Loan Write-off to Subsidiary Allowed as Business Loss | ITAT

Case Details: NSL Sugars Ltd. vs. Deputy Commissioner of Income-tax [2026] 182 taxmann.com 500 (Bangalore-Trib.)

Judiciary and Counsel Details

• Soundararajan K., Judicial Member & Waseem Ahmed, Accountant Member
• Suresh Muthukrishnan, CA for the Appellant.
• Dr K.J. Dhivya, CIT-DR for the Respondent.

Facts of the Case

The assesse, a public integrated sugar company, wrote off Rs. 3.79 crores representing loans/advances given to its wholly-owned subsidiary in Ghana. The advances were made in earlier years by making payments directly to the subsidiary’s vendors and were recorded as loans in the assessee’s books. The subsidiary was engaged in the same line of business and was incorporated to expand the assessee’s business outside India. Due to ongoing losses, its operations were closed, and the subsidiary entered liquidation.

The assessee claimed the write-off as a business loss/expenditure under section 37(1), contending that advances were made on commercial expediency and that the loss was incidental to the business. The Assessing Officer rejected the claim, holding that the write-off represented capital loss, that the assessee was neither a banking nor a money-lending company, and that the conditions of section 36(2) were not satisfied. He further held that commercial expediency was not established.

ITAT Held

On appeal, the Tribunal held that the assessee had set up a wholly owned subsidiary in Ghana to expand its sugar business and funded its initial operations by directly paying consultants and vendors on its behalf, which were recorded as loans/advances. The funding was for business purposes, and classifying the amounts as loans/advances rather than equity did not change the transaction’s true character.

Applying the principle that commercial expediency must be judged from a business person’s perspective, the loss arising from the subsidiary’s failure was incidental to the assessee’s business. The write-off of Rs. 3.79 crores was allowed as a deductible business loss under section 37(1), and the addition made by the Assessing Officer was deleted.

List of Cases Reviewed

• ACE Designers Ltd. v. Addl. CIT [2020] 120 taxmann.com 321 (Karnataka)/[2020] 275 Taxman 138 (Karnataka)
• CIT v. Colgate Palmolive (India) Ltd. [2015] 59 taxmann.com 139 (Bombay)/[2015] 370 ITR 728 (Bombay)
• Cosmos Industries Ltd. v. DCIT [IT Appeal No. 3730 (Del) of 2015]
• REFEX Industries Ltd. v. Dy. CIT [2022] 139 taxmann.com 213 (Chennai-Trib.) (para 25.4) followed.
• ITA No. 772/Bang/2019 (32.3) followed.

List of Cases Referred to

• ACE Designers Ltd. v. Addl. CIT [2020] 120 taxmann.com 321 (Karnataka)/[2020] 275 Taxman 138 (Karnataka) (para 20.2)
• CIT v. Colgate Palmolive (India) Ltd. [2015] 59 taxmann.com 139 (Bombay)/[2015] 370 ITR 728 (Bombay) (para 20.2)
• REFEX Industries Ltd. v. Dy. CIT [2022] 139 taxmann.com 213 (Chennai – Trib.) (para 20.2)
• Cosmos Industries Ltd. v. DCIT [IT Appeal No. 3730 (Del) of 2015] (para 20.2)
• Ryatar Sahakari Sakkare Karkhane Niyamit v. Asstt. CIT [2016] 67 taxmann.com 283 (Karnataka)/[2016] 383 ITR 561 (Karnataka) (para 27.3)
• Kesha Appliances Pvt. Ltd. v. ITO [IT Appeal No. 2715 (Del) of 2016, dated 09.03.2018] (para 36.2)
• Sonicwall Technology System India Pvt. Ltd. v. ACIT [IT Appeal No. 3860 (Mum) of 2019, dated 02.12.2022] (para 36.2)
• Phool Singh v. ACIT [IT Appeal No. 2901 (Del) of 2014, dated 06.04.2017] (para 36.2).