HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 291 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/S. Vaibhav Global Limited, Formerly Known As Vaibhav Gems Ltd., K-6B, Fateh Tiba, Adrash Nagar, Jaipur ----Respondent For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 20/11/2017 1. By way of this appeal, appellant has assailed judgment and order of Tribunal whereby Tribunal has allowed appeal of assessee reversing order of CIT(A). 2. Counsel for appellant has framed following questions of law:- i) Whether in facts and in circumstances of case, ITAT was justified in law and has not acted perversely in restricting adjustment on account of interest free loans advanced to Aes to prevailing LIBOR +2% with addressing evidence and facts brought on record by TPO. ii) Whether in facts and in circumstances of case, ITAT was justified in law and has not acted perversely in deleting adjustment of Rs. 42847925/- made by Assessing Officer on account of adjustment of Corporate Guarantee without appreciating fact that as per (2 of 23) [ITA-291/2017] amendment by Finance Act 2012, insertion of explanation (i)(c) to section 92B, clarifies that corporate guarantee comes within scope and ambit of international transaction. iii) Whether in facts and in circumstances of case, ITAT was justified in law and has not acted perversely in allowing write off of loss of Rs. 410227250/- on account of investment made in equity shares of one of its subsidiary Indo Medico Co. S. De. R.L. De. V.V.s. Mexico without appreciating fact that amount is not expense, loan or advance of any kind that is required to be debited from profit and loss statement of assessee and amount even when it was investment was never debited from P & L statement of company as required by accounting principles. Whether investment is not in nature of capital loss. iv) Whether in facts and in circumstances of case, ITAT was justified in law in allowing write off of investment of Rs. 410227250/- for purpose of computing book profit u/s 115JB, book profit of assessee is to be increased by amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. Whether in such circumstances, write back of investment of Rs. 410227250/- for purpose of computing book profits u/s 115JB is correct in law. v) Whether in facts and in circumstances of case, ITAT was justified in law to remit back issue of disallowance out of provision for doubtful loans to subsidiary to file of assessing officer for verification without assigning any reasons and inspite of facts that loan and advance are not revenue expenses and details/ information provided by assessee has already been considered during assessment proceedings. vi) Whether in facts and in circumstances of case, ITAT was justified in law in remitting back issue of disallowance out of bad debts provision claimed in MAT to file of Assessing Officer for verification without assigning any reasons and inspite of fact that details/information provided by assessee has already been considered during assessment proceedings. (3 of 23) [ITA-291/2017] 3. It has been contended that Tribunal has wrongly allowed deduction of investment from back date which was given to subsidiary. 4. We have considered same. Tribunal while considering issue has observed as under:- Ground No.1 raised by assessee in its appeal is as under:- 2. Ground No. II - Non-allowability of deduction of Rs. 41,02,27,250 on account of investment in subsidiary company written off: 2.1 On facts and in circumstances of case and in law, learned Dispute Resolution Panel-I and Assistant Commissioner of Income tax, Circle 5, Jaipur (hereinafter referred to as DRP and AO respectively) have erred in not allowing write off of investment in subsidiary company amounting to rs. 41,02,27,250 without considering commercial rationale/business expediency of making such investment. 2.2. On facts and in circumstances of case and in law, learned AO and learned DRP has erred in not appreciating fact that, appellant has incurred actual loss on investment made in subsidiary company on account of liquidation of company and no notional loss has been claimed as revenue or business loss. 4.2 Brief facts of case are that assessee company had made investment in its subsidiary companies in terims of share capital. During year assessee company has written offf investment in equity shares of one of its subsidiary Indo Medico Co. S. De. R. L. De. C V., Mexico amounting to Rs. 41,02,27,250/-. AO observed that assessee had stated in its balance sheet that equivalent amount of provision for permanent diminution in such investment made in earlier years have been written back . AO further noted that assessee company had reduced its profit from business and profession by above said amount of its investmnet written off by it. AO observed that above amount is not expense, loan or advance (4 of 23) [ITA-291/2017] of any kind which is required to be debited and loss account of assessee. AO observed that above amount even when it was investment was never debited from profit and loss account of company srequried by accounting principles. AO vide entry sheet dated 22.02.2016 show caused assessee requiring assessee to complete explanation of investments or bad debt5s writtent off alongwith proof of being income in previous year. AO vide entry sheet dated 25.02.2016 asked assessee to provide proof and justification of investment and bad debts written off. assessee vide its letter dated 25.02.2016 filed its reply as under:- assessee company during year has written off its advances on one of its subsidiary company M/s. Indo Mexico Company amounting to Rs. 41,02,27,250/-. equivalent amount of provision of said amount was made in earlier year i.e. 2009-10 . Documentary proof of provision made in earlier year is enclosed. said amount is written off against provisions made in earlier year. advances were made out of its accumulated reserves and were given as commercial expediency/business incident. As such, said irrecoverable amount is allowable as bad debts as per provisions of I. T. Act, 1961. : AO further observed that above amount was not loan or advance extended by assessee company to its subsidiary. AO also noted from page 44 of assessee s audited balance sheet that assessee has clearly shown investment made in Mexico as Diminution in value of investment of Rs. 410,227,250/-. assessee filed its reply vide letter dated 29.02.2016 which is reproduced at para 2.6 as under:- 1. assessee company in order to expand its business worldwide started setting up brick and mortar retail stores at various tourist locations Alaska, West Indies and Mexico through its subsidiary. Investment of Rs. 41,02,27,250/- in Indo Mexico was made in trenches beginning from 2005-06 to 2008-09, in order to set up various brick and mortar retail stores at different tourists location in Mexico (a) Further because of various legal and regulatory compliances and considering commercial advantages, (5 of 23) [ITA-291/2017] VGL decided to set up 100% subsidiary in Mexico through which these stores were established the whole purpose of making investment in Indo Mexico was to set up retail stores for furtherance of business of VGL. (b) But due to well known worldwide recession subsequent to setting up these retail stores, Indo Mexico started making losses and its net worth got eroded. Consequently, in year 2008-09, provision was made in books of VGL against investment in Indo Mexico amounting Rs. 41,02,27,250/-. Copy of financialsof Indo Mexico showing losses during year is attached herewith as Annexure 1 2. Looking to said market situation/condition assessee company decided not to go further in huge losses and decided to exit from business of selling its product through retail stores. various stores in Alaska, West Indies and Mexico were closed down. concern M/s. Mexico was taken under liquidation and formally liquidated by appropriate authority on 12.02.2011. Liquidation document duly notorized by competent authority is attached herewith as Annexure 2. Accordingly, assessee company during year has written off its investment in equity shares of subsidiary M/s. Indo Mexico amounting to Rs. 41,02,27,250/- and equivalent amount of provision of permanent diminution in such investment made in ealier years out of its income have been written back. Copy of writtent back transaction entry passed in books of assessee company is enclosed. 3. From above submission, it is apparently verifiable that investment in Indo-Mexico was made for furtherance of its business operations/business presence in overseas market though its subsidiaries. decision to make investment in Indo Mexico was not for purpose of earning dividend or capital gain but was to expand VGL business activity under strategic planning to establish brick and mortar retail stores at various exotic tourists destinations. Thus there is direct and proximate nexus between business operation of VLG and Investment and loss arising therefrom is incidental to business operations. Therefor,e loss should be deductible, being direct outcome of business operations. (6 of 23) [ITA-291/2017] Hon ble ITAT Mumbai in case of DCIT vs. Colgage Palmolive India Ltd. (ITA No. 5484/Mum/2009) held that investment made in course of and for purpose of business, loss on such investment is to be treated as business loss. investments made by assessee were wholly incidental to its business. When grant of loan/investment itself is justified on grounds of commercial expediency, even write-off of such loan is incidental to business. It is therefore, not correct to say that write off of loan therefore, not correct to say that writ off of loan granted by assessee to subsidiary would have been inadmissible business deduction and entire transaction was devised to avoid legitimate tax liablity. head under disclosure requirements of Schedule VI to Companies Act, 1956, and therefore, fact that asset is shown as investment does not negate fact that such investment is made on grounds of commercial expediency. Similarly, head under which dividend income is asesssed to tax shares are purchased on ammount of commercial expediency or not, dividend income, whether shares are held as investments or as any other assets, is always taxable under head income from other sources . Relying upon SC decision in case of Patnaik & Co. Ltd. and S.A. Builders and jurisdictional Tribunal s decision in case of Gujarat Small Industries Corporation and considering that subsidiary company is engaged in business of jewellery for assessee, Tribunal held that investment in Camelot is justified for pure commercial considerations. Therefore, loss on sale of such shares was admissible as business loss. AO further noted that above amount is investment in shares which is still available with company. He noted that assessee company has not sold investment for loss but merely created diminution reserve of investment as bad debt u/s 36 is incorrect. AO observed that submission of assessee must be considered in light of following facts. (I) investment made by assessee is not revenue expenses as required by provisions of Section 36(1)(vii) which is quoted below:- (7 of 23) [ITA-291/2017] 36. (1) deductions provided for in following clauses shall be allowed in respect of matters dealt with therein, in computing income referred to in Section 28- ..(vi) subject to provisions of Sub-section (2) amount of [ any bad debit or part there of which is written off as irrecoverable in accounts of assessee for previous year]: AO thus observed that by definition, bad debt is made as revenue expenses and is in nature of trade debt. Investment loss is not revenue expenses of any kind. According to AO, there is absolutely no case for any possibility of above amount being considered bad debt u/s 36 of Act and same is squarely required to be disallowed. Hence, AO disallowed amount and made addition of Rs. 41,02,27,250/- to income of assessee. Against appeal of assessee, Hon ble DRP has also confirmed action of AO by observing as under:- Panel has carefully considered facts of case and submission of assessee. claim of assessee is that that investment was made out of business exigencies and for expanding business and therefore, any loss incurred is allowable as bad debt. assessee has merely reiterated its submissions made before Assessing Officer. In his order, AO has given detailed and valid reasons for making addition. assessee has not been able to controvert findings of AO. As per provisions of Section 36(1)(vii), in computing income referred to in Section 28, deduction is to be allowed of amount of any bad debt or part thereof which is written off as irrecoverable in accounts of assessee for previous years.The Hon ble Kerala High Court in case of M/s. Travancore Tea Estate Co. Ltd. vs. CIT(1992) 197 ITR 528 has held that burden of proof that there is debt owning to assessee and that debt arose in course of business of assessee and finally that had become bad in year of account is all on assessee. Thus Hon ble Court has held that there are three conditions essential for amount to be written as bad debt. (a) There should be debt owning to assessee, (8 of 23) [ITA-291/2017] (b) debit should arise in course of business of assessee, and (c) It should become bad in year of account It is apparent that none of above conditions are fulfilled in case of assessee. Since amount under consideration is investment therefore, there was no debt owning to assessee, debt has not arisen during course of business and it has not become bad during year under consideration. Further amount has never inflated profit of assessee for any past years. Considering facts and judicial decision on similar facts, decision of AO is justified and is upheld. ground is dismissed. Conclusively, AO disallowed amount of Rs. 41,02,27,250/-on account of investment written off by assessee and added same to total income of assessee. 4.3 During course of hearing, ld. AR of assessee submitted that material facts are verifiable from records that assessee is engaged in manufacturing of jewellery and entire sales are export. assessee in order to expand its business worldwide started setting up brick and mortar retail store at various tourist locations including Alaska, West Indies and Mexico by forming its 100% subsidiaries. It is submitted by ld. AR that looking to various legal and regulatory compliance of business investments in said countries, it was advantageous to establish 100% subsidiary company to promote its business by increasing export sales. assessee company made investment in its 100% subsidiary company during financial years 2005-06 to 2006-07 but after setting up of these stores world market came in well-known recession especially in jewellery market and said stores started making huge losses and consequently in year 2008-09, provision was made in books of assessee VGL against investment in Indo-Mexico amounting to Rs.41,02,27,250. (AO order pg 34(iv))& pg 29) investment and provision made are duly declared in balance sheet of assessee (9 of 23) [ITA-291/2017] company. Later on 100% subsidiary concern M/s Indo Mexico was taken under liquidation and formally liquidated in FY 2011-12. Accordingly, assessee company during year under appeal written of its investment in equity shares of 100% subsidiary M/s Indo Mexico amounting Rs.41,02,27,250/- consequently and equivalent amount of provision of permanent diminution/loss in such investment made in earlier year have been written back. As investment in Indo Mexico 100% subsidiary was made for furtherance of its business operation/presence in overseas markets through its subsidiaries and accordingly claimed as business loss in year under appeal. facts and submissions are apparent and verifiable from Note no 34 forming parts of audited statement of accounts (PB 430) and also from schedule No 11 of Investment of audited statement of accounts (PB423) in assessment record of assessee company. ld. AR argued that there is direct and proximate nexus in between business operation of assessee company and loss arising therefrom on account of investment in said 100% subsidiary concern is incidental to business operations. Reliance has been placed on various judicial decision including Hon ble ITAT Mumbai C bench decision in ITA NO.- 5485/Mum/2009 vide order dated 25.10.2011 in case of DCIT vs. Colgate Palmolive (India) Ltd., Mumbai (PBP 696 to 707 in which Tribunal held that We find that Comelot was set up to manufacture toothbrushes exclusively for assessee company and that it had no other coustomer that assessee. It was said to have been set up as small scale industrial undertaking with view to certain preferential treatment in excise laws, but whatever it manufactured was bought by assessee company alone. Comelot did incur losses but assessee company extended financial help to Camelot from time to time. This financial help was clearly in assessee s own business interests because, if assessee company was not to do so, Camelot couldnothave continued to exist, and all there losses incurred by Camelot were essentially relatable to do business with assessee (10 of 23) [ITA-291/2017] alone, i.e. Camelot s only customer. loans and advances so given by assessee were therefore wholly incidental to its business and could not be treated in isolationo its legitimate business interests. When grant of loan itself is justified on ground of commercial expediency, it is only corollary thereto that even write off of such loan is incidental to business. It is, therefore, not really correct to say that write off of loans granted by assessee to Camelot would have been inadmissible business deduction and entire transaction was devised to avoid legitimate tax liability. We see substance in plea of company that anyone buying company would like to buy company with minium liabilities it was considered appropriate to first pay off dues by company, even by raising funds through fresh issue, and then sel company. This explanation is in consonance with ground business realities and we find no infirmity in same. advances given by assessee were finally converted into equity, as assessee company subscribed to Camelot shares to enable Camelot to pay off its dues to assessee company. On these facts, in our humble understanding, assessee had invested in Camelot, and extended financial help to Camelot, purely for commercial expendiency. It is only corollary thereto that even write off of such loan is incidental to business. It is therefore, not really correct to say that write off of loans granted by assessee to Camelot would have been inadmissible business deduction and entire transaction was devised to avoid legitimate tax liability. We see substance in plea of company that anyone buying company would like to buy company with minimum liabilities it was considered appropriate to first pay off dues by company, even by raising funds through fresh issue, and then sell company. Thus explanation is in consonance with ground business realities and we find no infirmity in same. advances given by assessee were finally converted into equity, as asessee company subscribed to Camelot shares to enable Camelot to pay off its dues to assessee company. On these facts, in our humble (11 of 23) [ITA-291/2017] understanding, assessee had invested in Camelot, and extended financial help to Camelot, purely for comercial expediency. head under which investments in subsidiaries is shown is governed by disclosure requirements under Schedule VI to Companies Act, and, therefore, fact that asset is shown as investment per so does not, and cannot, negate fact that such investments are made on grounds of commercial expediency. Similarly, head under which dividend income is assesssed to tax does not also affect determination of question whether shares are purcahses on account of commercial expediency or not. It is only elementary that diddent income, whether shares are held as investments or as any other asset, is always taxable under head income from other sources . Therefore, nothing really turns on Assessing Officer s emphasis on fact that Camelot shares were shown investments in balance sheet and that dividend income from these shares is taxable as income from other sources. We have also noted as long as shares are acquired on grounds of business expediency, any loss on sale thereof is also required to be treated as admissible business deduction. Hon ble Supreme Court s judgment in case of Patnaik & Co( Supra) deals with situation in which assessee had subscribed to certain Government security but incurred loss on sale of that security. stand of assessee was that assessee had made said investment with view to promote its business interests and as subscription to Government Loan was conducive to its business, loss arise in course of business, and loss claimed by it. coordinate bench of this Tribunal found that having regard to sequence of events and close proximity of investment with receipt of Government orders, conclusion was inescapable that investment was made in order to further sales of assessee and boost its business. In circumstances, Tribunal held that investment was made by way of commercial expediency for purpose of carrying on assessee s business and that, therefore, loss suffered by assessee on sale of (12 of 23) [ITA-291/2017] investment must be regarded as revenue loss. Upholding stand of Tribunal, Hon ble Supreme Court held that Tribunal was right in its view. It is thus clear that as long as investment is justified on grounds of commercial expediency, loss on sale of such investment is to be considered business loss. nature of business is that there must be underlying motive to serve business interests of assesssee in making such investment. Let us now ton to facts of case before us. compnay in which shares are subscribed is engaged only in business of manufacturing toothbrushes for assessee company. Any investment in such company is justified for pure commercial considerations, and, therefore, loss on sale of such sahres is admissible as business losses. In case of DCIT Vs. Gujarat Small Industries Corporation( 84 TTJ 22), coordinate bench of this Tribunal was dealing with situation in which from facts on record. It is obvious that Girnar Scooter Ltd. was floated for same purpose as subsidiary and later on sold off when loss started mounting and on these facts coordinate bench held that loss on sale of shares in subsidiaries was business loss in nature. We are in considered agreement with line of reasoning thus adopted by coordinate bench. In view of these discussions, as also bearing in mind entirety of caws, we uphold stand of CIT(A) and decline to interfere in matter. above decision of ITAT has been affirmed by Hon ble Bombay High Court in case of CIT vs. Colgate Palomolive (India) Ltd. (2015) 59 taxmann.com 139/370 ITR 728 in which observation of Hon ble Court is as under:- (5.1) Whether, on facts and in circumstances of case and in law, Income- tax Appellate Tribunal is justified in holding that loss incurred on sale of shares of Camelot Wholly owned subsidiary was business loss when investment made in latter was not business asset but investment for obtaining enduring benefit? 6. facts necessary for that question are that assessee is engaged in business of (13 of 23) [ITA-291/2017] manufacturing trading of oral care products. In course of assessment proceedings, Assessing Officer noted that assessee claimed deduction on account of loss on sale of shares held in Camelot Investment Pvt. Ltd ( Camelot , in short) amounting to Rs. 5,50,00,000/-. assessee had made investment in 100 per cent owned subsidiary Camelot as claimed for purely business reasons. stand of assessee that investment was made because and for purposes of business, loss on sale of such investment is required to be treated as business loss. assessee placed reliance, inter alia, on judgment of Hon ble Supreme Court in case of Patnaik & Co. Ltd.v. CIT[1986] 161 ITR 365/27 Taxman 287 and on this court in case of CIT v. Investa Industrial Corpn. Ltd. [1979] 119 ITR 380. alternative argument and which was convassed without prejudice need not detain us. 7. commissioner and Tribunal concurrently found that Camelot was fully owned subsidiary of assessee and engaged in manufacturing of tooth brushes exclusively for sole client, namely, assessee, Shares purchased of Camelot were also sold by assessee to one Ramesh Sukharam Vaidya for consideration of Rs. 45,00,000. Assessing Officer held that sum of Rs. 5,50,00,000 which was invested by assessee in equity of Camelot on March 17, 2003, and which have been used to repay loan to assessee-company, amounting to Rs. 5.50 crores, before March 1, 2003, would demonstrate that purpose of investment was to give long-term enduring benefit to assessee. Merely because it was made in normal course of business, it cannot be termed as anything but long term investment. This conclusion of Assessing Officer was challenged in appeal before first appellate authority and Commissioner concluded that main reason for setting up Camelot was to manufacture tooth brushes exclusively for assessee. Since assessee was relying on Camelot for manufacturing of tooth brushes to be traded by assessee, investment is nothing but measure of commercial expediency to further (14 of 23) [ITA-291/2017] business objectives and primarily related to business operations of assessee. At no point of time investment in Camelot was made with intention to realise any enhancement value thereof or to earn dividend income. investment was made to separately house integral part of business activity. In such circumstances, Commissioner relied upon above judgments and allowed appeal. He concluded that loss of RS. 5.50 crores is business loss in hands of assessee. He set aside order of Assessing Officer. 8. Revenue carried matter in appeal and Tribunal has dealt with this issue extensively. In paragraph 7 of its order, Tribunal has upheld conclusion of Commissioner and by giving additional reason. 9. Upon perusal of this material, we are unable to agree with Mr. Pinto that question 5.1 reproduced above is substantial question of law. Given peculiar facts and circumstances and nature of investment so also being for commercial expediency, view taken by Commissioner and Tribunal concurrently cannot be termed as perverse. That view being imminently possible in given facts and circumstances. It does not raise any substantial question of law. reliance has also been placed in case ITAT Tribunal D Bench Mumbai in ITA No. 2251/Mum/2015 AY 2011-12 vide order dated 22.12.2016 in case of Raptakos Brett Co Ltd v/s CIT, where tribunal held as under- 6 We have carefully considered rival contentions and perused material placed before us including orders of authorities below and case laws relied upon by both parties. We find from record available before us that assessee had advanced money to subsidiary company in South Africa in order to establish its products in that market. For that purpose subsidiary was required to incur huge expenses in promoting products. According to AR money was advanced over period of time amounting to Rs. 74,13,000/- for incurring expenses for promotion. We further find that (15 of 23) [ITA-291/2017] said subsidiary company tried to establish its market in South Africa to sell product of assessee but failed and consequently assessee had to write off advances given to said subsidiary company after seven years and same was written off in profit and loss account. Now, question before us is whether said advance is admissible deduction or not? We would like to deal with issue on basis of merits. From facts, hereinabove, it is apparent that advances were given by assessee to its subsidiary out of commercial expediency as advance was given to establish its products in South Africa through its subsidiary company which was incorporated only with said objective. desired results could not be achieved and subsidiary company was not in position to repay advances as whole capital was eroded and depleted. We therefore find merit in contentions of Id. AR that advance was given out of commercial expediency and should be allowed as deduction and accordingly, assessee had rightly claimed write off of said advances. In our opinion assessment order as framed by AO was neither erroneous as write off of advance given out of business expediency and exigency was neither allowable deduction nor any prejudice was caused to revenue. case of assessee is further supported by decision of Co-ordinate Bench of Tribunal rendered in case of Colgate Palmolive (India) Ltd (Supra) in which it has been held that where subsidiary company under name and style of Camelot was set up to manufacture toothbrushes exclusively for assessee company and that it had no other customer other than assessee-company and assessee extended financial help to Camelot from time to time and said financial help was clearly in assessee s own business interests. Therefore loans and advances so given by assessee were therefore wholly incidental to its business and could not be treated in isolation of its legitimate business interest. Granting of loan itself is justified ground for commercial expediency and decision only corroborative to writing off is incidental to business purpose. operative part of decision is reproduced below: (16 of 23) [ITA-291/2017] 7. We find that Camelot was set up to manufacture toothbrushes exclusively for assessee company and that it had no other customer than assessee. It was said to have been set up as small scale industrial undertaking with view to certain preferential treatment in excise laws, but whatever it manufactured was bought by assessee company alone. Camelot did incur losses but assessee company extended financial help to Camelot from time to time. This financial help was clearly in assessee s own business interests because, if assessee company was not to do so, Camelot could not have continued to exist, and all these losses incurred by Camelot were essentially relatable to doing business with assessee alone, i.e. Camelot s only customer. loans and advances so given by assessee were therefore wholly incidental to its business and could not be treated in isolation of its legitimate business interests. When grant of loan itself is justified on ground of commercial expediency, it is only corollary thereto that even write off of such loan is incidental to business. It is, therefore, not really correct to say that write off of loans granted by assessee to Camelot would have been inadmissible business deduction and entire transaction was devised to avoid legitimate tax liability. We see substance in plea of company that anyone buying company would like to buy company with minimum liabilities, it was considered appropriate to first pay off dues by company, even by raising funds through fresh issue, and then sell company. This explanation is in consonance with ground business realities and we find no infirmity in same. advances given by assessee were finally converted into equity, as assessee company subscribed to Camelot shares to enable Camelot to pay off its dues to assessee company. On these facts, in our humble understanding, assessee had invested in Camelot, and extended financial help to Camelot, purely for commercial expediency. head under which investments in subsidiaries is shown is governed by disclosure requirements under Schedule VI to Companies Act, and, therefore, fact that asset is shown as investment per (17 of 23) [ITA-291/2017] se does not, and cannot, negate fact that such investments are made on grounds of commercial expediency. Similarly, head under which dividend income is assessed to tax does not also affect determination of question whether shares are purchased on account of commercial expediency or not. It is only elementary that dividend income, whether shares are held as investments or as any other asset, is always taxable under head income from other sources . Therefore, nothing really turns on Assessing Officer s emphasis on fact that Camelot shares were shown as investments in balance sheet and that dividend income from these shares is taxable as income from other sources. We have also noted that as long as shares are acquired on grounds of business expediency, and loss on sale thereof is also required to be treated as admissible business deduction. Hon ble Supreme Court s judgment in case of Patanik & Co (supra) deals with situation in which assessee had subscribed to certain Government security but incurred loss on sale of that security. stand of assessee was that assessee had made said investment with view to promote its business ITA No.:5485/Mum/2009 Assessment year: 2003- 2004 interests and as subscription to Government Loan was conducive to its business, loss arose in course of business, and that, therefore, assessee was entitled to deduction of loss claimed by it. coordinate bench of this Tribunal upheld claim made by assessee. Tribunal found that having regard to sequence of events and close proximity of investment with receipt of Government orders conclusion was inescapable that investment was made in order to further sales of assessee and boost its business. In circumstances, Tribunal held that investment was made by way of commercial expediency for purpose of carrying on assessee s business and that, therefore, loss suffered by assessee on sale of investment must be regarded as revenue loss. Upholding stand of Tribunal, Hon ble Supreme Court held that Tribunal was right in its view. It is thus clear that as long as investment (18 of 23) [ITA-291/2017] is justified on grounds of commercial expediency, loss on sale of such investment is to be considered business loss. nature of business expediency could vary from case to case but what is important is that there must be underlying motive to serve business interests of assessee in making such investment. Let us now turn to facts of case before us. company in which shares are subscribed is engaged only in business of manufacturing toothbrushes for assessee company. Any investment in such company is justified for pure commercial considerations, and, therefore, loss on sale of such shares is admissible as business losses. In case of DCIT Vs Gujarat Small industries Corporation (84 TTJ 22), coordinate bench of this Tribunal was dealing with situation in which from facts on record, it is obvious that Girnar Scooter Ltd. Was floated for same purpose as subsidiary and later on sold off when loss started mounting and on these facts coordinate bench held that loss on sale of shares in subsidiary was business loss in nature. We are in considered agreement with line of reasoning thus adopted by coordinate bench. In view of these discussions, as also bearing in mind entirety of case, we uphold stand of CIT (A) and decline to interfere in matter. 7. From facts as discussed hereinabove and ratio laid down by Co- ordinate Bench of Tribunal, we find that money advanced by assessee to subsidiary company which was incorporatedf with sole object of marketing products of assessee and any advances given to said subsidiary were out of business consideration and in order to promote interest of assessee and thus were given out of commercial consideration and business interest of assessee. In our opinion, during in year writing of such advances owing to non recovery was admissible deduction and therefore, said advance was rightly claimed as deduction by assessee company. Therefore, to invoke provisions of section 263 by exercising revisionary power by Commissioner is not justified and cannot be sustained. Accordingly, we (19 of 23) [ITA-291/2017] set aside order of Commissioner and restore that of AO. 8. In result, appeal of assessee is allowed. Order has been pronounced in Open Court on 22.12.2016. Id. AR further relied on decision of Hon ble Bombay High Court in case of CIT vs. Investa Industrial Corporation Ltd. (1979) 119 ITR 380 wherein Hon ble Court observed as under:- assessee-company, which from its inception in 1941 carried on business as managing agents became managing agents of Palanpur co., and started financing company from 1949. As on March 31, 1951, loan advanced to company amounted to Rs. 1,86,000 and interest of Rs. 5,291 and Rs. 8,211 on loan for accounting periods 1949-50 to 1950-51 and also for subsequent years was assessed as assessee s business income. financial position of company deteriorated in 1953 and interest on loan was forgone by assessee-company during years 1952-53 and 1953-54. Further, even recovery of principal amounts itself became doubtful, with result, in balance -sheet as on March 31, 1953, loan was shown as doubtful,and no interest was charged duing subsequent accounting years 1954-55 to 1956-57. Attempts were made to restart Palanpur co s business by change in management but, despite all efforts, financial position of company deteriorated and company was wound up on March 12, 1963. assessee-company wrote off in its books during year ended March 31, 1963, amount of Rs, 1,86,000, Which was outstanding as bad debt or irrecoverable loan or business loan and claimed same as deduction determining its total profit for assessment year 1963-64. ITO held that amount of Rs. 1,86,000 was capital loss and could not be allowed either as bad debt or trading loss. On appeal, AAC confirmed order of ITO. On Further appeal, Tribunal allowed loss as trading loss under s. 28(i) of Act on grounds that advances made by assessee-company to Palanpur Co., were part or incidental to carrying on of assessee s business as managing agents, that termination of managing agency of (20 of 23) [ITA-291/2017] Palanpur Co., and taking over of same by another concern did not bring about change in real character of loan which since its inception was loan incidental to carrying on of business and that writing off of loan by assessee-company was neither premature nor belated. On reference. Held, (i) that even where there was no contractual obligation, it was usual practice obtaining in country for managing agents to make advances to managed companies, and it was by way of following this general practice that assessee- company made advances to Palanpur Co. Therefore, having regard to conduct of assessee in commencing its advances from January, 1948, to Palanpur Co. and having regard to general practice obtaining in country, advances that were made by assessee-company to Palanpur Co. were part of and were incidental to carrying on of its business by assessee-company as managing agents. (ii) absence of security would not make any difference to assessee s claim, for it was by way of commercial relationship that subsisted between assessee-company on one hand and managed company on other that advances were made by assessee-company. Moreover, there was nothing to prevent financier making unsecured advances. (iii) Once advances are held to have originated in carrying on business of assessee, dissociation of assessee from managed company by termination of managing agency agreement would not convert loan into advance of any different kind, because advance having been made as part of or incidental to carrying on of business by assessee comapnay as managing agents, that character continued to obtain nothwithstanding change in management, and, if as result of managed company having gone into liquidation, advance became irrecoverable, loss would be trading loss and should be allowed as deduction while computing business income of assessee- company. Therefore, Tribunal was right in (21 of 23) [ITA-291/2017] holding that amount of Rs. 1,86,000/- outstanding in account of Palanpur Co. should be allowed as trading loss in determining assessee s business profit for relevant assessment year. ld. AR of assessee also relied oon decision dated 09.03.2011 of ITAT Mumbai D Bench in case of ACIT vs. M/s. S. S. Kanti Lal Inshwarlal Securities Ltd. in ITA NO. d2641/Mum/2002 for assessment year 1997-98 wherein Bench observed as under:- 14. We heard both parties. As held by ld. CIT(A), units cannot be considered as shares. Apex Court in case of Apollo Tyres Ltd. (255 ITR 273) have held that loss on sale of UTI units is not speculation loss as units are not shares of company. Hence, loss arising from sale of Canexpo units cannot be considered as speculation loss under proviso to Section 73. 15. next question is whether loss on sale of Canexpo Units can be considered as business loss. ld. CIT(A) has brought out that investment in canexpo units is closely linked to assessee being appointed s broker of M/s . Canbank investment Management services Ltd. and conclusion that be drawn is that assessee had made investment in anticipation of being appointed as abroker by that institution, fromt eh assessee of being appointed as broker by that institution, from assessee would be earned income. decision of Apex Court in case of Patnaik & Co. Ltd. (161 ITR 365) in that case assessee, automobile dealer, purchased Govt. Securities for obtaining preferential treatment from Govt.. Apex Court held that this involvement was out of commercial expediency for betterment of business and hence loss arising from sale of same would constitute business loss. Again Apex Court in case of Srivenkata Sathyanaayana Rice Mill Contractors Co. (223 ITR 101) held that contribution made to District Welfare Fund, in hope of getting licence or permit is expenditure incurred for purpose of business out of commercial expendiency. Applying same yardsticks, investment made (22 of 23) [ITA-291/2017] by assessee can be classified as investment made out commercial expediency for betterment of his business. Hence, as per ratio of Apex Court (supra), loss arising from sale of same is to be allowed as business loss. It is immaterial whether assessee classified same as investment. reason for this investment is to gain goodwill of institution therefore, commercial expediency required this investment which was made with anticipation that assessee may be appointed as broker to that institution. loss on sale of Canexpo Units is business loss because investment has been made for betterment of business and does not depend upon its classification in books of accounts. 4.4 During course of hearing, ld. DR argued that investment is capital nature and as such not allowable as revenue expenditure. 4.5 We have heard rival contentions and perused materials available on record. We have also gone through facts of case and ratio laid down by Hon ble Supreme Court, High Courts & ITATs as mentioned above, Assessee company in order to expand its business world-wide had set up Brick and Mortar retail store at different tourist location in Mexico through its 100 subsidiary. investment was not to earn dividend but to expand its business and expenditure was purely for business expansion of assessee s product. Thus investment made by assessee into 100% subsidiary company Indo Mexico was with sole object of expanding its business and for marketing products of assessee company. Th e investment made to 100% subsidiary company Indo Mexico was out of business considerations, in order to promot business interest of assessee. Thus investments made were out of commercial expediency and for business interest. In our opinion, written off such investment in 100 % subsidiary which was not recoverable was admissible business loss which is proximately relatable to assessee s business. Therefore, said loss so incurred has been rightly claimed by assessee company as deductible business loss. Accordingly, we decide ground No. 2 (2.1 % 2.2) of appeal in favour of assessee. (23 of 23) [ITA-291/2017] 5. In that view of matter, no substantial question of law arises. 6. Hence, appeal being devoid of merit deserves to be dismissed. same is dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/26 Pr. Commissioner of Income-tax, Jaipur-II, Jaipur v. Vaibhav Global Limited, Formerly Known as Vaibhav Gems Ltd