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TMI Blog2019 (10) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT(A) has erred in confirming the action of the Learned Assessing in not allowing the claim for the cost Improvement amounting to Rs. 5,03,17,635/- capitalized with cost of land, while computing the Long Term Capital Gains, without considering the facts and circumstances of the case." 3. The issue in first Ground of Appeal is against confirming the action of the Assessing Officer in considering a sum of Rs. 2,96,19,07,058/- being waiver of advance as Business Income. The facts in brief are that during the course of assessment proceedings, the Assessing Officer observed that the assessee is a wholly owned subsidiary of erstwhile JSW Ispat Steel Ltd., and is engaged in the setting up a power plant of 110 mw capacity. The assessee company was engaged in the set up the said plant for which JSW Ispat Steel Ltd. provided financial assistance in the form of advance from time to time aggregating to Rs. 296.19 crores to the assessee to be adjusted against the supply of electricity to the holding company M/S JSW Ispat Steel Ltd. . The assessee could not set up the power plant when the assessee decided to discard and abandon the said plant after technically evaluating the project to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee that the said advance was received by the assessee from the holding company for supply of electricity power and is therefore, revenue in nature and repayable by way of adjustment of supply of captive power to the holding company, Thus, the Assessing Officer held that advance by JSW Ispat Ltd. was nothing but advance from supplier towards supply of power, which is taxable as sale consideration. The Assessing Officer noted that the advance was received for acquiring capital asset in the form of construction of power plant but repayment is to be made by way of supply of power and, therefore, cannot be equated with term loan. Accordingly, the Assessing Officer invoked section 28(iv) r.w.s. 2(24)(i) of the Act. Finally, the Assessing Officer, vide order dated 31.03.2015, added the sum to the income of the assessee by rejecting the contentions and submissions of the assessee by framing assessment u/s. 143(3) of the Act in which the said advance was added as stated herein above. 4. In the appellate proceedings, the CIT(A) affirmed the order of the Assessing Officer by observing as under: "7. I have carefully considered the facts of the case, submissions and contentions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Apart from this the Ld AR argued that section 2(24)(i) gives an inclusive definition of the income and that the written back of the advances from the holding company for setting up of the project is neither income nor the value of any benefit arising from the business. It has also been argued that the term loan availed by the assessee company were not in nature of trading liability but were in the nature of capital liability and therefore waiver of loan liability does not amount to waiver of any trading liability and therefore the waiver of capital liability would not become income on the grounds of remission or cessation thereof. The Ld AR in this regard relied upon the jurisdictional High Court judgement in case of Mahindra & Mahindra V/s CIT [261 ITR 501], wherein the Hon'ble jurisdictional High Court held that loan taken for purchase of Plant 85 Machinery and waiver of the principal amount of loan taken, was neither covered by sec 28(iv) nor by sec 41(1). 10. The Ld AR in this regard also relied upon the Hon'ble Delhi High Court judgement in the case of Logitronics P Ltd V/c CIT 333 ITR 386 (Del) wherein it was held that, "in the context of waiver of loan amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany but was to be adjusted against future revenues. So in a way it was advance receipt of future revenues and not a loan as such and therefore was in nature of revenue receipt . The issue is that once capital liability changes the colour and becomes revenue liability, which was never offered by the assessee to tax earlier, then writing back of such amount in the hands of the assessee becomes an income for the assessee in the present year . As per the provisions of section 28(iv) of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession is bound to be treated as business income in the hands of the assessee, in accordance with the provisions of sec 2(24) of the Act. Admittedly, the assessee is not going to pay back this liability to the lender i.e., JSW Ispat Ltd and it has written - back this amount in its books. It also appears that it has already communicated this stand to the parent company that this amount is no more payable and the parent company is reconciled to this fact that this amount is not going to be recovered back. In the situation, this entire amount of Rs. 2,96,19,07,058/- is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk-in-Progress and fixed assets aggregating to Rs. 236.18 crores. Similarly, in the case of Mohan Meakin Breweries Ltd V/s CIT (1997) 227 ITR 878 (HP), the Hon'ble Himachal Pradesh High Court upheld the decision of the ITAT in rejecting the claim of the assessee towards discarding the milk plant and claiming the same as revenue expenditure u/s 28. For clarity, the relevant portion of the Court order is reproduced as under: "9. A Bench of this court has dealt with the question whether the fee paid to the Registrar of Companies for raising the limit of the authorised capital of the company from one crore to five crores is capital expenditure or not. In Mohan Meakin Breweries Ltd. v. CIT (No. 2) [1979J 117 ITR 505; [1979} HP 121, the Bench held that it was capital expenditure and cannot be deducted from the total income. That decision may not by itself be applicable to the facts of the present case, but as stated earlier we have to see the nature of the licence fee paid by the assessee to the Government of Himachal Pradesh. Admittedly, the fee was paid under the provisions of the Punjab Excise Act and the Punjab Distillery Rules, which are applicable to the State of Himachal Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in computing the total income of the assessee-company. 13. The reference is answered accordingly." The ratio of above judgments is squarely applicable to the facts of the present case . 16. In view of the above facts, the claim of the assessee towards Rs. 296.19 crores being the capital receipt and adjustment of the same against the project cost before scrapping is hereby rejected. Therefore, the AO's decision in treating the same as revenue receipt is upheld. Consequently the addition of Rs. 2,96,19,07,058/- made by the AO is upheld. This ground of appeal taken by the assessee is dismissed." 5. The learned AR vehemently submitted before the Bench that the advance received from holding company JSW Ispat Ltd., was a capital advance received for the purpose of setting up the capital power plant and repayment was to be made by way of supply of electricity power to the holding company. The learned AR submitted that since the advance received was towards setting up power plant, obviously is in the nature of capital advance and cannot be treated as revenue advance. Therefore, the order of the CIT(A) confirming the action of the Assessing Officer is erroneous and deserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case advance is purely in the nature of trading receipt. Consequently, the ratio of the aforesaid decisions is not applicable in the present case. 7. We have heard both the parties and perused the material on record. The facts are not in dispute that the assessee was in the process of setting up captive power plant for which it had received advance of Rs.Rs. 296,19,07,058/- from JSW Ispat Ltd. The assessee incurred capital cost to the tune of Rs. 436.49 crores in connection the said project. The construction and installation of the project was abandoned by the assessee after getting it technically evaluated and finding it to be non viable and finally the expenses were written off. While writing off the capital expenditure in progress, the assessee reduced the money received from holding company to the tune of Rs. 2,96,19,07,058/- from capital work in progress. According to the Assessing Officer the said advance was in the nature of revenue as it was sales consideration for the electricity to be supplied in the future and, thus, the adjustment of the advance was to be made by way of supply of electricity. The learned CIT(A) upheld the same by holding that the advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refully considered the facts of the case, submissions and contentions of the assesses as well as order of the AO. As mentioned above, during the year under consideration, the assessee sold, the factory land for a sum of Rs. 13,54,70,000/-. This land was acquired for a sum of Rs. 6,24,84,680/- in the year 2007-08. While computing the capital gains on sale of land, the assessee has farther considered an amount of Rs. 5,03,17,635/- towards site development expenditure. However, it is gathered that no details of such expenses were furnished before the AO, during the course of assessment proceedings. Therefore he rejected the claim of the assessee towards site development expenses and computed the long term capital gains on sale of property by considering only the purchase cost of land at Rs. 6,24,84,680/- and computed the capital gains at Rs. 4,64,49,176/-. During the course of appellate proceedings, though the assessee disputed the decision of the AO in not allowing the claim towards site development or improvement cost amounting to Rs. 5,03,17,635/- but it did not file any details or supporting evidence as to where the site development cost was incurred nor any supporting bills and v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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