JCIT (OSD), CENTRAL CIRCLE-20, JAHANDEWALAN V. AVANTHA REALTY LTD. (EARLIER KNOW AS JANPATH INVESTMENT HOLDING LTD.), DELHI

ITA 566/KOL/2024

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the CIT(A) which had deleted certain additions made by the AO regarding corporate expenses and the premium on redemption of optionally convertible bonds. The Revenue argued that the expenses claimed by the assessee, Avantha Realty Ltd., were not directly related to its business activities and that the premium on the bonds was capital in nature. The ITAT found merit in the Revenue's argument regarding the need for a detailed examination of the corporate expenses but upheld the CIT(A)'s decision on the bond premium, treating it as a revenue expense based on precedents.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786474 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 1999-2000
• Appeal Filed On: 15-03-2024
• Other Referred Cases: Commissioner of Income Tax vs. Balak Capital Pvt Ltd, Madras Industrial Investment Corporation Ltd Vs Commissioner Of Income Tax, Tamil Nadu I, Madras, National Engineering Industries vs Commissioner Of Income-Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside; Capital asset; Capital expenditure; Revision of order
• Section: 147; 263; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA SHRI GEORGE MATHAN, JUDICIAL MEMBER SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No. 566/Kol/2024 Assessment Year 1999-2000 DCIT, Central Circle,20, Room No. 269A, 2nd Floor, ARA, Centre E-2, Jhandewalan, New Delhi – 110055 ……..…...…………….... Appellant vs. Avantha Realty Ltd., (Previous known as Janpath Investment & Holding Ltd.), 124, Thapar House, Janpath, Central Delhi – Delhi - 110001 [PAN: AAACJ8030A] ……..…...…………….... Respondent Appearances by: Assessee represented by : Sanjay Bhattacharya, FCA Department represented by : P.N. Barnwal, CIT-DR Date of concluding the hearing : 19.11.2025 Date of pronouncing the order : 20.11.2025 O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER: 1. The ITAT Registry has reported a delay of 155 days in the filing of this appeal. The Revenue has filed the following petition explaining the delay as under: “In this case the department had filed appeal with Hon'ble Delhi Bench of ITAT against the order dated 14.07.2022 passed u/s 250 of the Act by Ld.CIT(A)-27, Delhi in appeal no CIT(A), Kolkata-20/10241/2011-12. However, the Hon'ble ITAT, Delhi vide its order dated 16.02.2024 in ITA no. 2432/Del/2022 has dismissed the appeal of the Revenue with a liberty to file an appeal within 60 days from the date of receipt of order before appropriate Printed from counselvise.com 2 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) Jurisdictional Tribunal citing the Hon'ble Supreme Court judgment in the case of Commissioner of Income Tax vs. Balak Capital Pvt Ltd in Special Leave to Appeal (C) No. 7019/2017 as the assessment order which was subject of appeal was passed by AO, Circle-6, Koltaka. In view of the above decision of Hon'ble ITAT, Delhi, the appeal in this case was filed on 15.03.2024 with the Hon'ble ITAT, Kolkata bench after receiving the original order which was received in PCIT, Central-2, Delhi office on 06.03.2024.” 1.1 Considering the reasons given in the said petition, the delay is hereby condoned and the appeal is admitted for adjudication. 2. This appeal arises from order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) dated 14.07.2022, passed by the Ld. Commissioner of Income Tax (Appeals)-27, Delhi [hereafter “the Ld. CIT(A)”]. 2.1 In this case, the Ld. AO is seen to have passed an order in response to direction given u/s 263 of the Act by the Ld. CIT(A) on 13.12.2007. The issues under consideration were the following: (a) Rs. 1,25,48,095/- shown as corporate expenses have been disallowed. (b) Rs. 17,28,00,000/- debited as premium on redemption of bonds has been treated as capital expenditure. 2.2 The assessee could succeed before the Ld. CIT(A) on the basis of following findings: “5.1 The appellant company has incurred a sum of Rs. 1,25,48,995/- towards corporate service fees and expenditure. Expenditure on this account as referred to in the annexure to profit and loss account was paid as per agreement of sharing of services by way of Corporate Service rendered by M/s Ballarpur Industries Limited. In effect. payment of service charges as above was made in terms of the continuation of the existing arrangement made by way of agreement entered in to between the parties and such payment as reflected in the accounts was claimed by way of note forming part of the income tax return filed. The agreement that the appellant had entered in to with the M/s Ballarpur Industries Printed from counselvise.com 3 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) Limited covered the following areas for necessary service on regular basis to the assessee company: A. LEGAL B. TAXATION C. INSURANCE D. SECRETARIAL E. FINANCE F. PEOPLES DEVELOPMENT AND COMMUNICATION G. LIAISON H. ADMINISTRATION & SECURITY SERVICES 5.2 The AO has accepted the commitment as per contractual agreement and did not raise any objection with regard to payment as per this Agreement towards corporate service fees and expenditure in subsequent years and no action u/s 263 or 147 of the Act was initiated on this ground. Therefore there is no reason why it should not be allowed for this year also. 5.3 On merit also, the appellant has explained the circumstance under which this Agreement was signed. It has not claimed expenses covered under this Agreement separately. Not allowing this reimbursement will tantamount to as if no expenditure was incurred at all towards these activities, which is not correct…….. 6. Ground No. 2 & 2a relate to the addition on account of holding that the premium of Rs. 17,28,00,000/- in respect of Optionally Convertible Bond is not an allowable expenditure incurred for the purpose of business. 6.1 I have found that this issue is squarely covered by the decision of the Apex Court in the case of Madras Industrial Investment Corporation Ltd Vs Commissioner Of Income Tax, Tamil Nadu I, Madras (Supreme Court of India) in the Appeal Number: (1997) 225 ITR 802 (SC) dated 04/04/1997. The relevant part of this order is reproduced under: as \"Thus, expenditure is not necessarily confined to the money which has been actually paid out. It covers a liability which has accrued or which has been incurred although it may have to be discharged at a future date. However, a contingent liability which may have to be discharged in future cannot be considered as expenditure. Therefore, although expenditure primarily denotes the idea of spending or paying out, it may, in given circumstances, also cover an amount of loss which has not gone out of the assessee's pocket but which is all the same, an amount which the assessee has had to give up. It also covers a liability which the assessee has incurred in present although it is payable in future………. 6.2 Whether payment of premium on debenture at the end of the entire period is same as bearing the discount on debentures at the beginning of the period is answered by Hon'ble Calcutta High Court in the case of National Engineering Printed from counselvise.com 4 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) Industries... vs Commissioner Of Income-Tax on 3 September, 1998 (236 ITR 577 Cal). The relevant part of the decision is as under: 7. It was specifically observed by the Supreme Court that any other view of deduction, like taking the entire liability as amassed in the year of issue or in the year of redemption would give a distorted picture of the profits of that particular year of assessment. In saying this Supreme Court referred with approval to the case of Indian Jute Mills' case [1982] 134 ITR 68, a decision of Justice Sabyasachi Mukharji when his Lordship was taking up the Reference Bench at the Calcutta High Court. The Supreme Court also approved of the decision of the Madhya Pradesh High Court in M. P. Financial Corporation's case [1987] 165 ITR 765. The references are given in the Supreme Court judgment. 8. Mr. Bajoria, appearing for the assessee, relied heavily on this Supreme Court case and supported the proposition that deductions are to be spread over in all the years mentioned above. 9. In our case we are concerned not with debentures issued at a discount from the face value but with debentures which carry a premium to be paid at the end of the entire period, if the debentures are held throughout. We do not see any distinction between a discount and a premium. The result in both is that something over and above the face value and the specified interest is paid, the accounting procedure in one case being by way of a preliminary deduction from the mentioned amount, and the accounting procedure in the other case being an addition at the end over the prescribed and mentioned face value amount.\" 6.3 The facts of the case are as under: The assessee company was vested with investment and finance portfolio of Bilt comprising of investment in shares and securities, loans and advances, rights and obligations exceeding Rs. 119 crore. The assessee company out of the amount due to BILT, had converted and issued optionally convertible redeemable bond aggregating to Rs. 108 crore. iii. The redemption of 1st instalment was due on 30.09.2000 and total amount payable up to 30.09.2004 was Rs 1,71,000/ for face value Rs.1,00,000/- of each bond iv. Premium for 10800 bond was payable up to 30.09.2004 worked out to Rs. 76,68,00,000/- v. Premium payable on 10800 bond in respect of each financial year was worked out to Rs. 17,28,00,000/- vi It is also observed that the gross income of the appellant company was increased from Rs. 2,26,19,289 to 18,30,25,041/- mainly on account of vesting of assets as per approved Scheme of Arrangement and Reconstruction. vii. The assessee company had issued bond/ debenture and the payment of premium is basically in the nature of interest for the money borrowed/debt incurred. Printed from counselvise.com 5 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) viii. The premium was paid on the borrowings which are not directly linked to the acquisition of capital assets or any advantage of enduring nature. ix. Further, there was the option that these bonds may be converted to equity shares but same was not exercised and bonds remained bonds till maturity.” 2.3 Aggrieved with this action of Ld. CIT(A), the Revenue has filed the present appeal with the following grounds: “1. The Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 1,25,48,995/- made by the AO which was claimed by assessee as \"corporate expenses reimbursed\" paid to holding company i.e. M/s Ballarpur Industries Limited. 2. The Ld. CIT(A) has erred on facts and in law in deleting the addition on account of \"corporate expenses reimbursed\" ignoring the fact, that, the assessee failed to provide any basis of such expenditure incurred against break-up of tasks completed or services rendered on invoice to invoice basis. 3. The Ld. CIT(A) has erred on facts and in law in deleting the addition on account of \"corporate expenses reimbursed\" ignoring the fact, that, the scheme of arrangement and re-construction between the assessee and its holding company was effective from 29.01.1999 but the expenses was claimed for the complete year. 4. The Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 17,28,00,000/- made by the AO on account of capital nature of pro-rata premium payable on the optionally convertible bonds. 5. The Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.17,28,00,000/-ignoring the fact that the said pro-rata premium amount on issue of optionally convertible bonds was capital in nature and cannot be allowed as deduction from the taxable income. 6. The Ld. CIT(A) has erred on facts and in law in deleting the addition in holding that premium paid was not directly linked to the acquisition of capital assets or any advantage of enduring nature completely ignoring the fact that the said optionally convertible bands was issued in lieu of vesting of investment and finance portfolio of holding company (ie. BILT) comprising of Investment in shares and securities, loans and advances, right and obligations which are capital assets, enduring in nature. 7. The Ld. CIT(A) has erred on facts and in law in deleting the addition on account of pro-rata premium on optionally convertible bonds ignoring the fact that assessee itself admitted before ITAT that the premium payable on bond is a capital expenditure. 8. (2) (b) The Order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. The appellant craves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.” 3. Before us, the Ld. DR argued that the so-called services being Printed from counselvise.com 6 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) provided by M/s Ballarpur Industries Limited (hereafter BILT) were difficult to believe since M/s BILT was not a professional service provider. It was argued by the Ld. DR that the assessee is merely an investment arm of M/s BILT and hence a number of items of expenditure under the head “administrative expenses” (as mentioned on page 26 of the paper book) had items like “workmen and staff welfare”, “lease rent” etc. which did not appear to be directly related to the business activity of the assessee. The document depicting the contractual agreement entered into between the assessee and M/s BILT appeared to be a self-serving instrument since the expenses incurred by M/s BILT have been allocated on an ad-hoc basis to the assessee. It was not clear as to what exactly are the expenses which can be directly co-related with the assessee’s business activity. The Ld. DR read out portions from the Ld. AO’s order at page 4 where a finding has been given that the assessee was not in a position to furnish details of payments made against services rendered. The following portion was read out by the Ld. DR: “The assessee vide his letter dated 4th June, 2010 (submitted on 29th June, 2010) claimed that the expenditure of Rs. 1,23,48,995/- was let out or expended wholly and exclusively for the purpose of business of investment in share and securities. It is further claimed that since there was no infrastructure by the assessee company the cost was reimbursed to M/s. Ballarpur Industries Ltd. (BILT') for rendering services. However, the following statement were also noted from the submission of the assessee. ⅰ) \"However, the assessee company is not a position to furnish details of payments made against each of the task completed or service rendered on day to day basis or on the basis of engagement of number of heads.\" ii) \"It may be mentioned that BILT is not a professional body like Price Water House Coopers or Ernst & Young or Khaitn & Company rendering professional services to any one or everyone in the respective field.\" iii) \"Accordingly, the assessee company had reimbursed certain expenses as allocated by BILT as per statement already filed with you. 3.1 Regarding the treatment of premium on bonds the Ld. DR stated that the arrangement between the assessee and M/s BILT appeared to be for the convenience of M/s BILT and not for the sake of any benefit arising to Printed from counselvise.com 7 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) the assessee. It was pointed out that from a perusal of the schedule of repayment (page 29 of the paper book), it was not clear as to the exact agreement between the assessee and M/s BILT for this exercise. It was pointed out by the Ld. DR that in the first year Rs. 56,000/- was to be redeemed, nothing in the second year, Rs. 10,000/- in the 3rd year and straight away Rs. 5,000/- in the concluding year. It was averred that this seemed to be an adhoc arrangement. 3.2 The Ld. AR relied on the findings given in the impugned order and placed on record the order of the Nagpur Bench of ITAT in the case of Newquest Corporation Limited, ITA No. 245 & 246/Nag/2008, dated 10.08.2009. In this case, on almost identical facts, again M/s BILT has provided corporate services to the assessee thereon and 50% of the expenditure claimed was disallowed by the Ld. AO. This disallowance had been deleted by the Ld. CIT(A) and his action was confirmed through the order of ITAT in the case of Newquest Corporation Limited (supra). 3.3 Regarding the treatment given to the premium on redemption of bonds, the Ld. AR relied on the case of M/s Madras Industrial Corporation Limited reported in 225 ITR 802 (SC). The Ld. AR pointed out that on pages 16 to 19 of the impugned order (supra) this issue has been discussed. The Ld. AR also relied upon the judgement of the Hon’ble Calcutta High Court in the case of National Engineering Industries reported in 236 ITR 577 (Cal). 4. We have carefully considered the rival submissions and have gone through the documents before us, including the paper book filed by the Ld. AR. Regarding the first issue of reimbursement of corporate expenses (Rs. 1,25,48,095/-) to M/s BILT, it is felt that since the assessee has not claimed any other expenses for earning income then this particular reimbursement, as a matter of principle, would be allowable. However, it is Printed from counselvise.com 8 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) a trite position that expenses claimed u/s 37(1) of the Act have to be directly related to the business activity of any assessee. There is considerably strength in the averment of Ld. DR that certain heads of expenditure do not appear to be directly co-related to the business of the assessee. Accordingly, while we agree in principle that such corporate expenses being reimbursed are in order, but the quantum of such expenses claimed will need to be examined u/s 37(1) of the Act with respect to the nature of business activities of the assessee. Accordingly, we set aside the impugned order on this issue and remand this matter back to the file of Ld. AO for fresh examination of each item of expenses and its nexus with the business activities of the assessee. 4.1 Regarding the issue of redemption of premium on bonds, we find that the Ld. CIT(A) has rightly relied on the case of M/s Madras Industrial Corporation (supra) and the impugned amount should be treated as a revenue expense. Accordingly, we are not inclined to interfere with the order of Ld. CIT(A) on that point. 4.2 Before parting with this issue, we take note of the argument of Ld. DR that the redemption of premium on bonds has been done in an adhoc manner. However, we are unable to detect any collusive arrangement in this regard and we also note that the issue to be decided was whether such redemption is a revenue expense or a capital one. Accordingly, we offer no opinion on such argument of the Ld. DR. 5. In result, appeal of the Revenue is partly allowed. Order pronounced on 20.11.2025 Sd/- Sd/- (George Mathan) (Sanjay Awasthi) Judicial Member Accountant Member Dated: 20.11.2025 AK, Sr. P.S. Printed from counselvise.com 9 ITA No. 566/Kol/2024 Avantha Realty Ltd. (Earlier known as Janpath Investment Holding Ltd.) Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. CIT(DR) //True copy// By order Assistant Registrar, Kolkata Benches Printed from counselvise.com "