELEVANT OBSERV ATIONS OF THE HON'BLE HIGH COURT AT PARA 9 OF THE ORDER READS AS UNDER:- 9. UPON A PERUSAL OF THIS MATERIAL, WE ARE UNABLE TO AGREE WITH MR. PINTO THAT QUESTION 5.1 REPRODUCED ABOVE IS A SUBSTANTIAL QUESTION OF LAW. GIVEN THE PECULIAR FACTS AND CIRCUMSTANCES AND THE NATURE OF THE INVESTMENT SO ALSO BEING FOR COMMERCIAL EXPEDIENCY, THE VIEW TAKEN BY THE CO MMISSIONER AND THE TRIBUNAL CONCURRENTLY CANNOT BE TERMED AS PERVERSE. THAT VIEW BEING IMMINENTLY POSSIBLE IN THE GIVEN FACTS AND CIRCUMSTANCES. IT D OES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 15. WE FIND THE SLP FILED BY THE REVENUE HAS BEEN D ISMISSED BY THE HON'BLE SUPREME COURT. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORT HIS CASE. UNDER THESE CIRCUM STANCES, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLDIN G THAT THE LOSS INCURRED ON SALE OF ITA NO.3730/DEL/2015 16 SHARES OF SUBSIDIARY COMPANIES IS A CAPITAL LOSS AN D NOT A BUSINESS LOSS. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 16. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 3 1.12.2018. SD/- SD/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER AC COUNTANT MEMFBER DATED: 31 ST DECEMBER, 2018 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI