In M/s IMC Ltd v. DCIT, the division bench of the ITAT Kolkata held that the loss incurred on failure of a Joint venture project during the course of business can be treated as business loss if the same was started with an object to expand the existing business.
The bench observed that in such a circumstance, the loss so incurred should not be included to the taxable income.
The assessee, during the course of its business, had provided loan advances to a company with whom they wanted to establish a joint venture. When the same was dropped, the assessee written off the amount on account of regulatory fees paid to free trade zone authority in Dubai.The assessing officer denied the claim for deduction of the above said amount by holding the loss as capital in nature.
The bench noted that most of the advances were given in the course of the business of the assessee and the major amount was incurred towards the fees paid to FTZ authority, Dubai for obtaining some regulatory permission. It was further noted that the assessee wanted to expand its existing business by establishing the joint venture company in Dubai.
The bench further relied upon the decisions in CIT Vs. woodcrafts products Limited and enani Cement Ltd vs. CIT and said, “In the case before us the assessee also incurred cost on the joint venture project which was not materialized and accordingly the same was dropped. Admittedly the impugned Joint venture project was identical to the activities of the assessee and therefore it can be inferred that the project was for the expansion of the existing business of the assessee. In view of above the loss incurred by the assessee was in connection and in the course of the business and hence allowable for deduction.”
Read the full text of the order below.
