2016 (2) TMI 37 - AT - Income Tax

Disallowance of write off of the cost of investments in equity shares - whether allowable as revenue loss or capital loss? - CIT(A) deleted the addition - Held that - In the present case, the assessee is holding the investment in shares in capital field and it was not treated as stock-in-trade, the realization of investment and loss arising out of it only in a capital field and it is only a capital loss. For this purpose, the ld. DR placed reliance on the judgement in the case of Spectra Shares and Scrips Pvt. Ltd. v. CIT 2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT . Accordingly, we reverse the order of the ld. CIT(A) on this issue and the ground raised by Revenue is allowed. Addition made in respect of the ASIDE grant received by the assessee - CIT(A) deleted the addition - Held that - In the present case, the Comptroller and Auditor General of India and other audit agencies of Central Government have observed that the grant of ₹.9.53 crores received by the assessee from Central Government towards ASIDE was wrongly treated the amount received as a revenue receipt in its books and in view of the above observations, the assessee realised the mistake and rectified the same and filed revised return before due date of filing of return of income. Therefore, we find that the ld. CIT(A) has rightly deleted the addition made by the Assessing Officer and the order passed by the ld. CIT(A) on this issue stands confirmed. - Decided against revenue. Disallowance of unsuccessful project promotional expenses written off - Held that - The issues is squarely covered by the decision of the Coordinate Bench of the Tribunal in assessee s own case for earlier assessment years wherein hedl he assessee had been investing in several projects and whenever feasible, promoting new industrial undertakings. If the new undertakings materialized the expenses were transferred and recovered from the new unit. However, if the project was unsuccessful, the assessee wrote off the expenses. The Tribunal held that as the assessee s business was promotion of new ventures, the project expenditure was incidental to the business and hence could not be treated as preliminary or capital in nature and accordingly allowed the same. The order of the Tribunal was upheld by the Hon ble High Court.- Decided against revenue.

Issues Involved:
1. Deletion of disallowance of expenditure by holding that the write-off of the cost of investments in equity shares is allowable as revenue loss.
2. Deleting the addition made in respect of the ASIDE grant received from the Central Government for the assessment year 2007-08.
3. Deleting the disallowance of Rs. 2,65,94,188/- being unsuccessful project promotional expenses written off for the assessment year 2008-09.

Detailed Analysis:

1. Deletion of Disallowance of Expenditure by Holding that the Write-off of the Cost of Investments in Equity Shares is Allowable as Revenue Loss:
The Revenue argued that the write-off of the cost of investments in equity shares should not be allowable as revenue loss since the investments are capital in nature unless the assessee is in the business of trading in such shares. The main business of the assessee is the development of industries, not trading in shares. The shares were treated as investments in the balance sheet, and any diminution in their value would be a capital loss, not a revenue loss.

The assessee contended that the write-off should be allowed as a business loss, relying on a previous Tribunal decision in their favor. The Tribunal noted that the assessee is a public sector undertaking promoting industries in Tamil Nadu and had written off investments in defunct companies as revenue expenditure. However, since the investments were held in the capital field and not as stock-in-trade, the Tribunal concluded that the loss should be treated as a capital loss. The Tribunal reversed the CIT(A)'s order and allowed the Revenue's ground.

2. Deleting the Addition Made in Respect of the ASIDE Grant Received from the Central Government:
The assessee received a grant of Rs. 9.53 crores from the Central Government under the ASIDE scheme, initially treating it as a revenue receipt. Upon audit by the Comptroller and Auditor General, it was realized that the grant should be treated as a capital receipt, leading to the filing of a revised return.

The CIT(A) accepted the revised treatment, noting that the grant was intended for loans or investments to promote industries in Tamil Nadu, and only the income generated from these investments should be treated as revenue. The Tribunal upheld the CIT(A)'s decision, confirming that the grant should be treated as a capital receipt, not a revenue receipt, and dismissed the Revenue's additional ground.

3. Deleting the Disallowance of Rs. 2,65,94,188/- Being Unsuccessful Project Promotional Expenses Written Off:
For the assessment year 2008-09, the Revenue challenged the deletion of disallowance of unsuccessful project promotional expenses. The Assessing Officer had disallowed these expenses, considering them capital in nature and related to earlier years.

The assessee argued that these expenses were written off as part of its business of promoting industries in Tamil Nadu, and thus should be allowed as business expenditure. The CIT(A) agreed, following the Tribunal's earlier decision in the assessee's favor for similar issues in previous years.

The Tribunal noted that the issue was covered by the decision of the Hon'ble Jurisdictional High Court in CIT v. Seshasayee Bros. P. Ltd., which allowed such expenses as revenue expenditure. The Tribunal found no reason to deviate from this precedent and dismissed the Revenue's ground, confirming the CIT(A)'s order.

Conclusion:
In conclusion, the Tribunal partly allowed the Revenue's appeals. The write-off of investments in equity shares was treated as a capital loss, reversing the CIT(A)'s decision. However, the Tribunal upheld the CIT(A)'s decisions regarding the ASIDE grant and the write-off of unsuccessful project promotional expenses, treating them as capital receipt and revenue expenditure, respectively.

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