ITAT rules on expenditure claims in a capital loss

ITAT rules on expenditure claims in a capital loss

The loss incurred on account of diminishing in the value of the said investment was capital in nature. Therefore, it could not be claimed as a deduction under the IT Act.

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the expenditure claimed towards write-off investment in capital loss cannot be allowed as a deduction under Section 37(1) of the Income Tax Act.

The appellant, Tamil Nadu Fisheries Development Corporation Ltd., is engaged in the management of reservoirs, the marketing of fish and fish nets, and diesel bunks.

The assessee claimed the expenditure towards investment written off for Rs.2,40,000 in the Income Tax Return. The Assessing Officer (AO) disallowed the claim on the ground that it was capital expenditure, which could not be allowed as a deduction.

The assessee then filed an appeal before ITAT.

The appellant submitted that the assessee had written off the investment in equity share capital in a joint-venture company promoted by the assessee under the name Tamil Nadu Marine Plast Pvt. Ltd. But the company had closed business and the name had been stricken off by the Registrar of Companies.

Citing the decision of the Madras High Court in the Electronics Corporation of Tamil Nadu Ltd., the appellant further contended that the loss of investment was akin to a business loss. Hence, it could be allowed as a deduction.

The counsel for the revenue department submitted that the claim of the assessee as a deduction was a capital loss towards a written-off investment. The AO had rightly disallowed the claim. To claim deduction under the IT Act, it should be revenue expenditure incurred wholly and exclusively for the purpose of the business of the assessee.

The tribunal observed that the investment made by the assessee in another company was in a capital account. The loss incurred on account of diminishing in the value of the said investment was capital in nature. Therefore, it could not be claimed as a deduction under the IT Act.

The Coram of Anikesh Banerjee (Judicial Member) and G. Manjunatha (Accountant Member) stated, "There was no error in the reasons given by the Commissioner of Income Tax (Appeals) to sustain the addition towards disallowance of investment written off. We are inclined to uphold the findings of the CIT(A) and reject the ground taken by the assessee."