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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 ..... s following mercantile systems of accounting and as such the prior period expenses cannot be allowed during the assessment year in question. 2) Whether the Learned Tribunal erred in law in allowing Rs. 11.82 crores as provision for diminution in the value of investment which is an unascertained liability ignoring Remand Report of Assessing Officer as such the order of the Tribunal is perverse and absurd? 2. We have heard Mr. Vipul Kundalia, learned senior standing counsel assisted by Mr. Amit Sharma, learned standing counsel for the appellant department and Mr. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coal Company Limited 129 ITR 62 Cal. Reliance was also placed on the decision of the High Court of Delhi in Commissioner of Income Tax Versus Exxon Mobil Lubricants Private Limited [2010] 8 taxmann.com 249 (Delhi) wherein it was held that where liability of the assesses arose and was crystallized in the current year, the assessee was entitled to allowance of that expenditure only in the current assessment year. Further by referring to Section 145 of the Act, the assessee submitted that the said provision is a mandatory provision which compels the department 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that in respect of other project executed by them, the sub-contractors had lodged claim for additional work under taken and refund of liquidated damages earlier deducted from its bill and the matter is still under arbitration and apprehending that the arbitrator may pass an award, the assessee provided for sum of Rs. 17.00 lakhs as liability on this project, having accrued and crystallized during the previous year. Similarly for another project in West Bengal, a sum of Rs. 13.36 lakhs was forfeited by the contractee during the previous year. Further 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, lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were revenue in nature and therefore fully allowable in arriving at its business income. Further the learned tribunal has pointed out that the revenue did not controvert the contention raised by the assessee that no deduction in respect of these expenses was allowed in the prior years and the tax rate in the earlier years and in the year under consideration were same and therefore irrespective of the year of deduction allowed, the revenue's effect was taxed neutral. The learned tribunal also referred to the decision of the High Court of Gujarat 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said multinational company which amounted to 27.26% of its share capital and as a result of the said issue, the assessee shareholding in the new company came down to 29.09% and that of the financial institutions also came down to 43.65%. In 2003, the multinational company exited from the new company and its shareholding was acquired by the financial institutions whose aggregate shareholding went up to 70.91% and remaining 29.09% being held by the assessee. By virtue of rights issued in 2009, the assessee shareholding went up to 34.78%. 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 divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 31, 2012. In its account, the said sum of Rs. 11.82 crores was debited to the profit and loss account for the year ended March 31, 2012 and the identical amount was reduced from the investment value of preference shares of Rs. 13.30 crores thereby reducing the amount to Rs. 1.48 crores. During July 2013, the transferee made reference to the BIFR which was registered on November 25, 2013. Thus, the assessee contended that what the assessee had advanced was actually an interest bearing loan and it was compelled to accept its conversion 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 computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the granting loan to subsidiary to promote assessee's own business of freight containers. Further the tribunal noted that in order to diversify its business, the assessee had co-promoted the subsidiary to which the assessee had advanced interest bearing loans and the interest when charge was assessed as "business income" and therefore the tribunal found that the transaction was in the course and for the purpose of the promoting the assessee's business. The tribunal also noted that consequent to granting of loans due to extraordinary 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 foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 13587-88 dated 21.07.1987 has been placed before us. A detailed analysis has been undertaken therein with respect to various items identified and sought to be written off in view of the doubtful character of recovery of loans and investments. Investments in the shares of six industrial companies were undertaken by way of underwriting of issue of shares. Upon finding that the net worth was negative, it was proposed to write off 100% of such investment in five cases. In the matter relating to one defaulter, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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