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TMI Blog2023 (4) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... re importantly as noted by the tribunal, the revenue was not able to place any material to disprove that the assessee explanation furnished before the authorities in support of its claim that the liability to pay the expenses charged under the head prior period crystallized during the financial year 2011-2012. Thus, we find that no substantial question of law arises for consideration under the head prior period expenses. Provision for diminution in the value of investments - AO held that by no such imagination can provisions be treated as allowable expenditure and the claim of the assessee is absurd and accordingly disallowed the same - tribunal allowed the claim - HELD THAT:- Since transferee was a subsidiary promoted for furtherance of the assessee s freight container business and in furtherance of such business the loan were advanced from which interest income was earned and such interest income was assessed under the head business . Further under compelling circumstances as by the direction of the RBI such loans were converted into preference shares which consequently eroded in value because of the law sustained by the subsidiary. Therefore, the tribunal held that merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pratyush Jhunjhunwala, advocate assisted by Mr. Mrigank Kejriwal, learned advocate for the respondent assessee. 3. Two issues arise for consideration in this appeal. The first being prior period expenses to the tune of Rs. 4,08,23,000/- and the second issue being provision for diminution in the value of investment to the tune of Rs. 11,82,37,000/-. The assessee in its return of income for the assessment year under consideration claimed Rs. 4,08,23,000/- as prior paid adjustment and in the details thereof, the same had been stated as general expenditure in nature. The assessing officer called upon the assessee to explain as to why prior period expenditure be not disallowed. The assessing officer records that the assessee did not offer any explanation. The assessing officer while completing the assessment under Section 143(3) of the Act by order dated 17.02.2015 observed that the according to the accounting standard, the expenses are debited to the profit and loss account on accrual basis and the unpaid expenses are made provisions in the balance sheet and any expenses accrued but not settled during any year are debited in the year of accrual and any deviation on settlement is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment to accept the system or method of accounting regularly employed by the assessee for ascertaining the profits from the business or profession carried on by him or the income from other source subject to its being the proper method of reflecting the true or correct profits. After referring to the item No. 7 of Accounting Standards- II (AS II), it was stated that the statute itself prescribes the manner of disclosure of expenses relating to prior period, which arises in the previous year as a separate item. It was therefore contended that non-compliance of such disclosure by the assessee would render the books of accounts to be rejected. Further it was contended that in terms of the accounting standards prescribed by the CBDT and the Institute of Chartered Accountant of India (ICAI), the assessee like any other corporate, prepared its account and disclosed relevant details of prior period items on a regular basis since the inception of the accounting standard. Therefore the appellant contended that the expenses which have been solely and exclusively incurred during the previous year for carrying out its business should be allowed as deductable expenditure under Section 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the assessee contended that they were faced with the order passed by the appellate authority under the Indirect Taxes Act at Kerala for the financial year 2009-2010 on 30.03.2011 and considering the meager amount involved, the assessee made the payments of Rs. 4.78 lakhs. Further in respect of projects executed at Qatar which was completed by engaging sub-contractors, liability for payment to the sub-contractors in respect of on-going project was provided during the year under consideration despite the completion of having taken place in the earlier year. Similarly with regard to the sub-contractors relating to the HPCL projects, liability towards the sub-contractors crystallized during the year under consideration. The assessee also enclosed the copies of the awards passed by the arbitrators with regard to the two contractors. Further the assessee contended that similar expenses was disallowed by the assessing officer for the assessment year 2002-2003 however, the CIT(A) by order dated 29.09.2005 deleted the entire amount of such disallowance treating the same as deductable expenditure under Section 37 of the Act. Further the assessing officer in regular assessment for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in PCIT Versus Adani Enterprises Limited Tax Appeal No. 566 of 2016 and found the said decision to be relevant to the facts and circumstances of the case. Thus, we find that the learned CIT(A) and the learned tribunal has examined the facts and granted relief to the assessee and more importantly that for the earlier assessment years i.e. 2005-2006, 2009-2010, the revenue has accepted the orders passed by the CIT(A). Though the appeal was filed before the tribunal for the assessment years 2010-2011 and 2011-2012, the same were dismissed. Thus, a consistent view is required to be adopted in the absence of any material placed by the revenue before the required tribunal to show that there was any distinguishing feature in the assessment year under consideration to make a departure from the earlier view. 5. The learned senior standing counsel submitted that merely because the assessee was state undertaking, it cannot be stated that it cannot do any wrong and the learned tribunal did not examine the facts of the case. We do not agree with the said submission as we have found that both the CIT(A) as well as the tribunal has examined the facts. In fact, the examination of facts by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the year 2009 financial institutions wanted to exit from the new company and their holdings were partly acquired by the assessee and partly by one of its joint ventures and consequent to such acquisition the assessee s shareholding in the new company increased to 50% and the balance 50% being held by the assessee s Joint Venture Company. Further the assessee contended that apart from the manufacturing operations, the assessee is engaged in the business of container freight station etc. and in the year 2006, the assessee gave its specialty container division to the new company for running it on leave and license basis and subsequently the division was sold by the assessee to the new company as going on concern with effect from 01.04.2007. During 2008, the assessee extended the inter corporate loan of Rs. 3 crores at interest rate of 9.51% per annum to the new company and in December 2008, the assessee gave its freight container repair and refurbishment division to the new company under the license to operate for and behalf of the assessee. The new company obtained a loan of Rs. 7.11 crores from financial institutions and subsequently the financial institutions sought for repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on into preference shares because of the direction of the RBI corporate debt restructuring cell. The assessee placed reliance on the decision of the Hon ble Supreme Court in Vijaya Bank Versus Commissioner of Income Tax [2010] 190 Taxman 257 (SC) where similar accounting as made by the assessee was held as amounting to writing off of the debt. In support of the claim under Section 28/37 of the Act as business laws, reliance was placed on the decision of the Hon ble Supreme Court in Badridas Daga Versus Commissioner of Income Tax (1958) 34 ITR 10 (SC). Thus, the assessee contended that the sum of Rs. 11.82 crores is allowable both in the normal computation as well as in computing book profit under Section 115JB of the Act. The CIT(A) after considering the above factual details pointed out that the assessee case revolves around the fact that out of its loan of Rs. 13.00 crores advanced for the purpose of its business, Rs. 11.82 crores had turned bad and though investment was initially propelled by business expediency and was subsequently thrust on the assessee by reason of the RBI s corporate debt restructuring cell s decision. Further CIT(A) pointed out that additional mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raordinary and compelling circumstances, (direction of the RBI corporate debt restructuring cell) the loan was converted into preference shares but such fact by itself did not change or alter the basic character of the transactions. More importantly, the tribunal on facts found that the preference shares in transferee were not acquired by the assessee for the purpose of earning dividend and capital appreciation but the preference shares were acquired as per the directions of the CBR cell of RBI which was binding on the assessee being the promoter of the subsidiary. Furthermore, that the assessee had recognized the loss incurred in its books only after it was found that almost the entire net worth of the subsidiary was eroded. The contention of the revenue before us is that whatever direction was given by the CDR cell cannot be construed to be a dictate but it is more in the nature of a conciliatory direction. We are unable to persuade ourselves to agree with the said submission because the directive is from the corporate debt restructuring cell of the Reserve Bank of India and binding upon the assessee more so it being a public sector undertaking. Furthermore, the tribunal foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, M/s. Southern Brick Works Limited, the recommendations for write-off was only 50% of the investment, in view of a proposal for take of the entity by M/s. Vinichem Private Limited. The note also proposes the write off of an amount of Rs. 33.82 lakhs being 90% of the advances made to two companies, M/s. Upper India Bearings Limited and M/s. Nedumbalam Samiappa Annapoorani Mills Limited, where creditors had approached the High Court seeking their winding up and receivers had been appointed. The need for an criteria adopted for the valuation of the shares as well as the efforts taken and measures adopted by the assessee company for recovery of the advances have been duly noted by the tribunal. The erosion of capital leading to a fall in value of shares has been established. We are thus of the view that the conclusion of the tribunal in this regard are well founded and are not vitiated by perversity. Question Nos 1 and 3 are answered against the Department and in favour of the assessee. 7. The learned tribunal after considering the aforementioned decision found that the facts of the assessee s case are more or less similar. Since transferee was a subsidiary promoted for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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