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TMI Blog2024 (3) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... c. charging interest u/s 234A and 234B of the Act. The above actions are being arbitrary, fallacious, unwarranted and illegal must be quashed with directions for appropriate relief." 3. Brief facts of the case are that the assessee filed return u/s 139(1) of the Income Tax Act ('Act' for short) declaring total income of Rs. 1,38,39,050/-. The return of assessee was selected for scrutiny under CASS the assessment order came to be passed on 24/05/2021 u/s 143(3) read with Section 144B of the Income Tax Act ('Act' for short), wherein the A.O. disallowed an amount of Rs. 57,85,488/- u/s 14A of the Act and further disallowed the expenses claimed by the assessee in the form 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting entries are not decisive of the nature of income Had only FC nat finkered with the Profit and Loss Statement by crediting income in the name of Exceptional (tem (Page 97 of the printed accounts), this contioveny would not have arisen. To sum up. the shares of RFCL issued in phases to FCIL lay entirely in the capital field. Those shares were not endowed with any train of revenue income. 6.3 The only income that ensured to FCIL from the arrangement as proposed by the Government was the lease rent for 99 yean period & Re. 1/- per annum. On that point there could be no controversy 6.4 The lease, as such, was for a period of 99 years. The capital as accruing to FCIL by way of Investment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly RFCL was engaged in construction of its project during the current period. It was expenditure during the construction period which was required to be capitalised as per accounting principles in commercial practise which RFCL, did, 6.11 What is taxable is real income and not hypothetical income. FCIL had not received any real income from RFCL at any point of time during the year. There is Therefore no question of any income accruing to FCIL during the year on any imaginary or hypothetical basis, 6.12 In sum therefore, the said amount depicted as an exceptional item under the head of Income in the Profit & Loss Account below the line could not have been brought to fax during the subject year for no income 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim made by the assessee in the audited profit and loss account, therefore, the expenses claimed by the assessee in form of exceptional items at Rs. 144.49 was found to be not admissible and disallowed the same and added back to the income declared by the assessee. 11. The Ld. CIT(A) has confirmed the above said disallowance made by the A.O. in following manners:- "5.4.1. Before me, the appellant has submitted that the appellant has entered into an agreement with Ramagundam Fertilizer & Chemical Limited (RFCL) for a period years towards grant of right and concession to RFCL. In lieu of this, RFCL has to issue equity shares equal to 11% of the total capital expenditure of the project. 5.4.2 During the year, RFCL issued 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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