NSL SUGARS LIMITED ,BENGALURU V. DCIT, CENTRAL CIRCLE-3(2), BENGALURU

ITTPA 2615/BANG/2024

AI Insights

The case involves M/s NSL Sugars Limited appealing against the final assessment order by the Deputy Commissioner of Income Tax, which included a significant transfer pricing adjustment and disallowances under various sections of the Income Tax Act. The primary issues revolved around the arm's length pricing of bagasse transferred from the Sugar Division to the Power Division and the disallowance of certain interest payments under section 43B of the Act. The Tribunal found merit in the assessee's arguments regarding the pricing of bagasse and directed the acceptance of the price charged by the assessee. However, it also recognized the need for a detailed examination of the interest payments claimed under section 43B, leading to a remand for further verification.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 827368 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 08-01-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Appeal Filed On: 30-12-2024
• Other Referred Cases: ACE Designers Ltd. v. ACIT, CIT v. Colgate Palmolive (India) Ltd., Cosmos Industries Ltd. v. DCIT, Refex Industries Ltd. v. DCIT, Ryatar Sahakari Sakkare Karkhane Niyamit v. ACIT, Bijapur
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J DHIVYA
• Assessee Lawyers: SURESH MUTHUKRISHNAN; DIRECTLY
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Transfer pricing; Business expenditure; Bad and doubtful debts; Cost of acquisition; Commercial expediency; Principle of natural justice; TDS; Wholly owned subsidiary; Liquidation; Arm length price
• Section: 143(3); 133(6); 234B; 37; 43B; 37(1); 40(a)(ia); 194C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER IT(TP)A No.2615/Bang/2024 Assessment Year: 2021-22 M/s NSL Sugars Limited, #60/1, 2nd Cross, Museum Road, Bengaluru – 560 025. PAN – AAGCS 0938 Q Vs. The Dy. Commissioner of Income Tax, Central Circle – 3(2), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Suresh Muthukrishnan, CA Revenue by : Dr. KJ Dhivya, CIT (DR) Date of hearing : 10.12.2025 Date of Pronouncement : 08.01.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The present appeal of the assessee is directed against the Final Assessment order under section 143(3) r.w.s. 144C(13) of the Income Tax Act 1961 (hereafter the Act), dated 29th October 2024 by the office of Deputy Commissioner of Income Tax, Central Circle -3(2) Bengaluru (hereafter the AO) bearing DIN ITBA/AST/S/143(3(/2024- 25/1070029935(1) passed in pursuance to the direction of the Learned Dispute Resolution Panel (Hereafter – Ld. DRP) vide order under section 144C(5) of the Act , dated 30th September 2024. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 2 of 30 2. The assessee has raised multiple issues numbered as Ground Nos. 1 to 8 and sub-grounds thereunder which runs into several pages. Therefore, we are not inclined to reproduce the same here for the sake of brevity and convenience. 3. The Ground Nos. 1 & 8 of the assessee’s appeal are general in nature and therefore, the same does not any require adjudication. Hence, the same is hereby dismissed as infructuous. 4. The issue raised by the assessee is Ground No. 2 to 2.5 of the appeal pertains to the addition made for Rs. 30,77,53,817/- on account of determination of ALP specified domestic transaction being supply of Bagasse from sugar division to power division. 5. The relevant facts are that the assessee is a public company and one of the most efficient integrated sugar companies in South India. It is part of the NSL Group, which is engaged in diversified agro-commercial crop businesses. The assessee company has multiple integrated sugar complexes across Karnataka, Telangana, and Maharashtra, engaged in the production of sugar, cogeneration power, distillery products, organic manure, and bio-fertilizer products. 6. During the year under consideration, the assessee entered specified domestic transactions in respect of steam and electricity units produced by the Power Division and bagasse (by-product) generated by the Sugar Division. In the transfer pricing study, the assessee used the “other method” for determining the ALP of transfer of steam between Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 3 of 30 units and sale of bagasse, whereas the CUP method was used for internal transfer of electric power. 7. In the year under dispute, the assessee’s Sugar Division supplied bagasse to two Power Division units, namely the Aland Unit and the Jay Mahesh Unit, weighing 1,10,656 tons and 1,96,206 tons respectively, and charged an amount of ₹16,59,83,310 and ₹29,43,08,809 respectively at the rate of ₹1,500 per ton. The assessee, relying on a quotation received from a third party for sale of loose bagasse, claimed that such bagasse could be purchased from the open market at ₹1,490 per ton. Accordingly, the assessee claimed that the price charged for transfer of bagasse from the Sugar Division to the Power Division was at arm’s length. 8. The TPO rejected the assessee’s reliance on third-party quotations for determination of the ALP. The TPO proposed to adopt the market price of bagasse as per the tariff order issued by the Central Electricity Regulatory Commission (CERC) for FY 2021-22 dated 23 June 2020. 8.1 Against the TPO’s proposal, the assessee filed objections stating that the CERC tariff is framed in the context of supply of electricity generated and that the rates prescribed by the Central Commission are not binding on State Electricity Regulatory Commissions. The assessee contended that various judicial pronouncements have held that rates prescribed by regulatory institutions cannot be mechanically adopted as a parameter for determining the arm’s length price. The assessee further submitted that the Karnataka Electricity Regulatory Commission (KERC) Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 4 of 30 tariff order for the year 2018 prescribed the fuel cost of bagasse at ₹1,161.28 per ton, which is significantly lower than the price of ₹1,500 per ton charged by the Sugar Division. 8.2 Further, the assessee submitted that the Fair and Remunerative Price (FRP) of sugarcane notified for FY 2020-21 was ₹2,850 per ton. As per various studies, from one ton of sugarcane, only about 280 to 300 kilograms of bagasse is produced. Considering the FRP of sugarcane and the yield ratio of bagasse, the cost per ton of bagasse works out to approximately ₹855. However, the Sugar Division charged ₹1,500 per ton to the Power Division, which is almost twice the derived cost. 8.3 In addition, the assessee also claimed that during the year under consideration it had sold bagasse to a third party at the rate of ₹1,200 per ton. Therefore, the price of ₹1,500 per ton charged to the Power Division in the transfer pricing study was claimed to be at arm’s length. 8.4 However, the TPO dismissed the assessee’s contention that the CERC tariff rate applies only in the context of supply of electricity. The TPO observed that bagasse is a vital input for power generation and, therefore, determination of its input cost is sine qua non. The TPO held that the CERC, after considering various factors such as prevailing market rates, expected market prices, and demand-supply mechanisms, had determined the fuel cost for power generation. The TPO also rejected the assessee’s reliance on the KERC tariff order of 2018 on the ground that it pertained to an earlier period, whereas the CERC rate was for the relevant year. Further, the TPO did not accept the assessee’s Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 5 of 30 working of bagasse cost based on the FRP of sugarcane, holding that the same was based on estimates. 8.5 With respect to the assessee’s claim of third-party sales of bagasse at ₹1,200 per ton, the TPO observed that such sales were made only to one party, namely A.V. Enterprise, and that all such sales were effected only on two dates. It was further noted that the invoices for the impugned sales were generated only by the Jay Mahesh Unit. Accordingly, the TPO held that the sale invoices relied upon by the assessee were not reliable. 8.6 Consequently, after rejecting the assessee’s objections, the TPO proceeded to determine the ALP of supply of bagasse from the Sugar Division to the Power Division by adopting the CERC tariff rate of ₹2,274 per ton and accordingly made a total transfer pricing adjustment of ₹30,77,53,817.00 to the total income of the assessee. 9. The aggrieved assessee preferred to file objection before the learned DRP. 10. Before the learned DRP, the assessee filed a study by The Energy and Resources institute under the aegis of Maharashtra Electricity Regulatory commission in the from additional evidence. It was submitted that the said study, recognizes that there are six possible and accepted methods to determine the value of bagasse, namely coal equivalent method, alternate fuel GCV equivalent method, market value method, split-off cost method, preferential tariff-based calculation, and production Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 6 of 30 cost method. As per the study, no single method is superior to the other method, and each method results in a different value. 11. The assessee submits that TERI, after computing the fuel cost under all the six methods, arrived at a weighted average price of bagasse by assigning equal weight to each method, and determined the price at Rs. 1,836 per MT. This clearly demonstrates that the price of bagasse can vary depending on the method adopted and that valuation involves judgment based on facts and circumstances. 11.1 It is further submitted that, keeping this position in mind, the assessee obtained independent price quotations from the open market from unrelated third parties and adopted such market-based price for determining the transfer price of bagasse. The assessee submits that this approach is reasonable and consistent with arm’s length principles. 11.2 The assessee submits that the learned TPO erred in holding that the rate prescribed by the Central Electricity Regulatory Commission (CERC) should be treated as the benchmark. It is submitted that the CERC rate is based on the assumption that bagasse is procured from outside sources and includes transportation costs. In the assessee’s case, bagasse is a by-product generated in-house and the power plant is a co-generation plant. Therefore, the CERC notified rate is not applicable to the assessee’s facts. 11.3 The assessee further submits that the adoption of CERC rates by the learned TPO results in attributing substantial cost to bagasse, which in turn distorts the cost of production of the main finished product, Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 7 of 30 namely sugar. Since bagasse is only a by-product, its value cannot be equated with the cost or price of the raw material, i.e., sugarcane. 11.4 In view of the above facts and submissions, the assessee submits that the transfer price of bagasse adopted by it at Rs. 1,500 per ton, based on open market quotations, represents a reasonable and arm’s length price and deserves to be accepted. 12. Thee learned DRP sought remand report from the TPO in which TPO submitted that in determination of ALP of bagasse it (TPO) relied on credible data from CERC tariff rate. Therefore, the same should be adopted for benchmarking the assessee’s transaction. 13. The assessee in rejoinder to the remand report again objected the adoption of CERC tariff rate for determination of ALP of Bagasse by contending that the same will give skewed picture of the cost of production of sugarcane. 14. The learned DRP after considering the facts in totality, dismissed the assessee’s objection by observing as under: 2.3 The Commission, as per Regulation 44 (1) of the RE Tariff Regulations, has specified the Bagasse fuel price during first year of the Control Period (i.e. FY 2020-21) in the following table: States Bagasse Price for FY 2020-21 (Rs/ MT) Andhra Pradesh 1,878, Haryana 2,671, Maharashtra 2,632, Punjab 2,351, Tamil Nadu 2,023, Telangana 1,877, Uttar Pradesh 2,095, Other States 2,274. The Panel is of the opinion that the assessee has not substantiated how the adoption of rates fixed by CERC gives a skewed picture of cost of production of sugar. Accordingly, the TPO is directed to adopt the same for the ALP computation of the SDT. Grounds adjudicated accordingly. 15. Being aggrieved by the direction of the learned DRP and consequent assessment order, the assessee is in appeal before us. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 8 of 30 16. The learned AR before us filed a paper book running from pages 1 to 419 and compilation of case of law and reiterated the contentions made before the authorities below. It was further reinforced that the sales made to the 3rd parties should be accepted for determining the arm length price. 17. On the other hand, the learned DR vehemently supported the orders passed by the authorities below. He submitted that the TPO/AO/ ld. DRP after conducting a detailed and exhaustive analysis of the pricing notified by the government agencies, had rightly determined the arm’s length price by applying the most appropriate method. Accordingly, the DRP rightly upheld the transfer pricing adjustments, and therefore, no interference by the Tribunal is called for. 18. We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us relates to the determination of the arm’s length price of bagasse supplied by the Sugar Division to the Power Division as a specified domestic transaction and the consequent transfer pricing adjustment made by adopting the CERC tariff rate. 18.1 It is an undisputed fact that bagasse is a by-product arising from the manufacture of sugar and, in the case of the assessee, it is generated in-house and captively consumed by the co-generation power units. The assessee has adopted a transfer price of ₹1,500 per ton based on quotations obtained from unrelated third parties and has also demonstrated that similar rates were available in the open market. The Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 9 of 30 TPO rejected this approach and adopted the CERC tariff rate of ₹2,274 per ton as the benchmark. 18.2 We find merit in the contention of the assessee that the CERC tariff rate is prescribed in the context of determination of tariff for supply of electricity and is based on assumptions such as procurement of bagasse from outside sources and inclusion of transportation and handling costs. In the present case, bagasse is not procured externally but is internally generated as a by-product and transferred to a captive co-generation plant. Therefore, the assumptions underlying the CERC tariff do not fit the factual matrix of the assessee. Mechanical adoption of such regulatory rates, without examining their applicability to the assessee’s business model, cannot be upheld. 18.3 We also note that the assessee had relied on the tariff order issued by the Karnataka Electricity Regulatory Commission (KERC), wherein the fuel cost of bagasse was prescribed at ₹1,161.28 per ton. The TPO rejected the same on the ground that the KERC tariff order pertained to an earlier period. In our view, the KERC rate, though pertaining to a prior year, is still a relevant indicator, as it emanates from a statutory regulator and reflects the economic reality of bagasse pricing in the power sector. Merely because the rate is not for the exact year under consideration, it cannot be brushed aside altogether, particularly when it supports the assessee’s case that the CERC rate is on the higher side and not universally applicable. 18.4 We further find substance in the assessee’s working of the cost of bagasse based on the Fair and Remunerative Price (FRP) of sugarcane. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 10 of 30 The FRP of sugarcane for FY 2020-21 was ₹2,850 per ton. It is a matter of record that only about 280–300 kg of bagasse is generated from one ton of sugarcane. On this basis, the assessee has worked out the cost of bagasse at approximately ₹855 per ton. Even if this working is taken as indicative, it clearly shows that the transfer price of ₹1,500 per ton adopted by the assessee is substantially higher than the cost-based value of bagasse and cannot be said to be understated. The rejection of this analysis by the TPO as being estimation-based, without bringing any contrary technical or industry data on record, is not justified. 18.5 We also take note of the study conducted by The Energy and Resources Institute (TERI) under the aegis of the Maharashtra Electricity Regulatory Commission, which recognizes multiple accepted methods for valuation of bagasse and concludes that no single method is superior. The weighted average price of ₹1,836 per MT arrived at in the study further reinforces the assessee’s contention that bagasse valuation is not uniform and depends on the method and assumptions adopted. 18.6 Considering the by-product nature of bagasse, its captive consumption, the relevance of KERC tariff rates, the cost analysis based on FRP of sugarcane, and the independent market quotations relied upon by the assessee, we are of the considered view that the adoption of CERC tariff rates leads to an unrealistic and skewed picture of the cost of production of sugar. Moreover, the assessee has also submitted the sales made to the unrelated parties which is lower than ₹ 1500. The TPO/ld. DRP has not given any cogent reason for rejecting the price of the third-party. Merely making a sale on a single day may create a suspicion but that is not the conclusive to reject the contention of the Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 11 of 30 assessee unless the revenue brings some contrary material on record. Hence, we are of the view that the price of ₹1,500 per ton adopted by the assessee is reasonable and satisfies the arm’s length principle. Accordingly, we set aside the directions of the learned DRP, and the consequent adjustment made by the TPO. The Assessing Officer/TPO is directed to accept the transfer price of bagasse adopted by the assessee. The grounds raised by the assessee on this issue are allowed. 19. The next issue raised by the assessee through Ground No. 3 of the appeal is that the AO and the learned DRP erred in disallowing the claim of loan and advances w/o for Rs. 3,79,70,871/- only. 20. During the relevant assessment year, the assessee had written off an amount of ₹3,79,70,871 being loans/advances given to its wholly owned subsidiary in Ghana, namely NSL Sugars and Industries Limited. The advances were made over earlier years by the assessee by directly making payments to the vendors of the subsidiary and were reflected as loans in the books of the assessee. The subsidiary was engaged in the same line of business as the assessee and was set up with the objective of expanding the assessee’s business operations outside India. Due to continuous losses, the subsidiary’s operations were closed, and the company went into liquidation. In view of the non-recoverability of the outstanding amount, the assessee wrote off the loan during the year and claimed the same as a deduction while computing its taxable income, which was disputed by the AO and proposed to be disallowed through show cause notice. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 12 of 30 20.1 In response to the show cause notice, the assessee submitted that the amount of ₹3,79,70,871 written off represents loans/advances given to its wholly owned subsidiary in Ghana for business purposes. The subsidiary was incorporated to expand the assessee’s business operations outside India and was engaged in the same line of business. The assessee funded the subsidiary by making payments directly to its vendors, which were recorded as loans in the books of account. As the subsidiary suffered continuous losses and its operations were ultimately wound up, the outstanding amount became irrecoverable and was written off. 20.2 It was submitted that the claim was not made as a bad debt under section 36(1)(vii) read with section 36(2) of the Income-tax Act, 1961, but as a business loss/expenditure allowable under section 37(1) of the Act, being incurred on the grounds of commercial expediency and incidental to the assessee’s business. Reliance was placed on judicial precedents, including ACE Designers Ltd. v. ACIT (Karnataka High Court) 120 taxmann.com 321, CIT v. Colgate Palmolive (India) Ltd. (Bombay High Court) 59 taxmann.com 139, Cosmos Industries Ltd. v. DCIT (ITAT Delhi) in ITA No. 3730/Del/2015 and Refex Industries Ltd. v. DCIT (ITAT Chennai) 139 taxmann.com 213, to contend that losses incurred by a holding company in respect of its wholly owned subsidiary, when made for business purposes, are allowable as business deductions. 20.3 However, the Assessing Officer rejected the assessee’s claim. He held that the amount written off represented loans/advances and not expenditure incurred in the ordinary course of the assessee’s business. The assessee was neither a banking nor a money-lending company, and Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 13 of 30 therefore the conditions of section 36(2) for allowance of bad debts were not satisfied. The AO further held that the claim was also not allowable under section 37, as the assessee failed to establish commercial expediency or prove that the expenditure was incurred wholly and exclusively for its own business. It was noted that the payments were made abroad on behalf of the subsidiary, without RBI approval, and related to expenses such as professional fees, audit fees and guest house rent, which were not shown to have any direct nexus with the assessee’s business. The AO distinguished the case laws relied upon by the assessee as being factually different, since those cases involved equity investments, whereas in the present case the amounts were treated as loans/advances. Accordingly, the write-off of ₹3,79,70,871 was treated as capital in nature and disallowed. 21. The aggrieved assessee preferred to file objection before the learned DRP. 22. Before the learned DRP, the assessee reiterated that it had incorporated a wholly owned subsidiary in Ghana with the sole objective of expanding its existing sugar manufacturing business beyond India. The subsidiary was engaged in the same line of business as the assessee, as evident from its Memorandum of Association. In the initial years, the subsidiary had not commenced full-fledged operations and, therefore, the assessee funded its activities by making payments directly to consultants, professionals and other vendors for setting up the business. These payments were accounted for as loans/advances in the books of the assessee. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 14 of 30 22.1 It was further submitted that the subsidiary incurred continuous losses year after year and could not perform as expected. Consequently, the management decided to wind up the subsidiary and, since the outstanding loan had become irrecoverable, the same was written off during the year. The assessee clarified that the deduction was not claimed as a bad debt under section 36 of the Act, as it is not engaged in the business of money lending. The claim was made under section 37 of the Act as a business loss incurred on the grounds of commercial expediency and incidental to the assessee’s business. 22.2 The assessee emphasized that the investment and financial support extended to the subsidiary were not made with an intention to earn dividend or capital appreciation, but purely to expand business operations. Any benefit derived by the subsidiary would directly benefit the assessee. It was argued that once the grant of loan was justified on grounds of commercial expediency, the write-off of such loan, upon failure of the business, is also incidental to business and allowable as a deduction. 22.3 Reliance was placed on judicial precedents, including the decision of the Hon’ble Karnataka High Court in ACE Designers Ltd. v. ACIT, wherein it was held that loss arising from investment in a wholly owned subsidiary made for business purposes is allowable as a business loss. The assessee contended that the ratio of the said decision squarely applies to the present case, and the mere fact that the amount was routed as a loan instead of equity does not change the nature of the loss. The Assessing Officer, according to the assessee, erred in treating the loss as capital in nature and in rejecting the claim only on the Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 15 of 30 ground that the facts were different. In view of the above facts and legal position, the assessee prayed that the write-off of the loan given to the wholly owned subsidiary be allowed as a business expenditure under section 37 of the Act. However, the learned DRP rejected the assessee’s objection by observing as under: 3.3 On perusal of the submissions of the assessee and the comments of the AO in the remand report and the rejoinder filed by the assessee, the Panel is of the opinion that the assessee has not directly made investments in the form of equity in its subsidiary but has paid to the vendors of the subsidiaries and the payments are in the nature of professional charges, accountancy charges, Audit fees and guest house rent. It is not a case of investment in the subsidiary and hence it can be inferred that there is no commercial expediency for the Parent company to pay off the vendors of the subsidiary directly. Hence the assessee’s contention that it is a business loss is not acceptable. Grounds rejected. 23. Being aggrieved by the order of the learned DRP direction and the assessment order, the assessee is appeal before us. 24. The learned AR before us reiterated the contentions made before the authorities below. On the other hand, the learned DR vehemently supported the orders passed by the authorities below. Accordingly, no interference by the Tribunal is called for. 25. We have heard the rival contentions of both the parties and perused and examined the materials placed on record. The undisputed facts are that the assessee had incorporated a wholly owned subsidiary in Ghana to expand its existing sugar manufacturing business outside India. The subsidiary was engaged in the same line of business as the assessee. In the initial years, since the subsidiary had not commenced full-fledged operations, the assessee funded its activities by making payments directly to consultants, professionals and other vendors of the Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 16 of 30 subsidiary. These payments were consistently recorded as loans/advances in the books of the assessee. 25.1 It is also not in dispute that the subsidiary incurred continuous losses and ultimately its operations were closed and the company was wound up. Due to this, the loans/advances given by the assessee became irrecoverable and were written off during the year under consideration. The assessee has not claimed the deduction as a bad debt under section 36 of the Act, but as a business loss under section 37(1) of the Act on the ground of commercial expediency. 25.2 The objection of the lower authorities is mainly that the assessee did not make equity investment in the subsidiary and that the payments were in the nature of professional charges, audit fees and guest house rent paid to vendors of the subsidiary. According to them, this negates commercial expediency and renders the loss as capital in nature. We are unable to agree with this reasoning. The substance of the transaction shows that the assessee had extended financial support to its wholly owned subsidiary to set up and run its business. Merely because the amounts were routed as loans/advances instead of equity investment does not alter the real character of the transaction. What is relevant is the purpose for which the funds were advanced and not the nomenclature given in the books of account. 25.3 It is well settled that commercial expediency has to be seen from the point of view of a businessman and not from that of the revenue authorities. In the present case, the subsidiary was incorporated for business expansion of the assessee, and any benefit arising from the Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 17 of 30 subsidiary’s operations would have directly accrued to the assessee. Once the business venture failed and the subsidiary was wound up, the loss suffered by the assessee on account of non-recovery of the loan is a loss incidental to its business. 25.4 The Hon’ble Karnataka High Court in ACE Designers Ltd. v. ACIT (Supra) has held that loss arising from investment in a wholly owned subsidiary made for business purposes is allowable as a business loss. The ratio laid down therein applies to the present case as well. The distinction sought to be made by the lower authorities between equity investment and loan/advance is, in our view, not material when the underlying purpose and business nexus are the same. Similar principles have also been laid down in CIT v. Colgate Palmolive (India) Ltd., (Supra) Cosmos Industries Ltd. v. DCIT (Supra) and Refex Industries Ltd. v. DCIT (Supra). 25.5 We also find no merit in the objection regarding non-applicability of section 36 of the Act, since the assessee has never claimed the deduction as a bad debt. The claim has rightly been made under section 37(1) of the Act as a business loss. The fact that the assessee is not engaged in money-lending business is therefore irrelevant for deciding the present issue. In view of the above discussion, we hold that the write-off of ₹3,79,70,871 representing loans/advances given to the wholly owned subsidiary in Ghana is a business loss incurred on grounds of commercial expediency and is allowable as a deduction under section 37(1) of the Act. Accordingly, the addition made by the Assessing Officer and sustained by the learned DRP is deleted and the ground raised by the assessee is allowed. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 18 of 30 26. The next issue raised through Ground No. 4 of the appeal is that the revenue authority erred in disallowing harvesting charges for Rs. 12,39,31,892/- under section 40(a)(ia) of the Act. 27. During the relevant assessment year, the assessee claimed harvesting charges amounting to ₹41,31,06,305 and debited the same to its Profit and Loss Account. These charges were paid in connection with harvesting and transportation of sugarcane. The assessee did not deduct tax at source on these payments. According to the assessee, harvesting charges formed an integral part of sugarcane purchase cost and were paid on behalf of farmers, and therefore provisions relating to TDS were not applicable. It was contended that the payments were effectively made to farmers and not to contractors, and hence the provisions of section 194C of the Act were not applicable. 27.1 However, the AO dismissed the assessee submission and noted that the section 194C of the Act mandates deduction of tax at source on any sum paid for carrying out any work in pursuance of a contract and failure to comply with section 194C of the Act, shall bring the amount paid to tax under section 40(a)(ia) of the Act. According to the AO, the assessee being such large-scale manufacturer must have entered specific arrangement for harvesting and transportation of sugarcane. Hence, leading inference is that the harvesting and transportation of sugarcane were carried out by contractors. 27.2 The AO further relied on CBDT Circular No. 10/2013 dated 16.12.2013, which clarified that harvesting and transportation of sugarcane carried out by contractors, with the consent of the owner of Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 19 of 30 sugarcane, are covered under section 194C of the Act. It was also observed that the provisions of section 40(a)(ia) of the Act apply not only to amounts payable as on 31st March but also to amounts paid during the year. 27.3 The AO did not accept the assessee’s reliance on the decision of the ITAT Panaji Bench in Ryatar Sahakari Sakkare Karkhane Niyamit v. ACIT, Bijapur, holding that the said decision was not applicable and could be distinguished on facts and issues, and that the issue had not yet reached finality. Accordingly, the AO held that the assessee had failed to deduct tax at source as required under section 194C and, therefore, disallowed 30% of the harvesting charges amounting to ₹12,39,31,892 under section 40(a)(ia) of the Act. 28. The aggrieved assessee preferred to file objection before the learned DRP 29. Before the learned DRP, the assessee submitted that it had paid ₹41,31,06,305/- towards harvesting and transportation charges of sugarcane on behalf of the farmers. Such payments were not claimed as independent expenditure of the assessee but were adjusted against the sugarcane purchase price and accounted for as part of the cane purchase cost. Therefore, the assessee contended that the provisions of section 40(a)(ia) of the Act have no application to the facts of the case. 29.1 It was further submitted that harvesting and transportation charges are an integral part of sugarcane procurement and are deducted from the amounts payable to farmers. The assessee merely discharged Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 20 of 30 the payments on behalf of the farmers, and hence there was no liability on the assessee to deduct tax at source. Accordingly, the provisions of section 194C of the Act were stated to be not applicable to such payments. 29.2 The assessee also submitted that the issue is squarely covered by the decision of the Hon’ble ITAT, Bengaluru, in the assessee’s own case for A.Y. 2013-14, wherein it has been held that TDS provisions are not applicable on harvesting and transportation charges. It was pointed out that the department has not preferred any appeal against the said decision before the Hon’ble High Court, and therefore the issue has attained finality and is binding on the Assessing Officer. 29.3 The assessee further contended that the Assessing Officer erred in stating that the issue has not reached finality without giving any reasons for such conclusion. It was emphasized that the assessee had not relied upon the decision of the Hon’ble ITAT Panaji Bench in Ryatar Sahakari Sakkare Karkhane Niyamit v. ACIT, Bijapur, and therefore the observations of the AO distinguishing the said decision are irrelevant. 29.4 The assessee reiterated that the price of sugarcane is fixed at the factory gate, the harvesting and transportation expenses are agreed to be adjusted against the cane price, and the assessee has not separately claimed these expenses. Sample agreements with farmers were also furnished in support of its claim. In view of these facts and the binding judicial precedent in its own case, the assessee submitted that TDS provisions are not applicable and the disallowance made under section Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 21 of 30 40(a)(ia) of the Act deserves to be deleted. However, the learned DRP dismissed the assessee’s objection by observing as under: 5.3 Panel: The Panel perused the remand report of the AO and the rejoinder filed by the assessee. In view of the finding of the AO during the remand proceedings that the assessee did not submit the documentary evidence required to prove that TDS was deducted on Harvesting and transportation charges U/s 194C. The AO has also pointed out that the assessee in the beginning had claimed that no deduction is necessary due to the decision rendered in its own case by the Hon’ble ITAT on this issue. But in the later stages of the proceedings, the assessee submitted that it had deducted TDS on harvesting and Transportation charges. The Panel notes that the assessee has not been consistent in its submissions on this issue. The Panel also concurs with the finding of the AO that the form 26Q contains deduction relating other payments and specific TDS details related to harvesting charges could not be verified in the absence of specific details which were not furnished by the assessee. Grounds rejected. 30. Being aggrieved by the direction of the learned DRP and the assessment order, the assessee is in appeal before us. 31. The learned AR before us reiterated the contentions made before the authorities below. On the other hand, the learned DR vehemently supported the orders passed by the authorities below. 32. We have heard the rival contentions of both the parties and perused the materials available on record. The undisputed facts are that the assessee paid harvesting and transportation charges amounting to ₹41,31,06,305 in connection with procurement of sugarcane. These amounts were not claimed as a separate expenditure in the Profit and Loss Account but were adjusted against the purchase price of sugarcane and treated as part of cane purchase cost. 32.1 The consistent stand of the assessee is that harvesting and transportation charges are integral to sugarcane procurement and are Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 22 of 30 paid on behalf of farmers. The assessee has merely facilitated such payments, which are ultimately adjusted against the price payable to farmers. Therefore, the payments do not partake the character of independent contractual payments to contractors so as to attract the provisions of section 194C of the Act. Consequently, the disallowance under section 40(a)(ia) does not arise. 32.2 We note that the very same issue has already been examined and decided by the coordinate bench of this Tribunal in the assessee’s own case for A.Y. 2013-14 bearing ITA No. 772/Bang/2019, wherein it was held that TDS provisions are not applicable on harvesting and transportation charges paid in the course of sugarcane procurement. It is also a matter of record that no appeal has been filed by the department against the said decision before the Hon’ble High Court. In such circumstances, the decision of the coordinate bench has attained finality and is binding on the lower authorities. Judicial discipline requires that the same view be followed in the absence of any change in facts or law. The learned DRP has rejected the assessee’s objection mainly on the ground that the assessee was inconsistent in its submissions and that specific details of TDS in Form 26Q relating to harvesting charges were not furnished. In our view, this reasoning misses the core issue. When the assessee’s case is that TDS itself is not applicable to harvesting and transportation charges as they form part of sugarcane purchase cost, the question of verification of TDS details in Form 26Q does not arise. The ld. DRP has not brought on record any material to show that the nature of the payments in the year under consideration is different from that examined by the Tribunal in the earlier year. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 23 of 30 32.3 The Assessing Officer has proceeded on the presumption that the assessee, being a large sugar manufacturer, must have entered contracts with contractors for harvesting and transportation. However, such presumption, without bringing any concrete material on record to establish existence of independent contracts attracting section 194C of the Act, cannot override the settled factual and legal position already decided in the assessee’s own case. In view of the above discussion, and respectfully following the decision of the coordinate bench of this Tribunal in the assessee’s own case for earlier assessment year, we hold that the provisions of section 194C of the Act are not applicable to the harvesting and transportation charges paid by the assessee and, consequently, no disallowance under section 40(a)(ia) is warranted. Accordingly, the disallowance of ₹12,39,31,892 made by the Assessing Officer and sustained by the learned DRP is directed to be deleted. The ground raised by the assessee is allowed. 33. The next issue raised through Ground No. 5 of the appeal is that the revenue authorities erred in making disallowances under section 43B of the Act for Rs. 4,15,61,438/- only. 34. On perusal of the assessee’s financial statements, the AO observed that the assessee had claimed a substantial amount of interest expenditure payable to banks and financial institutions during the relevant previous year. Accordingly, the assessee was required to substantiate whether such interest was actually paid during the year or before the due date of filing of return of income, failing which the same would be liable for disallowance under section 43B of the Act. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 24 of 30 34.1 In response to the notice, the assessee furnished a statement showing interest allegedly paid during FY 2020-21 aggregating to ₹11,93,89,046 and claimed that the interest was allowable. The assessee specifically claimed that interest of ₹93,53,056 relating to a term loan from M/s L&T Infra Finance was paid during the year. To verify the claim, the AO issued notices under section 133(6) of the Act to M/s L&T Infra Finance and other lender banks calling for confirmation and details. On examination of the reply received from M/s L&T Infra Finance, it was noticed that for FY 2020-21, interest billed as per the statement of account was only ₹47,39,546 and further that no payment was actually received from the assessee during the said financial year. Thus, the lender’s confirmation contradicted the assessee’s claim of having paid interest during the year. The AO also noted that the bank statements and submissions furnished by the assessee did not clearly establish the receiving party of the transactions, and even though the loan account numbers matched, the genuineness and actual payment of interest could not be conclusively proved. 34.2 The AO further held that as per section 43B of the Act, deduction of interest is allowable only on actual payment basis and such payment must be made before the due date of filing the return of income. In the absence of legally valid and authentic documentary evidence to prove actual payment of interest during the relevant previous year, the assessee failed to satisfy the conditions prescribed under section 43B of the Act. Accordingly, the Assessing Officer concluded that the assessee had not proved actual payment of aggregate interest of ₹11,93,89,046 during FY 2020-21 and therefore disallowed the said amount under section 43B of the Income-tax Act, 1961. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 25 of 30 35. The aggrieved assessee preferred to file objection before the learned DRP. 36. Before the learned DRP, the assessee submits that the disallowance of interest under section 43B of the Act, is wholly unjustified both on facts and in law. The assessee had debited interest of ₹93,53,056/- in its books for FY 2020–21 and the same was actually paid through proper banking channels during the year. Complete details of interest debited to the profit and loss account, bank statements evidencing payments, loan-wise break-up, and calculation statements were furnished before the Assessing Officer within the limited time granted. The books of account are duly audited and have not been rejected by the Assessing Officer. 36.1 It is submitted that the Assessing Officer has made the disallowance solely on the basis of a third-party reply received from M/s L&T Infrastructure Finance Ltd. under section 133(6) of the Act, without appreciating the assessee’s books of account and documentary evidence. Merely because the lender reported a lower amount of interest billed or stated non-receipt, the deduction cannot be denied when the assessee has demonstrated actual payment before the due date of filing the return. The assessee cannot be penalised for non-response or partial response of banks or lenders to notices issued by the department. 36.2 The assessee further submits that the Assessing Officer granted only one day’s time to respond to the show cause notice dated 27.12.2023, which is in gross violation of the principles of natural justice. The addition has been made in undue haste without granting reasonable Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 26 of 30 opportunity, without allowing cross-examination of the lender, and without rejecting the assessee’s books of account. Such an approach renders the disallowance unsustainable. Reliance is placed on the following judicial precedents: • Income Tax Appellate Tribunal in Kesha Appliances Pvt. Ltd. v. ITO, ITA No. 2715/Del/2016, AY 2012-13 (order dated 09.03.2018), wherein it was held that deduction under section 43B of the Act cannot be denied when actual payment is evident from the books and bank statements, merely due to discrepancies in third-party confirmations. • Income Tax Appellate Tribunal in Sonicwall Technology System India Pvt. Ltd. v. ACIT, ITA No. 3860/Mum/2019, AY 2015-16 (order dated 02.12.2022), holding that non- response or contrary response from third parties under section 133(6) cannot override the assessee’s books and proof of payment. • Income Tax Appellate Tribunal in Phool Singh v. ACIT, ITA No. 2901/Del/2014, AY 2010-11 (order dated 06.04.2017), wherein it was held that additions based purely on third-party information, without confronting the assessee adequately and without rejecting books, are unsustainable. 36.3 In view of the above facts, documentary evidence, and settled legal position, the assessee prays that the learned DRP may kindly direct deletion of the disallowance made under section 43B of the Act, being contrary to law and violative of principles of natural justice. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 27 of 30 36.4 The learned DRP after considering the facts in totality directed the AO to recompute the disallowances under section 43B of the Act to the extent payment not verifiable. Accordingly, the AO in the final assessment recomputed amount disallowable under section 43B of the Act in the following manner: Bank Account Interest Claimed (Rs.) Interest Certificate Amount (Rs.) Interest Allowable (Rs.) Union Bank 1,20,05,216 1,19,21,171 1,19,21,171 Canara Bank 5,61,78,964 5,09,19,837 5,09,19,837 SBI 1,37,34,190 5,89,18,667 1,37,34,190 Indian Overseas Bank 12,52,410 19,65,263 12,52,410 Total Allowable Interest 7,78,27,608 37. Based on the above computation the AO made disallowances of Rs. 4,15,61,438/- and added to the total income of the assessee. 38. Being aggrieved by the direction of the learned DRP and the assessment order, the assessee is in appeal before us. 39. The learned AR before us submitted that the disallowance under section 43B of the Act has arisen primarily due to differences between interest claimed in the books of account and interest reflected in the Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 28 of 30 interest certificates issued by the lender banks. It was contended that the assessee had made actual payments of interest through banking channels; however, due to paucity of time and certain reconciliation issues, complete and proper correlation between bank payments, loan accounts, and interest certificates could not be placed before the Assessing Officer. 39.1 The learned AR fairly submitted that the assessee is in a position to furnish complete loan-wise reconciliation, bank statements, interest computation, and explanations for differences arising on account of timing or appropriation of payments. In the interest of justice, the learned AR requested that the matter be set aside to the file of the Assessing Officer with a direction to verify the claim afresh after affording reasonable opportunity of being heard to the assessee. 40. On the other hand, the learned DR before us submitted that he has no objection if the issue is restored to the file of the Assessing Officer for fresh examination, provided the assessee is directed to fully cooperate in the proceedings and furnish all relevant documentary evidence to substantiate its claim of actual payment of interest in terms of section 43B of the Act. 41. We have heard the rival submissions and perused the materials available on record. We note that the dispute relates to verification of actual payment of interest under section 43B of the Act and reconciliation of differences between interest claimed by the assessee and interest reflected in the certificates issued by the lender banks. In Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 29 of 30 our considered view, the issue requires proper verification of facts, which can be adequately carried out only at the level of the Assessing Officer. 41.1 Accordingly, in the interest of justice, we deem it appropriate to set aside this issue to the file of the Assessing Officer with a direction to verify the claim of the assessee afresh in accordance with law, after granting reasonable opportunity of being heard. The assessee is directed to furnish complete loan-wise details, bank statements, reconciliations, and any other evidence as may be required by the Assessing Officer. The Assessing Officer shall examine the matter independently and pass a speaking order in accordance with law. 42. The issue raised through Ground No. 6 of the appeal is that the revenue authority erred in disallowing the water cess expenses for Rs. 50,28,000/- under section 43B of the Act. 43. At the outset, we note that the learned AR before us submitted that the assessee is not willing to press the issue raised in this ground of appeal. Hence, the ground of appeal of the assessee is hereby dismissed as not pressed. 44. The issue raised through Ground No. 7 of the appeal pertains to levy of interest under section 234A, 234B and 234C of the Act which is consequential in nature and therefore the same does not require any separate adjudication. Hence, the ground raised by the assessee is dismissed as infructuous. Printed from counselvise.com IT(TP)A No.2615/Bang/2024 Page 30 of 30 45. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in court on 8th day of January, 2026 Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 8th January, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "