Case Law Details
Tamil Nadu Fisheries-Development Corporation Ltd Vs ACIT (ITAT Chennai)
In order to claim deduction towards any expenditure, it should not be in the nature of personal expenditure or capital expenditure. Further, said expenditure should be incurred wholly and exclusively for the purpose of business of the assessee. In this case, the assessee has claimed deduction towards written off investment as Revenue expenditure when its investment in joint venture company, has been reduced to nil due to closure of said company by striking off its name by the RoC, Chennai. In this regard, the assessee has taken support from the Government order dated 14.09.2012 and argued that it has claimed deduction towards written off investment as per the order of the Government. The assessee had also taken support from the decision of the Hon’ble Madras High Court in the case of M/s.Electronic Corporation of Tamilnadu Ltd., and argued that on identical circumstances, the Hon’ble High Court has held that written off investment is allowable as business expenditure. We have gone through arguments advanced by the Ld.Counsel for the assessee in light of reasons given by the AO and we ourselves do not inclined to accept the arguments of the assessee for simple reason that the government order allowing the assessee to write off investment is only to facilitate the assessee not to re-pay said investment to the government account. However, said order does not overwrite the provisions of Income Tax Act, 1961, in allowing any expenditure whether it is deductible or not. Therefore, on that basis, the assessee cannot claim deduction towards any expenditure. Further, if you see nature of expenditure claimed by the assessee, the assessee has written off investment in equity share capital in joint venture company, when the said company has been closed due to strike off its name by the RoC. In our considered view, investment made by the assessee in another company is on capital account and further, when loss incurred on account of diminishing in value of said investment is capital in nature and thus, same cannot be claimed as deduction u/s.37(1) of the Act. In so far as case laws relied upon by the assessee in the case of M/s. Electronic Corporation of Tamilnadu Ltd., we find that facts of that case is entirely different in as much as in that case, the assessee was engaged in the business of finance to promote and establish state public sector enterprise for electronic items. Under those facts, the Hon’ble High Court held that the finance provided by the assessee by way of equity participation is akin to loan transactions or advances made and in such cases, if loans are irrecoverable, and they are written off, in the nature of stock in trade and same needs to be deducted as and when reduction in value of investments. In this case, facts are entirely different in as much as the assessee main activity is development of reservoirs and in the course of its business, assessee has participated equity investment in joint venture company. Further, when said investment was reduced to zero on account of closure of said company, the assessee has claimed written off investment as Revenue expenditure in the books of accounts of the assessee. In our considered view, investment made by the assessee in equity capital of joint venture company is on capital gain and consequent loss of said investment is akin into capital loss, which cannot be claimed as deduction.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-11, Chennai, dated 29.08.2017 and pertains to assessment year 2013-14.
2. The assessee has raised the following grounds of appeal:
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