IDFC PROJECTS LTD., MUMBAI V. ACIT - (HQ)(JUDL) TO THE CIT - 14 , MUMBAI

ITA 5418/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3493 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 21-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Keywords: Initiation of penalty proceedings; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 143(3); 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5418/MUM/2018 ASSESSMENT YEAR: 2012-13 IDFC PROJECTS LTD., 3 RD FLOOR, NAMAN CHAMBERS, C-32, G BLOCK BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI-400051. VS. THE ASSISTANT COMMISSIONER OF INCOME (HQ) (JUDL.) TO THE CIT- 14, ROOM NO. 404, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020. PAN NO. AABCI7941N APPELLANT RESPONDENT ASSESSEE BY : NONE REVENUE BY : MR. V. SREEKAR, DR DATE OF HEARING : 29/10/2020 DATE OF PRONOUNCEMENT : 12/11/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2012-13. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-22, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX A CT 1961, (THE ACT). THOUGH THE CASE WAS FIXED FOR HEARING ON 29.10.2020 , NEITHER THE ASSESSEE NOR ITS AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE T RIBUNAL ON THE ABOVE DATE. AS THERE IS NON-COMPLIANCE BY THE ASSESSEE, WE ARE PROCEEDING TO DISPOSE OFF ITA NO. 5418/M/2018 IDFC PROJECTS LTD. 2 THIS APPEAL, AFTER EXAMINING THE DOCUMENTS AVAILABL E ON RECORD AND AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE (DR). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : 1.1. THE LEARNED CIT (A) ERRED IN DISALLOWING A SUM OF RS.8,21,987/- MERELY ON THE BASIS THAT CORRESPONDING INCOME HAS NOT BEEN OF FERED TO TAX IN ANY EARLIER YEAR. 1.2 THE LEARNED CIT(A) ERRED IN NOT GRANTING DEDUCT ION UNDER SECTION 28 OF THE ACT AND WITHOUT CONSIDERING THE EXPLANATIONS OF THE APPELLANT. 1.3. THE LEARNED CIT (A) ERRED IN NOT GRANTIN G DEDUCTION UNDER SECTION 37(1) OF THE ACT BY HOLDING THE EXPENDITURE ON WRITE OFF OF INVESTMENT AS A CAPITAL EXPENDITURE AND THE WRITE OFF OF MEDICAL EXPENSES F OR EMPLOYEES AS NOT BEING INCURRED FOR THE PURPOSE OF BUSINESS. 2.1 THE LEARNED CIT(A) ERRED IN DISALLOWING THE CLA IM OF BONUS TO THE EXTENT OF 20% OF THE TOTAL AMOUNT MERELY ON THE BASIS THAT IT WAS NOT JUSTIFIED AND WITHOUT CONSIDERING THE EXPLANATIONS OF THE APPELLANT. 2.2 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PA YMENT OF BONUS TO THESE PERSONS IS NOT ON ACCOUNT OF TERMS OF EMPLOYMENT. 2.3 THE LEARNED CIT(A) ERRED IN DISALLOWING THE CLA IM OF BONUS ON THE BASIS THAT THE APPELLANT'S FINANCIALS SHOW NO INCREASE IN REVE NUE TO JUSTIFY PAYMENT OF BONUS 2.4 CONTRARY TO THE FACTS, THE LEARNED CIT (A) ERRE D IN CONCLUDING THAT THE DECISION TO AUTHORIZE THE EMPLOYEES TO HANDLE THE P ROCESS OF EXIT WAS TAKEN ONLY IN MARCH 2012 AND PAYMENT OF BONUS CANNOT BE ASCRIBED TO SERVICES RENDERED FOR EXITING THE PROCESS. 3. THE LEARNED CIT (A) ERRED IN DISMISSING THE GROU ND FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT ON T HE ABOVE DISALLOWANCES BY TREATING THE SAME AS PREMATURE. ITA NO. 5418/M/2018 IDFC PROJECTS LTD. 3 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS TO DEVELOP, EXECUTE AND MANAGE INFRASTRUCTURE PROJECTS. IT FILED ITS RETURN OF INC OME FOR THE ASSESSMENT YEAR (AY) 2012-13 ON 28.09.2012 DECLARING TOTAL INCOME A T RS. NIL AND CURRENT YEAR LOSS OF RS.5,10,98,379/-. AS PER THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE H AD CLAIMED AN AMOUNT OF RS.8,21,997/- AS BAD DEBT WRITTEN OFF UNDER THE HEAD OTHER EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE FILED BEFORE THE AO THE FOLLOWING DETAILS : WRITE OFF OF INVESTMENT IN JETPUR SOMNATH HIGHWAYS LTD. ON ACCOUNT OF WINDING UP RS.7,40,000/- IRRECOVERABLE MEDICAL EXPENSES WRITTEN OFF RS.81,99 7/- RS.8,21,997/- HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE S UBMISSION OF THE ASSESSEE ON THE GROUND THAT IT HAD NEVER OFFERED TH IS AS INCOME IN ANY OF THE EARLIER ASSESSMENT YEARS. THEREFORE, THE AO DISALLO WED THE ABOVE AMOUNT OF RS.8,21,997/-. 3.1 IN APPEAL, THE LD. CIT(A) AFFIRMED THE ABOVE DI SALLOWANCE ON THE GROUND THAT (I) IN RESPECT OF WRITE OFF OF INVESTMENT OF R S.7,40,000/- IN JETPUR SOMNATH HIGHWAYS LTD., ON ACCOUNT OF WINDING OF, TH E SAID AMOUNT IS NOT ELIGIBLE FOR WRITE OFF AS BAD DEBTS AS PER PROVISIO NS OF SECTION 36(2) OF THE ACT, AS THE SAME HAS NOT BEEN ACCOUNTED FOR AS ITS INCOM E IN ANY OF THE EARLIER YEARS, (II) THE INVESTMENT IN SHARES OF JETPUR SOMN ATH HIGHWAYS LTD. IS A CAPITAL EXPENDITURE, AS THE SAME IS SHOWN IN THE BA LANCE SHEET AS AN ITA NO. 5418/M/2018 IDFC PROJECTS LTD. 4 INVESTMENT AND THEREFORE, THE WRITE OFF IS A CAPITA L LOSS, (III) MEDICAL EXPENSES OF RS.81,997/- INCURRED ON BEHALF OF THE EMPLOYEES WOULD BE INADMISSIBLE AND MORE SO AS THERE IS NOTHING ON RECORD TO INDICATE T HAT SUCH EXPENSES HAVE BEEN TREATED AS PERQUISITE IN THE HANDS OF THE EMPL OYEES. 3.2 BEFORE US, THE LD. DR RELIES ON THE ORDER PASSE D BY THE CIT(A) AND SUBMITS THAT THE DISALLOWANCE OF RS.8,21,997/- MADE BY THE AO BE AFFIRMED. 3.3 WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVA NT MATERIALS ON RECORD. WE FIND THAT THE ASSESSEE WAS AWARDED A PROJECT BY THE NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) TO DESIGN, ENGINEER, PR OCURE, CONSTRUCT, MAINTAIN, MANAGE, OPERATE AND COLLECT TOLL ON JETPUR SOMNATH SECTION OF NATIONAL HIGHWAY ON DESIGN, BUILD, FINANCE, OPERATE AND TRAN SFER (DBFOT) BASIS. THE PROJECT WAS REQUIRED TO BE EXECUTED THROUGH A SPECI AL PURPOSE VEHICLE ('SPV'). THE ASSESSEE DECIDED TO CONDUCT THE PROJECT THROUGH AN EXISTING NON- OPERATIONAL COMPANY OF THE GROUP (M/S IDFC CAPITAL CO LTD WHICH WAS RENAMED AS JSHL) AND DESIGNATED THE SAME AS THE SPV REQUIRED FOR UNDERTAKING THE PROJECT. THE ASSESSEE OWNED 74% OF THE SHARE CAPITAL OF THE SPV FOR WHICH IT HAD PAID RS.7,40,000/-. HOWEVER, T HE NHAI REJECTED THE APPLICATION TO DESIGNATE JSHL AS THE SPV. AS A RESU LT, THE SPV WAS WOUND UP AND SINCE NO CONSIDERATION WAS RECEIVED BY THE ASSE SSEE ON ACCOUNT OF WINDING UP OF THE SPV, THE ENTIRE INVESTMENT IN JSH L WAS WRITTEN OFF. IN THE INSTANT CASE, THE WRITE OFF IS NOTHING BUT WRITE OF F OF AN EXPENDITURE ON AN ABANDONED PROJECT ; THE PROJECT IN QUESTION HAD INE XTRICABLE LINK WITH THE ASSESSEES EXISTING BUSINESS AND HENCE, THE EXPENDI TURE IS ALLOWABLE AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. ITA NO. 5418/M/2018 IDFC PROJECTS LTD. 5 ON THE BASIS OF THE ABOVE REASONS, WE DELETE THE D ISALLOWANCE OF RS.8,21,997/- MADE BY THE AO. 4. AS PER THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.1,10,44,874/- AS BONUS EXPENSES OUT OF TOTAL EMPLOYEES SALARY OF RS.3,15,23,963/-. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSEE FURNISHED DETAILS OF IT BEFORE THE AO. HOWEVER, THE AO OBSERVING THAT ONLY BREAK-UP OF SALARY EXPENSES HAS BEEN GIVEN AND NO J USTIFICATION WAS OFFERED, MADE AN AD-HOC DISALLOWANCE OF RS.22,08,975/- (20% OF RS.1,10,44,874/-). 4.1 IN APPEAL, THE ASSESSEE SUBMITTED BEFORE THE LD . CIT(A) THAT THE PAYMENT OF BONUS WAS COMMENSURATE WITH THE QUALIFIC ATION AND EXPERIENCE OF INDIVIDUAL EMPLOYEES. HOWEVER, THE LD. CIT(A) WAS N OT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND CONFIRMED THE AD-HOC DISALLOWANCE OF RS.22,08,975/- MADE BY THE AO. 4.2 BEFORE US, THE LD. DR RELIES ON THE ORDER OF TH E LD. CIT(A) AND CONTENDS THAT THE DISALLOWANCE OF RS.22,08,975/- MADE BY THE AO BE AFFIRMED. 4.3 WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVA NT MATERIALS ON RECORD. IN THE INSTANT CASE, THE ASSESSEE HAD SET UP A SPEC IAL PURPOSE VEHICLE (SPV) I.E. DHEERU POWERGEN LTD. TO IMPLEMENT 1050 MW (3X350 MW ) COAL BASED THERMAL POWER PLANT AT DISTRICT KORBAR, IN THE STAT E OF CHHATTISGARH. THAT IN SPITE OF ALL THE EFFORTS PUT IN BY THE ASSESSEE, TH E PROJECT COULD NOT TAKE OFF BECAUSE OF MANY LIMITATIONS. FINALLY, THE ASSESSEE DECIDED IN ITS BOARD MEETING HELD ON MARCH 7, 2012 TO EXIT THE NON-COAL BUSINESS . IN SUCH A SITUATION, THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT MR. PRADEEP SINGH(GROUP HEAD OF PUBLIC SECTOR INITIATIV ES) HAVING EXPERIENCE OF ITA NO. 5418/M/2018 IDFC PROJECTS LTD. 6 34 YEARS WAS AUTHORIZED TO HANDLE THE PROCESS IDENT IFYING A BUYER TO EXIT FROM DHEERU POWERGEN LIMITED AND ALSO TO DISCUSS, NEGOTI ATE AND FINALIZE THE DRAFTS OF THE AGREEMENT. THAT IN FINANCIAL YEAR 2012-13, T HE TEAM WAS SUCCESSFUL IN NEGOTIATING THE DEAL WITH A BUYER FOR PURCHASE OF D HEERU POWERGEN LTD. AT AN UPFRONT CONSIDERATION OF RS. 15 CRORE. THAT THE PAY MENT OF BONUS WAS COMMENSURATE WITH THE EFFORTS RENDERED BY THE TEAM OVER A PERIOD OF TIME IN ORDER TO EXIT THE PROJECT. CONSIDERING THE ABOVE, WE DELETE THE AD-HOC DISALL OWANCE OF RS.22,08,975/- MADE BY THE AO. 4.4 AS THE PENALTY U/S 271(1)(C) HAS BEEN INITIATED ONLY, THE 3 RD GROUND OF APPEAL IS PREMATURE. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/11/2020. SD/- SD/- ( VIKAS AWASTHY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 12/11/2020 RAHUL SHARMA, SR. P.S. ITA NO. 5418/M/2018 IDFC PROJECTS LTD. 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI