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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 ..... this issue and the ground raised by the assessee is dismissed. Capital gain computation - not allowing the claim for cost of improvement capitalized with cost of land, while computing the Long Term Capital Gains - HELD THAT:- The issue of developmental expenses of land could not be examined by the AO as the assessee could not produce the documents being damaged and mutilated in the building collapse. Now the learned AR submitted before the Bench that the assessee has genuinely incurred these expenses and the same as to be treated as part of cost of property while computing the cost of land. It is further submitted that the assessee has reconstructed the record, which could be produced before the AO. DR, on the other hand, strongly opposed the arguments of the learned AR by submitted that the assessee has failed to produce the record before the authorities below and no second round should be allowed to the assessee to prove its case. After analysing the facts on record, we observe that it would be in the interest of justice, if the assessee is given one more opportunity to explain its case before the AO by filing the necessary evidences of expenditure incurred on developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided to discard and abandon the said plant after technically evaluating the project to be non viable . Consequently, the assessee wrote off the capital work in progress, pre-operative expenses other capital advances received, loss on fixed assets discarded, share issue expense, provision for bad and doubtful debts and advances, provision for potential loss in value of material in transit incurred in connection with therewith. The total amount written off by the assessee during the year under abovementioned heads was ₹ 436,49,48,731/-. Simultaneously, the assessee also wrote back advances received from the holding company M/s. JSW Ispat Ltd. amounting to ₹ 296,19,07,058/-. As a result, the assessee debited to the Profit Loss Account net amount of ₹ 140,30,41,673/- as an exceptional item, details of which is as under: Share issue expenses written off ... 1,34,33,213/- Provision for doubtful debts and advances ... 2,48,73,036/- Pre-operative expenditure written of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards 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 assessee as well as the order of the AO, There is no dispute in the basic facts which are that the assessee was setting up a captive power plant for electricity generation at Dholvi, Dist Raigad, for which it had incurred project costs of ₹ 417.31 crores . Partly the cost was met out of the advances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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, what follows from the reading of the aforesaid judgement is that the answer would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 2,96,19,07,058/- is liable to be treated as income in the hands of the assessee. 13. It is further gathered that setting, up., of new power plant by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Pradesh, Section 21 of the Punjab Excise Act provides for establishment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian made foreign liquor cannot be allowed as a deduction 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 ₹ 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 ₹ 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Apex Court and Hon ble Bombay High Court have held that provision of section 28(iv) and section 41(1) were not applicable, whereas, in 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.₹ 296,19,07,058/- from JSW Ispat Ltd. The assessee incurred capital cost to the tune of ₹ 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 ₹ 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 supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and recomputed the Capital gains by rejecting the cost of ₹ 5,03,17,635/-. In the appellate proceedings, the CIT(A) dismissed the appeal of the assessee by observing as under: 18. I have carefully 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 ₹ 13,54,70,000/-. This land was acquired for a sum of ₹ 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 ₹ 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 ₹ 6,24,84,680/- and computed the capital gains at ₹ 4,64,49,176/-. During the course of appellate proceedings, though the assessee disputed the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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