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2019 (7) TMI 1211 - AT - Income TaxDisallowance on loss of sale of items held in capital WIP - AO held that project is not identifiable hence it is not incidental to the assessee s business - HELD THAT - At the outset, the ld. AR pointed out that these expenses incurred towards steel structures and steel fabrications were not incurred for a new project as such. Moreover, the assessee is not following project completion method. It is not known from where the ld. AO had material to come to this conclusion. These expenditures were incurred for an ongoing project which was kept in capital work in progress. We find that the reliance placed by the ld. AR on the Co-ordinate Bench decision of this Tribunal in the case of Idea Cellular Ltd., vs. ACIT which was approved by High Court in 2016 (10) TMI 181 - BOMBAY HIGH COURT is well founded and consequently applicable to the facts of the instant case. As relying on M/S. IDEA CELLULAR LTD (supra), we hold that the losses incurred by the assessee in the sum has to be treated as incidental business loss and hence to be allowed as revenue expenditure to the assessee for the A.Y.2003-04. Accordingly, the ground No.2 raised by the assessee is allowed and ground No.3 raised by the revenue is dismissed. Enhancement by CITA) to book profit computation u/s.115JB - Provision of deferred tax, Provision for diminution in value of investments and Provision for bad and doubtful debts - CIT(A)'s enhancement powers u/s 251(1)(a) - HELD THAT - Three issues viz. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts vis- -vis computation of book profits u/s.115JB were already added by the ld. AO in the re-assessment order framed on 31/12/2007. Admittedly, the ld. CIT(A) issues enhancement notice to the assessee by way of recording in the order sheet only on 07/03/2011, on which date these three additions have already been made by the ld. AO in the re-assessment order. Hence, by respectfully following the decision of Jaipur Tribunal, 2018 (7) TMI 1398 - ITAT JAIPUR we hold that the ld. CIT(A) erred in exercising enhancement powers in terms of Section 251(1)(a) in the facts and circumstances of the case before us. Even on merits, we find that the AO in the original assessment proceedings u/s.143(3) completed on 31/01/2006 had applied the law prevailing on that date. These three items i.e. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts were sought to be added in the computation of book profits u/s.115JB only pursuant to an amendment brought by the Finance Act 2008 with retrospective effect from 01/04/2001. Hence, on the date of passing of order u/s.143(3) on 31/01/2006, the ld. AO could not have added these three items in the computation of book profits u/s.115 JB. Hence, what could not have been done by the ld. AO as per law prevailing at that time, the ld. CIT(A) could not do by exercising enhancement powers - enhancement made by the ld. CIT(A) with respect to aforesaid three items in the computation of book profits u/s.115JB deserves to be deleted and is hereby deleted. Claim of provision of warranty expenses - HELD THAT - Decided in favour of assessee as relying on own case 2018 (4) TMI 1696 - ITAT MUMBAI . Allowability of Expenses incurred towards issue of foreign currency convertible notes - allowability as revenue expenditure - HELD THAT - We find that the ld. AR stated that this issue is also covered by the order of this Tribunal in assessee s own case for A.Y₹ 2004-05 to 2006-07 2018 (4) TMI 1696 - ITAT MUMBAI Following the decision of the Hon'ble Rajasthan High Court in Secure Meters Ltd. 2008 (11) TMI 66 - HIGH COURT RAJASTHAN has held that irrespective of the fact whether the debenture issued is convertible or non- convertible, it is in the nature of loan. Therefore, any expenditure incurred in relation to issuance of such debenture is allowable as expenditure. and had granted relief to the assessee which do not call for any interference. Accordingly, ground No.2 raised by the revenue is dismissed.
Issues Involved:
1. Disallowance under Section 43B of the Income Tax Act related to sales tax collected under the UP State Government scheme. 2. Disallowance of loss on sale of items held in work-in-progress as capital in nature. 3. Enhancement to book profit computation under Section 115JB concerning provisions for deferred tax, diminution in value of investments, and bad and doubtful debts. 4. Allowance of provision for warranty expenses. 5. Allowance of expenses towards the issue of Foreign Currency Convertible Notes (FCCN). Issue-wise Analysis: 1. Disallowance under Section 43B of the Income Tax Act: The first ground raised by the assessee pertained to the deletion of disallowance under Section 43B concerning sales tax collected under the UP State Government scheme. The assessee had availed the benefit of the deferral scheme, converting sales tax collected into a loan. The agreement for the current year was signed after the due date for filing the return of income for A.Y. 2003-04. The Assessing Officer (AO) disallowed the amount, stating it could not be treated as paid during the year. The assessee did not press this ground as the deduction was granted in the subsequent year. The Tribunal dismissed the ground as not pressed. 2. Disallowance of Loss on Sale of Items Held in Work-in-Progress: The assessee contested the disallowance of loss on the sale of items held in work-in-progress, arguing it should be treated as business loss. The AO disallowed the loss, stating the items were not attributable to any particular project and were treated as capital work in progress. The CIT(A) upheld the AO’s decision but allowed the loss as a capital loss under Section 45 of the Act. The Tribunal, following the decision in Idea Cellular Ltd. and Tata Robins Fraser Ltd., held that the loss should be treated as incidental business loss and allowed it as revenue expenditure. Consequently, the assessee's ground was allowed, and the revenue's ground was dismissed. 3. Enhancement to Book Profit Computation under Section 115JB: The CIT(A) enhanced the book profit computation under Section 115JB by adding provisions for deferred tax, diminution in value of investments, and bad and doubtful debts. The assessee argued that these items were already added back in the reassessment order and should not be subject to enhancement. The Tribunal noted that the AO had already made these additions in the reassessment order, and the CIT(A) should not have exercised enhancement powers. Additionally, the Tribunal cited the Supreme Court decision in Rai Bahadur Hardutray Motilal Chamaria, holding that the CIT(A) could not enhance the assessment by discovering new sources of income not considered by the AO. The Tribunal deleted the enhancement made by the CIT(A). 4. Allowance of Provision for Warranty Expenses: The revenue challenged the allowance of provision for warranty expenses. The Tribunal noted that this issue was covered by its previous decisions in the assessee's own case for earlier assessment years, where the provision for warranty expenses was allowed. The Tribunal upheld the CIT(A)’s decision to allow the provision for warranty expenses, dismissing the revenue's ground. 5. Allowance of Expenses Towards Issue of Foreign Currency Convertible Notes (FCCN): The revenue contested the allowance of expenses related to the issue of FCCN. The Tribunal referred to its previous decisions in the assessee's own case and other cases, where it was held that expenses related to the issuance of FCCNs were allowable as revenue expenditure. The Tribunal upheld the CIT(A)’s decision, dismissing the revenue's ground. Conclusion: The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal, providing a detailed analysis and justification for each issue involved. The judgments were based on precedents and applicable legal principles, ensuring a comprehensive resolution of the disputes.
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