TMI Blog2024 (3) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed expenditure in form of exceptional item - Assessee has entered into concession agreement with Ramagundam Fertilizer Chemical Limited (RFCL) on 23/03/2016 towards grant of right and concessional to RFCL with regard to facility area - HELD THAT:- It is an admitted fact that the assessee has given right of lease of 99 years of the property of the Assessee to RFCL vide concession agreement dated 23/03/2016. In view of the said lease, RFCL has issued 11% of the total capital expenditure of the said property as equity shares to the Assessee valuing at Rs. 144.49 crores. The assessee charged the said amount to P L account claiming as exceptional item, thus, the Assessee claimed as Revenue expenditure while computing the income of the Assessee. The said claim of the assessee was not based on any prudent accounting principles. The same is an income earned by the Assessee on giving the right to use the land at a concession rate. In any normal circumstances, if any third party would be required to pay Rs. 144.49 crore to acquire those shares. The shares were acquired in lieu of right to use the Assessee s capital assets by RFCL. Thus, we find no merit in the grounds of Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of exceptional item of Rs. 144.49 crore and added back to the income of the assessee. 4. Aggrieved by the assessment order dated 24/05/2021, the assessee preferred an Appeal before the CIT(A), the Ld. CIT(A) vide order dated 30/03/2023, deleted the disallowance u/s 14A of the Act and upheld the disallowance of Rs. 144.49 crores made by the A.O. and added back to the income of the assessee. As against the order of the Ld. CIT(A) dated 30/03/2023, the assessee preferred the present appeal on the grounds mentioned above. 5. In Ground No. 1(a), the assessee contended that the CIT(A) committed error in framing assessment u/s 143(3) of the Act without serving notices at the registered e-mail address which resulted into a failure to provide reasonable and adequate opportunity of hearing, thus sought for setting aside the order impugned. 6. Per contra, the Ld. Departmental Representative relied on the findings of the Ld. CIT(A). 7. We have heard both the parties and perused the material available on record. It is found that the assessee had partially complied to notice issued u/s 143(2) of the Act dated 23/09/2019 and the notice u/s 142 (1) of the Act dated 01/02/2020, which proves that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the shares of RFCL would, therefore, have to be amortised over a period of 99 years. It is during that period of 99 years that any taxable event in the capital field would have arisen. That would be prorate per year The Auditors note on Page 141 of the printed accounts are relevant in the context. 6.5 The sole benefit that would ensure to FCIL would be the dividend on the shares of RFCL as and when dividends were declared by the latter. No such declaration was made during the subject year. Nay even the commercial production by RFCL had not commenced and so no income could be attributed to FCIL on that account 6.6 The shares as issued by RFCL to FCIL were at face value. The intrinsic value as per the applicable principles of valuation of shares was virtually NI because RFCL did not own any valuable asset. The only tangible fixed asset was land which belonged to FCIL as devised by the 99 years lease agreement with the shares of RFCL having no significant value no income could be presumed favouring FCIL. The presumption of the Assessing Authority that income ensured to FCIL because of this arrangement signified by the entry of Exceptional Items is per se erroneous and untenabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome accrued or arose to it during the year, that the amount as considered by the Revenue Authorities at Rs. 144,49 crores was wrong for it was only Rs. 92.51 crores which had been taken by RFCL as disbursal of capital to FCIL that even the C AG had clarified its audit report while specifically mentioning the Rs. 51.98 crores out of the gross sum of Rs. 144.49 crores was relatable to the succeeding year and not the current year: that the amount in question was purely capital in nature and had no intrinsic value; that by its very nature, the mistaken depiction in the accounts of the said sum as an exceptional item on the credit side of the Profit Loss account was fundamentally erroneous for the amount never lay in the Revenue field but was purely capital in nature and with otherwise had no intrinsic value. On these and other grounds as taken in the foregoing paras the plea as canvassed by FCIL merits to be accepted with the sum of Rs. 144.49 crores as added by the Revenue Authorities being deleted. 9. Per contra, the Ld. Departmental Representative submitted that the assessee had right to receive total share of Rs. 144.49 crores as per the concession agreement with Ramagundam Fertili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity shares of 92.51 crores and shares of 51.98 crores were to be issued during the F.Y. 2018-19 (totalling to 144.49 crores). 5.4.3 The appellant has right to receive total shares of Rs. 144.49 crores as per the concession agreement with RFCL without paying any amount to RFCL. 5.4.4 In normal circumstance, any other third party would be required to pay Rs. 144 49 crores to acquire these shares. These shares were acquired in lieu of right to use the appellant's capital assets by RFCL. Exploitation of capital asset results into income which is to be treated as income on account of revenue (not capital). This income can be taxed on the basis of agreement as and when the same is quantified. In this case, the quantum of shares to be issued to the appellant has been quantified and part of the shares were also issued during the year. 5.4.5 It is worth mentioning that the land was given to RFCL on lease and the shares were allotted to RFCL on lease and the shares were allotted in lieu of this concession. This shows that the shares were issued for right to use the land given on concession. For this reason also, it has to be assessed as revenue receipt and not capital receipt. 5.4.6 I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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