Expenditure claimed towards Write-off Investment in Capital Loss cannot be allowed as Deduction u/s 37(1): ITAT [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that expenditure claimed towards write-off investment in capital loss cannot be allowed as deduction u/s.37(1).

The appellate, M/s.Tamil Nadu Fisheries Development Corporation Ltd., is engaged in the business of management of reservoirs, marketing of fish and fish nets, diesel bunks, etc. The assessee claimed expenditure towards investment written off of Rs.2,40,000/- in its return. The AO disallowed the claim on the ground that said expenditure is in the nature of capital expenditure, which cannot be allowed as a deduction. The first appellate authority confirmed the disallowance hence, the assessee filed an appeal before ITAT.

The appellate submitted that the assessee has written off investment in equity share capital in a joint venture company promoted by the assessee under the name of M/s.Tamil Nadu Marine Plast Pvt. Ltd., because, the company has closed business and the name has been stricken off by the Registrar of Companies. By relying on the decision of Madras High Court in M/s.Electronic Corporation of Tamilnadu Ltd., the appellant further submitted that loss of investment is akin to business loss, and needs to be allowed as a deduction.

The counsel for the revenue submitted that the claim of the assessee as a deduction is capital loss towards written off investment and thus, the AO has rightly disallowed said claim because, in order to claim deduction u/s.37(1) of the Act, it should be in the nature of Revenue expenditure incurred wholly and exclusively for the purpose of the business of the assessee.

The Tribunal observed that investment made by the assessee in another company is on capital account and further, when loss incurred on account of diminishing in value of the said investment is capital in nature and thus, same cannot be claimed as deduction u/s.37(1) of the Act.

The Coram of Mr. G. Manjunatha, Accountant Member, and Mr. Anikesh Banerjee, Judicial Member has observed that “we are of the considered view that there is no error in the reasons given by the CIT(A) to sustain addition towards disallowance of investment written off and thus, we are inclined to uphold the findings of the CIT(A) and hence, reject the ground taken by the assessee”.

Advocate Mr.S.Sridhar appeared on behalf of the appellant and Mr. G. Johnson appeared on behalf of the respondent.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.=