TMI Blog2019 (3) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... he services rendered by the holding company MEMG International India Pvt. Ltd. AO has not doubted the payment made by the assessee to MEMGIIPL on account of services rendered by them. But he has made the disallowance of its part without assigning any reason. He has not brought any comparable case to demonstrate that the payment made by the appellant is in excessive. Therefore, we are of the view that without bringing any cogent material on record to demonstrate that the payment made by the appellant is in excessive no disallowance can be made; more so in the light of the fact that both the companies are assessed to Income tax at maximum marginal rate - disallowance made by the AO is not proper and accordingly we set aside the order of the CIT(A) and delete the additions. Disallowance u/s 14A - HELD THAT:- CIT(A) has re-examined the claim of the assessee and reiterated its contentions that no expenditure was incurred in earning the dividend income. The CIT(A) re-examined the claim in the light of provisions of section 14A r.w.r. 8D of the Rules and was of the view that indirect cost attributable towards exempted income has to be disallowed for which it has to be computed as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since we have taken a view on similar set of facts, we find no justification to adjudicate the issue again in this appeal. Accordingly, we set aside the order of the CIT(A) and direct the AO to allow the claim of the assessee. Dividend incomes on investment in its subsidiaries - HELD THAT:- In the instant case, whatever arguments is advanced before us it was not advanced before the lower authorities. Moreover, he has not furnished the detailed explanations with regard to expenditure incurred for earning exempted income. He blatantly said that no expenditure was incurred and this stand of the assessee cannot be accepted in the light of the fact that investment was made to the tune of ₹ 1.943 crore on which assessee has earned the exempted income. Therefore, we are of the view that lower authorities have rightly adjudicated the issue in the light of given facts and circumstances of the case. Disallowance u/s 14A - HELD THAT:- We find that AO has computed the disallowance invoking the provisions of section 14A r.w.r. 8D of the Rules. While doing so, the AO did not examine the nature of investment whether the investment was made with the intention to earn dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - AO has denied the assessee s claim in view of the fact that in the preceding assessment year 2011-12 vide order under section 143(3) the loss was set off against the addition made therein - HELD THAT:- Before the CIT(A), the assessee has clarified his position and the CIT(A) has directed the AO to give necessary consequential effect in the light of finding of the CIT(A) in assessee s appeal for assessment year 2011-12. We do not find any infirmity in the directions. Now we have already disposed off the appeal of the assessee for assessment year 2011-12 and therefore the consequential effect is to be given in this impugned assessment year keeping in view the finding of the appeal of assessee for the assessment year 2011-12 - ITA Nos. 1551 /Bang/2016, 1552/Bang/2016, 1667/Bang/2016, 1668/Bang/2016, 1557/Bang/2016, 1558/Bang/2016, 1076/Bang/2017, 1208/Bang/2017 And IIA No. 1209/Bang/2017 - - - Dated:- 27-6-2018 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For The Assessee : Shri. S. K. Tulsiyan, Advocate Mrs. Abha Agarwal, FCA Ms. Bhoomija Verma, Advocate For The Revenue : Dr. P. V. Pradeep Kumar, Addl. CIT ORDER P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange loss on reinstatement of closing balance of foreign currency loan amount, was capital in nature. The facts in brief on these issues borne out from the record are that during the assessment year 2010-11, the AO has observed that the assessee has charged around ₹ 70 lakhs as loss on foreign exchange difference. The assessee was asked to explain regarding this expenditure. In response thereto, it was contended that it was a forex loss booked amounting to ₹ 69,98,309/- rounded off to ₹ 70 lakh primarily arising on the account shows that the reinstatement of loan to subsidiary company has given a loss of around ₹ 77.4 lakhs but by netting off certain gains the assessee has arrived at loss of ₹ 69.98 lakhs (round off to ₹ 70 lakhs) and charged to revenue expenses. The AO noticed from the submission that this loss is on account of capital advance made to subsidiary. This is clearly a capital advance made for whatever reasons. Therefore, any loss on account of capital payment cannot be treated as revenue loss and AO accordingly disallowed this forex loss of ₹ 70 lakh and added back to the returned income as ineligible expenditure. 4. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st March, 2010 and therefore is a national loss. While the provisions of Section 32 to 36 of Income Tax Act, 1961 clearly lays down as to what is an admissible expenditure that maybe allowed against an income, section 317 is residuary in nature. Deduction in respect of loss in foreign Exchange is as this is not an Ascertained Liability. The Assessee Company contents that the above Expenditure should be allowable, placing reliance on the case of Woodward Governor India Limited. In the of Woodward Governor India Limited 2009 179 Taxman 326, the Excess on account of Foreign Exchange fluctuation was of a revenue nature and claimed u/s 37(1) of the Income Tax Act, 1961. However, in the case of the Assessee company the claim is towards Restatement of Foreign Currency loan, which is a capital Item, and not an allowable expenditure u/s 43A of the Income Tax Act, 1961. In accordance with Accounting Standard 11the Monetary item denominated Currency should be reported using the closing rate. In the instant case the Company has Debited the transaction in its Books in Rupee terms by Converting the same at the prevailing Rate of Exchange. Regarding Loss on account Foreign Exchange Fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also contended that in consideration of above services, appellant has paid 0.5% of total turnover as fees for MEMG International India Pvt. Ltd. The AO disallowed an amount of ₹ 71,30,121/- in AY 2010-11 and ₹ 66,54,726/- in assessment year 2009-10 being 1/3rd of total payments made to MEMG International India Pvt. Ltd., by invoking the provisions of section 40A(2) of the Act. 7. Aggrieved, assessee has preferred an appeal before the CIT(A) with the submission that while making a disallowance under section 40A(2), the AO has stated that assessee company is unduly benefitting the holding company and diverting the legitimate profit of the company through a colourable device termed as service agreement. Whereas, the service agreement entered into between the assessee and MEMGIIPL envisages provisions of various services by MEMG International India Pvt. Ltd., to the appellant which includes giving services like Fund- management and financial services; Treasury operations; Brand Royalty, Contract Purchasing; Marketing and P.P / Road-shows; Tax Advisory services, etc., and in lieu thereof assessee has to pay 0.5% of its total turnover. It was further contended that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment year he made a disallowance of 50% without assigning any reasons. Whereas the assessee has placed substantial material on record to establish that various services were rendered by MEMGIIPL. We have also carefully perused the judgement referred to by the assessee and we find that it has been repeatedly held through various judicial pronouncements that the onus is on the AO to bring on record the comparable cases to prove that payment made by the assessee is in excess of fair market value and hence the same in his opinion is found to be excessive or unreasonable. It was also held that provisions of section 40A(2) are not automatic and can be called into play only if the AO establishes that expenditure incurred is in fact in excess of fair market value. In the case of CIT Vs. Modi Revlon (Pvt.) Ltd., (supra), the Hon ble Delhi High Court has held that in order to determine whether the payment is not sustainable, the AO has to first return a finding that payment made is excessive, under section 40A(2) of the Act. If it is found to be so, that AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les) and made disallowance of ₹ 78,325/- being 0.5% of the average investment in assessment year 2010-11. Similarly, a disallowance of ₹ 68,000/- was made in assessment year 2009-10. 13. Assessee preferred an appeal before the CIT(A) and CIT(A) has re-examined the claim of the assessee and reiterated its contentions that no expenditure was incurred in earning the dividend income. The CIT(A) re-examined the claim in the light of provisions of section 14A r.w.r. 8D of the Rules and was of the view that indirect cost attributable towards exempted income has to be disallowed for which it has to be computed as per Rule 8D(2)(iii) of the Rules. Now aggrieved, assessee is before us and during the course of hearing he could not demonstrate that no indirect expenditure was incurred to earn the exempted income from the investment of ₹ 1.52 crores. Therefore, we find no infirmity in the order of the CIT(A). Accordingly, we confirm the same. 14 . ITA No.1208/Bang/2017 This appeal is preferred by the Revenue against the order of the CIT(A) pertaining to the assessment year 2009-10, inter alia, on following grounds: 1 The order of the CIT(A) is opposed to law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de attempts to unduly classify certain capital expenditure as not recoverable by taking them as indirect costs. 7. The appellant craves leave to add, alter or amend in the ground of appeal either before or at the time of hearing. 15. Though various grounds are raised but they all relate to an addition to the tune of ₹ 3,95,19,428/- made by the AO having held that the expenditures incurred for developing a capital asset is not at all eligible for claiming as revenue expenditure. 16. The facts in brief borne out from the record are that the assessee i.e., Manipal Health System Pvt. Ltd., (MHS) entered into collaboration agreement dated 23.11.2007 with the Guru Harikishan Medical Trust (GHMT) for establishing and operating hospital at Kilokari, Ring Road, New Delhi (Delhi Project). As on 31.03.2009 a total amount of ₹ 18,33,09,582/- was spent on Delhi Project hospital which includes the following: - Civil, Plumbing and Other civil construction related costs (Amounts Paid against Bills and Work certified and mobilization advance paid ₹ 14,37,90,154 Non Recoverable Cost: - Lease Rent Paid (GHMT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hospital), the expenditure related to the payments which are essentially capital in nature. 19. Aggrieved, assessee preferred an appeal before the CIT(A) with the submission that expenditures are incurred during the ordinary course of business of the appellant and hence it should be treated as revenue in nature. It was further contended that it is a settled position of law that the expenditures although incurred for the purpose of acquiring an asset or advantage for running of the business with a view to produce profit, it would be a revenue expenditure. It was further contended that the appellant and the GHMT have entered into termination release agreement dated 16.10.2009 wherein MHSPL expressed its inability to pursue further with the project as raising funds to further develop the project was becoming difficult and GHMT and the assessee/appellant agreed to terminate the contract. They have also agreed in this agreement that there is no certainty that amounts would be recovered by the appellant and they have agreed to waive off the rent and the pre-operating expenses incurred. Therefore, whatever initial project feasibility expenditure incurred, has been written off during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement with the GHKMT was part of its business activity in the normal course, and not to establish a capital asset of its own. (2) In this overall perspective of the nature of Assessee's business activity, it is of crucial importance to ascertain whether the collaboration-agreement with the GHKMT - resulted in giving any tangible possession / ownership rights so as to constitute a capital asset in Assessee's hand, or on the converse, the driving motive behind the collaboration was to earn and share revenues over a long period of time. In my considered view the latter and not former is the overriding motive behind the agreement entered by the Appellant. That, the primary intention behind the Mutual-collaboration was only of Revenue-sharing and not divesting / transfer of permanent rights is corroborated by the following facts, which emanate from the contents of the collaboration agreement dated 23/11/2007. The first and foremost fact for consideration is that, the Land Building Housing the impugned project is in the legal ownership of the Charitable Trust in the name of 'The Guru Hari Krishnan Medical Trust', which runs under the Aegis of the Delhi Sik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The agreement at clauses 2.14.3 and 2.14.5, stipulates that, the GHKMT Trust has agreed to facilitate the Assessee in reimbursement of the impugned cost from the future collaborations. Besides this fact, the agreement at clause 2.24 also stipulates that, the present termination agreement does not bar the assessee from entering into a fresh collaboration with GHKMT, under new terms. It is therefore apparent that. not only is there possibility of renewed agreement with the Trust. but. there is a clear indication of recovering the investments claimed to be entirely lost. In tnese facts and circumstances, write-off of the entire expenditure amounting to \ ₹ 3.95.19.429/- in one go, is not appropriate. * The Assessee itself has not applied consistent accounting yard-sticks for adjusting the impugned project-expenditure-claims from the AY: 2009-10 onwards. It is evident from the AO's orders (for the years under consideration), that in AY's 2009-10 and 2010-11 the assessee has claimed write-off of ₹ 3.95 crores and ₹ 0.94 crores respectively. It has been specifically stated by the Appellant in these years that the said cost written-off represented ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi Sikh Gurudwara Management Committee (DSGMC), where already 50 bedded hospital was functional in the name of Guru Harikrishan Hospital. For assessment year 2009-10, assessee claimed ₹ 3,95,19,428/- as revenue expenditure in the profit and loss account under the head provisions for capital work in progress. During the assessment proceedings and before the CIT (A), assessee claimed this amount as indirect cost incidental to the capital expenditure. Further in assessment year 2011-12 the assessee claimed an amount of ₹ 25,00,99,767/- spent on Delhi hospital project on 31.03.2011 as revenue expenditure on the ground that this amount has been spent during the course of its business. The AO disallowed the said claim of the assessee for both the assessment years after treating this amount as capital expenditure incurred towards construction, substantial renovation and owning of new asset. The CIT(A) agreed to the assessee's alternate plea to treat the amount in question as deferred revenue expenditure by spreading it over 5 years and directed the AO to allow 1/5th of it during the year under consideration. The learned DR further contended that through collaboration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and hospital management company providing Healthcare service to the public at large from its established/managed hospitals and Health Care Centres located at various locations in India. As many as 15 hospitals is spread across the country were owned/ managed/ operated by the appellant during the year 2009-10 and 2011-12 and establishing running and managing of hospital had been routine business activity of the company since its very incorporation in the year 1999. Therefore, the collaboration agreement entered upon by the assessee with GHMT and DSMC for the purpose of expansion, operation, management of existing Guru Hari Krishan Hospital in the course of its routine business of establishing running/managing of hospitals and not separate/new business activity. It was further contended that it has been repeatedly held by various courts that where existing business is to expand/set up a new unit in the same business fold, expenditure incurred on setting up of such new unit/expansion of existing unit is admissible as business expenditure. In support of this contention the learned Counsel for the assessee has placed a heavy reliance upon the following judgments: Alembic Chemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jwala Prasad Radha Kishan Vs. CIT (1971) 79 ITR 530 NarandasMathuradas Co. Vs. CIT (1959) 35 ITR 461 (Bom). Tata Iron Steel Co. Ltd., Vs. D. V. Bapat, ITO Anr (1975) 101 ITR 292 BadridasDaga Vs. CIT Civil Appeal No.149/1956, dated 25th April, 1958 25. The learned Counsel for the assessee further contended that the expenses are in the nature of preoperational, infrastructural expenses required for operation and function of the hospital and were incurred by the appellant pursuant to the collaboration agreement but since the assessee was finding it difficult to raise funds to meet the contractual requirements requiring investment to not less than 125 crores, the said collaboration agreement is to be terminated by termination release agreement dated 16.10.2009 wherein the said expenditure was endeavoured to be reimbursed to the appellant by trust on third parties but on account of lack of any update in that regard, the same is to be written off by the appellant. Therefore, carrying out of expansion of the existing Hospital property of the trust is for the purpose of running and operating the same on the revenue share basis where the part of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new line of business for a business activity, the setting up of the unit at place though little away from the business place of the assessee company is of little consequence and the expenditure incurred therein would be a revenue expenditure. Similarly, in the case of CIT Vs. Jyoti Electric Motors Ltd., the Hon ble Gujarat High Court has again held that technical report fees paid by the assessee for ascertaining feasibility of manufacturing a new kind of product was an expenditure incurred for the purpose of expansion of existing business, and, therefore same was deductible as revenue expenditure. Again, in the case of CIT vs. Indian Telephone Industries Limited (supra) the Hon ble jurisdictional High Court has held that if the expenditure incurred in connection with the new unit and overall control of the business of new units remains with assessee and production by new units would also be production of assessee, establishment of new unit is not an independent unit but just an expansion of the existing business and expenditure incurred in new unit, therefore, allowable as revenue expenditure. 27. In the case of CIT Vs. Usha Iron Ferro Metal Corpn. Ltd. (supra), the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, ultimately the projects were not found to be financially and technically viable and were shelved. Thus, no new assets came into existence but the AO treated the expenditure as capital expenditure. In the case of Indo Rama Synthetics (I) Ltd., vs. CIT, their Lordship of Delhi High Court further held that if expenditure is incurred on setting up a new unit which has inextricable linkage with the existing business of the assessee and such new unit is subsequently abandoned, such expenditure will be treated as revenue in nature as no new industrial asset comes into existence. Similar view was also expressed by the Bombay High Court in the case of Idea cellular Ltd., Vs. Additional CIT (2014) 65 SOT 15 (Mum) by holding that since the project of erecting towers was abandoned by the assessee, there was no question of any new asset coming into existence. Accordingly, the expenditure incurred thereon would be allowable as revenue expenditure. Similar view was expressed in the case of Jwala Prasad Radha Krishna Vs.CIT (supra), NarandasMathuradas Co.Vs. CIT (supra) and Tata Iron and Steel Co. Ltd., Vs. D. V. Bapat, ITO Anr (supra). In the case of Ramachandra Shivanarayan vs. CIT, A.P., 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/5th of total claim which comes to ₹ 70,03,885/- during the year under consideration. The balance of ₹ 3,25,15,554/- was disallowed for set off during assessment year 2009-10. This order of the CIT(A) was challenged by the Revenue, but the assessee did not dispute these findings. In the light of various judicial pronouncements discussed in foregoing paras, we are of the considered opinion that the expenditures incurred was an account of expansion of business and the project was finally abandoned without acquiring any new asset for enduring benefit, therefore, the entire claim is allowable as revenue expenditure. But the CIT(A) spread over the entire claim for 5 years and allowed 1/5th of the claim in the impugned assessment year and these findings are not challenged by the assessee. Therefore, we are confirming the order of the CIT(A) passed in this regard having found no merit in the contention of the Revenue that the expenditures are of capital in nature. Accordingly, the Revenue s appeal in ITA No.1208/Bang/2017 is disposed off. 32. ITA Nos. 1552/Bang/2016 and 1209/Bang/2017 These are cross appeals preferred by the assessee as well as the Revenue against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure pertaining to exempt income. (4b) That the Ld. CIT(A) failed to appreciate that investments in shares yielding dividend income which were claimed as exempt from tax u/s 10(34) of the Incometax Act, 1961 were made out of own funds of the appellant and no borrowed funds were used for the said purpose. (4c) That the Ld. CIT(A) grossly erred in not appreciating that no direct or indirect expenses were attributable to the exempt dividend income. (5) That the appellant craves leave to add, amend and/or alter any of the foregoing grounds and such other grounds as may be urged at the time of hearing. 34. During the course of hearing, assessee has also raised the following additional grounds: Additional grounds raised in ITA No.1552/Bang/2016 la. That on the facts and in the circumstances of the case and in law, the Ld. A.0 and the Ld. CIT(A) erred in treating the composite sale of assets and liabilities (excluding land building) of the hospital business as 'slump sale' u/s 2(42C) read with Explanation 1 to section 2(19AA ) of the Income-tax Act, 1961 (the 'Act ). lb. That the Revenue Authorities erred in not appreciating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact the expenditure incurred for developing a capital asset is not at all eligible for claim as revenue expenditure. 3. On the facts and circumstances of the case, the learned CIT(A) failed to appreciate the fact that the amount of ₹ 25,34,10,284/- treated as indirect costs incidental to capital expenditure is instrumental and vital expenditures for actually developing the capital asset and should be tagged along with the costs of acquisition of capital assets. There are specifically no indirect costs which can be categorized as revenue and direct costs which can be categorized as capital, all costs that have gone into the development of any capital asset should be treated as capital in nature. Income tax envisages that even interests cost that have been incurred in the process of acquisition or setting up of a capital asset also should be tagged to the capital asset and capitalized. 4. The amount of ₹ 25,34,10,284/- was spent consequent to the agreement with Guru Hari Kishan Medical Trust (GHMT) for opening new avenues generating business income, thus trying to establish a revenue yielding capital asset. 5. Even by entering into a termination agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ground No.1 in the assessee s appeal, the facts in brief borne out from the record are that the appellant entered into a Business Transfer Agreement (BTA) on 20.08.2010 with effect from 01.09.2010 with M/s. Manipal Health Enterprises Private Limited (MHEPL) and transferred hospital business by way of a Slump-sale. As per the said agreement, the appellant transferred its Hospital business as a going concern and valued all its movable and other assets at amount of ₹ 210.61 crores (excluding land and building) along with the total liabilities at ₹ 276.98 crores as per books of accounts which resulted in negative net worth of ₹ 66.36 crores. While computing the capital gain on slump sale under section 50B of the Income Tax Act, the appellant has considered a lump-sum consideration for ₹ 10 lakhs as full value of consideration and for deduction has taken the value of net worth at Nil, offering the same for capital gains tax. The AO did not accept the computation of capital gain. He, however, brought the negative net worth figure of ₹ 66.36 crores to long term capital gain tax along with lump-sum consideration of ₹ 10 lakhs. The AO accordingly worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to be included in the calculation of net worth leading to long term capital loss under section 50B r.w.s. 48 of the Act. It was further contended without prejudice to the above arguments that assuming that the value of the land and building is to be excluded for the purpose of calculating the net worth under section 50B such net worth in the case of capital asset being undertaking cannot be in negative figure as held by the Tribunal in the case of Zuari industries limited Vs. ACIT (supra) and Paperbase company Vs. CIT 19 SOT (supra), as a capital gain under section 50B in the instant case cannot exceed ₹ 10 lacs as offered by the assessee in its return of income. It was further contended that even the net worth of the transfer undertaking is deemed at negative figure, such undertaking with negative net worth cannot be treated as Capital Asset for the purpose of creating charge under chapter IV-E of the Act. 40. The Learned Counsel for the assessee further contended that the slump-sale implies sale of going concern, lock stock and barrel on as is where is basis where nothing is left with the vendor and wherever all significant assets and liabilities are not sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 45 will not be applicable. Hence, the sale consideration of ₹ 10 lakhs will be capital receipt not exigible to capital gain tax under section 45 of the Act. 42. The Learned Counsel for the assessee further contended that since the composite sale in the instant case falls outside the purview of section 50B, the capital gains if at all falling within the purview of any other section contained in Chapter IV-E of the Act, cannot exceed ₹ 10 lakhs being the sale consideration arising under the impugned business transfer agreement which has already been offered for taxation by the assessee in its return of income. It was further contented that mere recital in the agreement that it was slump-sale of a going concern is not decisive of the exact nature of the transactions for the purpose of Income Tax matter. In support of this proposition, the learned Counsel for the assessee further placed reliance upon the following judgements: * DCIT Vs. Tongani Tea Co. Ltd., 156 ITD 188 (Kol) * Harrisons Malayalam Ltd., Vs. Asstt. CIT (32 SOT 497 (Cochin) 43. The learned DR, besides placing heavy reliance upon the order of the CIT(A), has contended that under the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis on the closing date in accordance with subject to and upon the fulfilment of the terms and conditions contained in the agreement with effect from 1.9.2010 for a lump sum consideration payable by the buyer as slump-sale consideration for purchase of the hospital business of ₹ 10 lakh payable on the closing date to the seller, i.e., assesseee. This business transfer agreement was executed between the appellant and the M/s. Manipal Health Enterprises Private Limited (MHEPL) on 20.08.2010. All rights and benefits of movable properties of the hospital business were transferred to the buyer under this agreement but the immovable property of the hospital was not transferred under this said business transfer agreement. Though before the lower authorities, assessee has contended that the hospital business was transferred along with the Assets and liabilities and the net worth of the assessee was negative therefore net worth to be taken as Nil which shall be deemed to be the cost of asset for the purpose of computing capital gains under section 48 r.w.s. 50B of the Act, but before the Tribunal, the learned Counsel for the assessee has raised legal arguments that in the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible or intangible but also transfer of each debt and liabilities including any obligation. It was further observed that where current asset and liabilities were retained by the assessee, it could not be considered as transfer of going concern and did not fall within the definition of slump sale as provided under section 2(42C) of the Act. In the case of Kampli Co-operative Sugar Factory Ltd., Vs. JCIT, the Bangalore Bench of the Tribunal has examined the case and held that where the transaction involved is a slump sale or explicit sale where only the assets excluding investments and deposits were sold and liabilities remain with the vendor, it was not a slump sale. The relevant observation of the Tribunal is extracted hereunder for the sake of reference: A careful reading of cls. 1 and 13 of the agreement reveals that liabilities do not enter into this transaction and what is sold is the assets, movables and immovables, comprised in the annexures and not the liabilities. Clause 13 of the agreement makes it more clear that the liabilities will be the responsibility of the liquidator. Thus, it was not a slump-sale, rather only the assets excluding investment and deposits was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en sold by the assessee excluding cash in hard, stock in hand receivables, finance, assets and liabilities. it was notes-case of sale by lock, stock and barrel. The assessee company has made conscious exclusions. The assets sold by the assessee have been listed out in different schedules and Annexure. The consideration has been specifically assigned to the sale of immovable property by way of rubber estate. Separate consideration has been assigned to the sale of movable properties including vehicles and other properties. Therefore, it is not a case of slump sale fora lump sum amount of consideration where the consideration is no a tri iTh51rd51.Eto any particular item of asset. There is no such a statement of blanket consideration in the present case. Here, the sale of every asset is attributable to a specified sum of consideration. Therefore, we cannot say that there is a slump sale . What is reflected is only total consideration . As all the assets and liabilities have not been sold as per the agreement, this is not a slump sale as construed in s. 50B of the Act. It is a sale of several assets through a common agreement with different amounts of consideration ultimately culmina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess without the lands and buildings forming part of it? The-vendee was put in possession no doubt. But no rent was charged at all as it was not fully an arm's length transaction. It was a domestic arrangement between a holding company and its subsidiary. It did not show the indicia of a transfer of immovable property as understood in law. It was contended for the assessee that in any case after 12 years the vendee would have got the title by adverse possession. This argument does not appeal. As on 30th June, 1977 there was no transfer in law. By July 1982, even the possibility of adverse possession had disappeared. The assessee dealt with the lands and buildings as an unfettered owner (as indeed it was) in July 1982, when it decided to amalgamate with A Ltd., taking the lands and buildings along with it. Thus, the lands and buildings never reached the vendee here. As_ regards the claim that for a sale as a going concern each and every asset/liability need not be transferred, there is no authority for such bald proposition. The claim lacks substance. If the building where the business is carried on is not transferred, be it sentiment or for any other reason, there is obvio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Industrial Products Vs. ITO (supra). Therefore, the transfer of hospital business to MHEPL cannot be called to be the slump sale as a going concern. Thus, the capital gain cannot be computed as per provisions of section 50B of the Act. Since we have held that it is not a slump sale of a going concern, we find no justification to deal with the other issues with regard to the net worth of the assets and its cost of acquisition and computation of capital gain. 51. So far as receipt of ₹ 10 lakh by the assessee on account of transfer of hospital business is concerned, no argument was advanced by the Revenue. The assessee however offered this amount by way of long term capital gain under section 50B in his return of income. Since we have already held that it is not a transfer of business as a going concern as it is not a slump sale and capital gain cannot be computed, the receipt of ₹ 10 lakhs be taxed in accordance with law in the hands of the assessee. We also do not wish to adjudicate other issues with regard to inclusion of land and building to the transferred undertaking while calculating net worth and whether net worth of a capital asset can be in negative figu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year. The learned DR on the other hand has placed a reliance upon the order of the CIT(A). 54. Having carefully examined the order of lower authorities in the light of rival submissions we find that identical issue was examined by us in foregoing appeals where certain expenditures incurred in expansion of business was considered to be revenue expenditure by the CIT(A) but it was spread over for a period of 5 years and 1/5th of the same was allowed as revenue expenditure in that assessment year. In that case, the assessee has not challenged the allowances of 1/5th of the total expenditure. Therefore, we restrain ourselves from giving any finding as to whether the entire claim is to be allowed or is to be spread over for a period of 5 years. But in this case, the appellant has objected to the spread over of the total claim. In this case, once the total expenditure incurred in expansion of the business of the assessee, which was later on aborted is held to be revenue expenditure, it should be allowed during the financial year in which the project was aborted though CIT(A) has spread over the entire expenditure over 5 years. Moreover, we do not find any provision under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- MEMG International India Pvt. Ltd., which is at arm's length rate and there is no basis with the AO to disallow 50% of the expenditure under section 40A(2) of the Income Tax Act. The learned Counsel for the assessee further contented that AO has not brought out any comparable case to demonstrate that assessee has made an excess payment to MEMG International India Private Limited. It was further contended that earlier years similar expenditures were incurred but no disallowance was ever made by the AO in this regard. Therefore, following the rule of consistency no disallowance should have been made. The CIT(A) re-examined the claim of the assessee but was not convinced with it and he confirmed the disallowance. 56. Now the assessee has preferred an appeal before the Tribunal with the submission that in earlier years revenue has not made any disallowances by invoking provisions of section 40A(2) of the Act. It was further contended that while making a disallowance under section 40A(2), the Revenue has not brought any instances or a comparable case where lesser amount was paid for such services. It was further contented that assessee was incurring huge losses and was facing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. 59. Apropos ground No. 4 it is noticed that assessee has received these dividend incomes at ₹ 2,17,681/- on investment to the tune of ₹ 2.3 crores in its subsidiaries. Besides, the assessee has also made the investment by way of acquiring long term unquoted trade and also current non-trade shares. In response to the AO s query with regard to allocation/ disallowance of proportionate expenditures in relation to exempted income, the assessee claimed that no specific expenditure had been incurred. The AO proceeded to invoke the provisions of section 14A r.w.r. 8D of the Rules and made a disallowance of ₹ 97,000/- being 0.5 % of the average investments. Against the disallowance, assessee preferred an appeal before the CIT(A) with the submission that since the investment in shares were made out of own funds and no borrowed funds were used in such investments therefore it hardly requires any time to maintain the investment and income received thereon. Thus, no direct or indirect expenses is attributable to the exempted income. It was further contended that the assessee cannot utilize the borrowed funds obtained from banks for investment in shares as it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as further contended that where the investments which yield taxable income, investment have not yielded any tax-free income investment which made for business or strategic reasons need to be excluded from the working of the average value of investments under Rule 8D(2)(iii) of the Rules. In support of this preposition, he placed reliance upon the various judgments: i . CIT vs. M/s. Delite Enterprises (Bom HC) ITA No. 110 of 2009 ii. REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol ITAT) affirmed by Kolkata High Court in G.A. No. 3581 of 2013 iii. CIT Vs. Holcim India P. Ltd. [272 CTR 2821 (Del HC) iv. CIT Vs. Lakhani Marketing Inc. [272 CTR 265] (P H HC) v. REI Agro Ltd. Vs. DCIT [144 ITD 141] (ITAT. Kolkata) (Affirmed by Calcutta High Court) vi. Cheminvest Limited Vs. CIT (378 ITR 33) (Del HC) vii. CIT Vs. Corrtech Energy Pvt. Ltd. (214) 272 CTR (Guj) 262 (45 taxmann.com116) (Guj HC) viii. CIT Vs. Winsome Textile Industries Ltd. (319 ITR 204) (P H) ix. CIT Vs. Shivam Motors (P) Ltd. 272 CTR 277(A11) :230 Taxman 63 (All HC) x. Videocon Industries Ltd. Vs. DCIT Mumbai K' Bench (2017) 186 TTJ (Mum) 353 62. The learned Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules in order to compute the disallowance of expenditures incurred on earning the exempted income. Undisputedly, sub section 2 and 3 of section 14A read with Rule 8D merely prescribes formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act as held by the Apex Court in the case of Godrej and Boyce Manufacturing Co. Ltd., (supra) but where the AO is not satisfied that the claim of the assessee that there was no expenditure was incurred to earn income, the AO has to compute the disallowance as per Rule 8D of the Rules. In the instant case, whatever arguments is advanced before us it was not advanced before the lower authorities. Moreover, he has not furnished the detailed explanations with regard to expenditure incurred for earning exempted income. He blatantly said that no expenditure was incurred and this stand of the assessee cannot be accepted in the light of the fact that investment was made to the tune of ₹ 1.943 crore on which assessee has earned the exempted income. Therefore, we are of the view that lower authorities have rightly adjudicated the issue in the light of given facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013-14 on common grounds. Therefore, these appeals were heard together and are being disposed off through this consolidated order. 67. Ground No. 1 in ITA Nos. 1557, 1558 and ground No. 2 in ITA No. 1076/2017 relate to the disallowance made under section 14A r.w.r. 8D of the Rule. The facts in brief borne out in this regard are that assessee has received exempted income to the tune of ₹ 3,57,10,000/- in assessment year 2011-12, ₹ 30,28,00,500/- in assessment year 2012-13 and ₹ 41,89,405/- in assessment year 2013-14. The AO invoked the provisions of section 14A and made computation of disallowances under rule 8D of the Rules and disallowance of ₹ 53,33,215/- was made in assessment year 2011-12 and ₹ 30,28,500/- in assessment year 2012-13 and ₹ 41,89,405/- in assessment year 2013-14 having observed that the huge investment can only be managed by employees and finance and accounts section and the usage of infrastructure of the company will certainly have an element of expenditure relevant to this aspect. He accordingly computed the disallowance at ₹ 0.5% of average amount of tax exempted investments. Assessee preferred an appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment should be ₹ 55.33 crores but it requires a proper adjudication. We accordingly set aside the order of CIT(A) in all assessment years and restore the issue to the file of the AO to re-examine the claim of the assessee in the light of nature of investments and also the opening and closing balance of investments. 72. Ground No. 2 in ITA No. 1557 relate to the disallowance of payments made to Allegro Corporate Finance Advisors Pvt. Ltd., amounting to ₹ 3,31,00,000/- and treating the same as capital expenditure. The facts in brief borne out from the record in this regard are that during the course of assessment proceedings, AO has reported that under the head Legal and Professional Charges assessee has paid an amount of ₹ 3,31,00,000/- to M/s. Allegro Corporate Finance Advisors Pvt. Ltd., seeking explanation regarding this expenditure, the assessee has provided the invoices of payment and also the agreement entered into by the assessee company and M/s. Allegro Corporate Finance Advisors Pvt. Ltd., whereby the assessee company has appointed Allegro Corporate Finance Advisors Pvt. Ltd., in raising equity funds of approximately ₹ 100 crores from intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that the expenses were incurred in the ordinary course of business with a view to expand the existing business, hence allowable as revenue expenditure. He has also invited our attention to the various judicial pronouncements in which it was held that improvisation in the process and technology in some areas of enterprises was supplemental to the existing business. Therefore, the expenditure incurred are of revenue in nature. Reliance was placed upon the following judgments: Alembic chemicals work co ltd vs cit 177 itr 377 CIT vs. Priya Village Road Shows Ltd., 332 I.T.R. 594(Del.) Woodcraft Products Ltd., Vs. CIT (1993) 69 taxman 415 (Calcutta) CIT Vs. Aluminium Industries Ltd., (1995) 214 ITR 541 (Ker). Hindustan Commercial Bank Ltd 21 ITR 353 CIT Vs. Malwa Vanaspati Chemical Co. Ltd., (1997) 226 ITR 253 CIT Vs. Jyoti Electric Motors Ltd., (2002) 255 ITR 345 (Guj) CIT Vs. Indian Telephone Industries Ltd., (1989) 175 ITR 215 (Kar) Indo Rama Synthetics (I) Ltd. Vs. CIT (2011) 333 ITR 18 (Del) CIT Vs. Usha Iron Ferro Metal Corpn. Ltd. (2008) 296 ITR 140 (Del) CIT Vs. Honda Siel Power Products Ltd. (2010) 36 DTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation with identified investor(s). * Project managing the activities of other professional advisors, where required, and * Assisting in completion of documentation required to achieve financial closure. 76. It is also an undisputed fact that the project was completed and the appellant has paid services fees of ₹ 3,30,90,000/- to Allegro Corporate Finance Advisors Pvt. Ltd. The appellant claimed it to be revenue expenditure under the head legal and professional charges but treated it to be a capital expenditure. The quantum of expenditure incurred by the appellant in obtaining services from Allegro Corporate Finance Advisors Pvt. Ltd., was not disputed by the Revenue. The dispute before us is only with regard to nature of expenditure whether it is a capital expenditure or a revenue expenditure. Before dwelling upon the nature of expenditure, we would like examine the various judicial pronouncements referred to by the parties during the course of hearing. In the case of Alembic Chemical Vs. CIT (supra), the facts of the case are that the business of the assessee from the commencement of its plant was the manufacture of pencillin and after the agreement, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the expenditure has direct nexus with the existing business carried on by the assessee. Similarly, in the case of CIT Vs. Aluminium Industries Ltd., (supra) the Hon ble Kerala High Court has held that there is no merit in the contention raised on behalf of the Revenue that the amount spent by the assessee in connection with the inaugural function of its new project is in the nature of capital expenditure as it was incurred not after the commissioning of the new unit. The assessee was already having manufacturing units, and the relay project which is inaugurated in January, 1982, was one in expansion of its existing business. Therefore, merely because the expenditure was incurred not after the commissioning of the new unit would not make it any the less an expenditure coming under s. 37(1) if it satisfies all the other conditions. 78. Again, in the case of Hindustan Commercial Bank Ltd., way back in 1952, similar observations were made by the Hon ble High Court of Allahabad. 79. In the case of CIT Vs. Malwa Vanaspati Chemical Co. Ltd., 226 ITR 253, Hon ble Madhya Pradesh High Court has held that where the fact goes to indicate that setting of the new project was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company was facing difficulties in raising loans from banks at reasonable market rates whereas the MEMG, the holding company, represents the entire group and when it negotiates with the various banks and when large volumes of loans/business is assured to the banks with group corporate guarantee, banks are more comfortable to lend money to an individual company even though the company is relatively new. It was further contended that loan syndication fee that is generally paid in the market is around 2% to 5% of the loan disbursed whereas the MEMGIIPL is charging only 0.5% of the total turnover for a host of services including inter alia facilitation of bank loans which is not excessive or unreasonable. Besides, holding company is providing other services to the assessee as per the agreement. It was further contended that Revenue has not brought any comparable case while making the disallowance. The learned DR placed heavy reliance upon the order of the CIT(A). 83. Having carefully examined the orders of lower authorities in the light of rival submissions, we find that the AO has made a disallowance of ₹ 76,46,601/- in assessment year 2011-12 and ₹ 1,62,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of the business of the appellant, it should be allowed as a revenue expenditure. The CIT(A) re-examined the issue but was not convinced with it and he confirmed the disallowance. While doing so, the CIT(A) has observed that there is no tangible proof or details regarding any specific project or activities undertaken by the MHSPL for the proposed objectives of the assessee during the period under consideration. The CIT(A) further observed that there is no indication of any concrete or visible benefit which has accrued to the appellant in view of such an expenditure. Moreover, the assessee has not provided sufficient evidence or details to prove that internal arrangement was based on crucial business exigencies, commercial prudence and that the quantum of money outflowed was at arm s length. 86. Aggrieved, now the assessee is before the Tribunal and reiterated its contentions as raised before the CIT(A) with the submission that he has furnished all the relevant evidences before the lower authorities to demonstrate as to what services are rendered by the MHSPL. He has also tried to demonstrate that though he has entered into agreement with different entities but their fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2012-13 relates to the complete set off brought forward of losses claimed by the assessee. In this regard, facts borne out from the record are that AO has denied the assessee s claim of brought forward losses in view of the fact that in the preceding assessment year 2011-12 vide order under section 143(3) dated 16.02.2014, the loss was set off against the addition made therein. Before the CIT(A), the assessee has clarified his position and the CIT(A) has directed the AO to give necessary consequential effect in the light of finding of the CIT(A) in assessee s appeal for assessment year 2011-12. We do not find any infirmity in the directions. Now we have already disposed off the appeal of the assessee for assessment year 2011-12 and therefore the consequential effect is to be given in this impugned assessment year keeping in view the finding of the appeal of assessee for the assessment year 2011-12. Accordingly, these appeals are disposed off. 90. In the result, assessee s appeals in ITA No. 1551/Bang/2016 is dismissed, ITA Nos. 1552, 1667, 1668, 1557, 1558/Bang/2016 and 1076/Bang/2017 are partly allowed for statistical purposes. Revenue s appeals in ITA Nos. 1208 1209/B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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