TMI Blog2011 (8) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... , become bad. The onus lies on the assessee to prove that the loss have crystallised in this year only. - Matter restored before AO for examination of facts. TDS u/s 194J - payment made for bandwidth- appellant submits that that the payment was made to non-resident and it is covered under the provisions of section 9(1) read with Explanation (2)(iva) - Held that:- the agreement in question has to be examined before coming to a conclusion that the fee in question has not been paid only for purchase of Band width. If so, no disallowance can be made. Written-off of inventories - the assessee is valuing its closing stock at cost on net realisable value, whichever is less at the end of the accounting year - the loss arising on such re-valuation of stock for the purpose of reduction of share capital is not allowable - When the assessee values its stock at cost and net realisable value, re-valuation loss in the middle of the year cannot be considered - Notice that all these losses written-off have been adjusted against equity share capital or share premium account and are not routed through Profit & Loss account - Therefore such deduction, on re-valuing the stock that too on ad hoc ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en-off of inventories. On these two issues, the Revenue is in appeal. First, we take up assessee's appeal in ITA No. 4060/Mum./2007. 6. Before us, Learned Counsel, Mr. Vijay Mehta, appeared on behalf of the assessee, explained the nature of business being carried on by the assessee and submitted that the assessee has given advance to the management companies who were managing the networks in different parts of the country. He submits that these management companies had incurred loss and as the amount was not recoverable, the assessee has written-off the same and made the claim. He submits that the Assessing Officer was factually incorrect when he recorded that the resolution was passed by the Board of Directors, which stated that advances were provided to the managing company to develop infrastructure and to meet their fund requirements. He argued that there is no such resolution of the Board and it is not known from where the Assessing Officer picked-up this fact. He pointed out that the disallowance was made on the ground that the loss was capital in nature. Learned Counsel, referring to the order of the Commissioner (Appeals), disputed the finding and submits that the advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the business of providing loans and advances and, hence, it cannot be termed as business loss. She pointed out that the assessee has not lead any evidence to prove that the losses have become bad and that only a Board resolution was filed. She pointed out that the write-off was not made in the books of account and only a statement was prepared and adjusted against share premium account and submits that under those circumstances, the claim cannot be allowed. She points out that the recipient has never treated which is the receipt as its income and the assessee now claims the same as it is expenditure and that too without filing any evidence. 10. Coming to ground No. 2, she submits that the agreement has not been filed by the assessee and, hence, it would not be possible to come to a conclusion as to whether the facts are identical with the facts of the case of Estel Communications (P.) Ltd. (supra). She points out that in all those cases, the agreements were examined. She defended this ground by submitting that the payment was made to non-resident and it is covered under the provisions of section 9(1) read with Explanation (2)(iva) of the Act. She contended that unless the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved. Referring to the valuation report of consulting engineers, which is at Pg.59 of the paper book, he submits that though the name of the report is given as "machinery valuation report", the fact remains that what was valued was various stock items of business. He referred to preamble of the report as well as the opinion and emphasized that only stocks were involved. On the argument that this was never written-off in the Profit Loss account, the learned Counsel contends that this is a matter of presentation and if these items are written-off in the books of account as well as in the Profit Loss account, then ultimately it would have gone to reduce the reserves of the company which consisted of share premium account. 15. Rival contentions heard. We first take up assessee's appeal. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, insofar as ground No. 1 is concerned, we find that the management companies are in the nature of distributing companies for the assessee. We are of the opinion that to determine the exact nature of the transaction, it is necessary to examine the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the issue, we set aside the order of the Commissioner (Appeals) and restore the issue back to the file of Assessing Officer for de novo adjudication in accordance with law. 18. In the result, assessee's appeal is allowed for statistical purposes. 19. Coming to Revenue's appeal, ground No. 1, which is on the issue of addition made on estimated basis of subscription account, we find that the issue is covered in favour of the assessee in its own case in ITA No. 6178/Mum./2003, for assessment year 1997-98, order dated 9-3-2007, as well as the orders for all the previous years up to the assessment year 2003-04. In ITA No. 300/Mum./2007, order dated 26-3-2008, the Hon'ble Jurisdictional High Court, vide judgment dated 11-1-2011, passed in I.T. Appeal No. 937 of 2007, has upheld the order of the Tribunal. Respectfully following the binding decision of the Hon'ble Jurisdictional High Court, we dismiss this ground of Revenue. 20. Coming to ground No. 2, we find that the assessee is valuing its closing stock at cost on net realisable value, whichever is less at the end of the accounting year. On examination of the paper book, we find that the assessee has undertaken an exercise of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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