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TMI Blog2022 (8) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of write-off of the asset to the assessee as revenue expenditure. Similarly, the deferred tax asset is not an item which can be claimed as a deduction as revenue expenditure on its right for the simple reason that it is not at all an expenditure. Further such deferred tax assets are created on account of timing difference between profits and tax profits. At the time of creation, it is not allowable as an expenditure or not chargeable as income and further when it is written off, or written back, it is not charged to tax or granted as deduction. Therefore, write-off of the deferred tax assets is not an expenditure at all. Further, it is not also deductible loss as in fact it is merely a book entry. Therefore, the learned CIT A has erred in allowing the deduction to the assessee on this account. All the decisions cited by the learned authorised representative clearly shows that only revenue loss which is incurred during the year arising out of the business being carried on by the assessee is allowable as deduction u/s 29 of the act. The loss claimed by the assessee is not at all a revenue loss. Thus the orders of the learned CIT A is reversed on both the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule. The bankers issue notice of default and has taken over the possession property under the above Act. The lender properties were auctioned and the outstanding loan was partly adjusted against the same as the properties have been taken over under the SARFAESI Act and hold the net result has been claimed by the assessee as loss on sale under SARFAESI Act. Assessee further submitted that it has written off all the assets. The assessee also submitted the public notice and terms and conditions of such auction. The learned Assessing Officer considered the explanation of the assessee and found that the above fixed assets are not part of the inventory of the business to the extent of ₹7,03,45,263/- and therefore, the same is a capital loss and he disallowed the same. He also found that there is a deferred tax assets of ₹27,00,00,000/- also not a part of inventory sold off, accordingly, he disallowed the deferred tax assets also. In the result, the total income of the assessee was computed at a loss of ₹73,34,47,560/- by assessment order dated 30th December, 2017 passed under Section 143(3) of the Act. While making addition the ld AO held as under :- 3. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued notice of default for repayment to the company which had mortgaged the Property. During the year, Punjab National Bank has taken over the possession of the mortgaged Property and under the provisions of SARFAESI Act; has e-auctioned the Mortgaged Property was sold by Punjab National Bank in the month of October, 2014 and has set-off the proceeds from such sale against the outstanding Loans and interest thereon due to the consortium of Lenders. The company was unable to meet with its financial obligations towards repayment of principal amount of loan and interest thereon with the banker's /NBFC and accordingly, the part of the project has been auctioned by Punjab National Bank during the current year under SARFAESI Act. Accordingly, the loan has been settled on 30.10.2014 against the assets and liabilities of the project resulting into a net loss which is shown under the head Loss on sale under SARFAESI Act . Company has written off all the assets ie. Land, project development expenses and other costs related construction and development. Further company has written back amount received from members, advance received towards sale of flats, loans from banks and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment of units and the balance to be Non-Processing Area (for social infrastructure including Residential). Also under the provisions of the SEZ Act. the development shall be with complete infrastructure including reliable power and plug and play mechanism. The Company developed the first phase with 50% Processing Area (2 Commercial Buildings) and balance 50% Non-Processing Area (10 Residential Buildings) together with necessary infrastructure including the Roads, Distribution Networks, Landscaping, etc...Copy of the approvals from MIDC for the layout and the building plans (both in Processing and Non-Processing Area) sanctioned on 13-Oct-2010 and 27-Oct-2010 are attached herewith in Annexure-C. The approval for the extended phase with additional Commercial buildings in Processing Area and additional 5 Residential Buildings in the Non-Processing Area was received in 2012 and are attached herewith in Annexure-D with the subsequent phases to be developed over time. The company has been capitalizing the development-Construction works (both in Processing Area and Non-Processing Aera). The project office, Store Rooms and Godowns were established at the site on the said l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extinguished liabilities of loan, advances etc. Vide order sheet notings dated 02.11.2017 and 15.12.2017, the assessee was asked to provide the details of all the assets which have been written-off subsequent to the auction of its inventory under SARFAESI Act by PNB Bank. As per the details filed by the assessee, it is seen that along with its assets (Development Work Inventories, WIP, current assets etc), the assessee has written of Fixed Assets of Rs. 7,03,45,263/- and Deferred Tax Asset of Rs. 27,00,00,000/- also. Disallowance of Fixed Assets 4.5 Further, from the details filed, it is seen that the break-up of the fixed assets is asunder: Fixed Assets Gross Block(Rs.) Acc. Depn (Rs.) Net value (Rs.) Buildings 45076293 37720416 7355877 Plant Machinery 97185974 45958444 51227530 Office Equipments 10384268 6525805 3858462 Furniture Fixtures 10729644 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit of ₹ 27,00,00,000/- to deferred tax credit, he held that now there is no chance that assessee could make any use of any unabsorbed losses or depreciation for which deferred tax were credited. He further held that when there is no future business the deferred tax assets could not have been carried on in the balance sheet, hence, he deleted the addition holing as under :- 8.1 I have considered the facts of the case, submissions and contentions of the assessee as also order of the AO. On perusal of the facts of the case, it appears that the assessee had received huge loan from the consortium of banks, led by Punjab National Bank, to construct its SEZ at Panvel. However, assessee company failed to service the loan and could not pay interest and principle amount, as per schedule laid down and the same became NPA. It is gathered that the project land and other assets were mortgaged to the bank at the time of taking loan. Therefore, the Punjab National Bank took over the entire project and auctioned it to the highest bidder as on 30.10.2014. As per the details filed, as against total loan book value of the assets at Rs.13,80,92,96,354/, the auction amount and other reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rore is subject matter of ground no.2 and therefore not discussed here. As regard fixed assets of ₹ 7,03,45,263/ , the contention of the Assessing Officer was that since the fixed asset were not part of the project, they could not have been auctioned by the PNB and the same should be with the assessee and therefore no losses could be booked on account of their impairment. The assessee has however argued that these fixed assets of ₹ 7,03,47,263 were located at the project site itself and were auctioned by the PNB, along with project under consideration. The details of these assets are reproduced as under: Fixed Assets Gross Block(Rs.) Acc. Depn (Rs.) Net value (Rs.) Buildings 45076293 37720416 7355877 Plant Machinery 97185974 45958444 51227530 Office Equipments 10384268 6525805 3858462 Furniture Fixtures 10729644 6422271 4307374 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unabsorbed business loss 254687910 Unabsorbed depreciation 20548185 Deferred tax assets 280879798 Deferred tax assets recognized in the financial statements 270000000 11.2 It is observed that deferred tax assets include unabsorbed business loss, depreciation, provision for doubtful advances etc. which are not related to the inventory or stock of the business which has been sold off in the auction. Thus, deferred tax asset cannot be part of the asset which has been written off by the assessee, as it is not a part of the inventory sold off. 11:3 Accordingly, the assessee was asked why the deffered tax assets amounting to Rs.27,00,00,000/- should not be disallowed as this includes provision for doubtful advances, unabsorbed business loss, unabsorbed depreciation etc which are not relatable to the stock and not a part of e auction. In response to that, the assessee could not furnish any satisfactory reply or submission. 11.4 Therefore, Rs. Rs.27,00,00,000/- on account of deferred tax asset is hereby disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 72 of 1.T. Act. Therefore, the position of overall losses remains the same and it is losses only whether brought forward from earlier years or occurred in this year on account of liquidation of deferred tax assets. Either way situation does not change in any way as this loss could not be adjusted in the subsequent years simply because there was no business and the company went in liquidation. Therefore, there was no reason or occasion at the end of the AO to make any addition on this account in the hands of the assessee. Consequently, disallowance made by the AO in this regard from the losses occurred on auction of the project is directed to be deleted. 9.5 Therefore, ground no.2 of the assessee is also allowed. 05. Therefore, aggrieved by the order of the learned CIT (A), Assessing Officer is in appeal before us. 06. The learned Departmental Representative supported the order of the learned Assessing Officer and submitted that the learned assessing officer is correctly disallowed the capital expenditure debited to the profit and loss account. He further submitted that the deferred tax write-off cannot be allowed as a deduction in any circumstances because of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction as revenue expenditure on its right for the simple reason that it is not at all an expenditure. Further such deferred tax assets are created on account of timing difference between profits and tax profits. At the time of creation, it is not allowable as an expenditure or not chargeable as income and further when it is written off, or written back, it is not charged to tax or granted as deduction. Therefore, write-off of the deferred tax assets is not an expenditure at all. Further, it is not also deductible loss as in fact it is merely a book entry. Therefore, the learned CIT A has erred in allowing the deduction to the assessee on this account. 010. All the decisions cited by the learned authorised representative clearly shows that only revenue loss which is incurred during the year arising out of the business being carried on by the assessee is allowable as deduction u/s 29 of the act. The loss claimed by the assessee is not at all a revenue loss. 011. In view of our above finding, the orders of the learned CIT A is reversed on both the accounts in allowing the capital loss as well as the right of deferred tax assets. Both the grounds raised by the learned asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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