TaxTMI 
TaxTMI 
2025 (1) TMI 1339
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....ircumstances 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 of the case, the ld. CIT(A) erred in not appreciating that the provisions of Chapter XVII-B is applicable in transacti....
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....idding 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. 1,42,09,790/- was treated in 2017-18 and likewise in A.Y.2018-19 of Rs. 2,07,57,565/- including interest u/s. 201(1)(A). 9. The ....
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....sessable 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 Venture (ITA No. 2665 / Pune / 2017), wherein identical/similar contentions as that of the assessee have been upheld. 10.1 The Ld. ....
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....n 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, duties or penalties including arranging for statutory clearances, permits, documentations, required for completion of the work. Simultaneou....
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....roject 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 venture did not execute the contract work and the said work was done by one of its constituents, namely, SMS Infrastructure Ltd. It is also found that the receipts....
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....s 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 the matter. 5. It a further clarified that this Circular shall not be applicable in cases where all or some of the members of the consortium are Associated Enterprises within the meaning of Section 92A of the Act. ....
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....bsequent 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 question of granting any deduction for the reason that the period of deduction cannot commence unless the enterprise develops and begins to operate the infrastructure facility. After analysing the Section 80IA in great detail and after considering the assessee's submissions he mad....
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....liation. 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 ld. AO acknowledged that the deduction on this project has already been held allowable by the Hon'ble ITAT in AY 2005-06 and for Turial-Il and Turial-III Projects in AY 2013-14. However, as the Revenue has filed appeals against such orders of the Hon'ble ITAT before the Hon'ble Bombay High Court, the deduc....
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....009 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 LEH-II as well. 33. It has been stated that the assessee has claimed deduction u/s. 80IA with respect to the following projects:- Name of Project Amount Teesta Lower Dam 1,09,00,242 Turial II 4,21,96,821 Turial III 59,88,77,437 Construction of Road at LEH P-II 2,24,40,106 Total 67,44,14,606 34. At the outset, it has be....
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....re 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, provide as-built drawings, point out defects, if any, in drawings provided by Principal, soil testing, earth filling, civil works, quality assessment and control, make own arrangement for borrow areas, quarries, site offices, casting yard, labour camps, implement a comprehensive safety plan, liable for damages to person, property and environment, etc. 39. It is further seen that the A....
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....illed. 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 when under a contract for development, operation and maintenance of an infrastructural facility. After developing the infrastructure facility, the Assessee transfers it to another enterprise for operation and maintenance thereof on its behalf. In the Assessees case, the proviso does not apply as it is a Developer only and under the contract agreement with the Government, the Assessee has to hand ov....
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....ere 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 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. 46. In so far as the ground No.2 raised by the Revenue regarding Taxing Capital gain @20% on sale of depreciable l....
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....dance 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 section 115JB regarding computation of Book profits is an independent code in itself and therefore there is no scope or possibility of making any adjustment to the Book profits other than that contemplated in Explanation 1. Explanation 1 defines "Book profits" to mean the profit as shown in the statement of profit and loss for the relevant previous year prepared under subsection 2 of section 115JB i.e. prepared in accordance with the provisions of Schedule III....
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....nce, 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 running into voluminous number of entries. The assessee vide its letter dated 17/12/2019 reconciled all the income stated in the AIR except for a few transactions, the value of which aggregated to Rs. 2,17,02,617/-. Both the authorities have confirmed the said difference. 58. Before us it has been stated that assessee has reconciled almost all the entries in the AIR report and only 0.10% of the total reported entries remain unreconciled due to the fact that the voluminous ....
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....d 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-payers exclusive of service tax. The assessee has no control over the data base of the Income-tax department as is reflected in Form No. 26AS and at best the assessee could do is to offer bonafide explanations for these differential 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 t....
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....e 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 circumstances of the case, the Ld. CIT(A) erred in allowing the advance of Rs 14,23,16,905/- to various Piece Rate Workers (PRWs) without appreciating the fact that the assessee has not offered the above as income in the earlier years. viii. 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. 85,06,16,120/-. ix. On the facts and in the circumstances of the case, the CIT(A) is erred in allowing the taxation of Capital gains @20% on sale....
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....eposit 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 regarding interest expenditure and delayed deposit of TDS, cannot be held to be an allowable expenditure. This issue has been discussed in detail by coordinate bench of ITAT Delhi Bench in the case of DLF Ltd., vs. The Addl. Commissioner of Income Tax in ITA No.2126/Del/2013 vide order dated 27/05/2019. The tribunal has relied upon the judgment of Hon'ble Madras High Court and 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....
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....d, 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 to make any claims against such covers taken. * The Assessee shall be responsible to maintain the projects during the defects liability period and shall rectify all defects at its own cost and risk. * The Assessee shall be responsible to take necessary measures required for the completion of the project to the satisfaction of IRCON. * The nominees of the Assessee shall act as the nominees of the JV to represent, negotiate, interact and communicate with IRCON and all other related government agencies in all matters related to the project. * In case of termination of the project by IRCON for reasons attributable to the Assessee, all the claims/penalties imposed on the JV sha....
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....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 under consideration out of the accrued interest already offered for tax in the previous assessment years, the Assessee wrote off an amount of Rs. 204,39,50,143/- as bad debts under section 36(1)(vii) of the Act. 71. The ld. AO observed that over the years, the Assessee Company has been converting interest receivable from PERL as a loan in its books of accounts. The Assessee company has written off loans given to PERL as bad debt during the assessment year 2018-19 and PERL wrote off loans given to DEPL during assessment year 2019-20. However, DEPL has not offered such write off by PERL as its income during the assessment year 2019-20. 72. The submission of the Assessee before us has been that interest received in the earlier year....
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.... 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'ble Court held that wherein interest income on the deposit was offered to tax as business income in the earlier year, subsequent write off of advance of deposit would be eligible for deduction under section 36(1) (vii) of the Act, as conditions of section 36(2)(i) of the Act stood satisfied, i.e., bad debts or part thereof was taken into account in computing income of the Assessee for an earlier assessment year before such debt or part thereof is written off. Reliance was also placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Pudumjee Pulp & Papers Mill Ltd. (63 Taxmann.com 283), wherein the Hon'ble Court held that once interest income on the inter-corporate deposit was offered to tax in an earlier....
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....9;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 consideration, the conditions provided in Section 36(1)(vii) r.w.s. 36(i) stands satisfied and therefore, the finding and observation of the ld. CIT(A) is upheld and the grounds raised by the Revenue are dismissed. 83. Coming to the ground No.4 & 5, Revenue has challenged write off of loan advanced to DEPL amounting to Rs. 18,48,99,683/- and advance amounting to Rs. 26.30.514/- to wholly step down subsidiary M/s Bellona Estate Developers Ltd. (BEDL), respectively. 84. Brief facts are that DEPL a step-down subsidiary of the Assessee was formed for setting up a hydropower project under a licensed agreement with the Government of Arunachal Pradesh on a BOOT basis. To raise funds for the execution of the aforesaid project, various institutional lenders ....
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....n 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. Therefore, the allegation made by the Ld. AO in relation to advances given to BEDL that the Assessee was not engaged in the business of real estate development is factually incorrect. As evident from the material on record, the Assessee had made interest free advances to its subsidiaries in the normal course of its business. It is apparent that the Assessee, as a holding company, has deep interest into the business activities of its subsidiaries. 90. Further, during the course of the appellate proceedings, the Assessee has submitted additional evidence in relation to loans advanced to DEPL and its ultimate utilisation by DEPL and demonstrated that the expenses incurred by DEPL were in the nature of revenue field, like professional fees, rent, salaries, electrici....
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.... 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, the loss suffered while writing off the advances/loans is a business loss and eligible for a deduction. If the contention of the Ld. AO is accepted it would lead to an absurd result since for instance a sale of machinery 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. 96. We find that here in this case the principle laid down by the Hon'ble Supreme Court in the case of Badridas Daga Vs. CIT (34 ITR 10) has emphatically laid down the principle that losses suffered are incidental to carrying out of business and which are springing from business activities are allowable as a deduction under section 28 of the Act itself. The deductions are not exhaustive and profits are to be determ....
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.... 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/- as irrecoverable. 101. An Advance of Rs. 50 lakhs was given to Mr. Singh during the course of carrying out routine business activities for undertaking certain work on behalf of the Assessee. However, Mr. Singh could not achieve the desired results and, therefore, the Assessee abandoned the work. Even after repeated attempts, the Assessee was not able to recover the advances given to Mr. Singh and, therefore, wrote off the same. 102. The main allegation of the Ld. AO alleged is that the write off of advance/deposit is not acceptable as bad debt, as a such advance/deposits have not been offered as income in the earlier years. Further, the alternate claim under section 37(1) of the Act also cannot be accepted as the amount claimed is not an expenditure. 103. Ld. CIT (A) held that the Asse....
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....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 allegations in ground No.2 & 4 with regard to write off of advances. 109. Before us it has been submitted that the Ld. AO has failed to appreciate that it is only for presentation purposes the results of the JVs consolidated in the accounts of the Assessee. However, the Assessee is not offering any income nor claiming any corresponding expenditure. In fact, as stated above, the Assessee adjusts the profits of JV in its computation of income to negate the effect of the consolidation. 110. The Ld. CIT (A), after reproducing the submissions of the Assessee, dismissed the ground of the Assessee without giving any specific finding. 111. We have heard both the parties and also perused the relevant material and the finding of the AO. It is not in dispute that the results of JVs of the Assessee are consolidated in ....
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.... 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 prevailing market price, resulting in a loss of Rs. 53,36,42,865/- to the promoters for the restructuring of the existing debts of the Assessee under the S4A scheme It is reiterated, that the loan amount was not reduced by the amount of loss by the Banks. 114. The said scheme was crucial for the Assessee inasmuch as the financial position of the Assessee was not sound and non-acceptance of this proposal from the lenders would have resulted in various lenders/creditors classifying the company as non-standard and that would have adversely impacted the Assessee for qualifying for various infrastructure development tenders of Government / Government agencies. The restructuring exercise was required as: * The Assessee did not have enough funds to service interest and principal payments for the entire debt on a monthly basis as and when due. ....
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....f 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 capital field 119. We have heard both the parties and perused the relevant finding given in the impugned order as well as material referred to before us. It has been stated before us that the S4A was launched on June 13, 2016, by the Reserve Bank of India as an initiative to address and resolve the debt issues of the corporate sector and strengthen the lender's ability to deal with stressed assets. In view of the above scheme, as on the reference date of 8th August, 2017, the debt of the Assessee was restructured whereby it 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) that were converted into various tranches of Optionally Converted Debentures (OCD) face value of Rs 1000 each. As a preconditio....
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....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 gained in the interest cost by the Assessee due to restructuring. It was further stated that the transfer of the shares by the promoters to the lenders was really to compensate the lenders of their loss for reduction in interest rate and change in repayment terms of Part B debt which were converted into OCDs, Looked at differently. If the restructuring had not been undertaken, the Assessee would have been burdened with interest of a much higher amount than the compensation paid by it to the Promoters. 123. We agree with the contention of the assessee that compensation payable by the Assessee to the promoters for securing a beneficial interest rates for the borrowings and repayment terms, is clearly an expenditure which is allowable to the Assessee allowable as deduction u/s 37(1) of the Act, as such an expenditure is not dealt in section 30 to 36 of the Act. We are of the opinion t....
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....r 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 accumulated profits. The mode of discharge of consideration is not germane for deciding the nature of expenditure. 126. Before us, the ld. Counsel had also placed reliance upon the decision of the Special Bench of ITAT in the case of Biocon Ltd. vs. Dy CIT (144) ITD 21), wherein the SB, in relation to claiming a discount offered to employees on the issuance of Employee Stock Option Shares as a deduction, has held that the primary objective of issuance of shares cannot be lost sight of. The shares are issued for securing consistent and concentrated efforts of employees and not to raise capital. The relevant extract is reproduced hereunder:- "It is quite basic that the object of issuing shares can never be lost sight of. Having seen the rationale and modus operandi of the ESOP, it becomes out-and-out clear that when a company undertakes to issue shares to its employees at a discounted premium on a fu....
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....inative 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 carrying on his trade or business, they are trade receipts. The sales tax upon collection forms part of the public funds of State. If any subsidy is given, the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite immaterial." 129. Before us, the ld. Counsel further placed reliance upon the old decision of English court in the case of Associated Portland Cement Manufacturers Ltd. v. Kerr [1945] 27 TC 103 (CA), wherein it was held that for the purpose of determining whether an expenditure is of a capital or a revenue nature, it is immaterial whether the expenditure is made out of money withdrawn from the capital of the concern or out of it....
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....s 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 AO nor learned CIT (A) had considered it appropriate to conduct enquiries with the parties who had deducted TDS on behalf of the assessee wherein there are differential between 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 ....