TaxTMI 
TaxTMI 
2026 (8) TMI 1185
X X X X Extracts X X X X
X X X X Extracts X X X X
....lication of mind 1. On the facts and in the circumstances of the case and in law, the Honourable Commissioner of Income-tax (Appeals) ['Hon'ble CIT(A)'] erred in passing the appellate order in gross violation of the principles of natural justice, without affording the appellant adequate opportunity of hearing, including disregarding the Appellant's specific request for a personal hearing via video conference to present facts, explanations, and supporting documents. 2. In view of the above, the Appellant prays that the appellate order passed by the Hon'ble CIT(A) is bad in law and the same should be quashed. Ground 2: Disallowance of ICDS adjustment on account of security deposits amounting to INR 4,62,66,434 1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the disallowance of the adjustment of INR 4,62,66,434 under ICDS IV - Revenue Recognition, relating to notional amortisation expense and rental income on interest-free security deposits, which do not represent real income taxable under the Act and are merely accounting entries mandated under Ind-AS. 2. Without prejudice to the fore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant prays that the disallowance amounting to INR 40,00,00,000 be deleted. Ground 4: Disallowance of ICDS adjustment on account of government grant amounting to INR 75,93,37,323 1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) failed to adjudicate this ground despite all relevant submissions being on record, rendering the appellate order to that extent bad in law and violative of the principles of natural justice. 2. Without prejudice to the above, the Hon'ble CIT(A) erred in confirming the disallowance of the ICDS-VII adjustment of INR 75,93,37,323 relating to government grants under the EPCG Scheme, which were capital in nature and not taxable under Section 2(24)(xviii) read with Explanation 10 to Section 43(1) of the Act. The recognition of such grants as income in the financial statements pursuant to Ind-AS 20 represents notional income without accrual under the Act. The ICDS adjustment was validly made to reverse such notional income and compute real taxable income. 3. Without prejudice to the foregoing, the Hon'ble CIT(A) has failed to appreciate the principle of consistency when similar adjustments were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edings of AY 2018-19. 3. The Hon'ble CIT(A) erred in concluding that no short-term capital loss is allowable to be carried forward, despite accepting the Appellant's cost basis of INR 309.09 crores for the TDRs and erroneously acknowledging the overall gain on the transaction across both years. 4. The Hon'ble CIT(A) further failed to follow the principle of consistency by disregarding the fact that the short-term capital loss of INR 29.63 crores on sale of part TDR in AY 2018-19 was already accepted by the Revenue in the completed assessment for that year. 5. The Appellant, therefore, prays that the disallowance of short-term capital loss of INR 39,66,26,986 be deleted, and the correct cost of acquisition of the TDRs (i.e., INR 309.09 crores) be recognized in accordance with law. The recomputation of short-term capital gains at INR 160,16,38,418 by the Ld. AO may kindly be deleted. The finding of the Hon'ble CIT(A) that all components of the composite transaction (i.e., sale of land and sale of both TDR tranches) pertain to AY 2019-20 be held to be factually and legally erroneous. Ground 7: Disallowance of the provision on account of leave entitl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wed in earlier years, and no new facts or circumstances warranted a deviation from the principle of consistency. 3. Further, the Hon'ble CIT(A) erred in not seeking additional details during the appellate proceedings and remanding the matter, especially when the facts and nature of expenditure were clearly explained and available on record. 4. The Appellant prays that the disallowance of expenditure incurred on gifts amounting to INR 60,06,694 be held as unsustainable in law and be deleted. Ground 9: Denial of weighted deduction claimed u/s 35(2AB) of the Act, amounting to INR 3,97,47,654 1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the action of the L'd AO in denying weighted deduction under section 35(2AB) of the Act amounting to INR 3,97,47,654 and restricting the same to INR 2,64,98,436 as a revenue expenditure. 2. The Hon'ble CIT(A) erred in disallowing the weighted deduction under section 35(2AB) despite the Appellant having fulfilled all statutory conditions, including valid approval of the in-house R&D facility in Form 3CM for the relevant year. The absence of Form 3CL, wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Disallowance of Gift Expenses amounting to 760,06,694/-: 2.1 On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in holding that the gift expenses could be considered under "employee welfare expenses" without proper examination of supporting evidence or justification as per the Income Tax Act. 2.2 On the facts and in the circumstances of the case and in law the Ld. CIT(A) failed to follow the procedure under Rule 46A of the Income Tax Rules by not calling for a remand report before considering additional submissions made during appellate proceedings. 3. The appellant craves leave to amend, add or withdraw any ground of appeal at the time of hearing." We shall first take up the appeal filed by the assessee in ITA No. 3467/Mum/2025. 2. Brief facts of the case are as under:- The assessee is a company engaged in the business of manufacturing diversified products in various segments, including textiles, pulp and paper, chemicals, real estate, power generation and other allied activities. During the year under consideration, pursuant to a Scheme of Arrangement approved by the Hon'ble National Company Law Tribunal (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 4,62,66,434/- on account of security deposits, The Ld.AR submitted that during A.Y. 2018-19, the assessee received interest free refundable security deposit of Rs. 200 crores from Grasim Industries Ltd. pursuant to a long-term arrangement for operation of its Viscose Filament Yarn Division. 4.1. It is submitted that the assessee is required to prepare its books as per In-AS. Thus, in accordance with Ind AS 109, the deposit was recognised at its discounted present value and the difference between the transaction value and its net present value was recognised as deferred income. 4.1.1. It is submitted that the assessee neither incurred any actual expenses towards amortisation of security deposits nor earned any actual rental income on the same. It is thus submitted that both amortisation expenses as well as rental income recorded in the financial statements are notional in nature. 4.2. In line with the above, Ld.AR submitted that during the year under consideration, the assessee recorded amortisation expenses of INR 9,30,18,526 and notional rental income of INR 13,92,84,963 as per the provisions of Ind-AS 109. Such amortization/ rental income (being notional in nature a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....017-18 2018-19 1,59,84,674 79,81,041 80,03,633 REDUCE -80,03,633 2018-19 2019-20 9,59,08,044 5,03,26,281 4,55,81,763 REDUCE -4,55,81,763 2019-20 2020-21 9,59,08,044 5,47,74,666 4,11,33,378 REDUCE -4,11,33,378 2020-21 2021-22 9,59,08,044 5,96,16,249 3,62,91,795 REDUCE -3,62,91,795 2021-22 2022-23 9,59,08,044 6,48,85,783 3,10,22,261 REDUCE -3,10,22,261 2022-23 2023-24 9,59,08,044 7,06,21,096 2,52,86,948 REDUCE -2,52,86,948 2023-24 2024-25 9,59,08,044 7,68,63,359 1,90,44,685 REDUCE -1,90,44,685 2024-25 2025-26 9,59,08,044 8,36,57,380 1,22,50,664 REDUCE -1,22,50,664 2025-26 2026-27 9,59,08,044 9,10,51,932 48,56,112 REDUCE -48,56,112 2026-27 2027-28 9,59,08,044 9,91,00,095 -31,92,051 INCREASE 31,92,051 2027-28 2028-29 9,59,08,044 10,78,59,642 -1,19,51,598 INCREASE 1,19,51,598 2028-29 2029-30 9,59,08,044 11,73,93,453 -2,14,85,409 INCREASE 2,14,85,409 2029-30 2030-31 9,59,08,044 12,77,69,967 -3,18,61,923 INCREASE 3,18,61,92....
X X X X Extracts X X X X
X X X X Extracts X X X X
....represented customs duty benefit received under the Export Promotion Capital Goods (EPCG) Scheme for purchase of certain items. It is submitted that as per the scheme, the assessee has an obligation to export upto 8 items of the grant amount. It is submitted that upon fulfilling the export obligation, proportionate grant is released to the statement of Profit and loss. 6.2. Under the provisions of the Act, such grant is required to reduce the actual cost of the qualifying asset in terms of Explanation 10 to section 43(1) and does not constitute taxable income. However, as per Ind AS 20, such duty benefits are considered as Government Grants relating purchase of Property, Plant and Equipment ('PPE'), and is required to be capitalised with the respective asset and a corresponding liability is recognised in the financial statements as deferred revenue. It is also submitted that the same is credited to the P&L account as 'other income in the year in which the export obligations pertaining to the grant are fulfilled. 6.3. The Ld.AR submitted that during the year under consideration, the import duty benefit to the extent the obligation was fulfilled, was credited to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....double deduction, whereas the adjustment merely aligned taxable income with the statutory requirements of ICDS. 7.2. The Ld. AR further submitted that similar ICDS adjustments had been examined during the scrutiny assessments for A.Ys. 2018-19 and 2022-23 and, after considering identical explanations, no additions had been made by the Revenue. It was, therefore, contended that in the absence of any change in facts or law, the impugned additions were contrary to the settled principle of consistency. 7.3. The Ld. DR relied upon the assessment order and supported the findings of the Ld. AO as well as the order of the Ld. CIT(A) to the extent the additions had been sustained. It was submitted that the assessee reduced substantial amounts from its taxable income under the guise of ICDS adjustments without demonstrating that such reductions were permissible under the Act. 7.4. It was argued that the amounts credited to the Profit & Loss Account accrued in accordance with the mercantile system of accounting and constituted taxable income. According to the Ld. DR, the adjustments claimed by the assessee would result in reduction of taxable income despite the corresponding amounts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the applicable ICDS. It is in this background that we proceed to examine each of the impugned adjustments. The first issue relates to the adjustment of Rs. 4,62,66,434/- arising on account of unwinding of the security deposits. 8.4. It is not in dispute that during A.Y. 2018-19, the assessee received an interest-free refundable security deposit of Rs. 200 crores from Grasim Industries Ltd. pursuant to the arrangement for operation of its Viscose Filament Yarn Division. Since the assessee prepares its financial statements in accordance with Ind AS, the said deposit was recognised at its discounted present value in terms of Ind AS 109. The difference between the transaction value and the discounted value was recognised in the books in accordance with the said accounting standard. 8.5. During the year under consideration, the assessee recognised amortisation of Rs. 9,30,18,526/- and rental income of Rs. 13,92,84,963/- in its financial statements on account of the aforesaid accounting treatment. The assessee has explained that these entries were only accounting entries arising from the application of Ind AS and did not represent any actual expenditure incurred or actual ren....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Loss Account. 8.11. We also take note of the submission of the Ld. AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee's explanations. 8.12. While the principle of res judicata does not apply to income-tax proceedings, where a particular method of tax computation has been examined and accepted in earlier and subsequent assessment years, and there is no change in the material facts or the applicable statutory provisions, a departure from the accepted position would require the Revenue to demonstrate the distinguishing feature warranting such departure. No such distinguishing feature has been brought on record in the present case. Accordingly, Ground No. 2 raised by the assessee stands allowed. 9. The next issue relates to the addition of Rs. 40 crores on account of royalty income. 9.1. It is the case of the assessee that it had granted Grasim Industries Ltd. the right to manage and operate its Viscose Filament Yarn business for a period of fifteen years against an upfront royalty of Rs. 600 crores. The assessee has placed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een offered to tax in A.Y. 2018-19, bringing Rs. 40 crores thereof to tax again in the present year would result in taxing the same consideration twice. 9.7. We, therefore, find merit in the contention of the assessee that the reduction of Rs. 40 crores in the computation of taxable income was made only to exclude the amount which had already suffered tax in the earlier year. The Revenue has not demonstrated any basis for treating the said amount as a separate or additional income of the assessee for the year under consideration. 9.7.1. We also take note of the submission of the Ld. AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee's explanations. 9.8. While the principle of res judicata does not apply to income-tax proceedings, where a particular method of tax computation has been examined and accepted in earlier and subsequent assessment years, and there is no change in the material facts or the applicable statutory provisions, a departure from the accepted position would require the Revenue to demonstrate the distinguishing fe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... represents any income taxable independently under the Act, over and above the Government benefit to which the statutory provisions relating to determination of actual cost apply. Nor has the Revenue controverted the assessee's submission that the said duty benefits have not been included in the relevant block of assets for the purpose of depreciation. 10.7. We are, therefore, of the view that the accounting treatment under Ind AS 20 cannot override the specific provisions of the Act. The recognition of the amount as income in the financial statements is an accounting consequence and, by itself, cannot be a basis for treating the same amount as taxable income. 10.8. Accordingly, we find that the amount of Rs. 75,93,37,323/- cannot be brought to tax merely because it has been credited to the Profit & Loss Account under Ind AS 20. The addition made by the Assessing Officer and sustained by the Ld. CIT(A) is, therefore, not sustainable. 10.9. We also take note of the submission of the Ld. AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Ind AS and the amount determined under ICDS IX, by itself, does not establish such double deduction. 11.5. It is also relevant that the adjustment made by the assessee is only a computation adjustment arising from the application of ICDS IX. It does not amount to a fresh claim of expenditure. Once the amount required to be capitalised for tax purposes is determined in accordance with the prescribed method under ICDS IX, the corresponding adjustment in the computation of income is a necessary consequence. 11.6. We, therefore, find that the impugned adjustment cannot be disallowed merely because the amount capitalised in the financial statements under Ind AS differs from the amount required to be capitalised for the purposes of computation of taxable income under ICDS IX. In the absence of any material demonstrating that the assessee has actually claimed a double deduction, the addition is not sustainable. 11.7. We also take note of the submission of the Ld.AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee's explanations. 11.8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned to the value of the TDR sold in the year under consideration. The company has sold part TDR in A.Y. 2018-19 and part in AY 2019-20. Upon sale of TDR the company has claimed a capital loss of Rs. 29,63,83,924/- in AY 2018-19 and Rs. 39,66,26,986 in the year under consideration i.e AY 2019-20. As against a total loss of Rs. 69.29 cores, the company has offered a capital gain of Rs. 212.05 crores on land which was exchanged against the TDR. Thus, the company has overall offered a gain on the entire sale transaction. After setting off the entire capital loss no capital loss will be allowed to be carried forward, since there is a net gain and this is to be offered to tax." Aggrieved by the order of Ld.CIT(A), assessee as well as revenue are in appeal before this Tribunal. 13. The Ld.AR submitted that the assessee's claim of short-term capital loss of Rs. 39,66,26,986/- was in accordance with the manner in which the cost of the TDRs had been determined at the time of their acquisition in exchange for the land. It was submitted that the assessee had already offered the capital gain arising on surrender of the land to MHADA and had accordingly treated the FMV of the land as t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ined with reference to the records. Both the assessee and the Revenue are aggrieved by the order of the Ld. CIT(A). 14.4. The Ld.AR has challenged the denial of the cost of acquisition of the TDRs and submitted that the assessee had already offered the capital gain arising on surrender of the land to MHADA in A.Y. 2018-19. It was further submitted that the claim of short-term capital loss on sale of the first tranche of TDRs was accepted by the Ld. AO in A.Y. 2018-19 and, there being no change in the facts, the same basis ought to be followed in respect of the balance TDRs sold during the year. 14.5. The Ld. DR, on the other hand, has sought verification of the assessee's claim with reference to the records, particularly to ascertain whether the capital gain arising from the original transaction in A.Y. 2018-19 was actually offered to tax and the corresponding tax liability was discharged. The Ld. DR has also challenged the action of the Ld. CIT(A) in allowing set-off of the alleged short-term capital loss against the capital gain of Rs. 1,60,16,38,418/-. 14.6. In our considered view, both the claim of the assessee and the Revenue's objection to the set-off are int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t disallowance of leave encashment of Rs. 20,70,000/-. 16.1. The Ld.AO noted that as per note 20 to the notes to account, the assessee claimed provision of Rs. 20,70,000/- towards, leave entitlement, however, the same was not added in the computation of income. The Ld.AO thus added the same in the hands of the assessee. Aggrieved by the view taken by the Ld.AO the assessee preferred appeal before the Ld.CIT(A). 16.2. Before the Ld.CIT(A), it was contended that the amount has already been disallowed under section 43B in the Tax audit report, as reflected under clause 26B. 16.3. The Ld.CIT(A) directed the Ld.AO to verify if actual payments have been made before the due date of filing of the return as per provisions of section 36(1(v). Against this view the assessee is in appeal before this Tribunal. 16.4. The contention of the Ld.AR is that the amount of Rs. 20,70,000/- had already been disallowed in the computation of income under section 43B and, therefore, the addition made by the Ld.AO results in a double disallowance. 16.5. We find that the Ld. CIT(A) has directed the Ld.AO to verify whether the amount was actually paid before the due date of filing of the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not afforded adequate opportunity to substantiate its claim. 17.3. In view of the above, and considering that the issue requires examination of the nature and purpose of the expenditure as well as the supporting documentary evidence, we deem it appropriate to restore the issue to the file of the Ld. AO for fresh adjudication in accordance with law. The Ld. AO shall provide due and adequate opportunity of being heard to the assessee and shall examine the claim afresh after considering the submissions and documentary evidence furnished by the assessee. The assessee shall also be at liberty to furnish all relevant details and supporting evidences in support of its claim. Needless to state, the Ld. AO shall pass a speaking and reasoned order in accordance with law. Accordingly, Ground No. 8 raised by the assessee is allowed for statistical purposes. The corresponding ground raised by the Revenue is also allowed for statistical purposes. 18. Ground No.9 is in respect of denial of weighted deduction claimed under section 35(2AB) of the Act at Rs. 3,97,47,645/-. 18.1. The Ld.CIT(A), while adjudicating the issue, observed that the assessee had duly approved in-house scientifi....