Advance given to Subsidiary Company for the Purpose of Business to be allowed as Loss Incidental to Business: ITAT [Read Order]

Advance - Subsidiary Company - Loss - Business - ITAT

The Income Tax Appellate Tribunal ( ITAT ) Ahmedabad Bench, has, in a recent appeal filed before it, held that advance given to a subsidiary company for the purpose of business is to be allowed as business loss incidental to the business.

The above-mentioned observation was made by the tribunal when the assessee, a company named Integra Engineering India Ltd, engaged in the manufacturing of high-speed draw frames used in the textile industry, filed an appeal before it against the order dated 02.02.2016, passed by the CIT(A)-2, Vadodara, for the Assessment Year 2007-08.

The grounds raised in the appeal by the aggrieved assessee being the erred decision of the (CIT(A)) in not allowing the amount of Rs.1,36,72,000/- as bad debts as well as business loss//loss incidental to the business and holding the same to be a capital advance in respect of advance (given to a subsidiary company) written off, it was submitted by the assessee that it be so held by the Tribunal that the deduction as claimed by it is allowed.

Hearing   both the parties, perusing all the relevant material available on record and relying upon the Supreme Court decision in Goetz (I) Ltd. vs. CIT, the Tribunal while partly allowing the appellant assessee’s appeal thus observed as follows:

“We have heard both the parties and perused all the relevant material available on record. The CIT(A) has given a categorical finding that the order of BIFR was passed on 16.08.2005 and the return of income was filed by the assessee on 29.10.2007 after the order of BIFR. The assessee has disclosed LTCG in the return of income at Rs.13,94,50,634/- which after set off with a business loss of the current year and brought forward has been reduced to nil. The CIT(A) further observed that undisputedly the assessee has not filed any revised return of income under Section 139(5) of the Act for rectification of any errors or omissions. It may be noted that the letter filed for claiming LTCG clearly set out the said fact which was totally ignored by the Assessing Officer as well as the CIT(A). Thus, the observations of the CIT(A) that revised return of income was never filed disclosing LTCG does not sustain. The decision of the Hon’ble Supreme Court in the case of Goetz (I) Ltd. vs. CIT (2006) 284 ITR 323 was not at all considered in its true spirit in the present assessee’s case.

If a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the AO. Courts have taken a pragmatic view and not a technical one as to what is required to be determined in taxable income and in that sense, assessment proceedings are not adversarial in nature.

In fact, in the present case, the assessee made a claim during the assessment proceedings itself before the Assessing Officer which was totally ignored by the Assessing Officer. The decision of the Hon’ble Supreme Court in the case of Goetz (I) Ltd. vs. CIT (2006) 284 ITR 323 was not at all considered in its true spirit in the present assessee’s case. Therefore, ground no.5 is allowed, and in the result, the appeal of the assessee is partly allowed.”

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