2024 (1) TMI 852 - AT - Income Tax

Business expenditure u/s 37(1) - transaction documents as referred to in the Framework Agreement require to be seen to find out the true nature and character of the loan - whether for acquiring capital asset or for repayment of liabilities? - HELD THAT - We find, as per submissions of DR, it is the case of the Revenue that various agreements, which are not produced at earlier stages need to be examined for arriving at a proper conclusion on assessee s claim of business expenditure. Since, the documents referred to by learned Departmental Representative were never called for and examined by the departmental authorities, in our view, in the interest of justice, the issue arising for consideration needs to be restored back to the AO for de novo adjudication. AO, if so desires, may call upon the assessee to furnish the documents, which he requires to examine for ascertaining the true nature and character of the expenditure. On examination of such documents, the Assessing Officer may decide the issue after providing due and reasonable opportunity of being heard to the assessee. Appeal is allowed for statistical purposes.

Issues Involved:
1. Whether an amount of Rs. 7,67,07,293/- is allowable as business expenditure under section 37(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Allowability of Rs. 7,67,07,293/- as Business Expenditure under Section 37(1)

The core issue arising for consideration in the appeal is whether an amount of Rs. 7,67,07,293/- is allowable as business expenditure under section 37(1) of the Income-tax Act, 1961. The assessee, previously known as M/s. Quanta Towergen (P) Ltd., is engaged in the business of owning and operating solar installations including batteries on telecom towers. The assessee had entered into a Master Service Agreement with M/s. Team Sustain Ltd. for executing solar installation projects and maintaining the solar assets on sites. The assessee advanced a sum of Rs. 8,13,03,459/- to M/s. Team Sustain Ltd. for payment of service tax and other liabilities, which was disbursed during the financial years 2015-16 and 2016-17. Subsequently, due to financial difficulties faced by M/s. Team Sustain Ltd., the assessee entered into a settlement agreement and waived off the loan and interest, and paid compensation to M/s. Team Sustain Ltd.

In the course of assessment proceedings, the Assessing Officer disallowed the deduction claimed by the assessee on account of loan waiver and compensation paid, concluding that the amounts written off are not allowable as deduction under section 36(2)(i) of the Act. The learned Commissioner (Appeals) upheld the disallowance, holding that the deduction claimed is not in the nature of business expenditure.

During the appellate proceedings, the learned counsel for the assessee argued that the loan advanced was for repayment of liabilities arising out of business operations and should be allowable as business expenditure. The learned Departmental Representative contended that various agreements and documents need to be examined to determine the true nature and character of the loan'whether for acquiring capital assets or for repayment of liabilities.

After considering the rival submissions and perusing the materials on record, the Tribunal found that the documents referred to by the learned Departmental Representative were never called for and examined by the departmental authorities. Therefore, in the interest of justice, the issue was restored back to the Assessing Officer for de novo adjudication. The Assessing Officer may call upon the assessee to furnish the required documents and decide the issue after providing due and reasonable opportunity of being heard to the assessee. The appeal was allowed for statistical purposes.

Order pronounced in the open court on 15/01/2024.

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