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

ITA 6968/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3646 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 29-11-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: OMI C NINGSEN
• Assessee Lawyers: F B ANDHYARUJINA
• Keywords: Business expenditure; Opportunity of being heard; Bad and doubtful debts

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 6968 /MUM/ 201 6 (ASSESSMENT YEAR 20 12 - 13 ) ACIT 3(2)(2) ROOM NO. 674 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. V S . M/S. PIONE ER INVESTCORP. LTD. 1219, MAKER CHAMBER V NARIMAN POINT MUMBAI - 400 021. PAN : AAACP2423R ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI F.B. ANDHYARUJINA DEPARTMENT BY SHRI OMI C. NINGSEN DATE OF HEARING 17.7. 201 8 DATE OF PRONOUNCEMENT 14 .8 . 201 8 O R D E R PER B.R. BASKARAN (AM) : THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER PASSED BY THE LEARNED CIT(A) - 8, WHEREIN THE LEARNED CIT(A) HAS DELETED THE DISALLOWANCE OF ` 186.38 LAKHS RELATING TO ADVANCE TO SUBSIDIARY WRITTEN OFF. 2. FACT S RELATING TO THE ISSUE ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING INTEGRATED FINANCIAL SERVICES MORE PARTICULARLY, PROVIDING SERVICES IN INVESTMENT BANKING, INVESTMENT ADVISORY, INVESTMENT IN SHARES AND SECURITIES, T RADING IN GOVERNMENT SECURITIES AND CORPORATE BONDS ETC. IT IS ALSO PROVIDING SERVICES IN PRIVATE EQUITY VENTURES CAPITAL FUNDING, CORPORATE ADVISORY AND STRATEGIC ALLIANCE ETC. IN ORDER TO EXPAND ITS BUSINESS VERTICALS OVERSEAS IN ASIA - PACIFIC REGION, TH E ASSESSEE ESTABLISHED A SUBSIDIARY COMPANY IN SINGAPORE BY NAME PINC INTERNATIONAL (SI NGAPORE) PTE. LIMITED. THE ASSESSEE INVESTED A SUM OF ` SGD 3 LAKHS (EQUIVALENT TO INR 1,03,62,000) TOWARDS SHARE CAPITAL. IT ALSO ADVANCED INTEREST FREE UNSECURED ADV AN CES TO THE SUBSIDIARY COMPANY TO MEET VARIOUS EXPENSES. THE A MOUNT S SO ADVANCED ACCUMULATED TO ` 186.38 LAKHS. THE SINGAPORE S UBSIDIARY COMPANY MOVED AN M/S. PIONEER INVESTCORP. LTD. 2 APPLICATION BEFORE THE MONETARY AUTHORITY OF SINGAPORE (MAS) FOR GETTING LICENSE FOR CONDUCT ING BUSINE SS IN SINGAPORE. SINCE THE ASSESSEE DID NOT GET LICENSE IMMEDIATELY AND MAS WAS DELAYING THE MATTER, THE SINGAPORE SUBSIDIARY FOUND IT PRUDENT TO WITHDRAW THE APPLICATION. HENCE, SINGAPORE SUBSIDIARY COULD NOT CARRY ON ANY BUSINESS IN FINANCIAL SERVICES IN DUSTRY AS ENVISAGED BY THE ASSESSEE . THE SINGAPORE COMPANY INCURRED LOSSES, SINCE IT DID NOT GENERATE ANY INCOME. SINCE THE ASSESSEE COULD NOT ACHIEVE ITS OBJECTIVE OF EXPANDING ITS BUSINESS AC TIVITIES IN OVERSEAS AND SINCE T HE ASSESSEE HAD TO FUND FOR EX PENSES OF SINGAPORE SUBSIDIARY, WHICH IN TURN, WAS INCURRING LOSSES , IT WAS DECIDED BY THE ASSESSEE TO DISINVEST SHAREHOLDING HELD BY IT IN THE SUBSIDIARY COMPANY. ACCORDINGLY, THE ENTIRE SHARE CAPITAL OF 3,00,000 SHARES WAS SOLD TO A PERSON NAMED MR. SHAH BHARTI FOR A CONSIDERATION OF SGD 100 (EQUIVALENT TO ` 4,139) ON 30.3.2012. THE ASSESSEE DID NOT CLAIM LOSS ARISING ON SALE OF SHARES AS DEDUCTION AGAINST ITS INCOME. SINCE THE SINGAPORE COMPANY WAS HAVING NEGATIVE NET WORTH, THE ASSESSEE ALSO DECIDED TO WRITE OFF ADVANCE AMOUNT OF ` 186.38 LAKHS GIVEN TO SUBSIDIARY COMPANY. ACCORDINGLY, THE ASSESSEE WROTE OFF THE ABOVE SAID AMOUNT DURING THE YEAR UNDER CONSIDERATION AND CLAIMED THE SAME AS DEDUCTION. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON THE REASONING THAT IT IS A CAPITAL LOSS. THE ASSESSING OFFICER AL SO OBSERVED THAT THE SINGAPORE C OMPANY HAS BEEN TAKEN OVER BY A THIR D PARTY AND THE ASSESSEE HAS NOT BROUGHT ON RECORD THE TERMS AND CONDITION ENTERED BETWEEN THE ASSESSEE AND THE THIR D PARTY. ACCORDINGLY, THE ASSESSING OFFICER ALSO TOOK THE VIEW THAT THE CLAIM OF LOSS HAS NOT BEEN SUBSTANTIATED. THE ASSESSING OFFICER ALSO TO OK THE VIEW THAT THE DEDUCTION W AS NOT ALLOWABLE U/S. 36(1)(VII) OF THE ACT AS BAD DEBTS AS THE ASSESSEE DID NOT FULFILL THE CONDITIONS STIPULATED IN SECTION 36(2) OF THE ACT. 3. IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) TOOK THE VIEW THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION , AS THE SAME PRESENTS MONEY GIVEN TO THE SUBSIDIARY COM PANY IN FURTHERANCE OF THE OBJECTIVES OF THE ASSESSEE . IN THIS REGARD, THE LEARNED CIT(A) PLACED RELIANCE ON VARIOUS DECISIONS INCLUDING DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT M/S. PIONEER INVESTCORP. LTD. 3 IN THE CASE OF VASSANJI SONS & CO. (P) LTD. VS. CIT (125 ITR 462), WHERE IN IT WAS HELD THAT LOSSES SUFFERED BY HOLDING COMPANY ON ACCOUNT OF AMOUNT OUTSTANDING FROM THE SUBSIDIARY WHICH WENT INTO LIQUIDATION WAS ALLOWABLE AS BUSINESS EXPENSES FOR HOLDING COMPANY. AGGRIEVED BY THE DECISION RENDERED BY THE LEARNED CIT(A), THE RE VENUE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LEARNED DR SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER AND TOOK US THROUGH THE ASSESSMENT ORDER REITERATING THE VIEWS EXPRESSED BY THE AO. ON THE OTHE R HAND , THE LEARNED AR TOOK US THROUGH THE RELEVANT DOCUMENTS PLACED IN THE PAPER BOOK AND ACCORDINGLY CONTENDED THAT THE ORDER PASSED BY THE LEARNED CIT(A) DOES NOT CALL FOR ANY INTERFERENCE . 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. W E NOTICED THAT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THREE COUNTS: (A) THE ASSESSEE HAS SOLD ITS ENTIRE STAKE IN SUBSIDIARY COMPANY TO A THIRD PARTY AND THE ASSESSEE HAS NOT BROUGHT ON RECORD THE TERMS AND CONDITION ENTERED BY THE A SSESSEE WITH THIRD PARTY, WHO HAS TAKEN OVER THE SUBSIDIARY COMPANY. HENCE, THE CLAIM PUT FORTH BY THE TOWARDS WRITE OFF OF THE AMOUNT DUE FROM THE SUBSIDIARY COMPANY REMAINS UNSUBSTANTIATED. (B) LOSS INCURRED BY THE ASSESSEE ON WRITE OFF OF THE AMOUNT DUE FROM SINGAPORE SUBSIDIARY COMPANY IS A CAPITAL LOSS , SINCE IT IS IN THE NATURE OF INVESTMENT MADE BY THE ASSESSEE FOR STARTING NEW BUSINESS . (C) LOSS IS NOT ALSO ALLOWABLE AS BAD DEBTS U/S. 36(1)(VII) OF THE ACT SIN C E THE ASSESSEE HAS FAILED TO FULFILL THE CONDITIONS STIPULATED U/S. 36(2) OF THE ACT. 6. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS SOLD ITS ENTIRE STAKE IN THE SUBSIDIARY COMPANY TO A THIRD PARTY. ONCE THE STAKE IS SOLD, IT NO LONGER M/S. PIONEER INVESTCORP. LTD. 4 REMAINS A SUBSIDIARY COMPANY OF THE ASSESSEE. HENCE THE TERMS AND CONDITIONS ENTERED BY THE ASSESSEE WITH THIRD PARTY, WHO PURCHASED THE SUBSIDIARY COMPANY MIGHT THROW LIGHT ON THE ABOVE SAID CLAIM OF THE ASSESSEE . IN THAT SITUATION, VARIOUS CASE LAWS RELIED UPON BY THE LEARNED CIT(A) TO ALLOW THE C LAIM OF THE ASSESSEE MAY NO T BE APPLICABLE. IN ANY CASE, FIRST REASONING GIVEN BY THE ASSESSING OFFICER TO DISALLOW THE CLAIM OF THE ASSESSEE HAS NOT BEEN ADDRESSED BY THE LEARNED CIT(A). IN OUR VIEW , THE TERMS AND CONDITION ENTERED BY THE ASSESSEE WITH T HIRD PARTY, WHO ACQUIRED SINGAPORE COMPANY SHALL BE RELEVANT TO DECIDE THE FIRST REASONING CITED BY THE AO. ADMITTEDLY, THE SAID AGREEMENT HAS NOT BEEN BROUGHT ON RECORD BY THE ASSESSEE AND HENCE IT COULD NOT BE CONSIDERED BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A). U NDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THE ISSUE CONTESTED BEFORE US AND RESTO RE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EX AMINE THIS ISSUE AFRESH WITHOUT BEING INFLUENCED BY THE DECISION RENDERED BY THE LEARNED CIT(A) IN THE FIRST ROUND OF PROCEEDINGS. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, THE ASSESSING OFFICER MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 14 .8 . 201 8 . SD/ - SD/ - (RAMLAL NEGI) (B.R.BASKARAN) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 14 / 8 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPOND ENT 3. THE CIT(A) 4. CIT M/S. PIONEER INVESTCORP. LTD. 5 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI