9911796707
TMI Blog2019 (7) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... fied by UP State Government. 2.1. The brief facts of the case are that the assessee had availed the benefit of UP State Government deferral scheme in respect of sales tax collected at Lucknow works. As per deferral scheme, sales tax collected was deferred and converted into loan. Though the deferral was permitted as per the scheme, the agreement was required to be signed with the UP State Government every year for completion of legal formalities. The agreement in respect of current year was signed subsequent to the due date of filing of return of income for the Asst Year 2003-04. 2.2. The ld. AO held that as per Circular No.674 dated 29/12/1993, the deduction was admissible for the sales tax dues provided, the sales tax liability was converted into loan in the previous year in which the conversion had been permitted by the Government. During the year, the sales tax collected amount in the sum of Rs. 6,33,96,597/- was not converted into loan. Accordingly, the ld. AO disallowed the amount u/s.43B of the Act stating that the said amount could not be treated as paid during the year. This action of the ld. AO was upheld by the ld. CIT(A). 2.3. Aggrieved, the assessee is in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y.2002-03 (immediately preceding A.Y), certain items lying in capital work in progress of Rs. 6,46,81,880/- were adjusted against Securities Premium Account as per the provisions of Section 78 r.w.s.100 of the Companies Act, 1956. These items have been sold during the previous year for a sum of Rs. 3,20,52,173/-. Sale proceeds of those items were credited to Securities Premium Account and consequent loss of Rs. 3,26,29,707/- was claimed as revenue expenditure by the assessee. The assessee explained before the ld. AO that in the earlier years, the assessee had constructed and fabricated certain steel columns and steel structures which were not attributable with any particular project and hence the same were treated by the assessee as capital work in progress to the tune of Rs. 6,46,81,880/- which were debited to the Securities Premium Account without routing the same through profit and loss account. Since these items were sold for a lesser sum which resulted in a loss of Rs. 3,26,29,707/-, there is no point in retaining the loss in Securities Premium Account and accordingly, the same were claimed as deduction by the assessee as business loss. The assessee pleaded that these item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Co-ordinate Bench of Mumbai Tribunal and the decision rendered thereon are as under:- "2. Ground No. 1 is regarding disallowance of expenditure on abondoned project. 2.1 During the course of assessment proceedings, the AO noted that the assessee has incurred expenses on abondoned project to the tune of Rs. 3,94,75,619/-. On query from the AO, the assessee submitted that the assessee was required to put up cellsites for enabling its business. In certain cases the assessee had incurred expenses for putting up cellsites but this could not be completed and were abondoned. The assessee claimed that the expenses were incurred for the purpose of its business and, therefore, is allowable as business expenditure. The AO disallowed the claim of the assessee on the ground that the expenditure has been spent by the assessee on sites to bring into existence the new asset and new source of income. Accordingly the AO held that the loss incurred due to abondonment of project, is capital in nature and accordingly disallowed the deduction claimed by the assessee. 2.2 On appeal, the CIT(A) has concurred with the view of the AO and held that the expenses incurred on cell sites were definite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the assessee on two reasons viz. (i) the expenditure has been incurred for bringing up a capital asset into existence.(ii) the capital asset being cellular sites/towers would be the new source of income. As far as the cellular towers being new source of income is concerned, we find, that the towers were being erected for the purpose of assessee's own business of providing cellular services to its customers. Therefore, the tower is only a mean through which the assessee is able to provide cellular services and it is not an independent source of income It is only to facilitate the assessee to manage and run the business of providing cellular services in a more efficient, convenient and profitable manner. Therefore, when the towers are not exclusively meant for leasing out to third parties for earning the revenue but used for transmission of telephone signals of assessee's own cellular services then it cannot be said that the towers which are used for the assessee's own business are new source of income. A cellular tower can be a new independent source of income if it is erected exclusively for leasing out to the other operators. Since this project of erecting towe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten off. After narrating the detail facts in respect of the above expenditure, it has been claimed that it may be treated to be abortive expenditure. The Assessing Officer rejected the claim of the assessee as misconceived on the ground that it is a case of capital expenditure. The C.I.T.(Appeals) also upheld the said finding but the Tribunal has reversed the finding. 14. In the case of Indo Rama Synthetics (I) Ltd. v.CIT [2009] 185 Taxman 277 (Delhi) it has been held that if expenditure has been incurred for setting up a new unit which was subsequently abandoned, then the aforesaid expenditure will be treated as revenue in nature as no new industrial asset came in existence. 15. The Tribunal has relied upon the judgement of the Calcutta High Court delivered in the case of CIT v . Graphite India Ltd. [1996] 221 ITR 420 and decision of the Hon'ble Supreme Court in the case of Jonas Woodhead & Sons (India) Ltd. v. CIT [1997] 224 ITR 342/ 91 Taxman 1 and Allembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377/ 43 Taxman 312 (SC) and held that in view of the ratio of above judgements, if the expenditure is incurred for acquisition of an asset which gives or renders endurin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto existence. The fact that later on the site was not chosen for hoisting the tower is immaterial. However, we find that the tribunal applied the correct test. The tribunal found that there is no dispute that the expenditure in question was incurred for the purpose of construction of a cellular tower, but the project was then abandoned due to the reason that the site was not suitable. The reasons assigned by the assessing officer and the first appellate authority are unsustainable, according to the tribunal for the simple reason that cellular towers were being erected for the purpose of assessee's own business of providing cellular services to the customers. The towers are meant for the business of providing cellular services. It is by utilising these towers that such services are provided. It is not an independent source of income. It is only to make the cellular services provided more efficient, convenient and profitable. When the towers are not exclusively meant for leasing out to third parties for earning the revenue, but used for transmission of telephone signals of assessee's own cellular services, then, it cannot be said that the towers, which are used for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y framed for this A.Y.2003-04 u/s.143(3) r.w.s. 147 of the Act on 31/12/2007, wherein the very same items were duly added back by the ld. AO in the computation of book profits u/s.115JB of the Act. It was submitted by the ld. Counsel for the assessee that the said reply was refused to be taken on record by the ld. CIT(A), but however, it was informed by the ld. CIT(A) to the assessee's representative that the objections would be considered by the ld. CIT(A) in his order. It is a fact that the ld. CIT(A) had indeed considered the objections of the assessee in para 15.1 of his order. Now, the short point that arises for our consideration is as to whether the ld. CIT(A) could have validly invoked his enhancement powers vested in terms of Section 251(1)(a) of the Act in the facts and circumstances of the case. In this regard, the list of dates and gists would be relevant to understand the entire facts in totality. SEQUENCE OF EVENTS Sr No. Date Particulars 1 30 October 2003 Filing of Return of Income 2 31 January 2006 Assessment Order under section 143(3) 3 13 April 2006 Filing of appeal before CIT(A) against 143(3) Order 4 29 May 2006 Issue of Notice under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "2. The respondent (hereinafter called the assessee) is an individual carrying on business in Jute, Cloth and Films, The assessment year is 1952-53, the corresponding accounting year being the, calendar year 1951 for all business except Katihar Cloth Importing Co. and the Jute Mills for which the accounting year is financial year ending March 31, 1952. During the year of account the assessee claimed that he had borrowed three sums of Rs. 2,50,000, 1,50,000 and Rs. 30,000 from three parties from ,Nepal, Khara- Bahadur Nepali, Jiwanmal Santockchand and Sohanlal Subhkaran respectively. The Income-tax Officer added these amounts to the total income of the assessee on the ground that the assessee had inflated the purchase of raw jute. The Income-tax Officer was not satisfied that these three loans were genuine loans but considered that they represented secret profits made by the assessee by inflating the purchase of raw jute. The Income-tax Officer noted that die assessee had withdrawn at Calcutta on March 31, 1952, a sum of Rs. 5,30,000 from a Calcutta bank and had sent a sum of Rs. 5,95,000 to his Forbesganj branch on the same day to enable that branch to make payments including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and some of the payments made at Forbesganj branch on March 31, 1952 were not made from the remittance from Calcutta but from secret funds. The Appellate Tribunal pointed out that out of the payments claimed to have been made at Forbesganj payments to Kharag Bahadur Nepali amounting to Rs. 2,50,000 must also be excluded because it had been held by the Income-tax Office and the Appellate Assistant Commissioner that the loan was not genuine; and since the loan. was not genuine it was not logical to say that it required repayment from secret funds. The Appellate 'tribunal accordingly reduced the enhancement to Rs. 1,55,000. In doing so the Appellate Tribunal rejected the contention of the, assessee ,hat the Appellate Assistant commissioner had no authority to enhance the income on the ground that it was not the subject-matter of the assessment made by the Income-tax Officer. The Appellate Tribunal took the view that the subject-matter in respect of which the enhancement was made was, in fact, considered by the Income Tax Officer and accordingly the Appellate Assistant Commissioner had jurisdiction to make the enhancement. At the instance of the assessee the Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new source of income. At page 895 of the Report, Hidayatullah, J. speaking for the Court stated as follows : "The only question is whether in enhancing the assessment for any year lie can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income-tax that the word 'assessment' here means the ultimate would it which an assessee must pay, regard being had to the charging section and his total income. In this view, it is said that the words 'enhance the assessment' are not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. There is no doubt that this view is also possible. On the other hand, it must not be overlooked that there are other provisions like sections 34 and 33B, which enable escaped income from new sources to be brought to tax after following a special procedure. The assessee contends that the powers of the Appellate Assistant Commissioner extend to matters consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its taxability. But since the Income-tax Officer has not applied his mind to the question of the taxability or nontaxability of the amount of Rs. 5,85,000, the Appellate Assistant Commissioner had no jurisdiction, in the circumstances of the present case, to enhance the taxable income of the assessee on the basis of this amount of Rs. 5,85,000 or of any portion thereof. As we have already stated. it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income- tax Officer with a view to find out new sources of income and the power of enhancement under s. 31(3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context "consideration" does not mean "incidental" or "collateral" examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains on sale transactions executed through the registered sale deeds of even date i.e, 11.01.2007 whereby the assessee has sold certain plots of land at Village Goner, Tehsil Sanganer, Jaipur to his two daughters-in-law namely Narangi Devi w/o Chhaju lal and Jamna Devi w/o Kaluram for a total consideration of Rs. 1,62,72,000. Now, if we look at the return of income filed by the assessee, it is noted that pursuant to issuance of notice u/s 148, the assessee had filed his return of income disclosing agricultural income of Rs. 1,10,000/- and prior to that, no return of income was filed by the assessee. The notice issued under section 148 dated 15.03.2013 talks about an amount of Rs. 16,50,000 deposited in assessee's bank account maintained with PNB, the source of which has not been explained and the same has thus escaped assessment. On perusal of the assessment order passed under section 143(3) read with section 147 of the Act, it is noted that the said deposits in assessee's bank has been examined however, there is no linkage with the impunged sale transactions which are the subject matter of enhancement by the ld CIT(A). Further, there is a sale transaction which is the subject ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld CIT(A) are circumscribed by the assessment order in the matters arising thereof or a matter arising out of the proceedings. As held by the Courts, even though, the ld CIT(A) has suo moto power to consider the questions arising thereof but there is no provision to go beyond the matter arising out of the proceedings before the Assessing officer, more particularly as separate provisions for such eventuality are provided in the Act. In light of the same, the enhancement so done by the ld CIT(A) whereby the impugned sale transactions are brought to tax in the year under consideration are beyond the scope of her powers envisaged under section 251(1)(a) and the same thus cannot be accepted. However, the AO shall be free to take action as per law. 4.5. We find that the aforesaid decision of Jaipur Tribunal squarely addresses the issue in dispute before us. At the cost of repetition, we would like to state that the aforesaid three issues viz. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts vis-à-vis computation of book profits u/s.115JB of the Act were already added by the ld. AO in the re-assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of the power is coterminous and co-extensive with that of the Assessing Officer. He may, therefore, consider and decide any matter arising out of the proceedings in which the order appealed against is passed. He can do what the Assessing Officer can do and direct him to do what he has failed to do. Such powers are, however, subject to the limitation that what an Assessing Officer could not do validity, the first appellate authority also cannot do in appeal. This question, however, does not arise in this case as the assessee was entitled to file the audit report before the completion of the assessment with or without a revised return for the purpose of curing the defect in the original return filed without the audit report." 4.7. Respectfully following the observations of Hon'ble Calcutta High Court in para 16 above, the enhancement made by the ld. CIT(A) with respect to aforesaid three items in the computation of book profits u/s.115JB of the Act deserves to be deleted and is hereby deleted. 5. The next issue to be decided in the appeal of the revenue is as to whether the ld. CIT(A) was justified in allowing the assessee's claim of provision of warranty expenses in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the terms of issue the holders have an option to convert the FCCNs into ordinary shares or American Depository Shares. Thus, from the aforesaid facts, he concluded that FCCNs are in the nature of convertible debentures. Hence, any expenditure relatable to it has to be considered as share issue expenses, therefore, capital in nature. Accordingly, he disallowed assessee's claim of deduction. Though, the assessee objected to the aforesaid disallowance before the DRP, however, it was unsuccessful. Accordingly, the Assessing Officer carried out the disallowance in the final assessment order. 10. The learned Authorised Representative submitted, while deciding identical issue in assessee's own case for assessment year 2005-06, the Tribunal has deleted the disallowance made by the Assessing Officer. Thus, he submitted, the issue is covered by the decision of the Tribunal in assessee's own case for assessment year 2005-06. In this context, he drew our attention to the relevant observations of the Tribunal. Further, in support of his contention, he relied upon the decision of the Tribunal in Tata Iron & Steel Co., ITA no.3965/Mum./ 2003 & Ors., dated 7th March 2014. He a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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