Brahm Precision Materials Pvt. Ltd Vs CIT(A) (ITAT Pune)
Foreign Venture Flopped, But Not the Tax Claim – ITAT Says Business Loss, Not Capital
Assessee, a manufacturer of aluminium die-casting and auto components, faced multiple additions by AO, which were mostly confirmed by NFAC/CIT(A). Assessee filed two appeals before ITAT. The appeal for AY 2020-21 was late by 445 days, but ITAT condoned the delay after finding genuine and reasonable cause. Since the issues in both years were common, ITAT passed a consolidated order.
Issue 1 – Foreign Investment Written Off (₹97.61 lakh in AY 2018-19 & ₹9.56 crore in AY 2020-21)
Assessee’s Case:
- It formed a 100% Wholly Owned Subsidiary (WOS) in USA – Brahm Corporation.
- WOS acquired 80% stake in Littler Diecast Corp. (LDC, USA) to expand markets and increase exports.
- Business loans were taken from US bank; MD gave personal guarantee.
- Assessee provided services to USA entities & earned:
- Export sales & service income (Crores of rupees) in AY 2017-18 & 2018-19.
- Due to recession, quality issues & bankruptcy, WOS/LDC collapsed.
- Investment was made for commercial expediency & business expansion, not for earning dividend.
- Hence write-off is business loss, not capital loss.
AO & CIT(A):
- Treated it as capital investment, hence capital loss.
- Not allowable as business expenditure.
ITAT’s Analysis/Decision
- Detailed facts show investment was for expansion and generating revenue.
- Assessee actually earned export income because of this structure.
- The purpose was integral to core business.
- Cited Supreme Court & High Court rulings (Colgate Palmolive, Ace Designers, Patnaik & Co., Investa Industrial).
- Principle: If investment is made for commercial/business purposes, loss is revenue loss.
- Allowed as business loss. Disallowance deleted.
Issue 2 – ₹99,23,830 Treated as Unexplained Cash Credit (Sec. 68)
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