9911796707
TMI Blog2025 (1) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... ortium may not be treated as an AOP. Thus, once in the case of the assessee, no work is performed by the JV or the other constituent member i.e. AGE, but only by the assessee, the AOP does not exist and therefore, we accept the contention of the assessee about non-applicability of Chapter XVII of the Act and no TDS was allowable to be deducted. Accordingly, the order of the ld. CIT(A) is confirmed and the grounds raised by the Revenue in both the years are dismissed. Disallowance of deduction u/s 80IA - infrastructure facility should not only be developed but also operated by the assessee so as to make the profits derived from the infrastructure facility qualify for deduction u/s. 80IA - HELD THAT:- Assessee is a developer of each of the infrastructure facility mentioned and considering the scope of work undertaken by the assessee in each of the contracts, the work carried out by the assessee cannot be said to be works simplicitor. Hence, in our view all the conditions required to be claimed and the deduction u/s. 80IA for all the projects are fulfilled. Accordingly, the order of the ld. CIT(A) on this ground is upheld and the appeal of the Revenue is dismissed. Taxing Capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct income, then ld. AO should have at least verified from those parties reflecting the payment. Looking to the fact that assessee has already reconciled almost every item except for 0.10% of total reported entries, therefore, we agree with the contention of the assessee that addition should not be made and this view is supported by the decision of the Co-ordinate Bench in the case of TUV India (P) Ltd. [2019 (8) TMI 1050 - ITAT MUMBAI] Allowability of interest on delayed payments of TDS - AO held that interest of late payment of TDS is not an allowable expenditure whereas, CIT (A) has allowed the same - HELD THAT:- Claim of the assessee regarding interest expenditure and delayed deposit of TDS, cannot be held to be an allowable expenditure. This issue has been discussed in detail in the case of DLF Ltd. [2019 (6) TMI 1288 - ITAT DELHI] held that depositing TDS in time is responsibility of assessee and interest in delay in deposit of TDS cannot be allowed as business expenditure. Accordingly, ground No.1 raised by the Revenue are allowed and the claim of the assessee is rejected. Disallowance made u/s. 40 (a) (ia) - Assessee indemnified the JV and AGE from all contractual r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery by a dealer, which is a capital asset in the hands of the purchaser, would have to be treated as capital receipt in the hands of the seller also. We are of the opinion that the utilisation of the loan by the subsidiary is not determinative of allowability of the expenditure in the hands of the Assessee. Once the loan has been given out of commercial expediency, it is allowable as deductions, this issue is covered by the decisions in CIT vs. Colgate Palmolive (India) Ltd. [2014 (12) TMI 846 - BOMBAY HIGH COURT] and CIT vs. BDA Limited [2024 (2) TMI 1342 - BOMBAY HIGH COURT] Accordingly this issue is decided in favour of the assessee. Taxing capital gain @20% on the sale of depreciable long-term Capital asset - HELD THAT:- As already decided in favour of the assessee following the judgment of SKF Ltd. [2024 (10) TMI 477 - ITAT MUMBAI] wherein held that in case of long-term capital asset, which are depreciable asset in terms of Section 50, even though are deemed to be taxed as short term capital gain, however, the tax rate u/s. 112 would be 20%. Write off of advance/deposit is not acceptable as bad debt, as a such advance/deposits have not been offered as income in the earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amit Shukla, Judicial Member And Shri Girish Agrawal, Accountant Member For the Assessee : Shri Madhur Agarwal & Shri Mayur Kisnadwala For the Revenue : Shri Amol Kirtane ORDER PER AMIT SHUKLA (J.M): ITA NOs. 3068/Mum/2024 & 3065/Mum/2024 The aforesaid appeals have been filed by the Revenue against order dated 18/03/2024 passed by CIT (A)-51 in relation to the order passed u/s. 201 / 201A for the A.Y.2017-18 & 2018-19. 2. Since issues involved in both the appeals are common arising out of identical set of facts, therefore, the same are being disposed of together. 3. For the sake of ready reference, the grounds for A.Y. 17-18 raised by the Revenue reproduce hereunder:- "1.Whether on the facts and circumstances of the case, the order of the Ld. CIT(A) is contrary to law and to the facts and circumstances of the case without appreciating the fact that the JV is separate entity from the assessee and assessee is liable to deduct TDS u/s 194A of the Act, while making payment of interest on 11,55,26,750/- to M/s. AGE Patel JV (AOP)." 2. "Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in holding that assessee was not liable to deduct TDS u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @10% alongwith interest on short deduction. 8. In response to show cause notice, assessee had filed its detailed reply which has been incorporated in the order passed by the ld. AO in para 5. However, the ld. AO rejected the assessee's submissions and also distinguished judgments relied upon by the assessee. First of all, AO held that from the reading of the agreement between IRCON and AGE Patel JV and sub-contractual agreement between AGE Patel JV and PEL, it is clear that JV is a separate entity, i.e., it is an AOP under the Act and this entity is liable to be taxed as such. Considering the fact that main contract was awarded to AGE Patel JV and later sub-contract to the assessee and both being separate persons assessable to tax as AOP and again separately as a company in the assessee's case. Both assessee and AGE Patel JV came together for bidding of the work tendered by IRCON and entire work was the joint responsibility of the two members of the JV and therefore, they had a common object of surrendering the contract and verifying the application under the contract. Thus, he concluded that assessee alongwith other members of the JV constitute AOP which is to be taxed as such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 between the constituent members of the JV. AGE and Patel Engineering Ltd. (assessee), and noted that vide the amendment agreements, it was decided that the entire work will be executed by the assessee in its principal capacity with complete contractual and operational responsibility being experienced in that particular work and the other member of the JV, i.e., AGE, being not interested in the execution of the contract, neither in the JV nor as a constituent member of the JV, would receive only a turnover based fixed fee of 1.5% of each running bill as certified by IRCON from the assessee, i.e., it would not participate in the profit of the said JV project. On this factual matrix, the Ld. CIT (A) held that the Association of Persons (AOP) of AGE Patel JV ceased to exist with effect from 31.03.2016 and therefore the said JV was no longer an assessable entity during the impugned year. The Ld. CIT (A) also noted that the entire turnover and costs of the IRCON project and consequently the profits have been offered to tax by the assessee and the credit for the TDS in the name and under the PAN of AGE Patel JV has also been claimed by the assessee in its return of income. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by IRCON from the assessee, i.e., it would not participate in the profit of the said JV project. 13. We have perused the agreement and amendment agreement. By virtue of this agreement dated 31st March, 2016, it is seen that AGE relinquished its share of profit in the JV and would have no claims on the receipts/payments towards IRCON. It would not be liable for any costs/damages which may be incurred by the JV. The daily administration would be handled by the assessee and all bank accounts of the JV would be solely operated by the assessee. Also, the assessee shall have all the rights to issue standing instructions to the bank for release of any payments related to the JV. In case of need for working capital requirements, AGE would co-operate with the assessee and shall not object to the same, however, its liability or surety towards such loan would be NIL. The assessee would disclose to the banks that the share of AGE in the JV is NIL. Based on the work executed, the running bills would be prepared by the assessee on the JV and the JV would request IRCON to release payments to it based on such bills issued by the assessee. On receipt of payment by the JV, the entire amount woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is Nil and no credit for tax deducted at source under the PAN of JV has been claimed, though Form 26AS of the JV does reflect such TDS. Further, in the ROI of the JV, it is reflected that the share of profit of the assessee is 100% and that of AGE is Nil. Not only the Ld. AO of the assessee has assessed the profit of the IRCON project in the hands of the assessee but has also accepted the position that assessee is eligible for the credit of TDS available under the PAN of the JV. We further, find that the Hon'ble Bombay High Court in the case of CIT vs. Smsl Uanrcl (JV) (supra) wherein the facts were identical to that in the assessee's case, i.e. the JV did not execute the contract work and the said work was done by one of its constituent's members, namely SMS Infrastructure Limited (SMS). It was also found that the receipts for the said project work are reflected in the books of account and in the return of income of SMS i.e. the said SMS has disclosed the entire receipts/expenses and consequently the profit/income of the contract and the JV has not shown any contracting activity The said return was accepted by the AO in the hands of SMS in the assessment made under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to what would constitute an AOP was considered by the Apex Court in some cases. Although certain guidelines were prescribed in this regard, the Court opined that there is no formula of universal application so as to conclusively decide the existence of an AOP and it would father depend upon the particular facts and circumstances of a case. In the specific context of the EPC contract Turnkey projects, there are several contrary ruling of various Courts on what constitutes an AOP 3. The matter has been examined with a view to avoid tax-disputes and to have consistency in approach while handling these cases, the Board has decided that a consortium arrangement for executing EPC/Turnkey contracts which has the following attributes may not be treated as an AOP: a. each member is independently responsible for executing its part of work through its own resources and also bears the risk of its scope of work i.e. there is a clear demarcation in the work and costs between the consortium members and each member incurs expenditure only in its specified area of work; b. each member earns profit or incurs losses based on performance of the contract falling strictly within its scope of wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds:- 1. "On the facts and circumstances of the case, the Ld CIT(A) erred in deleting the disallowance of the assessee's claim of deduction u/s 80IA of the Act of Rs. 66,35,14,364/-" 2. "On the facts and circumstances of the case, the Ld CIT(A) erred in allowing the new claim with regard to rate of tax on capital gain even though such claim was not made in the return of income filed by the assessee." 3. "On the facts and circumstances of the case, the Ld CIT(A) erred in deleting the adjustments on account of addition made in computing the Book Profit u/s 115JB of the Act by ignoring the explanation 1 to section 115JB of Income Tax Act." 21. Whereas assessee has raised following two grounds:- 1. On the fact and circumstances of the case and in law, the Ld. CIT(A) erred in confirming disallowance of prior period expenses of Rs. 11,98,828 being amount not allowed in subsequent years. 2. On the fact and circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition of Rs. 2,17,02,617 on the basis of the AIR Reconciliation. 22. Assessee had filed its return of income on 30/11/2017 which was revised on 02/02/2018 declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructure facility; NEEPCO cannot be said to be Central Government or a State Government or a local Authority or a Statutory Body, NEEPCO is registered under the Companies Act 1956 like the assessee company and therefore, in case of these projects, deduction is not allowable. 23. The ld. AO then on perusal of the copies of the agreement filed by the assessee noted that assessee is merely a contractor and therefore, in view of the retrospective amendment in the Explanation in the Section 80IA (4) of the Act, to exclude the 'Contractor' but here the underline status of the assessee in each of the agreement is that a contractor who is engaged in works contract for development of infrastructure facility by other agencies. Accordingly, he made the disallowance in the entire claim of Rs. 67,44,14,606/-. Thereafter, he has made further disallowance claimed u/s. 35D of Rs. 29,00,000/- and sum of Rs. 2,1702,617/- on account of difference in AIR reconciliation. 24. The ld. CIT (A) allowed the claim of deduction u/s. 80IA(4) following the earlier decision of the ld. CIT(A) and the Tribunal in assessee's own case right from the A.Y.2005-06 onwards. 25. We have heard both the parties at lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Agreement. 30. In relation to the road construction project at LEH Package-II, the Ld. CIT(A) followed the decision rendered by the ITAT in ITA No. 6605/Mum/2013 dated 18/11/2015 in the assessee's own case which has considered the issue of deduction claimed u/s 801A of the Act, in respect of projects developed by the assessee in the light of the provisions of section 801A(4) of the Act and Explanation inserted by the Finance Act, 2009 and after considering the scope of work and terms and conditions of contract executed by the assessee, in coming to the conclusion that the assessee is a developer of infrastructure facility within the meaning of section 801A(4) of the Act and eligible for deduction towards profits and gains of undertaking. The Ld. CIT (A) further held that the Tribunal in the Assessee's own case has considered the issue of deduction claimed under section 80-IA of the Act post insertion of Explanation by Finance Act, 2009 and has come to the conclusion that Assessee is a developer of infrastructural facilities, as the projects executed by the Assessee were highly technical and specialised and involved a huge risk. Therefore, the Assessee is a Developer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In relation to the construction of road at LEH P-II Project. as regards the claim of deduction u/s 801A of the Act for the construction of a road at LEH P-II, wherein the impugned year is the first year of claim, we find that the conditions of section 801A of the Act are satisfied in relation to the aforesaid project as well are in line with the same principle laid down in the earlier decisions of the Tribunal. The first condition is that the Assessee either has to develop or operate and maintain or develop, operate and maintain the infrastructure facility. In the case of the Assessee, it is a Developer of an infrastructure project being High Altitude Road project (which is covered infrastructure facility under Explanation to section 801A (4)). The scope of work stated in each of the contract documents read with other conditions of various contracts undertaken by the Assessee would show that the Assessee is carrying out development work of the infrastructure facility by committing huge resources in terms of finance, manpower, equipments, know how, etc. and it has also undertaken huge and onerous risk. Moreover, it is not carrying out work which is of incidental or periphery natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture facility is right from the planning stage to handing over the developed infrastructure facility to the Government after the defect liability period is over. Thus, the work so carried out by the Assessee is not of a periphery and incidental nature. 41. The condition prescribed in section 80 I(4) in clause (a) is that the enterprise should be owned by a company registered in India or a consortium of such companies. In case of the Assessee, the enterprise which has entered into an agreement with Government for development of new infrastructure facility is owned by the Assessee. Hence, this condition is fulfilled. Clause (b) prescribes for the condition that the agreement is entered into with Government or Government Authority or other statutory body. In the case of LEH P-II, the agreement is entered into with the National Projects Construction Corporation Limited (NPCC), a Government Corporation having Mini Ratna status. Hence, this condition is also fulfilled. 42. The next condition in clause (c) is that the enterprise starts operating and maintaining the facility on or after 1st April 1995. As regards this condition, it applies to the enterprise operating and maintaining or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by the Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position The amendment made by Parliament to section 80-IA(4) of the Act set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature. (Emphasis supplied) 27. As regards the decision in The Indian Hume Pipe Co. Ltd. (ITA 5172/Mum/2008) cited by the AO, based on the facts of that case, the counsel there accepted that the explanation inserted by Finance Act 2009 applies to the Assessee and that decision has relied on the Third Member Larger Bench decision in B.T Patil & Sons Belgaum Pvt. Ltd. (which decision is no longer good law) in deciding that the Assessee is not entitled to deduction u/s 801A(4). As the counsel there accepted that the Assessee therein is not eligible for the deduction, it has also not considered decisions rendered by other Benches of the Hon'ble Tribunal. 28. Further, in Katira Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 50, even though are deemed to be taxed as short term capital gain, however, the tax rate u/s. 112 would be 20%. Thus, following the decision of the Special Bench, the order of the ld. CIT (A) is upheld and the grounds raised by the Revenue are dismissed. 46. Lastly, with regard to ground No.13 raised by the Revenue that the adjustment of Rs. 2,46,02,617/- on account of addition made while computing the Book Profit u/s 115JB of the Act, in the assessment order, the ld.AO made additions of Rs. 29,00,000 u/s 35D of the Act and Rs. 2,17,02,617 on account of AIR reconciliation to the total income computed under the normal provisions of the Act. However, while computing the Book profits u/s 115JB of the Act, without any discussion, the above additions were incorporated therein. 47. The ld. CIT (A) have perused the audited accounts, including the auditor's report of the assessee and found that there is no adverse comment by the Auditor regarding the preparation of the accounts, which have been prepared in accordance with the provisions of Schedule III of the Companies Act, 2013. Also noted that, in absence of any adverse observation by the Ld. AO regarding the preparation of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, vide letter dated 19th December, 2019, a claim of deduction of Rs. 11,98,828 was made before the AO along with documentary evidence that such expenses pertain to the impugned year. 54. The ld. AO did not accept the claim of the assessee for deduction of such expenses even though the genuineness of incurrence of expenses was not doubted after invoking the principle laid down in the case of Goetze (India) Ltd. The ld. CIT (A) dismissed the ground holding that expenses pertaining to earlier year are prior paid expenses which cannot be allowed. 55. Before us, ld. Counsel submitted that it is a fresh claim purely legal in nature which does not require any investigation of facts, therefore, such claim should have to be entertained and allowed by the appellate authorities. 56. From the perusal of the accounts, it is seen that though the payment of expenses were made during the next assessment year i.e. A.Y.2018-19, the said expenses have bene incurred for the period pertaining to impugned assessment year. Since, assessee follows mercantile system of accounting; the said expenses are to be allowed in the year in which they pertained. Accordingly, the said claim of prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween information as per Form No. 26AS per income-tax data base and TDS as per books of accounts of the assessee, despite having all information in their possession which was submitted by assessee during appellate/remand proceedings and sufficient time to conduct such enquiries. No notice u/s. 133(6) or summons u/s. 131 of the 1961 Act were issued by both these authorities to various clients of the assessee to whom the assessee has claimed to have invoiced during the year or to those persons whom TDS credit is reflected in 26AS while assessee is denying to have dealt with these persons. The assessee has done all what best it could do to discharge its onus/burden which lay under provisions of the 1961Act by submitting reconciliation statements as well explaining the reasons for differential between income as is reported in Form No. 26AS information per data base maintained by income-tax department and income as is reflected in its books of accounts. The assessee has discharged its primary onus/burden and the assessee could not be asked to do impossible. It is well known that there are several reasons for differential in income computed based on TDS as is reflected in Form No. 26AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance made u/s. 40(a)(in) of the IT Act, 1961 without appreciating the fact that the assessee is liable to deduct tax under 194A while making payment of interest of Rs 18,53,35,410/- to AGE Patel JV. iii. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the bad debts amounting to Rs 204,39,50,143/- relating to PERL without appreciating the fact that the assessee company wrote off the loan given to PERL as bad debt during AY 2018-19 and PERL has not offered any such income on account of the same. iv. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the write off of interest free loan amounting to Rs. 18,48,99,683/- given to wholly owned step-down subsidiary Dirang Energy P. Ltd (DEPL) without appreciating the fact that DEPL has not offered such income and further the assessee's case is also similar to the fact of Dalmia Jain and Co. Ltd. us here also a new asset was created and expenditure was in the nature of capital expenditure. v. On the facts and in the circumstances of the case the Ld. CIT(A) erred in allowing the write off of interest free loan amounting to Rs, 26,30,514/- given to wholly owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of invocation of the shares held by them and pledged to lenders. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition of Rs. 46,20,757/- on the basis of the AIR Reconciliation. 64. We will first take up the appeal of the Revenue. As noted above, the assessee is a company and is engaged into the business of execution of civil contracts, construction of roads, toll-ways, bridges. railway tracks, hydroelectric power projects and other infrastructure projects. The Assessee is also engaged in the business of real estate development. The Assessee filed its return of the income on November 29, 2018; subsequently, the Assessee a revised return of income declaring a total loss of Rs. 101,95,39,352/-. As against the returned income, assessment has been completed at an income of Rs. 217,09,44,640/-. 65. Coming to the ground No.1 with regard to allowability of interest on delayed payments of TDS, the brief facts are that assessee has incurred interest expenditure of delayed deposit of TDS amounting to Rs. 1,27,52,459/- and the same has been claimed as interest expenditure as an allowable expenditure when computing the total income. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e responsible at its own cost to discharge all contractual obligations towards the workforce employed to execute the contract. The salient features of the Amendment Agreements were as under:- • The JV has entrusted the sole responsibility of the execution of the entire project to the Assessee on a back to back basis along with the responsibilities and obligations associated with it. • The Assessee indemnifies the JV from all contractual responsibilities and liabilities arising out of the contract. • The Assessee shall be entitled to the entire gross receipts along with any additional claims/refunds, if received • Any claims or demands arising out of the contract shall be prepared by the Assessee for further submission to IRCON. • Any approvals or proceeds against the claims shall be made to the account of the Assessee only. • The Assessee shall alone be responsible at its own costs to discharge all its contractual obligations towards the man force employed to execute the contract. • Based on the work executed, the joint measurements would be prepared by the Assessee in direct consultation with IRCON for the bills to be sent, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which it carries on directly or indirectly through its subsidiaries. PERL is a wholly owned subsidiary of the Assessee, and Dirang Energy Pvt. Ltd. (DEPL) is a step-down subsidiary of the Assessee. A Memorandum of Agreement was executed between the Assessee and the Government of Arunachal Pradesh on May 18, 2007 for the execution of Gongri Hydro Electric Project by the Assessee or an SPV formed by it on a Build Owned Operate Transfer (BOOT) basis. An Amended MOA was executed on August 5, 2011. As per para 2.24 of MOA, the Assessee formed an SPV in the name of DEPL for implementation of the project, which was approved by the Government of Arunachal Pradesh on September 8, 2008. The Assessee executes certain projects through independent companies as it helps in better financing from lenders, seeking investors who are only interested in specific projects and not in all the projects, etc. After the projects are awarded to subsidiaries, the execution would/is wholly or partly sub-contracted to the Assessee. For the implementation of the project, the Assessee advanced the interest-bearing loans to PERL who in turn advanced the same to DEPL. The Assessee made advances of interest-beari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to tax in earlier years, the Assessee wrote off the amount of Rs 204,39,50,143/- as a bad debt under section 36(1) (vii) of the Act. 75. We have heard both the parties and perused the relevant finding and the materials referred to before us. From the reading of section 36(2)(i) of the Act, it is clear that income offered to tax under the head "profits and gains of business" in earlier years, written off as bad debts in the current year is an allowable deduction. Based on the details and record furnished by the Assessee, it is evident that the conditions of section 36(2) (i) of the Act are fulfilled in relation to write off of bad debts. 76. Further, the allegations of the Ld. AO that interest accrued on loan given to PERL has been added to the loan itself and, therefore, the writing off of such interest is nothing but writing off of loans has no merit. Just as the amount of sale proceeds would sit in the debtors account and, when written off, cannot be treated as a capital loss, the interest component in the advance account when written off would be a revenue loss in the nature of a bad debt. The only requirement of section 36(1)(vii) read with section 36(2) (i) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not germane for deciding the allowability or otherwise of the bad debts in the hands of the Assessee. The only relevant criteria for deciding the allowability of bad debts written off is governed by the provisions of section 36(1)(vii) read with section 36(2)(i) of the Act, which admittedly stands satisfied in the facts of the present case. In view of the above, the Assessee submits that this ground of appeal of the revenue be dismissed and the reasoned order of the Ld. CIT (A) be upheld. 81. The ld. Counsel further submitted that assuming without accepting, even if the advances made by the Assessee would have resulted in the generation of a capital asset, the same would have been generated in the hands of a third party and not the Assessee. The owner of such capital asset would be DEPL and not the Assessee. It is a settled position of law that when expenditure results into the creation of a capital asset for a third party and not for the Assessee, the expenditure incurred has to be treated as revenue expenditure in the hands of the Assessee. Reliance in this regard was placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Associated Cement Companies Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified as non- performing assets (NPA) and the Reserve Bank of India, after invoking the Strategic Debt Restructuring Scheme (SDR), acquired the majority stake in BEDL till the time its sale to a suitable strategic buyer. Consequently, BEDL ceased to be a subsidiary of the Assessee with effect March 30, 2016. The Assessee considering the precarious financial health of BEDL, wrote off advances given to BEDL and claimed it as a business loss. 87. Ld. AO observed that Assessee has given interest free loan to a step down subsidiary DEPL for capital expenditure, i.e., towards the establishment of a new hydro electric project. Therefore, the loan written off by the Assessee is a capital loss. As per provisions of section 36(1) (vii) read with section 36(2)(i) of the Act, writing off of a loan is not an allowable expense. 88. AO held that the alternative claim of the Assessee of deduction under section 37(1) of the Act also cannot be accepted as the amount claimed is not expenditure but a loan given to related party for incurring capital expenditure. Further, DEPL has not offered the said loan as its income. In relation to advances given to BEDL, the Assessee is not in real estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdictional High Court in the case of CIT vs. BDA Limited (ITA No. 201 of 2003 dated February 23, 2024), wherein the Hon'ble Court on identical facts allowed write off of advances made to a group concern as a business loss even though the advances were made to the group concern for purchase of property. It was further held that it is a settled position of law that accounting and tax treatment in the hands of the receiver of an advance cannot be determined by its allowability or otherwise in the hands of the Assessee. 93. In any case it was submitted that, advances given to the wholly owned subsidiaries have not resulted into the creation of a new asset or granted benefit of an enduring nature. Therefore, write-off of such advances is also revenue in nature. 94. After considering the relevant finding and the material referred to before us we find that ld. CIT (A) has given a finding of fact that advances were given to its subsidiaries in furtherance of the business objects of the Assessee and, therefore, were given in the course of routine business transactions. The revenue has not controverted the said factual finding. Write off of advances made during routine business acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in relation to taxing capital gain @20% on the sale of depreciable long-term Capital asset, we have already decided in favour of the assessee following the judgment of Special Bench in the case of SKF Ltd. vs. DCIT in ITA No.7544/Mum/2011 wherein, Special Bench has held that in case of long-term capital asset, which are depreciable asset in terms of Section 50, even though are deemed to be taxed as short term capital gain, however, the tax rate u/s. 112 would be 20%. Thus, following the decision of the Special Bench, the order of the ld. CIT (A) is upheld and the grounds raised by the Revenue are dismissed. ITA No.2802/Mum/2024 (Assessee Appeal) 99. The ground Nos. 2 & 4 raised by the assessee are in relation to disallowance of write off of advance made to joint venture partner SEW Infrastructure Ltd. through Patel SEW JV amounting to Rs. 3,40,25,640/- and Rs. 50,00,000/- advanced to Mr. Abhay Singh, respectively. 100. The brief facts are that the Assessee in the earlier years had given advances to SEW Infra Ltd. of Rs. 3,40,25,640/- for the purpose of initiating an infrastructure project being carried out by Patel SEW JV, wherein the Assessee and SEW were members. The advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or carrying out certain activities on behalf of the Assessee. However, Mr. Singh was not able to fulfil his obligations and, therefore, the Assessee abandoned the work midway. 106. If the advance has been given during the course of business and if any loss has been suffered on account of writing off of the advance granted during the course of carrying out of business then it is an allowable loss under section 28 read with section 29 of the Act. This fact has not been disputed at all. It is not a case of claim of bad debts albeit claim of loss incurred during the course of business. Accordingly, Ld. AO is directed to allow the deduction of Rs. 3,40,25,640/- and Rs. 50,00,000/-. Accordingly, the grounds raised by the assessee are allowed. 107. Now coming to the ground No.3 in relation to write off of amount of Rs. 14,23,405/-, it has been stated that the books of accounts of the Assessee are prepared in accordance with IND AS, wherein the accounts of the Joint Ventures are proportionately consolidated with the Assessee. In the said consolidation, income as well as expenses of the said JV is reflected in the accounts of the Assessee. Correspondingly, the profits of the said JVs are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Promoters to lenders. 113. The brief facts are that during the year under consideration, the financial position of the assessee was not sound, and the lenders were refusing to extend further credit to the Assessee without servicing of the earlier debt obligations. To come out of such a precarious situation, a debt restructuring/ resolution plan called as 'Scheme for Sustainable Structuring for Stressed Assets - termed as S4A) launched by the Reserve bank of India (RBI) was opted by the Assessee. The final S4A scheme approved by all the stake holders provided as under:- • the existing debts of the Assessee, as on the reference date (of August 8, 2017-falling in the impugned year), was split into Part A Debt serviceable from the reference date and Part-B debt comprising of Working Capital Term Loan (WCTL), Working capital facilities (CC), Non-Convertible Debentures (NCD) and Short term Loans (STL) were converted into various tranches of Optionally Converted Debentures (OCD) of face value of Rs. 1000 each. It is to be noted that the debt obligation was not reduced i.e., the no part of the debt was waived. • the promoters were required to further infuse Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and the observer appointed by the lead bank for attending board meeting, took a commercial decision to compensate the promoters for the loss caused to them due to the transfer of their shares for which the benefit was entirely received by the Assessee by restructuring the debt of the assessee leading to saving in interest cost. The said compensation was payable to the promoters as on 31.03.2018 and was debited to the profit and loss account of the assessee for the relevant year. The liability of the assessee to the promoters was discharged by the issue of OCDs to the promoters in the financial year 2019-20 relevant to assessment year 2020-21 in lieu of the compensation payable to them. 116. Thus, it has been contended before us that due to the debt restructuring, the Assessee saved on the interest cost for its debt and hence, the compensation towards promoter's liability was a revenue expense for the Assessee. 117. The AO contended that the compensation given to promoters for invocation of pledged shares was on loan account and, hence, held to be capital expenditure. 118. After rejecting the Assessee's submissions, the Ld. CIT (A) agreed with the findings of the Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme submitted above, it has been submitted that before the implementation of the Scheme, the interest rate on the debt taken by the Assessee was ranging between 10.75% to 13% p.a. on various debts being Working Capital loans, Cash Credits, Non-Convertible Debentures and Short- term loans, averaging to 11.86% (Discounting Rate, which is the weighted average cost of debt prior to restructuring). By opting for the Scheme, the debts of the Assessee have been so structured, that the interest saving obtained by the Assessee is Rs. 191,20,41,037/- in present value terms as on August 08, 2017. The present value has been arrived at by using the discounting factor at 11.86% (i.e., the rate of borrowing of the Assessee). The Scheme would not have happened if the Promoters had refused the transfer of their shares and, accordingly, the assessee considering the benefit to be received to the Assessee agreed to compensate the promoter to the extent of the loss suffered by them. The Assessee further submitted that the actual benefit derived by the Assessee in terms of reduction in interest obligation is about Rs. 62.86 Crores as on February 10, 2020 (which will only increase with the passage of ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is revenue expenditure. To hold so, we are referring to the decision of the Hon'ble Supreme Court in the case of Empire Jute Corporation Ltd. vs. CIT (124 ITR 1), wherein the Hon'ble Supreme Court has held that: "What is material to consider is the nature of the advantage in a, commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future." A similar view has been taken by the Hon'ble Supreme Court in the case of CIT vs. Associated Cement Corporation Ltd. (172 ITR 257). 125. We are of the opinion that, the manner in which the Promoters have been recompensated, i.e., by issuance of further shares, is not a relevant criteria for determining whether the expenditure incurred by the Assessee is revenue in nature or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company." 127. Now the aforesaid decision of the Special Bench has been upheld by the Hon'ble Karnataka High Court in the case of CIT vs. Biocon Ltd. (430 ITR 151). Thus, this judgement also supports our view. 128. Similarly, the Hon'ble Supreme Court in relation to deciding whether a Subsidy granted for setting up of Industries in backward areas is a capital receipt of a revenue receipt, has consistently held that the manner in which the subsidy is disbursed is not the relevant criteria. The intent/object of the Scheme has to be considered. This principle has been laid down in the judgment of the Hon'ble Supreme Court in the case of CIT vs. Sahney Steel & Press Works Ltd. (228 ITR 253), wherein the Hon'ble Supreme Court held that it is not the source from which the amount is paid to the assessee which is determinative of the question whether the subsidy payments are of revenue or capital nature. The source is immaterial. The relevant extract of the decision is reproduced hereunder:- "It is not the source from which the amount is paid to the assessee whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A) held that the assessee has not been able to reconcile the difference even till date. Therefore, it is apparent that the Assessee is not able to substantiate the amount has already been offered to tax in its return of income. Therefore, the addition made by the learned AO is upheld. 133. Before us the ld. Counsel submitted that the assessee has reconciled almost all entries in the AIR report, unreconciled entries being 0.03% of the total reported entries, which is insignificant differential. Thus, the Assessee has duly discharged its primary onus cast. The ld. Counsel further submitted that no addition can be made merely upon the basis of entries getting reflected in the AIR report. Moreover, the books of accounts of the Assessee have been accepted by the Ld. AO. It is the duty of the Ld. AO to bring evidence on record to substantiate the fact that the Assessee has not offered the corresponding income pertaining to the credits getting reflected in the AIR statement in its return of income. He submitted that the Assessee cannot prove the negative. In support of the above proposition, the ld. Counsel placed reliance upon the following decisions wherein it has been held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferential which assessee did in this case during appellate/remand proceedings. On the other hand, the Income-tax department has all the information and data base in its possession and control. The learned CIT (A)/AO ought to have conducted necessary enquiries to unravel the truth but asking assessee to do impossible is not warranted. No defect in the books of accounts are pointed out by the authorities below nor were books of accounts rejected by the authorities below. No cogent incriminating material were brought on record by the authorities below to evidence/prove that the assessee has received/earned any income outside its books of accounts. The authorities below also did not dislodge/rebutted the contentions of the assessee. • DM Estates (P.) Ltd. v. DCIT 113 taxmann.com 386 (Bangalore). • ACIT v. KM Trade Link 147 taxmann.com 227 (Chennai); • Agilent Technologies (International) (P.) Ltd. v. ACIT 160 taxmann.com 238 (Delhi). 134. After considering the facts and finding of the AO and CIT(A), we find that assessee was able to reconcile the AIR transactions with the income of the Assessee of aggregate value of Rs. 1,356.69 crores running into voluminous nu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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