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TMI Blog2025 (4) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 & 29.06.2018 for AYs 2006-07, 2012-13, 2014-15 & 2015-16. 2. Since the issues are common and the appeals are connected, therefore, the same are heard together and being disposed off by this common order. These appeals involving common issues are for Assessment Years 2003-04, 2006-07, 2011-12 to 2005-16. 3. With the consent of both the sides, we first take up ITA No.6300/Del/2015 for AY 2003-04. 4. The assessee is aggrieved by the order of ld. CIT(A) dated 08.09.2015. Brief facts of the case are that the assessee filed its return of income on 06.11.2003 declaring loss of Rs. 75,41,05,090/-. The case was selected for scrutiny and vide assessment order dated 20-02-2006, the Assessing Officer has assessed the Total Loss of the assessee for AY 2003-04 at a sum of Rs. 5,87,77,750/-. 5. Aggrieved, the assessee filed an appeal before ld CIT(A)who has partly allowed the appeal. 6. Aggrieved with the order of ld. CIT (A), the assessee has come up in appeal before raising following grounds of appeal :- "1. That on facts and in law the orders passed by both the Assessing Officer {hereinafter referred to as the "AO"} and the Commissioner of Income Tax(Appeals) {hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% which is high and excessive." 7. Ground No. 1 is general in nature, hence does not require any specific adjudication. 8. In grounds no.2, 2.1, 2.2 and 3, the assessee challenged the action of both the lower authorities in disallowing claim for loss under the head "Capital Gains" on transfer of land to M/s Shivaji Marg Properties Limited and investments to M/s Siel Holdings Limited pursuant to a Scheme of Arrangement sanctioned under sections 391 to 394 of the Companies Act 1956. Relevant facts in this regard are that in the original return filed on 06.11.2003, the assessee had claimed long term capital loss of Rs. 42,22,93,246/- on investments stated to have been transferred to M/s Siel Holding Ltd.. However, in the revised return filed on 31.10.04, in addition to capital loss as mentioned above, the assessee claimed long term capital loss of another amount of Rs. 3,31,99,713/- on land at 15 Shivaji Marg, New Delhi stated to have been transferred to wholly owned subsidiary company namely M/s Shivaji Marg Properties Ltd. (SPL). As a result of this, the total long term capital loss that has been claimed in the revised return is Rs. 45,54,92,959/-. 9. The transfer of both the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investments valued at Rs. 35 crores were assigned to M/s Siel Holding Limited along with equivalent amount of debt and the said debt was to be discharged by selling the said shares i.e., Siel Holding Ltd. was also a self-liquidated company. (g) The two sugar units (supra) of the assessee company were vested in M/s Siel Sugar Limited for which the shareholders of the assessee company were granted the shares of M/s Siel Sugar Limited in the ratio mentioned in the order of the High Court. (h) M/s Siel Limited i.e., the assessee was to continue to operate the residual business of Chemicals and Vegetable Oils. 11.1 As a result of above exercise, the debt of 100 crores (65 + 35) was discharged while the remaining debt was to be discharged with a period of seven years by the operation of M/s Siel Limited and M/s Siel Sugar Limited. In other words, the debt of lenders who exercised option 'A' and 'B' was to be discharged by sale of assets assigned to M/s Shivaji Marg Properties Ltd. and M/s Siel Holding Limited while the debt of lenders exercising option 'C' was to be discharged from the operations of the assessee (residual Siel Limited) and M/s Siel Sugar Limited." 7. The main is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial in support of its claim has been filed by the assessee company. In view of the clear cut provisions in clause 1 of Part II of schedule -1 of the scheme of arrangement (SOA) stating that Siel i.e., Assessee company will be de- merged/hived off into four different entities, I hold that the transfer of assets to such entities falls under the category of demerger only. This shall, therefore, be treated as transaction, not regarded as transfer under clause (vib) of section 47 of I.T. Act. Since these transactions are not treated as transfer within the meaning of sec.47(b), there is no question of any capital loss being computed and allowed in the hands of assessee company for the assessment year under consideration. As a result of this, the assessee's claim of long term capital loss on the basis of original as well as the revised returns filed by the company shall not be considered in computing the total income/loss." 8. Ld CIT(A) has upheld the above disallowance, though on a different footing. At page 11of the impugned order, it is held by Ld CIT(A) as under:- "13. From a perusal of the above facts and the order of the Hon'ble Court, it is noticed that the facts have not been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following manner: (a) SPL comprising of special purpose vehicle 1 (SPV 1) to leverage the Land situated at 15, Shivaji Marg, New Delhi - 110015 The Land with an estimated realizable value of Rs 6500 lacs (net cost of sales) shall be vested in SPL upon sanction of the scheme. The liabilities of lenders to extent of Rs 5453 lacs and liabilities of Siel of Rs 1042 lacs will also be vested in SPL. The detailed break-up of the liabilities of individual lenders to be transferred to SPL will depend upon the Option exercised by the respective lenders. The realization from SPL will be assured within 24 months of the Cut-off Date and will be utilised towards payment of its liabilities. .... .... (b) SHL comprising of Special purpose Vehicle 2 (SPV 2) to leverage the investments. The "Investments" or any proceeds, realised therefrom after the Cut-off date up to Effective date shall be vested in SHL upon sanction of the scheme. The total realizable value of such investments to be vested in SHL is estimated at Rs 3500 lacs (net of cost of sales). The liabilities of lenders to the extent of Rs 3075 Lacs and liabilities of Siel of Rs 420 lacs will also be vested in SHL. The detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd investments to M/s Shivaji Marg Properties Limited and M/s Siel Holdings Limited is not a "demerger" u/s 2(19AA) so as to attract exemption provisions of section 47(vib). It was submitted that were condition of section 2(19AA) were satisfied i.e. in case of vesting of Sugar units in M/s Siel Sugar Limited the Tribunal has upheld the same. In this regard our attention was drawn towards copy of decision of co-ordinate bench in case of M/s Mawana Sugar Ltd order dated 04-12-2015 in ITA no. 820/Del/2010 copy at pages 576 to 585 of paper book. Ld AR thereafter referred to provisions of section 394 of the Companies Act, 1956. It was submitted that u/s 394 the Company Court has vide powers to approve "transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company". Sub-section 4 of section 394 further defines term "property" in an inclusive form as under: "property" includes property, rights and powers of every description; and "liabilities" includes duties of every description;" It was thus submitted that there is a material difference in provisions of section 394 of Companies Act and section 2(19AA) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Court and makes an application for the requisite meetings to be convened. The Court gives directions for holding of the meetings and the entire transaction (the scheme) is placed before the members and creditors for obtaining their approval. After following the prescribed procedure, the Company Court sanctions the scheme. In either case, the nature of the transaction essentially remains the same. In the first case, it is effected by means of an agreement, which is binding and in the later case, it is effected under the scheme of arrangement which too is binding under the provisions of the Companies Act, 1956 (or the Companies Act 2013). In our view, there would be no difference as to the incidence of taxation on the sale effected through the two modes." 13. Ld AR referring to the case made out by the Ld CIT(A), it was submitted by the Ld AR that there is an elementary mistake made by Ld CIT(A) when he alleges that "combined units assigned to two companies in both the cases were of zero value". Ld AR submitted that the above observations of ld CIT(A) may merit acceptance provided the assessee would have computed Capital Gains taking Sale Consideration as Nil. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of arrangements for demerger and hive off of certain assets with the four methods of restructuring the debts and to address the revival of the assessee company. Accordingly, they have agreed to create two SPVs to address the repayment of Debts of 6500 lakhs thru Shivaji Marg Properties Ltd (SMPL) by transferring the equal amount of land to them and Another SPV of Siel Holdings Ltd (SHL) by transferring the Investments of Rs. 3500 Lakhs with equivalent Debts. These SPVs will discharge the liabilities after liquidating the assigned assets, it will dissolve themselves. The assessee had claimed long-term capital losses against the above transfer of assets to the SPVs and adjustment towards the repayment of loans/debts. The AO has raised the issue under consideration is that the scheme of arrangement gives four options to address the debt restructuring to the assessee, in first two options the assessee has to transfer of the identified assets and liabilities to the SPVs and in other two methods, the assessee was directed to implement the demerger scheme to transfer the sugar plants to Siel Sugar Ltd and rest of the operation to continue in the assessee units itself like chemical etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets at cost in its Balance Sheet and transferred the assets at fair market value, i.e., Value of land on the date of transfer was Rs. 15,28,41,099/- and transferred at the value of Rs. 65,00,00,000/- and liquidated the liabilities to that extent. On the date of transfer the indexed cost of the land was Rs. 68,31,99,113/-. That means the assessee has settled the value of liabilities of Rs. 65 crores at the cost of Rs. 68.32 crores. How can we say that the assets were transferred at zero cost. It lakes commercial understanding. 19. Similarly, for the transfer of shares, the book value of shares were Rs. 53.95 crores and its indexed cost was Rs. 77.23 crores on the date of transfer and settled the liabilities worth Rs. 35 crores. Therefore, the transactions of transfer of assets and liabilities to its SPVs with the specific purpose of liquidating the assets and settling the liabilities cannot be equated with the demerger, it does not satisfy the provisions of section 2(19AA) of the Act. Therefore, we are inclined to agree with the method of transaction recorded by the assessee in their books and computation of income. Accordingly, the grounds raised by the assessee are allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er assessment years, the disallowance out of interest on account of interest free loans to SFSL & SFSLIL has been worked out to Rs. 2,58,80,700/-. 23. Aggrieved, the assessee filed appeal before Ld CIT(A) and before Ld CIT(A) it was submitted that the disallowances made by the AO in preceding years have been deleted by the Tribunal. Assessee relied upon orders of Ld CIT(A) and Tribunal in its case for earlier years. However, the Ld CIT(A) has confirmed the disallowance by observing as under:- "14.4 As discussed earlier, in the scheme of arrangement for debts restructuring various investments in subsidiary companies including investment in Jay Engineering Works have been transferred to Siel Holding Ltd. along with debts of equivalent amount. Therefore, the nexus of borrowed funds debts and these investments have been established by the operation of the decision of Hon'ble High Court. In the A.Yrs. 98-99, 99-00 there was nothing on record to establish this nexus and the directions of Hon'ble ITAT were given in this background. The order of the Hon'ble High Court, which came subsequently, also mentions in the specific terms that M/s Siel Ltd. had been facing severe financial proble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. This wipes out his availability of funds by Rs. 100/-. He cannot claim in next year that interest free advances and shares in subsidiaries are still from interest free funds. 15.1 In view of these new facts on record and in view of the order of Hon'ble High Court, it cannot be held that interest paid in A.Y.03-04 cannot be disallowed to the extent of corresponding interest in respect of free advances and investments in subsidiaries. Since, the order of Hon'ble High Court was not available before the ITAT when it gave decision for A.Y. 98- 99/99-00, the issue of disallowance in the present assessment year, is not covered by that decision. Therefore, the interest pertaining to these investments and interest free advance has to be disallowed out of interest paid and claimed as deduction. Considering the same, grounds no.5 & 6 and its sub grounds are dismissed." 24. Aggrieved, the assessee has raised several grounds and submitted a status chart of appellate orders passed on this issue in earlier years as under:- AY 1998-99 ITAT order dated 28-10-2003 in ITA No. 3367/Del/2002 - copy enclosed at pages 209 to 222 of PB, relevant conclusions at pages 216 to 218, para 16. Matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the CIT(A) deletes this disallowance - relevant at page 491, para 6. CIT(A) deletes the disallowance taking into consideration ITAT orders for earlier years and appeal effect orders passed thereon by the AO. AYs 2005-06 to 2007-08 (M/s Mawana Sugar Limited) It is also relevant to note that in case of Mawana Sugars Limited for AYs 2005-06 to 2009-10 identical issue has been decided in favor of the 'A' - Copy of ITAT order dated 28-05-2018 passed in case of M/s Mawana Sugars Limited is enclosed at pages 494 to 521 of the PB. ITAT decides this issue at pages 504 to 508. Disallowances made by AO are deleted by ITAT (i) holding that no disallowance can be made on opening balances which has been accepted in earlier years, and (ii) examining the source of fresh investments / advances given during the year (refer page 507, para 23). 25. It was then submitted by Ld AR that as regards M/s Jay Engineering Works investment in equity and preference shares of Rs 18 crores were made by the assessee in FY 1998-99. Loans were also advanced to M/s Jay Engineering Works in FY 1999-00. In this regard he relied upon facts noted by Tribunal in its order for AYs 1999-00 and 2000-01 relevant at pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.' (Hoystead case, AC pp. 165-66)" 26. Reference was also made to Parashuram Pottery Works Co. Ltd. v. ITO and then it was held: (Radhasoami Satsang case, SCC p. 666, paras 16-17) "16. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 17. On these reasonings in the abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 28. Considered the rival submissions and material placed on record. We observed that the issue under consideration is concern, the disallowance of notional interest on the loans given to its sister concerns out of interest free and owned funds, it is brought to our attention that the issue under consideration is settled in favour of the assessee by the Coordinate benches and orders of CIT(A) in the earlier assessment years. The Ld AR submitted a chart, as per which the issue of notional interest was disallowed in AY 1998-99 and subsequent AYs, the coordinate bench has remanded the matter to AO and in OGE, the AO has deleted the additions as per the ratio of Meenakshi Synthetics (supra) case. Since, the similar issue was considered by the first appellate authorities in the subsequent AYs, remanded the matter to the AO and in OGE, the same were deleted. The issue was squarely settled in favour of the assessee in AYs 1999-00 to 2002-03 and from AYs 2004-05 onwards to 2007-08. Therefore, the investments and loan/ advances lent to its sister concerns are squarely covered in favour of the assessee. 29. In the current year, the issue of Jay Engineering Works investments and further lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-16 are covered in favour of the assessee by our decision in the earlier part of the order. Grounds No.2 & 3 are general in nature, hence not adjudicated. Accordingly, appeals being ITA Nos.5489/Del/2018, 5490/del/2018 & 5491/Del/2018 for AYs 2013-14, 2014-15 & 2015-16 are allowed. 35. With regard to Department's appeal in ITA No.516/Del/2016 for AY 2006-07, at the time of hearing, ld. Counsel for the assessee has submitted that the tax effect in the appeal filed by the Revenue is below Rs. 60 lakhs. The CBDT in its Circular No.09/2024 dated 17.09.2024 has recently revised the monetary limit for filing of the departmental appealto the ITAT atRs. 60 lakhs. He has, therefore, requested that the Revenue's appeal may be dismissed accordingly. However, Ld. DR of the Revenue did not oppose the aforesaid proposition. 36. In view of the above position, we noticed that the tax effect in appeal preferred by the Revenue is below Rs. 60 lakhs, we deem it proper to dismiss the appeal of the Revenue in the light of the latest Circular No.09/2024 of the CBDT dated 17.09.2024, as not maintainable. 37. In the result, the appeal of the Revenue for AY 2006-07 is dismissed. 38. With regard to iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Courts have categorically held that where the assessee has not earned any dividend income forming part of the total income during the year under assessment, section 14A read with Rule 8D is not attracted. So, finding no illegality or perversity in the order of the ld. CIT (A), we hereby dismiss the ground taken by the Revenue. 45. Accordingly, the grounds involving deletion of addition u/s 14A read with Rule 8D in all the three Revenue's appeal for AYs 2012-13, 2014-15 & 2015-16 are dismissed. 46. Ground No.2 of Revenue's appeal for AYs 2014-15 & 2015-16 is pertaining to deletion of disallowance being 30% of staff welfare expenses incurred by the assessee. As the issue is common in both the assessment years, we are taking relevant facts for AY 2015-16 for the sake of brevity. During the course of assessment proceedings, the assessee was asked to furnish details of staff welfare expenses. In response, the assessee furnished the details. On perusal of the same, AO noted that the said expense included various expenses not related to the activity of business and for earning business profit. Accordingly, the assessee was show cause as to why the welfare expenses should not be disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite huge loss, the appellant is incurring these expenses. For this the Ld. AR relied upon several case laws and argued that business expediency of expenses has to be decided by the assessee not the AO. Considering .the assessment order and submission of Ld. AR "I am of the view that the AO had made any definite observation in regard to particular expense that the same is not business expenditure. Taking the arguments in totality I am inclined to accept the argument of the Ld. AR and of the view that disallowance without specific finding is not sustainable. Hence the disallowance made by the AO is deleted and the ground of appeal is allowed." 49. Ld. DR of the Revenue relied on the order of the Assessing Officer and the ld. AR of the assessee reiterated the submissions made by the ld. CIT(A) and relied on the findings of the ld. CIT (A). 50. Considered the rival submissions and material available on record. After going through the submissions made by the ld. AR and findings of ld. CIT (A), we do not find any infirmity in the order of the ld. CIT (A) and accordingly we affirm the same and delete the grounds taken by the Revenue in AYs 2014-15 & 2015-16. 51. In the result, all the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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