Delhi HC Upholds ITAT's Decision on Genuine Loss Claim in Tool and Die Transactions [Read Order]

The Delhi High Court has upheld the Income Tax Appellate Tribunal’s ( ITAT ) decision regarding the loss claim in a tool and die transaction as it observed that the loss incurred by the asseseee was genuine.

In this case, the assessee has appealed against the order of the Income Tax Appellate Tribunal ( ITAT ), dated 19-07-23.

The assessee has been engaged in the trade of manufacturing and selling automotive parts and components. For the assessment year (AY) 2014-15, the assessee filed its Income Tax Returns (ITR) declaring a loss of around Rs. 28 crores.

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The Assessing Officer (AO) noted that the declared loss arose from transactions involving the purchase and sale of tools and dies used for manufacturing automotive parts supplied to Honda Car India Ltd. (HCIL). The assessee was an original equipment manufacturer (OEM) supplier to HCIL and purchased dies from Honda Trading India Pvt. Ltd. (HTIPL) and Tri Inter Thailand Company Ltd. (TITC). While the purchases were undisputed, the AO questioned the sale of these dies to HCIL at prices lower than their purchase cost, leading to a loss primarily related to dies procured from TITC amounting to Rs. 14.51 crore out of a total loss of Rs. 22.99 crore.

The AO passed the assessment order by disallowing the loss of Rs. 22.99 crores claimed by the assessee on account of the transaction of sale and purchase of dies. Although the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], the CIT(A) did not delete the addition of the loss as claimed by the assessee.

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The ITAT observed that the loss incurred by the assessee was genuine and allowed the appeal filed by the assessee.

The Delhi HC noted that the assessee's purchase of some of the dies from HTIPL, which is an HCIL subsidiary, did not in any way imply that the loss it sustained was not genuine.

The bench observed that the AO had made the additions solely based on what it considered commercially expedient.

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It further observed that “there is also no allegation that the assessee is affiliated to HCIL. It is, thus, apparent that the transaction for sale and purchase of dies was a purely commercial transaction entered into by the assessee in its commercial wisdom.”

The Delhi High Court, comprising Justice Vibhu Bakhru and Justice Swarna Kanta Sharma, upheld ITAT's decision and dismissed the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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