THE PR. COMMISSIONER OF INCOME-TAX CENTRAL vs M/S NSL SUGARS LIMITED

- 1 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 12 DAY OF OCTOBER, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA
INCOME TAX APPEAL NO. 105 OF 2026
BETWEEN:
1. THE PR. COMMISSIONER OF
INCOME-TAX CENTRAL
RD
3 FLOOR
C.R. BUILDING
QUEEN'S ROAD
BENGALURU - 560 001
2. THE DEPUTY COMMISSIONER
OF INCOME-TAX
CENTRAL CIRCLE-3(2)
BENGALURU - 560 001
…APPELLANTS
(BY SRI E.I. SANMATHI, ADVOCATE)
Digitally
signed by
VEERENDRA
KUMAR K M
Location: High
Court of
Karnataka
AND:
1. M/S. NSL SUGARS LIMITED
ND
NO.60/1, 2 CROSS
MUSEUM ROAD
BENGALURU - 560 025
…RESPONDENT
(BY SMT. TANMAYEE RAJKUMAR, ADVOCATE)

- 2 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME
TAX ACT, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE
ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,
BENGALURU IN IT(TP)A NO.2615/Bang/2024 DATED 08.01.2026 FOR
ASSESSMENT YEAR 2021-2022 ANNEXURE-A AND CONFIRM THE
ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE
ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME
TAX, CENTRAL CIRCLE -3(2) BENGALURU & ETC.
THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MRS. JUSTICE K.S. HEMALEKHA
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The Revenue has filed the present appeal under Section
260A of the Income Tax Act, 1961 [ the Act ] assailing the order
dated 08.01.2026 passed by the learned Income Tax Appellate
Tribunal [ ITAT ] in IT(TP)A No.2615/Bang/2024 preferred by the
respondent, M/s NSL Sugar Limited [ the Assessee ], in respect of
the assessment year [ AY ] 2021-22.
2. The Revenue has projected the following questions for
consideration of this Court:

- 3 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
“1. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in
directing the TPO to accept the transfer price of
bagasse adopted by the respondent assessee,
without considering that the CERC tariff order for
Financial Year 2021-22 was based on
contemporaneous market data and demand-
supply analysis?
2. Whether under the facts and circumstances of
the case and in law, the Tribunal has not erred in
taking a self-contradictory approach in directing
the TPO to accept the ALP of bagasse based on
KERC tariff order for Financial Year 2018 while
rejecting the CERC tariff order for Financial Year
2021 without establishing the greater
comparability of KERC tariff as per the provisions
of section?
3. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in
disregarding the CERC tariff order, which is a
credible and authoritative benchmark for fuel cost
of bagasse, and instead relying upon the
computation made based on FRP of sugarcane,
which is only an estimate?
4. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in
accepting the transfer price of the respondent,
despite the TPO having relied on credible,
authoritative, and contemporaneous data?
5. Whether under the facts and circumstances of
the case and in law, the Tribunal ought to have
carried out a fresh analysis as per the provisions
of section 92 to 92C of Income Tax Act, 1961 and
Rule 10B and 10C of Income Tax Rules, 1962 in
the case of the respondent assessee?
6. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in holding
that the write-off of loans/advances to the

- 4 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
Ghanaian subsidiary constituted expenditure for
commercial expediency allowed the deduction u/s
37 of the Act, when the payments were made to
vendors of the subsidiary and bore no nexus to the
assessee's own business?
7. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in holding
that the write-off of loans/advances to the
Ghanaian subsidiary constituted expenditure for
commercial expediency allowed the deduction u/s
37 of the Act, when the amounts were recorded as
loans/advances, evidencing financial support
rather than business expenditure?
8. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in holding
that the write-off of loans/advances to the
Ghanaian subsidiary constituted expenditure for
commercial expediency allowed the deduction u/s
37 of the Act, when the assessee failed to secure
RBI approval, rendering the write-off procedurally
deficient?
9. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in holding
that its earlier decision in ITA No.772/Bang/2019
(AY 2013-14) had attained finality, merely because
no further appeal was filed, despite the fact that
non-filing was only due to low tax effect and not
acceptance of the merits?
10. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in holding
that the harvesting and transportation charges
paid by the assessee to harvesters/contractors
does not constitute payments under a contract
attracting deduction of tax at source under Section
194C of the Income-tax Act?
11. Whether under the facts and circumstances of
the case and in law, the Tribunal is right in treating
harvesting charges paid to contractors as part of

- 5 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
purchase cost of sugarcane, when in law such
charges are distinct contractual payments and
cannot be merged with purchase cost payable to
farmers?”
3. The first five questions relate to transfer price adjustment,
which, according to the learned Transfer Pricing Officer [ TPO ], was
required in respect of the specified domestic transactions.
4. Questions No.6, 7 and 8 relate to the write-off of loans and
advances to the Assessee’s Ghanaian Subsidiary under Section 37
of the Act.
5. Questions No. 10 and 11 relate to whether the Assessee was
required to deduct tax at source under Section 194C of the Act in
respect of payments made to harvesters and transporters for
harvesting and transportation of sugar cane purchased by the
Assessee.
6. These questions arise in the following context.
6.1 The Assessee is a company, inter alia, engaged in
manufacturing sugar. It also generates electricity for its
captive use and exports the balance power to electricity

- 6 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
distribution companies under the Power Purchase
Agreements [ PPA ] entered into between them.
6.2 The Assessee filed its return of income for the AY 2021-22
on 11.03.2022 declaring the total income as Nil. It had
returned business income of ` 31,13,34,484/-, but it claimed
brought forward loss of ` 12,42,03,008/- and also claimed
deduction of ` 18,71,31,476/- under Chapter VI-A of the Act.
6.3 Initially, the Assessee’s return was processed under Section
143(1) of the Act, and its total income was adjusted to
` 74,76,43,780/-. The Assessee had claimed deduction under
Section 80-IA of the Act to the extent of ` 18,71,31,476/-.
However, the Centralised Processing Centre [ CPC] admitted
the same to the extent of ` 8,78,03,700/- as reflected in the
original Form 10CCB filed by the Assessee.
6.4 The Assessee filed an appeal against the intimation dated
22.09.2022 before the Commissioner of Income Tax
(Appeals) [ CIT(A) ]. The CIT(A) allowed the same by an
order dated 29.02.2024.

- 7 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
6.5 In the meanwhile, the return filed by the Assessee was
selected for scrutiny and Assessing Officer [AO] issued a
notice dated 28.06.2022 under Section 143(2) of the Act.
Since there was a specified domestic transaction involving
the supply of Bagasse from the sugar manufacturing unit to
the electricity generation unit, the AO made a reference to
the TPO for determination of the arm's length price [ ALP ] of
the specified domestic transaction. The learned TPO passed
an order dated 27.10.2023 under Section 92CA of the Act,
determining the transfer pricing adjustment at ` 30,77,53,817
in respect of the specified domestic transaction. The AO
accordingly added the said amount and passed a draft
assessment order under Section 144-C of the Act.
6.6 The AO made an addition of 3,79,70,871/-, which was the
`
amount reflected as loan/advances extended by the
Assessee to its wholly owned subsidiary in Ghana, NSL
Sugars & Industries Ltd. [the Ghana Subsidiary ].
6.7 The Assessee had written off the said loans in its profit and
loss Account. However, the AO disallowed the same on the

- 8 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
ground that the Assessee had failed to establish that the
same was only for the purposes of its business.
6.8 In addition to the above, the learned AO also disallowed an
amount of ` 12,39,31,392 under Section 40(a)(ia) of the Act
being 30% of the amount of ` 41,31,06,305/-, which was paid
by the Assessee towards harvesting and transportation
charges for sugarcane.
6.9 The AO found that the Assessee had not deducted any tax at
source [ TDS ] under Section 194C of the Act. Thus,
according to the AO, 30% of the harvesting and
transportation charges debited to the profit and loss account
was liable to be disallowed under Section 40(a)(ia) of the
Act.
6.10 The Assessee filed objections before the Dispute Resolution
Panel [DRP] against the transfer pricing adjustment which
was premised on the rate of raw material as notified by the
Central Electricity Regulatory Commission [ CERC ] for
determining the transfer price. The DRP did not accept the

- 9 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
Assessee’s contention and held that the Assessee failed to
substantiate that adopting the Bagasse fuel price as
determined by CERC skewed the cost of production of
sugar. Accordingly, the DRP directed the TPO to adopt the
Bagasse fuel price adopted by CERC for determining the
ALP.
6.11 In respect of the write-off of loans to the Ghana Subsidiary,
the DRP rejected the Assessee’s objection on the ground
that the Assessee had not paid the amounts, which were
written off, as investment in the form of equity, but had paid
the said amounts directly to the vendors of the subsidiary.
The said payments were in the nature of professional
charges, accountancy charges, audit fees, and guest house
rent, etc., and there was no commercial expediency in
paying the said amounts to the vendors of the Ghana
Subsidiary. The DRP also rejected the Assessee’s objection
regarding disallowance of the amounts paid by the Assessee
as harvesting and transportation charges, on the ground that
the Assessee had not been consistent in its stand and had

- 10 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
failed to produce documentary evidence to establish that
TDS had been deducted on the said payments.
6.12 The Assessee preferred an appeal before the learned ITAT
which was partly allowed. The learned ITAT held that
adopting the CERC tariff to determine the transfer price of
bagasse from the sugar division to the power division would
lead to an unrealistic picture of the cost of production. The
learned ITAT accepted that the price of ` 1,500/- per ton
adopted by the Assessee was reasonable and satisfied the
arm’s length basis.
6.13 In regard to the write off of the loans and advances, the
learned ITAT held that the write-off of ` 3,79,70,871/-
representing the loans and advances given to the Ghana
Subsidiary was a business loss incurred on account of
commercial expediency and thus, was allowable as a
deduction under Section 37(1) of the Act.
6.14 The learned ITAT also accepted the Assessee’s contention
that the disallowance of the amount of ` 12,39,31,392/-

- 11 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
under Section 40(a)(ia) of the Act, in respect of the amount
of 41,31,06,305/- paid as harvesting and transportation
`
charges, did not arise as the said amounts were not claimed
as a separate expenditure in the profit and loss account but
were adjusted against the purchase price of sugarcane and
were treated as a part of the cane purchase cost. The
learned ITAT held that the Assessee had merely facilitated
such payments on behalf of the farmers and the same were
ultimately adjusted against the price of sugarcane payable to
the farmers.
7. The Assessee also raised other issues before the learned
ITAT; however, the same are not relevant for the purposes of the
present appeal. As noted at the outset, the questions projected by
the Revenue are confined (i) to determination of ALP of bagasse
for transfer pricing adjustment, if any; (ii) write-off of loans and
advances to the Ghana Subsidiary; and (iii) disallowance of
amounts paid for harvesting and transportation charges.

- 12 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
Transfer pricing adjustment for supply of Bagasse
8. The Assessee had charged 1,500/- per ton of bagasse
`
which was supplied to the power division. It claimed that the said
price was on an arm’s length basis. The Assessee had also sold
bagasse to a third party at the rate of ` 1,200/- per ton. The learned
TPO did not accept the said contention and determined the ALP on
the basis of the CERC tariff order, which had specified the fuel cost
of bagasse at ` 2,274/- per ton for the states other than the seven
specified states and at ` 2,632/- per ton for the State of
Maharashtra. The learned TPO adopted the rate of ` 2,274/- per ton
for the bagassee supplied by the Aland unit in Karnataka and
` 2,632/- per ton for the bagasee supplied by the Jay Mahesh Unit
in Maharashtra. Accordingly, the learned TPO directed an addition
of ` 30,77,53,817/- to the total income of the Assessee as an
adjustment on account of transfer pricing adjustment. The sales
made by the Assessee to a third party were not considered for
benchmarking the specified domestic transaction because the said
sales were effected on only two dates. The learned TPO found that
the said sales were not reliable.

- 13 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
9. The Assessee had produced the study by the Energy and
Resources Institute under the aegis of the Maharashtra Electricity
Regulatory Commission, which recognised the following six
possible methods for determining the value of bagasse: (i) coal
equivalent method; (ii) alternate fuel GCV equivalent method; (iii)
market value method; (iv) split-off cost method; (v) preferential
tariff-based calculation; and (vi) production cost method. The
learned ITAT accepted that the price of bagasse would vary with
the method adopted, and that the ALP would involve judgment
based on the facts of the present case.
10. Bagasse is a by-product arising from the manufacture of
sugar. This by-product is generated in-house and consumed by the
co-generation power unit. The Assessee obtained quotations from
unrelated third parties, and the learned ITAT found that they
demonstrated that bagasse was available in the open market at the
price adopted by the Assessee. The learned ITAT also noted that
the Karnataka Electricity Regulatory Commission [ KERC ], while
determining the tariff, had accepted the cost of bagasse of
` 1,161.28 per ton. The learned TPO rejected this cost on the

- 14 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
ground that the KERC’s tariff order was made in 2018. The learned
ITAT faulted the learned TPO for rejecting it on that ground.
Although the tariff order was passed in 2018, the prescribed price
of ` 1,161.28 per ton was duly adjusted for the variation in the
relevant financial year. Thus, the fact that KERC had passed the
tariff orders a few years earlier was not relevant, considering that
the price of bagasse as used was the projected price for
determining the tariff applicable for the relevant year.
11. Additionally, the Assessee presented calculations based on
the ‘Fair and Remunerative Price’ [FRP] of sugarcane. The FRP
for the financial year 2020-211 was ` 2,850/- per ton, and it is found
that about 280 to 300 kgs. of bagasse is generated from one ton of
sugarcane. On this basis, the learned ITAT reasoned that the cost
of bagasse would be approximately ` 855/- per ton, and the transfer
price of ` 1,500/- was significantly higher.
12. Concededly, in so far as the Aland unit situated in the State
of Karnataka is concerned, the CERC tariff may not be relevant, as
the tariff fixed by the KERC applies. The bagasse price of 2,274/-
`
per ton was used by CERC in calculating the tariff for the rest of

- 15 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
India, excluding seven States (including Maharashtra) for which
separate prices were used. However, the KERC tariff was
applicable to the State of Karnataka.
13. The learned ITAT’s decision to accept the transfer price of
` 1,500/- per ton of bagasse is supported by cogent material. The
learned ITAT’s finding that the price of bagasse used by CERC for
tariff determination cannot be considered determinative of ALP, in
light of the material produced by the Assessee, cannot be faulted.
There is no ground to hold that the learned ITAT’s decision
disregards the principles for determining ALP under the Act or the
Rules made thereunder. Thus, no substantial question of law arises
from the learned ITAT’s decision to accept ` 1,500/- per ton as the
ALP of bagasse.
Addition of ` 3,79,70,871/- on account of loans and advances
written off
14. The Assessee had made payments to various vendors of the
Ghana Subsidiary during the financial year 2012-13. Concededly,
the said payments were made on behalf of the Ghana subsidiary,
and included professional charges, charges for accounting

- 16 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
services, audit fees, guest house rent and other such payments.
The Assessee wrote off the said amount as it had become
irrecoverable. The Assessee explained that its Ghana subsidiary
was incurring losses from its inception and thus was finally wound
up. The learned AO did not accept that the said payments were on
account of any commercial expediency and accordingly added the
amount which was written off to the Assessee’s total income.
15. As noted above, the Assessee is in the business of
manufacturing sugar. It explained that to extend its business
overseas, it incorporated a wholly owned subsidiary in Ghana. The
Assessee had supported the operations in the initial years by
making payments directly to consultants, professionals, and other
vendors of the Ghana Subsidiary. The Assessee explained that
these payments were for its business, as the Ghana Subsidiary
was its extended arm. The Ghana Subsidiary had incurred
continuous losses and finally closed its operations and was wound
up. The amounts thus spent by the Assessee in the initial years,
which were reflected as loans and advances given to the Ghana
Subsidiary had become irrecoverable. Accordingly, the Assessee

- 17 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
claimed that this was a business loss under Section 37(1) of the
Act. The DRP had rejected the Assessee’s claim on the ground
that the Assessee had not made investments in the form of equity
in its subsidiary, but had made payments to the vendors of the
Ghana Subsidiary. The DRP concluded that this was not a case of
investment in the Ghana Subsidiary and, therefore, inferred that
there was no commercial expediency for the parent company to
pay the subsidiary's vendors directly. The relevant extract of the
DRP’s order is set out below:
“ 3.3 On perusal of the submissions of the
assessee and the comments of the AO in the
remand report and the rejoinder filed by the
assessee, the Panel is of the opinion that the as
the assessee has not directly made investments in
the form of equity in its subsidiary but has paid to
the vendors of the subsidiaries and the payments
are in the nature of professional charges,
accountancy charges, Audit fees and guest house
rent. It is not a case of investment in the subsidiary
and hence it can be inferred that there is no
commercial expediency for the Parent company to
pay off the vendors of the subsidiary directly.
Hence the assessee’s contention that it is a
business loss is not acceptable. Grounds
rejected .”
16. Plainly, the DRP’s reasoning is unsustainable. Although the
Assessee had made payments directly to vendors of the Ghana
Subsidiary, there is no dispute that the said payments were on

- 18 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
behalf of the Ghana Subsidiary. Therefore, the amounts were
reflected in the books of the Assessee as loans and advances to
the Ghana subsidiary and not booked in the profit and loss
account. The conclusion that, because payments were made
directly to the vendors of the Ghana Subsidiary, there was no
commercial expediency for the Assessee to make the payments is
without basis. The principal question is whether the Ghana
Subsidiary was an extension of the Assessee’s business, as
claimed, and whether the amounts were paid to support that
business. The Ghana Subsidiary was incorporated to manufacture
sugar, which is the core business of the Assessee. There is no
material on record which indicates that the said payments were
made for reasons other than to support the Ghana Subsidiary. The
learned ITAT had rightly referred to the decision of the Co-ordinate
Bench of this Court in ACE Designers Limited vs. Additional
1
Commissioner of Income Tax and accepted the Assessee’s
contention. In that decision, the Court accepted that loss of
investment in a wholly owned subsidiary related to its business
operations was a business loss.
1
[2020] 120 taxmann.com 321 (Karnataka)

- 19 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
17. In S.A. Builders Ltd. vs. Commissioner of Income-tax
2
(Appeals), Chandigarh , the Supreme Court had explained as
under:
“22. In our opinion, the decisions relating to
Section 37 of the Act will also be applicable to
Section 36(1)( iii ) because in section 37 also the
expression used is “for the purpose of business”. It
has been consistently held in decisions relating to
section 37 that the expression “for the purpose of
business” includes expenditure voluntarily incurred
for commercial expediency, and it is immaterial if a
third party also benefits thereby.
23. Thus in Atherton v. British Insulated & Helsby
Cables Ltd. (1925) 10 TC 155, it was held by the
House of Lords that in order to claim a deduction,
it is enough to show that the money is expended,
not of necessity and with a view to direct and
immediate benefit, but voluntarily and on grounds
of commercial expediency and in order to
indirectly facilitate the carrying on of the business.
The above test in Atherton’s case, ( supra ) has
been approved by this Court in several decisions
e.g. Eastern Investments Ltd. v. CIT [1951] 20 ITR
1, CIT v. Chandulal Keshavlal & Co. [1960] 38 ITR
601, etc.
24. In our opinion, the High Court as well as the
Tribunal and other income-tax authorities should
have approached the question of allowability of
interest on the borrowed funds from the above
angle. In other words, the High Court and other
authorities should have enquired as to whether the
interest-free loan was given to the sister company
(which is a subsidiary of the assessee) as a
measure of commercial expediency, and if it was,
it should have been allowed.
2
[2007] 288 ITR 1 (SC)

- 20 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
25. The expression “commercial expediency” is an
expression of wide import and includes such
expenditure as a prudent businessman incurs for
the purpose of business. The expenditure may not
have been incurred under any legal obligation, but
yet it is allowable as a business expenditure, if it
was incurred on grounds of commercial
expediency.”
18. In Principal Commissioner of Income-tax vs. Vaibhav
3
Global Ltd. , the Division Bench of the Rajasthan High Court
upheld the diminution in value of wholly owned subsidiary as a
business loss under Section 37 of the Act.
19. The decision of Vaibhav Global Ltd. ( supra ) was followed
by the Rajasthan High Court in a subsequent decision relating to
4
the same assessee . The Revenue preferred a special leave
petition against the said decision, which the Supreme Court
dismissed in Principal Commissioner of Income-tax vs Vaibhav
5
Global Ltd.
20. The learned ITAT had also referred to the decision of the
Bombay High Court in Commissioner of Income-tax vs. Colgate
3
[2022] 138 taxmann.com 506 (Raj.)
4
[2023] 151 taxmann.com 114 (Rajasthan)
5
[2023] 151 taxmann.com 115 (SC)

- 21 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
6
Palmolive (India) Ltd. In the said case, the court had upheld the
decision of the learned ITAT in allowing the losses from the sale of
shares held by the assessee in its wholly owned subsidiary as a
business loss.
21. Question No. 6, as projected by the Revenue, assumes that
the payments made to the vendors of the subsidiary bore no nexus
with the Assessee’s business. This assumption is not supported by
any material on record. On the contrary, the Assessee had
explained that the Ghana Subsidiary was an extension of its
business. It had established its wholly owned overseas subsidiary
to extend its business overseas. It also explained that, in the initial
period, it made payments directly to the vendors of the Ghana
Subsidiary to support the subsidiary. There is no material to doubt
the Assessee’s claim that it had made the said payments for and
on behalf of the Ghana Subsidiary for the purpose of its business.
22. In view of the above, we find no flaw in the learned ITAT’s
decision to allow the write off of loans and advances to the Ghana
6
[2015] 59 taxmann.com 139 (Bombay)

- 22 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
Subsidiary under Section 37(1) of the Act. The question Nos.6, 7
& 8 are thus answered in the affirmative.
` 41,31,06,305/- paid towards harvesting and transportation
charges
23. So far as questions No.10 and 11 are concerned, they relate
to whether the Assessee was liable to deduct tax at source under
Section 194C of the Act in respect of harvesting and transportation
charges paid by the Assessee to the harvesters or the contractors.
24. According to the Revenue, the learned ITAT erred in treating
the said charges as a part of the purchase cost of sugarcane, as
the said payments were distinct contractual payments and could
not be merged with the purchase costs payable to farmers.
25. The Assessee has produced the sample document reflecting
the agreement with the farmers. The said document indicates that
the concerned farmer had agreed to pay the harvesting charges to
the harvester and had authorised the Assessee to deduct such
payments from the amounts payable for supply of sugarcane.

- 23 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
26. The learned counsel appearing for the Assessee points out
that it has never been the case of the Revenue that the charges
paid to the contractors and harvesters were not a part of the
purchase cost of sugarcane payable to the farmers. However, this
is contested by the learned counsel for the Revenue. He submits
that no enquiries were conducted in this regard as the Assessee
had deducted tax at source in some cases. He submits that the
question of whether the amounts paid to the transporter and the
harvester were part of the purchase costs of sugarcane was not
fully examined.
27. Concededly, if the amounts paid to the transporter and the
harvester were part of the purchase cost of sugarcane payable to
the farmers and were deducted from the payments made to the
farmers, there would be no obligation on the part of the Assessee
to deduct tax under Section 194C of the Act.
28. In the aforesaid view, we consider it apposite to remand the
matter to the AO to examine whether the Assessee had, in fact,
deducted the amounts paid to the contractors and the harvesters
from the purchase price of sugarcane payable to the farmers.

- 24 -
HC-KAR
NC: 2026:KHC:57091-DB
ITA No. 105 of 2026
CNR: KAHC010437462026
29. If the AO concludes that the amounts paid to the transporter
and harvester were not part of the purchase cost of sugarcane, the
AO may also examine whether the Assessee deducted tax at
source on the said payments, as claimed by the Assessee.
30. The appeal is disposed of in the aforesaid terms.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(K.S. HEMALEKHA)
JUDGE
KMV/AHB
List No.: 1 Sl No.: 4