| Question And Answer | |
|---|---|
| Subject: | Sec. 37 |
| Category: | Income-Tax |
| Querist: | Prakash |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | Business expenditure, business loss |
| Date: | April 30, 2023 |
The assessee is a company engaged in the business of manufacturing and trading of machine tools.
The A.O. had made an addition of Rs. 14.5 lakhs on account of disallowance of investments and irrecoverable loans and advances written off on the ground that the said sums are given to subsidiary of the assessee company as capital investment and loan and hence are capital in nature and neither the said amount were taken as part of income in any of the earlier years without appreciating the submissions given by the assessee that amount paid by the assessee co clearly in the nature of advances made in the course of carrying on the business, made with commercial necessity and business expediency and hence is allowable as a deduction u/s 37(1) of the Act which is further substantiated by the fact of incurring of loss by the subsidiary co and In the light of the bad financial position of subsidiary co coupled with mounting ongoing cash losses and non- recoverability of the amounts, In support of above contention the assessee relied upon the following decisions
a. Turner Morrison & Co.,Ltd., v. CIT 245 ITR 724 (Kol)
b. CIT Vs. Amalgamation Pvt. Ltd. 226 ITR 188 (SC)
c. ITC Ltd. v. JCIT 95 TTJ 1017 (Kol),
d. DCIT v. Oman International Bank SAOG 100 ITD 285 (SB) (Mum),
However AO relied up on the decision in the case of PCIT V Khyati Realtors Ltd. (2022) 141 taxmann…com 461 and rejected the claim of the assessee.
Whether the AO is correct ?
In the case of Khyati Realtors 447 ITR 167 (SC) at para 22, the assessee’s claim for deduction under section 37 of the act is not excluded. Therefore, if the assessee satisfies all the conditions of section 37(1) of the Act, the deduction ought to be allowed.