M/S. SAHAJANAND MEDICAL TECHNOLOGIES PVT. LTD.,SURAT vs. THE ACIT, CIRCLE-4,, SURAT

आदेश /O R D E R

PER O. P. MEENA, ACCOUTANT MEMBER:

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 2 of 16 05.03.2015 pertaining to assessment made u/s. 143(3) of the Act, 1961. ITA No.2175/Ahd/2014/A.Y.2009-10. 2. Grounds of appeal are as under:

1) The Hon’ble CIT (Appeal)-II, Surat has erred in confirming the addition of Rs.10,54,100/- on account of write off loans and advance made by the Additional Commissioner of Income-tax. 2) The Hon’ble CIT (Appeal)-II, has erred in enhancing the assessment by Rs.1,27,290/- on account of write off loans and advances.

Rs.11,81,390/- under the head loans and advances. The assessee

was asked to explain bad debts on account of loans and advances

as to why same should not be disallowed as the same does not

satisfy the condition u/s. 36(2)(i) . The assessee vide letter dtd.

15.07.2011 submitted as under :

“The assessee has submitted a detailed reply vide letter dated 15.07.2011 . The assessee has submitted as under : “The assessee has written of the debts of subsidiary company Sahajanand Medical Technologies Inc. based in USA. The assessee is engaged in manufacturing of medical device and such device is used in every part of the word.

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 3 of 16 There is certain law of land and the assessee company has to take necessary approval and also awareness of the product in general public. Therefore, the assessee company has made 100% subsidiary in USA for business in American continent . The subsidiary company of Assessee Company and activity of subsidiary company will directly benefit to the parent assessee company. There were no funds available with subsidiary company hence the assessee company has to look after the needs of its subsidiary company. The assessee company has sent the required money as loan to subsidiary in F.Y.2006-07 and 2007-08. The subsidiary company has provided much needed support to the parent company. The assessee company has got huge business from Latin America by the efforts of the subsidiary company. The assessee company has exported goods worth of Rs.1414.50 lacs in F.Y. 2006- 07. The subsidiary company has not started the direct business but support in expanding business of parent company and also provided support in form of latest development, hence, there was no revenue for subsidiary company. The assessee company has done business from Latin America directly and felt no need for subsidiary company. There was no revenue in the hand of subsidiary company and it was unable to pay the loan given by the assessee company. The parent assessee company, after passing board resolution has written off the debts of subsidiary company in its books of accounts. Out of total Rs.11,81,390/- Rs.1,27,290/- is related to the current year and the same is allowable out of current year’s income as trading loss. The assessee company has fulfilled all the required conditions stipulated in section 36(1)(vii) r.w.s. 36(2) of the Act by writing off the debts in the books of accounts. Since, the assessee has fulfilled all the condition of section 36, the debt written should be allowed as to written off”. 3.2 However, the A.O. has given his findings on and it is seen after examination of the reply that the assessee’s reply

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 4 of 16 is not acceptable. The money has been advanced to M/s. Sahajanand Medical Technologies Inc. USA, a sister concern of the assessee. The same is in the nature of loan as is clear from the ledger account itself. Write off of loans and advances is allowable as a deduction only in the case of money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. The assessee is not carrying on such business. Hence, write off of loans and advance is not permissible in the case of the assessee. The assessee has alternately contended that the same should be allowed as a trading loss as the money has been given for the business purpose of the assessee. The alternative contention of the assessee is acceptable in respect of money of Rs.1,27,290/- given to M/s. Sahajand Medical Technologies Inc. USA during the year. However, the same is not acceptable in respect of earlier years as if it all they will constitute prior period expenses and will not be allowable in the current year as trading loss. Hence, an amount of Rs.10,54,100/- (Rs.11,81,390/- minus Rs.1,27,290/-) is liable to be added as the claim of the assessee is not allowable u/s. 36(1)(vii) as it does not satisfy condition laid down in section 36(2)(i). The same is added to the income of the assessee.

(A), wherein it was submitted that an amount of Rs.11,81,390/-

was given as loan to subsidiary company of the appellant out side

India. The appellant claimed that the subsidiary company did

support its business and in exchange of support, the loans were

advanced to subsidiary company. The appellant further claimed

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 5 of 16

that loans were advanced to spread business to America. It was

further argued that the main company was unable to pay the loan

amount, therefore, it was written off and claimed u/s. 36(1)

r.w.s. 36(2) of the Act. The CIT (A) observed that the A.O.

disallowed the claim on the ground that appellant was not doing

any money lending business and therefore, the claim made u/s.

36(1)(vii) r.w.s.36(2) was not allowable. Further, the alternative

plea of the assessee that amount of Rs.1,27,290/- given in A.Y.

2009-10 was allowable deduction u/s. 37(1) was accepted by

treating the same as Revenue Expenditure / trading loss. While

the amount given in earlier years was not allowed for treating it

as ‘prior period expenses’. This treatment given by the A.O. is not

correct as the loan given to subsidiary company cannot be treated

as ‘Revenue Expenditure’ of the appellant. Therefore, the

appellant was asked to show cause as to why assessment should

not be enhanced by Rs.1,27,290/- . The appellant sticks to its

submission that 20% amortization and full loan waiver should be

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 6 of 16

allowed. However, this contention of assessee was not found in

accordance with law and as the loan waiver was on account of

capital loss . In several case laws, the loan waiver in the hands of

the recipient has been treated as capital receipt. By the same

logic, the corresponding expenditure will be of ‘Capital

Expenditure’. The CIT (A) has placed reliance in the case of Luxor

Writing Instruments (P Ltd. (2013) 31, taxmann.com.408 [Delhi]

and IFB Securities Ltd. 14 SOT 8 (Kolkatta). Accordingly, the

addition of Rs.4,10,54,160/- was confirmed with enhancement

income by Rs.12,72,900/-.

Tribunal. The learned counsel for the assessee submitted that the

assessee is engaged in the manufacturing and trading of bare

mounted and drug eluting stents used in Medical Science (Heart)

etc. It was submitted that the assessee company has two subsidiary

companies one in USA (M/s. Sahajanand Medical Technologies Inc.)

and another in Canada ( Sahjanand Medical Technologies Pvt. Ltd.)

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 7 of 16

of only project. The subsidiary company was not having any

revenue income to meet its administrative expenses because all

business convinced is transfer to parent a company. The assessee

company has sent money in form of unsecured loan to meet its

administrative expense. The assessee company has got huge

business from Latin America. This was also brought to the notice

of the assessee. Appellant has got huge business of Rs.94,87 lakhs

in 2007-08 Rs.77.72 lakhs in A.Y. 2008-09 . Apart from the

business, the appellant has got 1.00 Million of USA company , a big

company for RND activities. Huge profit company. Therefore, the

A.O. and CIT (A) held that the said company was to only promote

the business of the assessee but expenses transferred by assessee

company are of capital in nature. It was further submitted that

Mr. Ammad, Director of subsidiary company to the appellant

company on discontinue of as pointed out Mr. Ammad, and most

of the money was used for payment of service rendered by said

Ammad to subsidiary company and got business to the appellant

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 8 of 16

company. The appellant company on discontinuance of subsidiary

companies has appointed Mr. Ammad and paid remuneration for

his service, which is allowed as business expenditure. The learned

counsel placed reliance in the case of Punjab National Vs. ACIT

No. 747/Ahd/2009 ITAT Delhi dtd. 26.4.2011.

material on record. It is seen that the assessee company has

written off loans and advances given to its two subsidiary

companies situated in USA and Canada. However, it appears that

the assessee company has not received any interest income from

such loans and advances. Therefore, for no income was generated

from such loan. Therefore, the claim trading liability in the books

of assessee company is nota in accordance with law. Further, write

off of such loans and advances is not revenue expenditure as same

related to company promoting the subsidiary companies.

Therefore, we did not find any infirmity in the order of CIT(A),

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 9 of 16 accordingly findings recorded by the A.O. and CIT (A) upheld. This

ground of appeal is, therefore, dismissed.

Rs.1,29,670/- on account of loans and advances in investment of

100% subsidiary company. Brief facts of these grounds are that the

A.O. found that the assessee has claimed loss of investment of

100% subsidiary company for Rs.1,27,670/- . The A.O. further

noted that this amount is claimed as bad debt written off, but

submission made during the course of assessment proceedings it

was claimed as business loss. The A.O. observed that the assessee

company and subsidiary company are two different entity and they

are taxed separately in the respective country, therefore, the A.O.

disallowed Rs.1,29,670/- as business loss holding to be loss of

capital.

CIT(A), wherein it was claimed that claiming loss of investment of

Rs.1,29,670/- under the head bad debt was a mistake but has

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 10 of 16

claimed to be the business expenditure. The appellant has shown

in Schedule 6 of investment of its audit report made the provision

for diminution in value of investment in last year which has been

pointed out by the A.O. also. Therefore, the facts on record shows

that it the mere loss of capital and not a business loss. Therefore,

the addition made by the A.O. was upheld.

learned counsel for the assessee repeated the same submission as

made before the A.O. and CIT(A). Per contra, the learned CIT, DR

relied on the order of the CIT(A). We have considered the facts

and find that the amount of Rs.1,27,670/- was on account of

investment loss in 100% subsidiary company, therefore, the said

loss is on account of capital. Therefore, we are of the considered

opinion that the loss claimed on account of capital loss and not a

business loss. Therefore, the lower authority was justified in

disallowing the same. In view of this matter, we do not find any

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 11 of 16

infirmity. Therefore, the order of the lower authorities are upheld.

This ground of appeal is, therefore, dismissed.

account of expenses incurred Infinnium Core Trial in core trial

prior period expenses. The A.O. found that the assessee has

claimed expenses of Rs.8,56,156/- on account of clinical trial

expenses, but these expenses pertain to F.Y.2008-09 and not to

the relevant assessment year. Therefore, the A.O. disallowed

these expenses.

CIT(A). The CIT(A) noted that the appellant had submitted that the

patients were registered for trial in the F.Y.2008-09 but the trial

particular in medical field is never complete in one day. However,

on perusal of the details, the CIT(A) found that the A.O. has the

copies of email communication between the appellant and the

various hospitals, communication made to the New India Assurance

Company Ltd. for enrolment of patients but these details for

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 12 of 16

relevant F.Y.2008-09 and not relevant to assessment year.

Therefore, the appellant has admitted this fact had been claimed

that the trial continue in the subsequent year but no proof was

provided during the assessment proceedings. In view of the above

facts, the addition made by the A.O. is upheld.

Tribunal. The learned counsel for the assessee argued that the

trial particular in medical field is never completed in one day and

it took longer time, therefore, the assessee company has incurred

the expenses in subsequent year i.e. 2009-10, hence accounted in

the correct allowable expenses.

CIT(A). We have considered the facts and heard rival submissions.

It is seen that the A.O. has examined the details of such as name

of patient, insurance policy, name of hospital etc. during the

course of assessment proceedings and found that payment pertain

to last year. Further, the CIT(A) has also observed that the

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 13 of 16

assessee company has not furnished any evidence to so that the

expenses were incurred during the year under consideration.

Therefore, we do not find any fault of learned CIT(A), accordingly,

same is upheld. This ground of appeal, is, therefore, dismissed.

time of filing the return of income, necessary permission to claim

weighted deduction u/s. 35(2AB) in the computation of total

income was not received by the appellant company , hence,

deductions were claimed u/s. 35(1) for revenue expenditure and

u/s. 35(2)(ia) for capital expenditure. But not claimed weighted

deduction u/s.35(2AB) of the Act. The reason for not claiming in

the return of income was as permission required u/s. 35(2AB) was

received vide letter dtd.10.10.2011.

However, the CIT(A) was of the view that whether the assessee’s

claim any deduction filed before the A.O. or the appellate

proceedings and claimed revised by way of filing computation ,

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 14 of 16

revised statement of income after filing the original return other

than by way of filing revised return of income as contemplated

under section 139(5) of the Act. The CIT(A), therefore we are of

the view that claim can be made by the assessee after filing of the

original return other than by filing revised return. Since, the

appellant never claimed the deduction in the return of income nor

filed any revised return of income. Hence, this ground of the

assessee was dismissed.

this tribunal. The learned counsel for the assessee submitted that

the appellant company is recognized by Government of India, the

expenses incurred by the appellant are eligible u/s.35(2AB) of the

Act for which the appellant company has to submit its data,

Ministry of Science and Technology, Govt. of India and after

preparing provided issue certificate form 3CM, in which certified

for claim weighted deduction. These details were submitted

before the A.O. as appearing paper book 129 and 130. Therefore,

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 15 of 16

the learned counsel contended that it is a duty of learned A.O. to

give legitimate deduction for bonafide reasons. We have

considered the facts and material on record. We have also heard

and rival submissions. We find that the assessee has obtained

approval of Ministry of Science and Technology and facility

u/s.35(2AB) of the Act from Ministry of Science and Technology

vide letter dtd.11.10.2011. The said letter was submitted before

the A.O. However, the A.O. and CIT(A) did not entertained the

same on the ground that the such claim filed revised return. We

find that the assessee has bonafide claim and due to late receipt

u/s. 35(2AB), the assessee cannot deny bonafied legitimate

deduction as provided in this assessment. Therefore, we direct to

allow weighted deduction u/s. 35(2AB) of the Act in accordance

with law. This ground of appeal is, therefore, treated as allowed.

No.1576/Ahd/2015 is partly allowed.

M/s/. Sahajanand Medical Technologies Pvt.Ltd v. ACIT/2175/14/1576/Ahd/2015 Page 16 of 16

No.2175/Ahd/2014 is dismissed and appeal for A.Y. 2010-11 in ITA

No.1576/Ahd/2015 is partly allowed.

Sd/- Sd/- (सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER सुरत/ Surat, �दनांक Dated: 12th July, 2018 Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat