TMI Blog2019 (10) TMI 1553X X X X Extracts X X X X X X X X Extracts X X X X ..... COURT] is found to be relevant. For the reasons set out in the foregoing we do not see any reason to interfere with the order of the Ld. CIT(A) and accordingly we dismiss this ground of the Revenue. Provision for diminution in the value of investments - HELD THAT:- As consequent to granting of loans due to extraordinary and compelling circumstances, the loan was converted into preference shares but such fact by itself did not change or alter the basic character of the transaction. As apparent that the preference shares in M/s Transafe Services Ltd were not acquired by the assessee for the purpose of earning dividend and capital appreciation. Such preference shares were acquired at the dictate of the CDR cell of the RBI and which was binding on the assessee being the promoter of the subsidiary. We further find that only after it was found that almost entire net worth of the subsidiary was eroded, the loss incurred by the assessee was recognized in the books. We therefore find merit in the Ld. AR s submission that even though the nomenclature used was provision for diminution in value of investment, the same was in the nature of provision for ascertained business loss an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is no longer res integra since the Tribunal has already adjudicated this issue for AY 2014-15 on the identical facts and identical ground as under: 6. We have heard both the parties and perused various judicial decisions relied upon as well as the applicable legal provisions. From the facts narrated before us, we find that the assessee has been claiming amortization of lease premium payments since earlier years and till AY 2002-03 no dispute arose between the parties. In the assessment for the AY 2003-04 the AO however disallowed the assessee s amortization claim holding it to be capital in nature and in support of this conclusion, he relied on the judgment of the Hon ble Supreme Court in the case of Aditya Minerals Pvt Ltd Vs CIT (239 ITR 817). The AO s order was upheld by the Ld. CIT(A) but on further appeal the B Bench of this Tribunal in ITA No. 348/Kol/2007 dated 11.04.2008 upheld the assessee s claim. In arriving at its decision the Tribunal had considered the judgment of the Hon ble Karnataka High Court in the case of CIT Vs HMT Ltd (203 ITR 803) which in turn was based on the decision of the Hon ble Supreme Court in the case of CIT Vs Panbari Tea Co. Ltd (57 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of this Tribunal had relied on various decisions inter alia including the decision of the Khimline Pumps Pvt Ltd Vs CIT (258 ITR 429) wherein the Hon ble Bombay High Court had held that expenditure on account of lease premium was capital in nature and therefore no deduction was permissible in respect of such expenditure either in one lump-sum or by amortization over the tenure of the lease. Since the Special Bench was constituted at Mumbai, the judgment of the Hon ble Bombay High Court was binding being the decision of the jurisdictional High Court. We however find that on the identical facts the Hon ble Gujarat High Court in its later judgment dated 23.03.2009 in the case of Dy. CIT Vs Sun Pharmaceuticals Industries Ltd (supra) took the view, which was contrary to the view taken by the Hon ble Bombay High Court. In the decided case the Hon ble Gujarat High Court noted that the lease rent paid annually was very nominally and by obtaining by way of lease the capital structure of the assessee had not changed. It was therefore noted that, by making such payment, the assets of the assessee company had not increased because the land continued to belong to GIDC. The Hon ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national airport at New Delhi from Airport Authority of India. The assessee was granted airport concessionaire s right in consideration of the assessee making payment of non-refundable upfront fees of Rs. 150 crores. Upon making such payment the assessee became entitled to use and occupy the airport property for a period of 30 years and after the expiry of lease the airport site was to the handed over back to the Airport Authority of India. In the assessee s books it had capitalized the upfront fees of Rs. 150 crores paid. In the computation of total income the assessee however claimed the deduction for the entire upfront lease premium paid on the plea that it was revenue in nature and since by making payment assessee did not acquire any asset, the deduction was permissible for the upfront payment in such year itself. The assessee s plea was rejected by the AO on the ground that the payment of Rs. 150 crores permitted the assessee right to use the airport premises for a period of thirty years and therefore applying the ratio laid down in the judgment of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs CIT (supra) the AO held that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been termed an 'annual fee' which is recurring in nature. Now if such a lump sum payment for the lease of the Airport Site for a period of 30 years can be reckoned as revenue or not, appears to be quite settled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:- i. DCIT vs. Sun Pharmaceutical Ind. Ltd. - 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of Rs. 40 per annum, the assessee paid Rs. 48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for a period of 99 years in the form of use of the land and therefore he held that the payment was capital in nature. The High Court upheld the finding of the Tribunal that the land in question was not acquired by the assessee and that the lease rent was very nominal and the sum of Rs. 48 lakh was in the nature of rent and the assessee only acquired a facility to carry on business profitably by paying a nominal lease rent together with lump sum amount of Rs. 48 lakh. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Mumbai in the case of Jt. CIT Vs Mukund Ltd (supra) as also the judgments of the Hon ble Gujarat Karnataka High Courts expressing contrary view. We find that on the analogous facts the Tribunal held that the lease premium paid was nothing but in the nature of lease rent paid on lump sum basis and no capital asset was acquired by the assessee by making such payment so as to justify its characterization as capital expenditure. Once the nature of the expenditure in question is held to be in the revenue field then the question which needs to answered in the present appeal is whether the assessee s plea for amortization of the lease premium over the tenure of the lease can be allowed particularly when in the case decided by the coordinate Bench at Delhi, it was held that whole of the expenditure was eligible for deduction in the year in which the upfront lease premium was paid. In this regard we find that before the Delhi Bench of this Tribunal the Revenue itself had canvassed the proposition that payment of upfront fee was revenue expenditure but the deduction therefore was required to be allowed on pro-rata basis by following the ratio laid down in the judgment of the Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, (1982) 30 CTR (Cal) 363: (]983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. 16. Issuing debentures at a discount is another such instance where, although the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of pro rata lease premium is required to be netted off against revenues generated from the business, applying the principle of matching of cost with revenue so as to disclose true fair amount of operating profits of each year. We therefore find that since in the present case the assessee has satisfied the matching concept test, as prescribed by the Hon ble Supreme Court, the assessee s claim for amortization of lease premium is allowable. 13. We also note that the assessee s claim for amortization of lease premium principally related to leases of four plots of land at Mumbai Kolkata which are used for setting up Container Freight Stations (CFS), considered as infrastructure facility for the purposes of Section 80IA of the Act. With the permissions obtained from the Ministry of Finance, Dept, of Revenue, the assessee has set up devel CFSs on the leased premises. The issue of allowability of amortization of lease premium paid in respect of leased land on which CFS was set up, was considered by the coordinate bench of this Tribunal in the case of Dy.CITVs Century Plyboards India Ltd (supra). In that case also the assessee had paid lease premium of Rs. 156 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. It is seen that in returns-of-income, assessee are generally claiming depreciation on such capitalized expenditure treating it as an intangible asset in terms of section 32(1 )(ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned, wholly or partly, by the tax payer which is an essential condition for claiming depreciation and further right to collect toll does not fall in an of the categories of intangible assets specified in sub-clause (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act. 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost so reduced shall be amortized equally over the remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. 9. This, may be brought to the notice of all concerned. The afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above, the entire amount of Prior Period Expenditure of Rs. 4,08,23,000/- is disallowed as expenses and added to the total income of the assessee company. 6. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same. Being aggrieved, the Revenue is now in appeal before us. 7. We note that in Schedule X of the TAR, the auditor had reported Rs. 4,08,23,000/- as prior period adjustment. On being asked, the assessee had submitted details before the AO but allegedly did not furnish any explanation as to why the amount was allowable in the year under consideration. The AO then observed that the expenses claimed were in the nature of general expenditure, and since the assessee followed mercantile system of accounting, the prior period expenses debited in the P L account for the current year was not allowable. Before us the assessee claimed that these Prior Period Expenses were disclosed in the accounts in accordance with the Accounting Policy of the assessee, in pursuance of the Accounting Standard 5 issued by the Institute of Chartered Accountants of India (AS-5) and also in accordance with the Accounting Standard II issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal, we note that the Revenue was unable to bring to our attention any material or fact to disprove the assessee s explanations furnished before the lower authorities in support of its claim that the liability to pay the expenses charged under the head prior period crystallized during the FY 2011-12. We also find from the details of the expenses that the assessee had claimed deduction in respect of items which were revenue in nature and fully allowable in arriving at its business income. The Revenue also did not controvert the Ld. AR s submissions that no deduction in respect of these expenses was allowed in the prior years and tax rate in the earlier years and in the current year were same and therefore irrespective of the year of deduction allowed, the revenue effect was tax neutral. In this regard, the reliance placed by the Ld. AR on the decision of the Hon ble Gujarat High Court in the case of PCIT Vs Adani Enterprises Ltd in Tax Appeal No. 566/2016 is found to be relevant. For the reasons set out in the foregoing we do not see any reason to interfere with the order of the Ld. CIT(A) and accordingly we dismiss this ground of the Revenue. 9. Ground no. 2 of the Revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. From the facts and material on record we find that the assessee, a public sector undertaking, is engaged in the business of manufacturing / production of containers as also operating, managing and maintaining container freight stations in India. In order to promote this business, the assessee along with financial institutions such as IDBI, ICICI promoted a company in the year 1990 by the name, M/s Indian Container Leasing Co. Ltd which was later renamed as M/s Transafe Services Limited. Later on in 1996, a leading multinational M/s Trans America Leasing Inc. also joined the said company as its promoter but exited the same in 2003. In April 2006, the assessee being principal shareholder transferred its specialty container divisionto the said M/s Transafe Services Limited on leave and license basis and in the subsequent year sold the said division as a going concern basis. In order to meet its working capital needs the assessee advanced various loan amounts from time to time carrying interest at the rate of 9.5% per annum and such interest were assessed as business income. The financial institutions who were copromoters had sanctioned loan of Rs.7.11 crores and for enabling M/s Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO accordingly denied the claim made the assessee in both the computations. The Ld. CIT(A) however held that such loss although being debited under the nomenclature provision was in the nature of ascertained loss which was actually written off in the P L Account and following the ratio laid down by the Hon ble Supreme Court in the cases of Vijaya Bank vs CIT (2010) 323 ITR 166 (SC), and Badridas Daga v CIT, (1958) 34 ITR 10, deleted the impugned addition. Before us, the Ld. CIT, DR supported the action of the AO. According to the Ld. CIT, DR the fact that the assessee had debited such loss by way of provision showed that it was not a realized loss and therefore the Ld. CIT(A) has misconstrued such provision to be in the nature of an ascertained loss. He drew our attention to clause (i) contained in Explanation 1 to Section 115JB, which requires that any provision for diminution in value of any asset is required to be added back while computing book profit u/s 115JB. The Ld. CIT, DR therefore urged that the order of the Ld. CIT(A) be reversed and the action of the AO be restored. 13. It is noted that the case of the Revenue primarily hinges on the premise that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f investment, the same was in the nature of provision for ascertained business loss and therefore allowable. We find that since the provision was for ascertained loss, in Note No. 10 of the audited accounts, the value of investment in M/s Transafe Services Ltd was disclosed at Rs.147.63 lacs i.e. after netting off the loss provided in the P L Account of the relevant year. Applying the principle laid down by the Hon ble Apex Court in the case of Vijaya Bank Ltd Vs CIT (supra), we do not find any infirmity in the Ld. CIT(A) s order. 14. We also find merit in the reliance placed by the Ld. AR on the decision of the coordinate Bench of the Tribunal in the case of West Bengal Electronics Industry Development Corporation Ltd in ITA No. 1945/Kol/2013 dated 24.08.2018. In the decided case also the assessee was a State undertaking engaged in the business of promoting the growth of electronics and allied sector in the State of West Bengal by making investments in subsidiaries, joint ventures and assisted sectors. During the relevant year the assessee acquired shares of such companies at different prices and valued the same at token Rs.1/- in its Balance Sheet and disclosed under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sought to write off the valuation difference, being the difference between the purchase price and realizable value, and claim the same as business loss of the assessee. It is not in dispute that the investments made in the aforesaid subsidiaries would not fetch any realizable value to the assessee. Hence the fact of irrecoverability of the same is proved beyond doubt due to erosion of net worth. We hold that the main object of the assessee company itself is to promote the growth of electronics industry in the State of West Bengal and hence the investments made thereon are to be considered as stock in trade and connected to the business of the assessee company. Hence any loss arising on account of valuation of those investments due to erosion of net worth of investee companies, would only have to be considered as a trading loss. This fact is directly addressed by the Hon'ble Madras High Court in the case of CIT vs Tamil Nadu Industrial Investment Corporation Ltd (TIIC) reported in (2017) 88 taxmann.com 528 (Mad HC) dated 15.2.2017 wherein the questions raised before the Hon'ble High Court were as under:- 1. Whether in the facts and circumstances of the case, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 is thus answered in favour of the assessee and against the revenue. 5. Question Nos.1 and 3 challenge the conclusions of the tribunal relating to facts and would have to be tested on the touchstone of perversity. The tribunal has noted that valuation of the shares is effected in order to ensure a proper depiction of the value of the asset in the balance sheet. A note prepared for the consideration of the Board in TIIC B.No. 13587-88 dated 21.7.1987 has been placed before us. A detailed analysis has been undertaken therein with respect to various items identified and sought to be written off in view of the doubtful character of recovery of loans and investments. Investments in the shares of six industrial companies were undertaken by way of underwriting of issue of shares. Upon finding that the net worth was negative, it was proposed to write off 100% of such investment in five cases. In the matter relating to one defaulter, M/s. Southern Brick Works Limited, the recommendation for write-off was only 50% of the investment, in view of a proposal for take over of the entity by M/s Vinichem Private Limited. 6. The note also proposes the write-off of an amount of Rs. 33.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letely written off in the books and deduction claimed for write off. Whereas in the instant case, the assessee continues to show the value of investments at Re 1 in its balance sheet, which conduct itself, proves that the investments were not made as a mere pure and simple investment for the purpose of earning dividends. On the contrary, these investments in subsidiaries were made with a view to promote the growth of electronics industry in the State of West Bengal. Moreover, the assessee had not completely written off in the books the value of investments. We find that the issue on diminution in value of investments was not before the Hon'ble Jurisdictional High Court . Whereas, in the case before us, the assessee had claimed partial write off in respect of diminution in value of investments after coming to a conscious conclusion that the value of investments is not realizable. We find that the decision of Hon'ble Madras High Court referred to supra would be squarely applicable to the facts of the instant case as it duly addresses the issue of diminution in value of investments. Moreover, we have already held that the investments though shown in the balance sheet as invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts advanced in the ordinary course of business could not be disallowed by the AO. 16. Even with regard to the Revenue s objection to the relief allowed by the Ld. CIT(A) while computation of book profit u/s 115JB, we find that the objection of the Ld. CIT, DR are soundly countered by the Hon ble Gujarat High Court in their judgment in the case of Pr.CIT Vs Torrent Pvt Ltd (266 Taxman 151), wherein it was held as under: 18. A perusal of the Details of provision for diminution in value of investment for assessment year 2003-04 as reflected in the Balance Sheet (at page 57 of the paper book) shows that provision created in the year is of Rs. 69,46,73,244/- Provision written back on account of rise in value as per paragraph 33 of Accounting Standard 13 is Rs. 55,61,73,244/-. The net amount of provision debited to Profit and Loss is Rs. 69,46,73,244/- minus Rs. 55,61,73,244/- which comes to Rs. 13,85,00,000/-. 19. A perusal of the details of Provision for Diminution in the Value of Investments as on 31st March, 2003 (page 60 of the paper book) shows that the total provision required as on 31st March, 2003 is Rs. 839,621,779/-; provision available as on 31st March, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable in any form or category that to which type or kind of investment such diminution is related out of the total provisions. He has further recorded that the assessee's annual report and audited accounts do not reveal of such write off because, the diminution of asset in the balance sheet at Schedule IV for investment reflect Provision in Diminution in value of investment of Rs. 83,96,21,779/- without specifying the details of type of investment of long term investments and current investments in shares, debentures, mutual funds, Government securities etc. to which such value apply. Further out of this only Rs. 13,85,00,000/- was debited in audited profit and loss account as provision for diminution in value of investments. There are no details which type of shares, securities, debentures etc. are written off and why out of Rs. 83,96,21,779/- only Rs. 13,85,00,000/-is considered. The learned counsel for the appellant has reiterated the above reasoning adopted by the Commissioner (Appeals). 23. In the opinion of this court, the above findings recorded by the Commissioner (Appeals) that no details have been produced, is contrary to the record of the case, inasmuch a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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