TaxTMI 
TaxTMI 
2025 (1) TMI 1339
X X X X Extracts X X X X
X X X X Extracts X X X X
....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,194A on the interest paid to M/s. AGE Patel JV (AOP) during F.Y.2016-17 without appreciating the fact that the JV is still intact with object to earn income as a JV receives turnover based fixed fee of 1.5% of each running bill as certified by IRCON. Change in internal sharing ratio between members does not affect the identity or JV." 3. "Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating that the JV is a separate entity (an AOP) as per I. T. Act and this entity is live, liable to be taxes as such. The status of the JV in its return of income filed for A.Y 2017-18 is also an AOP and separate from Assessee." 4. Whether on the facts and circumstances o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le 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 and the relationship between the JV and assessee for the work is of contractor and sub-contractor as the ultimate purpose was to complete the project awarded to the JV. 8.1 AO also rejected the assessee's alternate claim that the interest earned from the assessee has been considered in the return of income filed by the JV for the year under consideration and Form 26A was issued by the Chartered Accountant has been given therefore, in view of the second proviso to Section 201(1), assessee should not be treated as 'assessee in default'. He thus, held that assessee has violated the provision of Section 194A and interest paid to AGE Patel JV, TDS was required to be deducted @10%. Thereafter, accordingly, the payment of Rs. 1,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ociation 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 has filed evidence in the form of return of income filed, Form 26AS and the assessment order of AGE Patel JV, wherein the assessing officer of the said JV has accepted the contention that the AOP has ceased to exist and therefore, the profits of the AGE Patel JV and its TDS credit belong to the assessee. Simultaneously, the assessing officer of the assessee has assessed such income in the assessment of the assessee and has granted corresponding credit of TDS to the assessee. The assessee has cited a number of decisions, including of the Hon'ble Jurisdictional High Court, in CIT v. SMSL-UANRCL (2015) 372 ITR 429, CIT v. LGE & C Patel JV (ITA No. 2434 to 2437 of 2010) (Gujarat) and ITO v. Shraddha & Prasad Joint V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al 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 would be paid to the assessee towards execution of the entire scope of works out of which the assessee shall pay to AGE only the technical fees as agreed. Any claims or refunds shall be solely belonging to the assessee. Also, all the expenses and costs related to the contract would be borne by the assessee only. Further, the assessee shall be solely responsible for providing bonds/guarantees/ indemnities wherever required for which it would also enter into separate agreements with concerned parties. The assessee shall hold AGE harmless and would fully indemnify it from any losses or costs that might have to be incurred in execution of the contract. Further, the assessee shall be responsible for any or all taxes, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 153A read with section 143(3) of the Act. Against this factual background, the question raised by the Revenue authorities in the assessment of the JV was: [1] Whether in the facts of the case and in law, the Hon'ble ITAT was correct in holding that the entire income earned by the joint venture company is liable to be taxed in the hand of one of the members of the assessee company without appreciating the fact that the contract was awarded to the assessee company and not to the individual member of the assessee company? 16. The Hon'ble Bombay High Court held that; "The Income-tax Appellate Tribunal, Nagpur ("the ITAT"), has as a matter of fact found that the assessee-joint vent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 work. However, consortium members may share contract price at gross level only to facilitate convenience in billing. c. the men and materials used for any area of work are under the risk and control of respective consortium members; d. the control and management of the Consortium is not unified and common management is only for the inter-se coordination between the consortium members for administrative convenience. 4. There may be other additional factors also which may justify that consortium is not an AOP and the same shall depend upon the specific facts and circumstances of a particular case which need to be taken into consideration while taking a view in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5JB 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 total income of Rs. 122,12,77,610/-. The book profit u/s. 115JB was returned at Rs. 205,39,00,312/-. The ld. AO has completed the assessment on an income of Rs. 192,02,94,830/-. The ld. AO has disallowed the claim of deduction u/s. 80IA(4) which was claimed at Rs. 67,44,14,606/- holding that assessee is not eligible because for claiming deduction u/s. 80IA(1) 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. Unless assessee really develops and begins to operate infrastructure facility, there is no que....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gaged 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 length and perused the relevant finding given in the impugned orders as well as material referred to before us and so far as first issue raised in the department's appeal regarding claim of deduction u/s. 80IA. As noted above, assessee has claimed deduction u/s 801A of the Act with respect to four projects, namely Turial II, Turial III, Teesta Lower Dam and Construction of Road at LEH P-Il amounting to Rs. 4,21,96,821/-, Rs 59,88,77,437/-. Rs. 1,09,00,242/- and Rs. 2,24,40,106/-, respectively, aggregating to Rs. 67,44,14,606/-. The case of the ld. AO is that as regards the claim of deduction for Teesta Lower Dam Project at Kameng, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 not a contractor. 31. Also as regards the AO's contention that the section requires the assessee to enter into an agreement with Central Government or a State Government or a Local body or a Statutory body and that NPCC is neither of them, the Ld CIT (A), on perusal of the orders of the Hon'ble Tribunal for AYs 2005-06 and 2013-14 held that the NPCC is a Government of India Enterprise and hence have been held to be eligible for deduction u/s 801A(4) 32. In view of the above, the Ld. CIT(A) directed the Ld. AO to allow deduction under section 80-IA(4) of the Act with respect to road construction project at L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 nature. The Assessee, on turnkey basis, is responsible for planning, designing, best modern practices, work method, scheduling and resourcing for the contract, for adequacy and safety of techniques used, obtaining permissions and co-ordinate with various relevant authorities, deciding on machinery, equipment, personnel and services to be installed at the infrastructure facility, conduct geological and geotechnical investigations, undertaking special tests, carrying out a topographical survey of site, establish its own laboratory on site, prepare drawings, install safety procedures....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 developing, operating and maintaining the facility. This condition cannot apply to an enterprise which is in the business of developing (only) the infrastructure facility, because, in such a case, after development, as per the agreement, the enterprise is obliged to hand over the developed infrastructure facility to the Government and not operate and maintain it. Hence, the mandate of this condition is merely that the new infrastructure facility developed should begin operation and maintenance on or after 1st April, 1995. 43. The proviso to clause (c) applies only w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Construction Ltd. v. UOI (31 taxmann.com 250) cited by the AO, the Hon'ble Gujarat High Court merely held that the insertion of the Explanation by the Finance Act of 2009 is retrospective in nature; it nowhere held that a developer is not entitled to a deduction u/s 801A(4) of the Act. Hence, the said decision does not address the or"/ controversy of "developer" v. "contractor." 45. Thus, we hold that assessee is a developer of each of the infrastructure facility mentioned hereinabove and considering the scope of work undertaken by the assessee in ea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iliation 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 accounts as per said Schedule III, the Ld. AO has no power to rescrutinise the accounts and make the adjustments other than those contemplated in Explanation 1 of section 115JB of the Act. The Ld. CIT(A), following the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd v CIT (122 Taxman 562), held that the adjustments made by the Ld. AO to the computation of Book Profits are able / not sustainable. 48. We have heard both the parties and also perused the relevant findings given in the impugned orders. It is a well settled proposition that sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 prior period expenses which has been incurred pertain to this year even though the payment has been made in the next assessment year, then also same has to be allowed. Accordingly, grounds raised by the assessee are allowed. 57. Lastly, coming to the issue raised in Ground No.2 with regard to addition on account of difference in reconciliation of Rs. 2,16,02,617/- as per 26AS, it is seen that during the course of assessment proceedings assessee was asked to reconcile the AIR transaction with the income of the assessee aggregate value of Rs. 2178.43 Crores ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 per data base maintained by income-tax department with income as is reported in the books of accounts. There could be differences in the accounting policy followed by the tax-payer and its clients who have deducted income-tax at source on behalf of the tax-payer as well wrong mention/punching of the PAN number of the taxpayers by clients while filing TDS returns with the department. One of the reasons for differential could be that clients have deducted TDS on gross amount inclusive of service tax while income is reflected by tax-payer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 owned step-down subsidiary Bellona Estate Developers Ltd., without appreciating the fact that the assessee's case is similar to the fact of Dalmia Jain and Co. Ltd as here also a new asset was created and expenditure was in the nature of capital expenditure. vi. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the written off amount to the extent of Rs 13,12,297/- without fully appreciating the facts of the case. vii. On the facts and in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 ld. AO held that interest of late payment of TDS is not an allowable expenditure whereas, the ld. CIT (A) has allowed the same after relying upon the decision of the ITAT Mumbai Bench in the case of Resolve Salvage & Fire India (P) Ltd., reported in 139 taxmann.com 196. 66. We have heard both the parties and also perused the relevant finding given in the impugned orders. At the threshold, the claim of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 JV would request IRCON to release payments to it based on such bills issued by the Assessee * All taxes and statutory deductions would be borne by the * The Assessee shall be responsible to furnish bank guarantees towards mobilisation advance or performance. * The Assessee shall be responsible to procure all related insurance and risk covers and shall be the person entitled ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see 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-bearing funds from the year 2011 and the opening balance as of April 1, 2017 of the advances made to PERL stood at Rs. 668,90,44,903/-, including interest accrued thereon. Over the period from the assessment year 2011-12 to 2018-19, the Assessee offered interest income from such advances as its business income on an accrual basis aggregating to Rs 367,02,25.240/- During the year und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the Act is that the amount written off as bad debt ought to have been offered as income in earlier years. The said requirement has been fulfilled in the facts of the present case. 77. Reference was placed before us on the decision of the Hon'ble Jurisdictional High Court in the case of PCIT vs. Mahindra Engineering & Chemical Products Ltd. (285 Taxman 699), the Hon'b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 Limited (172 ITR 257). The aforesaid decision has been followed by the Hon'ble Bombay High Court in the case of National Organic Chemical Industries Ltd. vs. CIT (203 ITR 410). 82. Once there is a categorical finding that interest income has been considered as business income in the earlies years which has been written off by the assessee during the year under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nancial 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 business and, therefore, the loan that becomes bad cannot be allowed as a business expense, as it is of a capital nature. 89. The ld. CIT (A) held that once it is an admitted fact that is engaged in the business of development of Infrastructural facilities and real estate development, which is in the same line of business as that of its subsidiaries....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ttled 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 activity are allowable as a deduction, as the same are incidental to carrying on of business activity. 95. The utilisation of advances by the borrower in no manner dictates the allowability of the loss in the hands of the Assessee. The Assessee, here in this case had advanced the loans in furtherance of its business objective and, therefore,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 was to be adjusted against the work that was to be carried out by the said JV. However, the project suffered delays and the Assessee, even after making repeated attempts for recovery of the said amount, could not recover the advances made. Ultimately, the Assessee considered it appropriate to write off the advance of Rs. 3,40,25,640/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uring 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 also reflected in the accounts of the Assessee. In the computation of the income of the Assessee, an adjustment is made by way of reducing the profits of the JVs to nullify the effect of the consolidation. Therefore, the Assessee does not claim any deduction nor offers any income. 108. The Ld. AO has made similar allega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turing/ 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. 150 crores Rs. 75 crores in the relevant year and Rs. 75 crores in AY 2019-20 in the Assessee. * 63,23,532 shares held by the promoters in the assessee worth Rs. 53,99,66,397/- (prevailing market price at the time of invocation) were taken over by the lender banks at a value of Re. 1 per share instead of the then preva....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 and held that the expenditure incurred by the Assessee is capital in nature and not allowable. The Ld. CIT (A) held that the Assessee has received an advantage of enduring nature and, consequently, the compensation paid to the Promoters to enable the restructuring of the loan is an expenditure in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing 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 time upto the year 2027), against which the Assessee has claimed a deduction for compensation of Rs. 53.36 crores. 122. In view of the above facts, assessee before us stated that the loss to promoters due to invocation of shares is directly, wholly and exclusively attributable to the benefit gai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ge 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 not. If the contention of the Ld. AO is accepted then it leads to an absurd result inasmuch as if a capital asset is acquired out of accumulated/ working profits, then such acquisition would not be treated as capital expenditure but a revenue expenditure since it was incurred out of accumul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gement 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 which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's case (supra) is that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carry....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld. 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 co-ordinate branches of this Hon'ble Tribunal that without bringing on record further corroborative evidence, addition cannot be made by simply relying upon entries appearing in the AIR statement: * TUV India (P) Ltd. v. DCIT 110 taxmann.com 175 (Mum.) Neither ....