The Principal Commissioner Of Income Tax (Central), Rajasthan4Th Floor, Jeevan Nidhi v. M/S Vaibhav Global Limited, E-68, Epip, Sitapura Industrial Area,Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 53/2021 The Principal Commissioner Of Income Tax (Central), Rajasthan4Th Floor, Jeevan Nidhi - 2, Bhawani Singh Road, AmbedkarCircle, Jaipur. ----Appellant Versus M/s Vaibhav Global Limited, E-68, Epip, Sitapura Industrial Area,Jaipur-302022 (Raj.) ----Respondent For Appellant(s) : Mr. Siddharth Bapna Mr. Sourav Mehta For Respondent(s): HON'BLE THE CHIEF JUSTICE MR. AKIL KURESHI HON'BLE MR. JUSTICE UMA SHANKER VYAS 15/12/2021 Order This appeal is filed by the revenue to challenge the judgmentof the Income Tax Appellate Tribunal. Though as many as fourquestions are framed by the revenue in the appeal, the issues areonly two which can be gathered from the following questions framed by the department:- “1.Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is justified in directingthe AO to re-compute the adjustment by applying arm’slength price of guarantee at 0.53% against 1.30% appliedby the TPO/AO on account of bank guarantees chargesgiven by the assessee on behalf of its associatedenterprises. 3.Whether in the facts and in circumstances of thecase, the Hon’ble ITAT was justified in law and in allowingthe write off of loss of Rs.50,72,57,000/- on account ofpermanent diminution in value of investment made inequity shares of one of its subsidiary M/s Jewels Gems USAInc. without appreciating that the amount is not anexpense, loan or advance of any kind that is required to bedebited to the profit and loss account of the assessee, and the amount was an investment that was never debited tothe P&L account of the company.” So far as the first question is concerned, learned counsel for the revenue candidly brought to our notice an order dated27/05/2019 passed by the division bench in Income Tax AppealNo. 281/2018 in the case of the present assessee. The appeal of the revenue was dismissed making the following observations:-“This court notices that ALP determination which led toadjustments on both counts, were the subject matter ofprevious appeal decided in its favour by the ITAT. Furtherappeal to this court by the revenue was unsuccessful.Moreover the reduction of ALP determination on interest, inthis court’s opinion, by applying LIBOR rates, is reasonablebecause the amounts were used by the AE Abroad and theyardstick, therefore, was naturally as per LIBOR rates.Likewise, as far as the ALP determination of the cooperateguarantee fee, mere reduction per se does not result in aquestion of law, as is urged in this appeal.” “This court notices that ALP determination which led toadjustments on both counts, were the subject matter ofprevious appeal decided in its favour by the ITAT. Furtherappeal to this court by the revenue was unsuccessful.Moreover the reduction of ALP determination on interest, inthis court’s opinion, by applying LIBOR rates, is reasonablebecause the amounts were used by the AE Abroad and theyardstick, therefore, was naturally as per LIBOR rates.Likewise, as far as the ALP determination of the cooperateguarantee fee, mere reduction per se does not result in aquestion of law, as is urged in this appeal.” Under the situation, the first question is not entertained. Under the situation, the first question is not entertained. The second question pertains to the objection of the revenueto the claim of the assessee of a business loss of Rs.50.72 crores(rounded off) on account of permanent diminution in the value ofthe investment made in the equity shares in one of thesubsidiaries of the assessee in USA. According to the assessingofficer this loss was not allowable under Section 37 of the IncomeTax Act, 1961 since the expenditure could not have beenconsidered as a revenue expenditure. He also held that this wasnot a case of bad debt which could be allowed under Section 36 ofthe Act. The assessee carried the matter in appeal. The IncomeTax Appellate Tribunal by the impugned judgment reversed thedecision of the assessing officer on this point relying upon theearlier decision of the Tribunal in case of the assessee for theassessment year 2012-13. In such order the tribunal relying onthe decisions of the Supreme Court and High Courts noted thatunder similar circumstances the expenditure incurred by the company were allowed. This was on the basis that the assesseecompany in order to expand its business world wide had setupsubsidiaries in other countries. The investment made in suchcompanies was seen as revenue expenditure since the purposebehind making the investment was only for expansion of thebusiness. Applying this logic to the assessee in the present case,the Tribunal was of the opinion that such investment being in thenature of revenue expenditure was to be allowed under Section 37of the Act. Having perused the order passed by the assessing officerand by the tribunal and having heard learned counsel for therevenue, we find no error in the view expressed by the tribunal.As noted, the assessee had made investment in its subsidiarycompany in order to expand its business with a view to earnhigher profit. The investment was thus driven by businessexpediency. The tribunal therefore committed no error. Noquestion of law arises. The appeal is dismissed. (UMA SHANKER VYAS),J (AKIL KURESHI),CJ Anil Goyal/BM Gandhi/11