TaxTMI 
TaxTMI 
2026 (7) TMI 1593
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....sallowance of interest expenditure of Rs. 2,82,95,09,446 on borrowings, though same relates to the assets which are put to use and thus allowable u/s 36(1)(iii) of the Act. 2. erred in holding that the Appellant has failed to provide detail of actual interest-bearing loan pertaining to the Intangible Assets under development (IAUD) and to objectively prove the use of loan for development of IAUD and the quantification of interest-bearing liability, 3. failed to appreciate that the Appellant had acquired the assets, including the borrowings, as part of the business undertaking acquired under slump sale and the interest payments made were directly attributable to this business undertaking; 4. failed to appreciate that the interest of Rs. 280,10,41,096 paid to the holding company Reliance Industries Limited is towards the loan liability received by the Appellant as part of the business undertaking acquired under slump sale and such interest is offered to tax by the recipient (Reliance Industries Limited), and thus, there is no loss to the revenue." 3. The Revenue has raised the following grounds of appeal:- "1. Whether on the facts and in the circumstance....
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.... AY 2021-22, the tax depreciation of Rs. 27,61,60,95,197/- was claimed on intangible assets, which comprised of depreciation claimed on the opening WDV which has been carried forward from the last year as well as addition of Rs. 16.21 crores made during the year under consideration. The depreciation is claimed @ 25 % as per the rates of depreciation prescribed under the Act read with Rule 5 of the Income-tax Rules, 1962. Excerpts from the Assessment order: 4.2 During the assessment proceedings, the Assessing Officer analysed the allowability of the tax depreciation on Intangible Assets claimed by the assessee. It has claimed depreciation of Rs. 1624,12,13,079/- and Rs. 2761,60,95,197/- on IAUD for the A.Y. 2020-21 and 2021-22 respectively. The depreciation has been claimed in respect of the IAUD purchased from the two group companies during the financial year 2019-20 through Slump Sale agreements. The name of the transferor group companies and value of Intangible assets and liability transferred to the assessee company are as under: Name of the Transferor Group Companies Assets Transferred Liabilities Transferred Net consideration paid by the Assessee RPPMSL ....
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....ired from RPPMSL, the total value of the intangible assets transferred was at Rs. 12992,97,04,630/- as on 16.03.2020 when the Assessee taken over the assets. The Assessee has claimed depreciation on these Intangible Assets of Rs. 1686,00,58,772 and Rs. 2761,60,95,197 for the assessment years 2020-21 and 2021-22 respectively. The Assessing Officer has noticed that the said values of assets in the case of the company M/s RPPMSL have been adopted on the basis of a review report of the chartered accountant issued on 14.04.2020 where they have commented that they have not performed any audit regarding the said transactions. On the basis of the same, the Assessing Officer has doubted the genuineness of the Short Term Losses incurred by both the transferor companies i.e. M/s RPPMSL and M/s RPSL in the financial year ending on 31.03.2020 i.e. preceding year of the financial year (2020-21) under reference. * The Assessing Officer is of the view that the alleged intangible assets are nothing but the accumulation of various components of expenses like the salaries and professional fees etc. incurred by the company from year to year whereby a part of it is claimed as intangible assets....
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....inancial year i.e. 2019-20 and the assessment of that year has already been completed u/s 143(3) wherein the AO had thoroughly examined the issue and allowed the depreciation of Rs. 1624.12 crores claimed by the appellant on the Intangible Assets under reference. Further, the appellant submitted that the entire Intangible assets acquired through slump sale from M/s RPPMSL and M/s RPSL, were already put to use by the transferor companies. There is no change in the character and value of the assets during the year under consideration and the depreciation has been claimed on the opening WDV of the assets. The Appellant has also contended that the term 'written down value' under the provisions of section 43(6)(c) of the Act states that once an asset becomes part of the block of asset, its WDV can be reduced only by moneys payable when asset is sold or discarded or demolished etc. when no such event has happened, the Appellant is eligible for depreciation on the opening WDV of the block the asset. In support of such proposition, the Appellant has relied on various judicial pronouncements. 5.4.3. On the other hand the AO denied the tax depreciation on Intangible Assets on the fo....
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....iance Project and Property Management Services Ltd. (RPPMSL) demerged from RCITPL with effect from 1st September 2019 and the above assets being IAUD were transferred to this new company at book value of Rs. 11,798 crores. Further, RPPMSL incurred Rs. 3235 crores in further development of the same IAUD. RPPMSL added these expenses of Rs. 3235 crores to the book value of IAUD but for income tax purpose it claimed the same as revenue expenditure as the assets were already put to use. The IAUD pertaining to platform/app services were transferred to the appellant at book value of Rs. 12771on 16.03.2020. Software of Rs. 13 crores, GST recoverable of Rs. 272 crores and Debtors of Rs. 20 crores were also transferred as a part of total assets transferred to the appellant by RPPMSL as per slump sale scheme. The AO has highlighted the that RPPMSL had incurred Short Term Loss of Rs. 9577.57 crores on slump sale and also claimed depreciation at Rs. 901,80,42,485/-. On being asked during the appellate proceedings, the Appellant has furnished copy of Slump Sale Agreement executed between the Appellant and RPPMSL along with copy of ITR, Financial Statement and Assessment Oder u/s 143(3) read with....
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....ently followed by the appellant. The AO has not controverted the same. Similarly, the AO has also not disputed the fact that the Intangible Assets under reference were already put to use by the transferor companies. The Appellant has contended that the term 'written down value' under the provisions of section 43(6)(c) of the Act states that once an asset is part of the block of asset, its WDV can be reduced only by moneys payable when asset is sold or discarded or demolished etc. when no such event has happened, depreciation on the opening WDV of the block the asset cannot be denied. In support of such proposition, the Appellant has relied on various judicial pronouncements. It is also not in dispute that there are substantial number of subscribers / customers who are availing services being provided by the Appellant by using Intangible Assets under reference. The AO has not disputed the fact that the appellant has earned revenue of Rs. 274,50,05,868 from these Apps / Platforms, which has been offered to tax. 5.4.7. In view of the facts of the case in hand and the transactions within the group companies on account of transfer of assets and liabilities from one company to t....
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.... res judicata does not apply in the Income Tax matters, consistency should be followed where no change in the facts. The relevant para of the judgement is reproduced as under: "13. 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." 5.4.8.2. In the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 (SC), the Apex court held that though the principle of res judicata would not apply to tax matters as cause of action for each assessment year is different/distinct, yet in case there is no change in the factual position or the law, the views expressed in one year are binding for the subsequent years. The relevant para of the judgement is reproduced as under: "15. The decisions cited hav....
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.... and Others) was transferred to the appellant company from RPPMSL as a going concern on a slump sale basis. The FinTech platform was acquired from RPSL. The details of the assets and liabilities acquired by the Appellant in pursuant to such slump sale transaction are on record. The assets acquired by Appellant as part of slump sale included intangible assets also. Such block of intangible assets mainly comprised of complete digital platform services including various applications. For adjudicating the present issue of claim of depreciation it is very vital to address the question as to whether such digital services / platform business comprise of merely costs of salaries, etc or whether it is an intangible asset which has been put to use and generating revenue? In this regard the appellant has submitted that the modern-day concept of digital platform services which are provided through various apps and such apps have millions of subscribers and revenue is generated out of such subscribers or revenue is generated through ads given by corporates on such apps having millions of subscribers. The Appellant company is a part of a large corporate Reliance Industries Limited (RIL) and the ....
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....t Company or by the Transferor companies of the said assets. The appellant has submitted that Intangible Assets pertaining to the Platform Services have been shown as Capital Work in Progress or Intangible Assets Under Development (IAUD) in the books of account as the said assets are yet to achieve certain norms and parameters set by the management. Since, these assets are put use and already started yielding revenue, further expenses incurred for improvement of these assets are claimed as revenue expenditure but in the books these expenses are added to the AIUD. This practice has been followed in other group companies. The AO did not question the allowability of these expenses as revenue expenditure during the year under reference; rather he has proceeded to disallow the entire depreciation claimed on opening WDV of the Intangible Assets. The AO has not brought on record any evidence to prove that the appellant company or the group companies who developed and transferred the said assets to the appellant have accumulated the revenue expenses such as salary, professional expenses etc. in form of the value/cost of the Intangible Assets under reference. Therefore, I am of the consider....
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....re of expenses have been allowed by the Tribunal in the case of another two companies namely Reliance Footprint Ltd.'s case (supra) and Reliance Fresh Ltd.'s case (supra), which have been further upheld by the Hon'ble Bombay High Court. The finding up the Tribunal in the case of Reliance Footprint Ltd. (supra) has already been reproduced by the Ld. CIT(A) in para 11.2 of the impugned order and therefore we are not repeating the same. The relevant finding of the Hon'ble Bombay High Court in the case of Reliance Footprint Ltd. (supra) in ITA No. 948 of 2014 is reproduced as under: "6. We have considered the submissions canvassed by the learned counsel for the respective parties. 7. It is not relevant as to how the Assessee shows a particular income or expenditure in the books of account. In the present case, the Commissioner (Appeals) and the Tribunal has specifically on appreciation of factual matrix arrived at a conclusion that the expenditure are directly identifiable with the operations and maintenance of the existing stocks i.e. with regard to the payment of salary, travelling and conveyance allowance, telephone expenses, professional fees paid,....
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....l also relied upon the judgment of its Coordinate Bench in the case of Reliance Footprint Ltd. v. ACIT in ITA No. 5997/Mum./2011 decided on 23 October 2013 for the assessment year 2008-09, on identical facts, holding that the revenue expenditure as claimed is allowable." 5.4.12. To sum up, the Appellant has acquired the intangible assets which have been put to use by the transferor companies and such block of intangible assets have earned revenue and the expenses incurred for development of such intangible assets have not been claimed as revenue expenses at any point of time before they were put to use by the Appellant or by the transferor companies who developed the intangible assets under reference. The depreciation claimed on the Intangible Assets under reference was already allowed by the AO vide Assessment Order passed u/s 143(3) of the Act for AY 2020-21. Since, the AO could not prove any material change regarding the Intangible Assets under reference, deviation from the precedence is not justified. 5.4.13. On the basis of the facts of the case as discussed in paragraphs 5.4.1 to 5.4.10 & 5.4.12 and the judicial pronouncement of the jurisdictional ITAT and H....
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....h circumstance, deviation from the precedence is not justified. 9.1 It is also a fact that the impugned assessment year is the second year of the assets having been put to use by the Assessee. The Ld. CIT(A) has also given a finding that there are substantial number of subscribers / customers who are availing services being provided by the assessee by using Intangible Assets under reference which has not been disputed by the Assessing Officer. The assessee has also earned revenue of Rs. 274,50,05,868/- from these Apps / Platforms, which has duly been offered to tax. 9.2 Regarding the assessee's primary argument that depreciation is mainly claimed on the opening WDV as on 01/04/2020, the term 'written down value' is defined under the Income-tax Act in section 43(6)(c) which states that once an asset is part of the block of asset, its WDV can be reduced only by moneys payable when asset is sold or discarded or demolished etc. when no such event has happened, depreciation on the opening WDV of the block the asset cannot be denied. The assessee has also placed its reliance on the judgment of Hon'ble jurisdictional High Court in case of PCIT v. Zydus Wellness Ltd. [2017] 81 taxman....
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....as any assessment under section 143(3) of the Act pertaining to the assessment year 2006-07 though the assessee before the learned CIT (A) has submitted as under: "The depreciation on goodwill is allowed and was correctly granted as per law in the assessment order for A.Y 2006-07." The above submission of the assessee before the learner CIT (A) has not been disputed by the learned CIT (A) in his order. 10. Now, the issue arises whether the Revenue can deny the deduction claimed by the assessee on the written down value in the year under consideration. In our view, the answer stands in favour of the assessee. It is because, the revenue once allowed the deduction for the depreciation claimed by the assessee, then it is debarred to reject the claim of the assessee in the subsequent year on the WDV carried forward from the earlier assessment year. As such, in our considered view the Revenue was required to disturb the claim of the assessee in the 1st year itself. Therefore, we are of the view that claim of the assessee should be allowed on the basis of principles of consistency. In this regard we find support and guidance from the judgment of Hon'ble Supr....
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....e Revenue's appeal is dismissed. 10. Ground 2 - Revenue received in advance - 10.1 Brief facts of the case - The Assessee earns subscription revenue which consists of revenue earned from its subscribers /customers towards usage of content, applications by the subscribers. The Assessee has arrangements with various OTT service providers such as Hotstar, Netflix, Amazon prime whereby it has secured a license to distribute subscriptions of the OTT apps. These OTT subscriptions are part of bundled recharge vouchers procured by end-users, which results in subscription revenue for the Assessee. These recharge vouchers are valid for a particular time period and since the service delivery / performance obligations are satisfied by the Assessee over the validity of the voucher, the subscription revenue is recognised over the voucher validity period. The Assessee recognises entire recharge amount /voucher value as "Advance received from customer" on sale to the distributor. Once the sale happens to the end customer /subscriber by the distributor, the amount lying in "Advance received from customer" is recognized as "deferred revenue", as the revenue pertains to a fixed time frame co....
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....as tried to explain that another amount of Rs. 275 crore has been reduced from the IAUD whereas it has reflected gross revenue of Rs. 2832 crore ultimately for the A.Y. 2021-22. No co-relating evidence either has been placed on record as to how the receipt of revenue in respect of a particular recharge sold to any distributor is dependent upon the further sale by the distributor to the ultimate consumer of the relevant recharge. Again here the issue of business model arises as to what is the mode and manner of generating of revenue, its accounting in the books of account under the revenue head and the capital account, incurring of expenses and its accounting in the books of account under the revenue head and the capital account particularly considering the fact that not only the expenses are being capitalised into the intangible assets, even the revenue is given effect in the gross revenue declared where a portion of the revenue is reduced from the IAUD under certain circumstances. Thus keeping in view the facts and circumstances of the case, it is seen that assessee has failed to clarify and bring on record any justification regarding the accounting of revenue of Rs. 42,49,05,854/....
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....at Rs. 42,49,05,854. Accordingly, ground no. 5 and 6 of the appeal are allowed." 11. The Revenue is in appeal before us against the relief of Rs. 42,49,05,854 granted by Ld. CIT(A). 12. The Ld. DR has supported the assessment order of the Assessing Officer. 13. The Ld. Counsel of the assessee submitted that the assessee has consistently followed the accounting policy of recognising revenue upon rendering of services. If the services against the amount received in advance were not rendered during the year under consideration, no income can be said to have accrued or arisen to the assessee in this year. Consequently, following the consistent policy of the revenue recognition as stated above, the revenue received in advance at the end of the year is offered to tax in the subsequent year in which the services are rendered resulting in accrual of income in that year. This accounting policy is being followed consistently year after year. It was further submitted by the Learned Counsel that the revenue received in advance in preceding year (i.e., AY 2020-21) has been offered to tax during the year under consideration and hence making the additions of Rs 42,49,05,854/- again (whic....
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....is are as under: Name of the Transferor Group Companies Assets Transferred Liabilities Transferred Net consideration paid by the Assessee RPPMSL Rs. 13,076 crores Rs. 13,031 crores Rs. 45 crores RPSL Rs. 1,113 crores Rs. 1,043 crores Rs. 70 crores TOTAL Rs. 14,189 crores Rs. 14,074 crores Rs. 115 crores Against the total assets received of Rs. 14,189 crores, the Assessee also received corresponding liabilities of Rs. 14,074 crores which comprises of borrowings of Rs. 13,915 crores and other liabilities (creditors) of Rs. 159 crores. Out of the borrowings of Rs. 13,915 crores, the borrowings of Rs. 1,012 crores received as part of the undertaking acquired from RPSL was fully repaid by the Assessee in earlier year (i.e., AY 2020-21) itself. * The case of the Assessee was selected for scrutiny for AY 2020-21. The issues for taking up the assessee's case for scrutiny in last year inter alia includes "Reduction in profit because of application of Income Computation & Disclosure Standards", "Claim of any other amount allowable as deduction in Schedule BP" and "Higher Creditors / Liabilities". The regular assessment was com....
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.... entitled for the said claim in accordance with the ICDS IX whereas the issue has to be examined under the provisions of section 36(1)(iii) of the Act. Thus keeping in view the facts and circumstances of the case and the movement of capital within the group, frequent sales of undertakings of the group, losses declared in all the companies discussed in this order and the provisions of section 36(1)(iii), it is seen that assessee has failed to justify its claim with the facts and figures. Accordingly, amount of Rs. 282,95,09,446/- is being added back to the taxable income." 17. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before CIT(A) who dismissed the appeal of the assessee. The findings of the CIT(A) are as under :- "The appellant has failed to provide detail of actual interest bearing loan pertaining to the IAUD. The appellant has failed to objectively prove the use of loan for development of IAUD. The quantification of interest bearing liability has not been proved by the appellant. Almost entire interest has been paid to the holding company. The appellant could not explain and justify such payment of interest to the related party. In....
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....ient (Reliance Industries Limited), and thus, there is no tax arbitrage and loss to the Revenue. In fact, the Assessee had declared a returned loss of Rs. 4,377.74 crores and was assessed at a loss of Rs. 1,290.69 crore for the year under consideration, whereas RIL is a tax-paying entity and has duly offered the corresponding interest income to tax in its return of income. Thus, it is not a case of loss of revenue at all. * The CIT(A)'s finding is limited to linkage of the borrowings with the IAUD. When an undertaking is acquired under a slump sale, the existing borrowings of that undertaking, which were recorded as liabilities in the transferor's books, are assumed by the acquiring assessee. The Assessee has submitted the review report of the chartered accountant obtained by RPPMSL detailing the assets and liabilities of the undertaking. The Assessee has also submitted the copy of loan assignment letter executed amongst RIL, RPPMSL and the Assessee for assignment of loan to the Assessee effective from the date of slump sale. * From the perspective of the acquiring assessee, these borrowings now form part of its capital structure, supporting the continued oper....
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.... on the facts of the case. The learned counsel of the Assessee has clearly brought out on record that the borrowings / liabilities have been acquired by the Assessee under a slump sale as a part of the undertaking as a whole comprising of the assets and the liabilities. The liabilities under consideration do not emanate from any fresh or independent transaction during the year under consideration but merely represent continuing liabilities forming part of the undertaking already accepted by the Assessing Officer in last year. When an undertaking is acquired under a slump sale, the existing borrowings of that undertaking, which were recorded as liabilities in the transferor's books, are assumed by the acquiring assessee. The Assessee has submitted the review report of the chartered accountant obtained by RPPMSL detailing the assets and liabilities of the undertaking. The Assessee has also submitted the copy of loan assignment letter executed amongst RIL, RPPMSL and the Assessee for assignment of loan to the Assessee effective from the date of slump sale. 21.4 It has further been submitted by the learned counsel that once the undertaking is acquired as a going concern, the bor....