TMI Blog2011 (3) TMI 1637X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, while filing the return of income the assessee had claimed as revenue expenditure a sum of ₹ 615,58,31,000/-. According to the assessee it continued its trial production from the previous year and made substantial sales and was entitled to claim the expenses in question as deduction. It is not in dispute that in respect of identical item of expenditure the AO had treated similar expenses as capital expenses because the business of HRC project had not commenced. That was in the A.Y 1994-95. For the reasons given in AY 94-95, the AO disallowed the claim of the assessee for deduction of the aforesaid sum. 3. On appeal by the assessee the CIT(A) directed the AO to allow the deduction by following his order in A.Y 1994-95 on the identical issue whereby it was held that HRC Project was nothing but an extension of the existing business of the assessee and that both the business of HBI and HRC were same business. 4. Before, CIT(A) the assessee also submitted that the AO was not right in disallowing ₹ 615,58,31,000/- because the assessee had claimed as deduction only ₹ 405,84,85,000/- under the above head. The CIT(A) did not consider this stand of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e therefore proposed to disallow the above expenses. The assessee explained that HBI manufactured by it was the raw material of the HRC and therefore the project for manufacture of HRC was only a expansion of the existing business. It was also submitted that both the divisions had common management, same board of directors and located at Hazira side by side. There was a financial integration, personnel integration, common managing director, common executive director for finance, common administration and procurement etc. There was thus integration inter lacing, inter-dependance and dovetailing of the two divisions which had common finance and consolidated accounts. It was accordingly argued that both the divisions were part of the same business. The assessee was in the business of steel and manufacturing of different products constituted same business. Therefore expenses incurred for the existing business should be allowed. The AO was however not convinced by the arguments advanced by the assessee. It was observed by him that the HRC project was a new and independent project, the commercial production in respect of which was yet to start. It was also observed by him that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and organization. In view of these factors, the claim of interest against the jewellery business was allowed. 2.1.5 As regards the point made by the AO that in the books of account the expenses were capitalized, the assessee submitted that treatment in the books of account was not decisive of the nature of transactions. Whether the assessee would be entitled to a particular deduction would depend upon the provisions of law and not on the nature of entries in the books. Reliance was placed on the judgment of Hon ble Supreme Court in case of Kedarnath Jute Manufacturing Ltd. (82 ITR 363). CIT(A) agreed with the assessee that there was unity of management and administration in this case. Therefore he observed that even if the products manufactured by the assessee were different having different types of businesses this would constitute only one business. Accordingly, it was held by him that the new project was expansion of the existing business. He also agreed that the treatment in the books of account was not conclusive regarding nature of expenditure. It was also observed by him that for considering allowability of deduction on account of interest on borrowed funds under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (Agencies) Ltd. (290 ITR 217) It was also pointed out that though the decision of the Special Bench of the Tribunal in case of Ashima Synthetics (100 ITD 247) was against the assessee, the judgments of the High Courts mentioned earlier were subsequent to the decision of the special bench and have to be followed. 2.1.8 We have perused the records and considered the matter carefully. The dispute raised by the assessee is disallowance of debenture issue expenses relating to the HRC project. The assessee was already in the business of production of HBI and a new project had been taken up for production of HRC. The case of the assessee is that the new project was a part of the existing business and therefore the expenditure incurred was for the existing business and was thus allowable. The AO had treated the HRC project as a new business and accordingly did not allow the expenses on account of interest, general administration expenses and debenture issue expenses. CIT(A) however considered the HRC project as a part of the existing business and has allowed the general administrative expenses and interest expenses except the debenture issue expenses which have been disallowed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras in case of South India Corporation (Agencies) Ltd. (290 ITR 221). Though the special bench of tribunal in case of Ashima Syntex (100 ITD 245) has taken the view that the expenses incurred in connection with the fully convertible debentures is not allowable but in that case part of the debentures were convertible on date of allotment and remaining on a future date. The tribunal gave a finding that intention of the assessee was to issue shares partly on allotment and partly after 15 months. In the present case the debentures are not compulsorily convertible into shares. These were optionally convertible and therefore the conversion would depend upon option if any exercised by the debenture holders. Therefore it could not be said that intention was clearly to issue shares. Obviously the intention was to raise loan which could be converted into shares in future if any option was exercised. Therefore in our view the debenture issue expenses considering the judgments of Hon ble High Court of Rajasthan and Hon ble High Court of Madras (supra) have to be allowed. We therefore set aside the order of CIT(A) on this point and allow the claim of the assessee. Respectfully following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction holding that this was a loss in the course of carrying on the business and had to be allowed as revenue expenses. The CIT(A) also found that the closing stock had not been decreased to the extent of loss claimed by the assesse. The CIT(A) also found that in A.Y 1994-95 similar loss was allowed by the AO. 14. Aggrieved by the order of the CIT(A) the revenue has raised ground No.3 before the Tribunal. 15. The ld. D.R submitted that the closing stock as declared by the assessee is stated to be done after physical verification and therefore, this loss would have been already incorporated by reducing the closing stock. It was his submission that there was nothing to show that the closing stock declared by the assessee was excluding the value of this loss. It was submitted by him that the fact that in the earlier years the similar deduction was allowed will not be conclusive. In this regard it was also submitted that there was no basis of calculation or other evidence filed by the assessee to prove the loss. 16. The ld. Counsel for the assessee on the other hand, submitted that in A.Y 1994-95 the loss under this head was ₹ 4,81,38,000/- and the same was acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee submitted before the AO that because of the long period of the lease it was of the opinion that rents payable had to be reduced and, therefore, in the books of accounts it provided for a lesser liability but while computing the income for the purpose of Income-tax it had claimed the actual liability. The AO however, was of the view that claim of the assessee was not acceptable. 20. On appeal by the assessee the CIT(A) accepted the plea of the assessee holding as follows: 6.3 I agree with the submission made by the appellant that the lease rent is allowable fully for the year as in the earlier years relating to same assets. There is no revaluation done for purpose of deduction of same under IT Act. The change in the method of treatment of entries in the books will not alter the character of revenue expenditure. Moreover, this change in the method of treatment has not resulted in excess allowance than normally allowable. Therefore, no prejudice is caused to revenue. During the A.Y 1995-96, the entire lease rent of ₹ 8,03,49,553/- was allowed by the Assessing Officer. I delete this addition of ₹ 9,28,34,501 holding that appellant s treatment of deferred payment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment of premium of redemption of debentures can be said to be incurred in the year in which the debenture was issued as laid down by the Hon ble Supreme Court in the case of Punjab State Industrial Investment Corporation s case (supra). The CIT(A) allowed relief in A.Y. 1996-97 based on the decision of Hon ble Calcutta High Court in the case of CIT vs. Tungabhadra Industries Ltd., 207 ITR 553 (Cal). The premium payable in that case was contingent on the assessee not purchasing debentures under a buy-back clause and if there was no further issue of debentures. It was because of that clause the liability was contingent in the year of redemption. In the circumstances we direct the AO to allow the deduction in the year of issue of debentures. Consequently, Ground No.5 is ordered accordingly. 28. Ground No.6 raised by the revenue reads as follows: 6. On the facts and circumstances of case and in law, the CIT(A) has erred in directing to allow the compensation paid to tenants, though the same was held to be collusive transaction in the case of tenants namely Essar Services Ltd. and confirmed by the CIT(A). 29. The assessee sold its office premises in 13th floor, Maker Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot get the treatment as revenue expenditure in the hands of the appellant as it was relating to property. Considering all the facts of the case I am of the opinion that the compensation paid for vacating the premises had effects in enhancing the value of property as compared to tenanted property. Accordingly I direct the Assessing Officer, that the amount of compensation of ₹ 14.50 crore be added to the cost of properties for purpose of computing Capital gains on sale of those properties With the same reasoning, I direct the Assessing Officer to allow the claim for this assessment year. 31. Aggrieved by the order of the CIT(A) the revenue has raised Ground No.6 before the Tribunal. 32. We find that identical issue was considered by the Tribunal in A.Y. 1995-96 in ITA No.1098/Mds/2000 and this Tribunal held as follows: 15. Ground No. 3 pertains to compensation paid to tenants to vacate the property sold. 16. During the relevant previous year the assessee sold certain properties for which it paid a compensation of ₹ 14.50 crores to the tenants for vacating them. This expenditure was claimed as a deduction while computing capital gains. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned DR cannot raise new issue and relied on the principles established by Hon'ble Special Bench in the case of Mahindra and Mahindra, 313 ITR 263 (AT)(SB). Further it was submitted that in the case of the tenants the same was considered and treated as capital receipts by the ITAT and placed on record order of ITAT in ITA No. 241/Mds/98 in the case of Essar Services Limited. It was his submission that the payment of compensation was not doubted. Following the principles established by Hon'ble Bombay High Court in the case of Miss Piroja C. Patel, 242 ITR 582, compensation paid for eviction of tenants is to be considered as cost of improvement u/s. 48(ii) and therefore claim is allowable. 19. We have considered the issue. There is no doubt about the payment of compensation of ₹ 14.50 crores and recipient treated it as capital receipt. This issue is taken up to the ITAT who supported the stand of the assessee therein. As far as this assessee is concerned, facts indicate that there was tenancy and the property was sold to another party (may be a group concern) and the amount of ₹ 14.50 crores was paid for vacation of the tenancy. Therefore following the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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