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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 ..... the Ld. CIT(A) was Correct in deleting the disallowance of deferred tax assets of Rs.27,00,00, 000/- without considering the fact that such deferred tax assets included unabsorbed business loss, depreciation, provision for doubtful advances etc., which are not part of auctioned inventory and as such they cannot be part of the asset which has been written of." 02. Brief facts of the case shows that assessee is a company engaged in the business of construction and development activities. It filed its return of income on 17th October, 2016 at Rs. nil. The case was selected for scrutiny. The fact shows that assessee is in the construction and development of Special Economic Zone (SEZ). During the course of assessment proceedings, learned Assessing Officer noted that it has claimed an expenditure of Rs.107,50,19,645/- on account of loss under SARFAESI Act. The learned Assessing Officer questioned the same, the assessee submitted that SEZ construction contracts were issued to Maytas Infrastructure, which were terminated to due to Satyam Financial scam in January, 2009 and therefore, the construction project was delayed. The assessee has obtained loans from bankers and could not meet th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notified SEZ to an extent of 345 Acres. The SEZ notification was issued on 19-Feb-2009. MIDC was appointment as SPA for the SEZ project in Oct 2009 and the approval for building plans of first phase in respect of Residential and Commercial Buildings were received in Oct 2010. 2 Commercial and about 15 residential buildings are under construction at Panvel, The construction contracts for buildings were issued to Maytas Infrastructure which had to be terminated due to Satyam Fiasco in Jan 2009. During the recession, there were some slippages and the construction projects were delayed further. Group had obtained loans from consortium of bankers/financial institutions and was unable to meet with repayment schedule of interest and principal thereof. As result of which work had stopped and most of the staff had left the group and total activity came to a standstill. The company had obtained loans from consortium of bankers/Financial Institutions headed by Punjab National Bank and were unable to meet with the repayment schedule of interest and principal thereof. Punjab National Bank along with the authority from other Bankers/ Financial Institutions has issued notice of default for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged with the lenders. 3. Hence, for any allotment of flat, an NOC was being obtained from the lenders (through PNB). 4. The auction of the Project was on "AS IS WHERE IS" and "AS IS WHAT IS" basis. 5. The Reserve Price of the auction was fixed at Rs. 550 Crs. 6. Upon fulfillment of the Sale, all the lenders issued a "No Due Certificate" in favour of the Company as discharge of all its liabilities and to satisfy the charge created by the Company on its assets which was sold under the auction. The Company was envisaging the development on the entire 588.01 acres of land in phase over time. Of the said $88.01 acres, the Company had notified 345 acres (139.83 Hectares) of land as sector specific SEZ for services sector as per the SEZ Act, 2006. Copy of the Gazette Notification dated 09-Feb-2009 is attached herewith in Annexure-B for the notification of the said SEZ. The first phase of the project comprised of 29.17 Hectares (72 Acres) which was further extended to 112 Acres within the said notified SEZ As SEZ envisages development of Processing Area (minimum 50% land area) to build Commercial buildings for establishment of units and the balance to be Non-Processing Area (f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 121398,41,928 Other Current Assets (Service Tax & VAT Recbl) 599,24,720 Short Term Loans & Advances (project Advances) 10001,06,035 Long Term Borrowings 5100,00,020 Trade Payable 1547,26,912 Other Current Liabilities 70695,49,777 Total 138092,96,354 1273,42,76,709 4.4 It is gleaned from the above that as per the auction by the PNB Bank, the project (including development) located in the Panvel area of the assessee was sold off, and the loan amount recovered by the bank. Accordingly, the assessee had written-off the sold assets against the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- 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 recoverable were only Rs.12,73, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Lease Hold Improvements 7034342 7026387 7954 Computer Hardware 11962477 10240695 1721782 Vehicles 7427121 5560837 1866284 Total 189800119 119454855 70345263 8.3 From the facts of the case and explanation it appears that these assets were also located in the office of the assessee at project site itself. Since these assets were located at the project site itself at Panvel and were sold by the PNB on the basis of "as is and where is" basis, the AO could not have treated the same separately and could not conclude that these assets remained with the assessee company after auction of the project. In fact there is no evidence of the same, nor any such evidence has been brought out by the AO on the record. In the circumstances, the decision of the AO, in disallowing a sum of Rs.7,03,45,263/-, out of the losses incurred by assessee, on transfer of project appears to be without sufficient basis and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te proceedings, the assessee contended that this project was auctioned by the Panjab National Bank on the basis of "as is, where is basis". Since entire business was sold, there was no way that deferred tax assets could have been retained or utilized subsequently and therefore, AO was not justified in excluding such assets, out of overall sales and then reducing the consequential loss. It has been argued that this company was a special purpose vehicle, created for, execution of only this project at Panvel and after this project was taken over and auctioned by the bankers, no further business was executed and the company simply went in liquidation cum winding up process and no benefit as such of even these losses has been taken, let alone the deferred tax assets or any other assets. The assessee accordingly argued that the action of the AO, in rejecting the loss was unjustified. 9.4 I have considered the arguments of the assessee and facts of the case. It appears that this company was engaged in development of a Special Economic Zone at Panvel. The assessee had raised loans of Rs. 650 Cr. From consortium of banks headed by PNB. Since the project did not progress on expected lines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Share Aids (P.) Ltd. Vs. ITO [2021] 124 taxmann.com 256 (Madras) and also of Hon'ble Karnataka High Court in case of ACE Designers Ltd. Vs. Addl. CIT [2020] 120 taxmann.com 321 (Karnataka). He further relied on the decision of Hon'ble Supreme Court in case of Ramchandar Shivnarayan vs. CIT [1978] 111 ITR 263 (SC). The assessee is also furnished a paper containing 106 pages which contains the audited annual accounts and submissions made before the learned assessing officer as well as before the learned CIT - A. 08. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case certain assets were mortgaged by the assessee to the financial institutions. It also included certain capital assets. As assessee failed to honour its commitment of repayment to the financial institutions, the property of the assessee were auctioned. On auction of the property, the sale consideration was considered towards the repayment of the loan. As the assessee lost the property, it recorded loss on such sale of assets the profit and loss account and claimed it as a revenue expenditure. Further, assessee has deferred tax assets, due t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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