What did the High Court hold?

The High Court found prima facie merit in the assessee's appeal, questioning the Tribunal's reasoning that the expenditure was not revenue in nature and was not based on prudent accounting principles. The court admitted the appeal for further consideration.

The assessee granted a 99-year lease of its property to RFCL, receiving equity shares valued at Rs. 144.49 crores in return. The assessee treated this amount as revenue expenditure, which was disallowed by the Tribunal.

What were the issues?

Whether the Tribunal erred in confirming the addition of Rs. 144.49 crores by treating the acquisition of equity shares as revenue expenditure.

The Fertilizer Corporation of… vs PCIT | Delhi High Court 2024

$~82 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 465/2024

THE FERTILIZER CORPORATION OF INDIA .....Appellant Through: Mr. S. Krishnan, Mr. K. Sampath & Mr. Harshit Chauhan, Advs.

versus

PRINCIPAL COMMISSIONER OF INCOME TAX

.....Respondent Through: Mr. Puneet Rai, SSC with Mr. Ashvini Kumar & Mr. Rishabh Nangia, JSCs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA

HON'BLE MR. JUSTICE RAVINDER DUDEJA

O R D E R %

29.08.2024

CM APPL. 49375/2024 (Ex.)

Allowed subject to all just exceptions.

Application stands disposed of. CM APPL. 49376/2024 (20 Days Delay in Refiling)

Bearing in mind the disclosures made, the day of 20 days in refilling the appeal is condoned.

Application stands disposed of. ITA 465/2024 1. Notice. Since the respondent is duly represented by Mr. Rai, learned counsel, no further steps need be taken. 2. We take note of the following findings which have come to be rendered by the Income Tax Appellate Tribunal [“Tribunal”]: “12. 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, This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 12:05:42

RFCL has issued 11% of the total capital expenditure of the said property as equity shares to the Assessee valuing to 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. In other words, 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 crores 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 of the Assessee.”

Prima facie and on hearing Mr. Krishnan, learned counsel appearing for the appellant, we find ourselves unable to sustain the view as expressed bearing in mind the fact that the expenditure of INR 144.49 crores was principally towards the equity interest which was to be created in favour of the appellant. If that were the position, it would clearly not be a revenue expenditure. 4. We also find ourselves prima facie unable to sustain the reasoning of the Tribunal which rests on the prudent accounting principles which would apply. Matter requires consideration. 5. We, accordingly, admit this appeal on the following question of law: A. On the facts and in circumstances of the case and in law, whether the Tribunal was correct in law in confirming the addition of INR 144.49 crores for „exceptional items‟ shown below the line of Profit & Loss account? 6. Let the appeal be called again on 04.12.2024.

YASHWANT VARMA, J

RAVINDER DUDEJA, J AUGUST 29, 2024/kk This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 12:05:42

THE FERTILIZER CORPORATION OF INDIA vs. PRINCIPAL COMMISSIONER OF INCOME TAX

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