DCIT 3(2)(2), MUMBAI V. PIONEER INVESTCORP LTD, MUMBAI

ITA 6232/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5034 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 12-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARTI SINGH
• Keywords: Commercial expediency
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.6232/M/2017 ASSESSMENT YEAR: 2014-15 DCIT 3(2)(2), ROOM NO.674, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. PIONEER INVESTCORP. LTD., 1219, MAKER CHAMBER V, NARIMAN POINT, MUMBAI 400 021 PAN: AAACP2423R (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI FIROZE B. ANDHYARUJINA, A.R. REVENUE BY : MS. BHARTI SINGH, D.R. DATE OF HEARING : 10.01.2019 DATE OF PRONOUNCEMENT : 05.02.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 21.08.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2014-15. 2. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.72,88,510/- ON ACCOUNT OF ADVANCE TO SUBSIDIARY WRITTEN OFF WHICH WAS DISALLOWED BY THE AO ON THE GROUND THAT THE SAME IS CAPITAL IN NATURE AND IS NO T ALLOWABLE UNDER SECTION 37(1) OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO AFTER PERUSING THE PROFIT AND L OSS ACCOUNT ITA NO.6232/M/2017 M/S. PIONEER INVESTCORP. LTD. 2 FOUND THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,1 2,28,240/- UNDER THE HEAD EXCEPTIONAL ITEMS BEING LOSS ON WIND ING UP/DISPOSAL OF SUBSIDIARY IN THE P&L ACCOUNT. ACCO RDINGLY, ASSESSEE WAS CALLED UPON TO SHOW CAUSE AS TO WHY TH E SAID LOSS OF WINDING UP/DISPOSAL OF SUBSIDIARY SHOULD NOT BE DISALLOWED WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 21.03.2016 SUBMITTING THEREIN THAT THE SAID LOSS COMPRISED OF CAPITAL LOSS ON ACCOUNT OF WINDING UP OF SUBSIDIARY OF RS.39,39,730 /- AND ADVANCES TO SUBSIDIARY WRITTEN OFF OF RS.72,88,510/ - AGGREGATING TO RS.1,12,28,240/-. IT WAS ALSO SUBMITTED THAT LO SS OF INVESTMENT IN THE SUBSIDIARY ON ACCOUNT OF WINDING UP HAS BEEN DISALLOWED IN THE COMPUTATION OF INCOME AND HAS BEE N SEPARATELY CLAIMED UNDER THE HEAD CAPITAL GAINS/LOS S. IT WAS ALSO STATED THAT ASSESSEE HAS ADVANCED LOANS AND AD VANCES TO SUBSIDIARY OUT OF COMMERCIAL EXPEDIENCY WHICH THE S UBSIDIARY COULD NOT PAY AND AS IT HAS INCURRED HUGE LOSSES AN D ULTIMATELY THE SAID SUBSIDIARY WAS WOUND UP AND THUS THE ADVAN CES WERE WRITTEN OFF AS IRRECOVERABLE. THE ASSESSEE RELIED ON THE DECISION OF ITAT IN THE CASE OF ACIT VS. BEST & CROMPTON ENG INEERING LTD. (2013) 36 TAXMANN.COM 555 (CHENNAI-TRIB). HOW EVER, THE AO NOT FINDING THE SUBMISSION OF THE ASSESSEE AS TE NABLE ADDED A SUM OF RS.72,88,510/- TO THE INCOME OF THE ASSESS EE BESIDES BY MAKING OTHER ADDITIONS AND ADJUSTMENTS BY FRAMIN G ASSESSMENT UNDER SECTION 143(3) OF THE ACT VIDE ORD ER DATED 25.04.2016. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE ORDER IN AS SESSEES OWN CASE PASSED BY THE PREDECESSOR OF THE LD. CIT(A) IN APPEAL NO.CIT(A)-8/IT-70/15-16 FOR A.Y. 2012-13. ITA NO.6232/M/2017 M/S. PIONEER INVESTCORP. LTD. 3 5. THE LD. D.R. SUBMITTED BEFORE THE BENCH THAT THE ISSUE IN ASSESSMENT YEAR 2012-13 HAS BEEN RESTORED BY THE TR IBUNAL TO THE FILE OF THE AO. THEREFORE, CURRENT YEAR ALSO S HOULD BE RESTORED TO THE FILE OF THE AO TO DECIDE ON THE SAM E LINES. 6. ON THE OTHER HAND, THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE SUBSIDIARY HAS BEEN WOULD UP. THE S AID SUBSIDIARY PINC MAURITIUS AND THE ASSESSEE COMPANY ADVANCED USD 1,49,810.92 EQUIVALENT TO RS.72,88,510/- AS INT EREST FREE UNSECURED ADVANCE TO MEET INCORPORATION EXPENSES, S TATUTORY PAYMENTS AND ANNUAL MAINTENANCE EXPENSES. THE LD. A.R. FURTHER SUBMITTED THAT DESPITE BEST EFFORTS THE BUS INESS OF THE SUBSIDIARY COULD NOT GET THROUGH AND IT WAS NOT ABL E TO RECOUP ITS LOSSES INCURRED IN THE PREVIOUS YEAR AND THEREA FTER THE BOARD OF DIRECT OF THE COMPANY WOUND OUT THE COMPANY. TH E LD. A.R. WHILE OPPOSING THE ARGUMENT OF THE LD. D.R. THAT IS SUE SHOULD BE RESTORED TO THE FILE OF THE AO RELIED PRIMARILY ON THE TWO DECISIONS I.E. CIT VS. AMALGAMATION (P) LTD. (1997) 92 TAXMAN 132 (SC) AND VASSANJI SONS & CO. (P) LTD. VS. CIT ( 1980) 125 ITR 462 (BOM) AND SUBMITTED THAT THE APPEAL OF THE REVE NUE SHOULD BE DISMISSED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. UNDISPUTED FACT S ARE THAT THE ASSESSEE HAS A SUBSIDIARY IN THE NAME OF PINC M AURITIUS TO WHOM THE ASSESSEE PROVIDED UNSECURED INTEREST FREE ADVANCES TO THE TUNE OF USD 1,49,810.92 EQUIVALENT TO RS.72,88, 510/- FOR INCURRING NECESSARY EXPENSES SUCH AS INCORPORATION EXPENSES, STATUTORY PAYMENTS AND ANNUAL MAINTENANCE EXPENSES. THE BUSINESS OF THE SUBSIDIARY COMPANY BECOMES UNVIABLE DUE TO ITA NO.6232/M/2017 M/S. PIONEER INVESTCORP. LTD. 4 INCURRING OF HUGE LOSSES OVER THE YEARS AND THEREFO RE COMPANY WAS WOUND UP RESULTING INTO LOSS OF RS.72,88,510/- ADVANCED BY THE ASSESSEE AS INTEREST FREE UNSECURED ADVANCES TO THE SAID SUBSIDIARY. IN OUR OPINION THE SAID ADVANCE WAS GI VEN BY THE ASSESSEE OUT OF COMMERCIAL CONSIDERATION AND EXPEDI ENCY AND THEREFORE WE ARE IN AGREEMENT WITH THE CONCLUSION D RAWN BY THE LD. CIT(A) THAT THE SAID LOSS HAS TO BE ALLOWED AS BUSINESS LOSS. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DECISI ON RELIED UPON BY THE LD. A.R. NAMELY CIT VS. AMALGAMATION (P ) LTD. (SUPRA) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF HONOURING TH E GUARANTEE GIVEN TO THE BANK ON BEHALF OF SUBSIDIARY IS A BUSI NESS LOSS AND THEREFORE ALLOWABLE. IN THE CASE OF VASSANJI SONS & CO. (P) LTD. VS. CIT (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS H ELD THAT LOSS TO THE ASSESSEE RESULTING FROM THE SUBSIDIARY GOING INTO LIQUIDATION IN WHICH ASSESSEE HAS SUBSTANTIAL INTER EST AND THEREFORE THE DEBT WHICH BECAME IRRECOVERABLE WHICH WAS ADVANCED BY THE ASSESSEE TO THE SUBSIDIARY COMPANY HAS TO BE TREATED AS DIRECTLY STRINGING FROM ITS BUSINESS ACT IVITY AND THEREFORE LOSS OF DEBT AMOUNT WAS DEDUCTABLE AS BUS INESS LOSS. WE, THEREFORE, FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT AND HONBLE JURISDICTIONAL BOMBAY HIG H COURT ARE INCLINED TO UPHOLD THE ORDER OF LD. CIT(A) BY D ISMISSING THE APPEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 05.02.2019. ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 05.02.2019. * KISHORE, SR. P.S. ITA NO.6232/M/2017 M/S. PIONEER INVESTCORP. LTD. 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.