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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Rajpal Yadav, Judicial Member And Shri Amarjit Singh, Accountant Member ITA No. 16 & CO No. 28 /Ahd/2016 Assessment Year 2012-13
The DCIT, M/s. Rajesh Malleables Ltd. Circle-3(1)(2), C/o. Anuj R. Mehta Ahmedabad Vs Nandanvan Opp. Shapath-IV, (Appellant/Respondent) Nr. Karnavati Club, S.G. Highway, Ahmeabad- 3800058 PAN:AABCR0270K (Respondent/Cross Objector)
Revenue by: Shri Krishna Murari, CIT-D.R. Assessee by: Shri Anil Kshatriya, A.R. Date of hearing : 10-04-2018 Date of pronouncement : 09-07-2018 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This Revenue’s appeal and assessee’s cross objection for A.Y. 2012-13, arise from order of the CIT(A)-9, Ahmedabad dated 21-10-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The revenue has raised following grounds of appeal:- “1. The Ld. CIT(A) has erred in law and on facts in treating the loss incurred on capital contribution in joint venture with R A Business Solutions amounting to Rs.6,69,00,000/- as short term capital loss and directing the AO to adjust the same against the capital gain of Rs.9,17,91,201/- as per section 70(2) of the Act. 2. The Ld. CIT(A) has erred in law and on facts by not appreciating that the capital contribution made for joint venture does not fall within the definition of section 2(14) of the I. T. Act and as such the said loss cannot be held as short term capital loss.
I.T.A No. 16 & CO No. 28/Ahd/2016 A.Y. 2012-13 Page No 2 DCIT vs. M/s. Rajesh Malleables Ltd.
The Ld. CIT(A) has erred in law and on facts by not applying the decision of Hon'ble High Court of Karnataka in the case of CIT vs Vinoda Rao (68 Taxman 96) wherein it has been held that a loan or advance cannot constitute an asset. 4. The Ld. CIT(A) has erred in law and on facts by not appreciating On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer to the above extent. 5. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored to the above extent.” 3. The assessee has raised following grounds in cross objection:- “1. On the facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT (A) has grossly erred in not deleting addition of Rs.6,69,00,000/- also, on account of settlement of advances in terms of substantive ground (No.2) raised before him when he ought to have held that it has been loss incidental to business which deserved to be allowed and adjusted as business loss u/s 28 of the Act. 2. Without prejudice, the ground no.2 raised by the revenue relating to definition of sec 2(14) of the Act has not been subject matter dealt with by the authorities below and it has surfaced as additional issue for the first time, the same is not liable to adjudication and deserves to be dismissed. 3. Without prejudice, the ground no.2 raised by the revenue is in utter contrast to the finding of the A.O. inasmuch as vide para 3 of the assessment order, the A.O. has held that 'investment made in joint venture is capital contribution; a loss incurred is not revenue expenditure' when the appellant has not claimed it as revenue expenditure but claimed as loss on account^: of settlement of advances as incidental to the business and admissible u/s 28 of the Act. On that count also, the ground no.2 deserves to be dismissed.”
The grounds of appeal of the assessee and the cross objections filed by the assessee are interconnected to the identical issue therefore for the sake of convenience both are adjudicated together by this common order. The brief fact of the case is that the assessee has filed return of income declaring income of Rs. Nil on 28th September, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 23rd September, 2013. The assessee is engaged in the business of manufacturing of GI Pipe Fittings. During the course of assessment proceedings the assessing officer noticed that assessee has debited the P & L a/c by an amount of Rs. 6.69 crores as a claim of loss on settlement of advances. On verification of details called for, the assessing officer observed that assessee had entered into agreement for joint venture with R A Business Solution of Bangalore. According to agreement, the assessee was supposed to invest Rs. 15 crores and M/s. R A Business Solution was supposed to invest Rs. 7.15 crores. Both the amount was to be invested in two parts each of Rs. 7.5 crores. The assessee has made first installment of
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investment of Rs. 7.35 crores on 24th March, 2011. However, the joint venture could not take place. Thereafter, the assessee has filed suit against R A Business Solution before the arbitrator to recover its amount invested as per the agreement in the joint venture. The arbitrator has awarded an award vide order dated 27th March, 2012 stating that the assessee company was to be paid an amount of R.s. 1.225 crores per year starting the installment from 23rd March, 2022. Because of long period of settlement, the assessee has entered into an agreement as per which it was decided that R A Business Solution, Bangalore will pay Rs. 66 lacs to the assessee immediately. Thereafter, there was loss of Rs. 6.69 crores ( Rs. 7.35 cores – 66 lacs) and the assessee claimed this loss as revenue expenditure. However the assessing officer has stated that no income from the joint venture was generated by the assessee and the amount of Rs. 7.35 crores was never passed through the P & L a/c. The assessing officer has held that investment made by the assessee in joint venture is capital contribution of the assessee therefore loss incurred on capital contribution is not a revenue loss. Consequently by treating the same of the nature of capital loss the assessing officer has rejected its claim as revenue loss.
Aggrieved assessee filed appeal before the ld. CIT(A) . The ld. CIT(A) has allowed the appeal of the assessee. Relevant part of the findings of the ld. CIT(A) is reproduced as under:- “4.2(a) I have carefully considered the rival contentions, the case laws cited by the appellant as well as the observation of the A.O. It is clear from the assessment order as well as the submissions made by the appellant during the assessment proceedings and the appellate proceedings that (a) the appellant had ventured into a business transaction with M/s. R.A. Business Solutions, Bangaluru, a proprietory concern of Mrs. Anjali Hemanshu Sanghvi. An agreement was drawn to that effect between the two parties; (b) the appellant paid Rs. 7.35 crores as part performance of this agreement; (c) dispute arose between two parties and this led to the appointment of Hon'ble Mr. Justice S.M. Soni, as an Arbitrator; (d) although the appellant accepted the arbitration award, in order to settle the debts, it accepted Rs. 66 lacs for this purpose and the remaining amount of Rs. 6.69 crores (Rs. 7.35 crores - Rs. 66 lacs) was claimed as a loss under the revenue account; (e) as per the agreement the contribution of Rs. 7.35 crores by the appellant was a contribution to the capital for the new venture and (f) Rs. 7.35 crores was reflected as investments in the balance sheet of the appellant on the assets side. The A.O. himself at para 3.2 of the assessment order has mentioned that "further the investment made in joint venture is capital contribution of the assessee. No income
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from the joint venture was generated by us. Any loss incurred on capital contribution is not a revenue expenditure. It is a capital expenditure. Bad debts of capital expenditure is not an allowable expenditure." The appellant claimed the loss of Rs.6.69 crores on revenue account which has been denied by the A.O. I agree with A.O. to the extent that this loss cannot be on revenue account as the contribution of the appellant in the venture was capital contribution. (b) Vide letter dated 20/2/2015 the appellant had made an alternative claim at para 2.7.2 & 2.7. 3. "2. 7.2 If this is considered as loss attributable to capital asset (Project cost), the loss becomes a "short term capital loss". The loss relating to short term capital asset is to be set off against gains from the long term capital assets and/or gain from any other short term capital asset, in the same assessment year as provided u/s. 70(2) of the Act. 2.7.3 As may be verified from the assessee's ROI, the assessee has shown income under the head capital gains as under :- Short term capital gain Rs. 3,12,800/- Long term capital gain Rs. 8, 86. 18, 401 /- Total Rs. 9, 17,9 1,201 /- Therefore, under the provisions of sec. 70(2) of the Act the aforesaid short term loss of Rs. 669 lakhs becomes eligible to be set off against capital gain of Rs. 9,17,91,201/- in the year under consideration, while computing income in the hands of the assessee." The perusal of the assessment order reflects that the A.O. has stopped at the conclusion that the amount of Rs. 6.69 crores is not allowable as a revenue expenditure as it is on capital account. It appears that, although an alternative claim was made by the appellant before the A.O. as mentioned above and the same was not taken into consideration while finalizing the assessment. The appellant had reflected Rs. 7.35 crores as the investment in the balance sheet. Due to certain disputes, the venture could not take off and the appellant could retrieve Rs. 66 lacs out of Rs. 7.35 crores. Hence, the remaining amount of Rs.6.69 crore will have to be viewed as the loss attributable to the capital asset and taking the character of short term capital loss. As mentioned above at para 2.7.3 and in the computation of income the appellant has reflected the capital gain of Rs.9,17,91,201/-. Under provisions of Sec.70(2) of the Act the short term capital loss can be set off against the income in respect of any other capital asset. The A.O. is directed to adjust the short term capital loss against the capital gain as per section u/s.70(2) of the Act. Accordingly, ground of appeal 2 & 3 are partly allowed". 6. We have heard the rival contentions and perused the material on record carefully. We have heard the rival contentions and perused the material on record carefully. On scrutiny, it was discerned to the assessing officer that the assessee company had entered into joint venture agreement with R.A. Business Solutions of Bangalore and as per the agreement the assessee was supposed to invest Rs. 15 crore and M/s. R.A. Business Solution was supposed to invest Rs. 7.15 crores. The assessee had invested first part of investment of Rs. 7.35 croes on 24-03-2011, however, the other party to the joint venture M/s. R.A. Business Solution had not invested its part of share as agreed upon between
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these parties. The dispute was settled by the award of the arbitrator dated 27- 03-2012 as per which the assessee company was to be paid an amount of Rs. 1.225 crore per year starting the installment from 23-03-2022. The assessee had entered into an agreement with other party M/s. R.A. Business Solution Bangalore as per which the assessee was to be paid Rs. 66 lacs immediately and the balance amount of Rs. 6,69,00000/- was claimed as revenue loss by the assessee for the year under consideration. However, the assessing officer has held that above cited loss is not allowable because capital contribution to Joint venture is not revenue expenditure. The above facts demonstrate that the assessing officer himself has treated the claim of revenue loss of the assessee as capital loss. During the course of appellate proceedings before the ld. CIT(A), the assessee had made alternative claim that loss relating to short term capital asset is to be set off against gains from the long term capital assets and or gain from any other short term capital assets in the same assessment year as provided u/s. 70(2) of the act. Therefore the ld. CIT(A) has held that the short term loss of Rs. 669 lakhs becomes eligible to be set off against capital gain of Rs. 91791201/- in the year under consideration while computing income in the hands of the assessee. We have noticed from the findings of the ld. CIT(A) that this alternative claim was also made before the assessing officer however the same has not been considered by the assessing officer at the time of finalization of the assessment for the year under consideration. It is clear from the findings of the assessing officer and the Ld. CIT(A) that assessing officer has himself treated the revenue loss claim of the assessee as capital loss. After considering the above facts and circumstances, we do not find any infirmity in the decision of the ld. CIT(A) directing the assessing officer to adjust the short term capital loss against the capital gain as per section 70(2) of the act as the Department has treated the claim of revenue loss of the assessee as capital loss. We also do not find any merit in the cross objection filed by the assessee as the assessee itself had made alternative claim to set off loss against capital gain as elaborated in the findings of the ld. CIT(A). Accordingly,
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the appeal of the Revenue and cross objection filed by the assessee are dismissed.
In the result, both the appeal of the revenue and cross objection of the assessee are dismissed.
Order pronounced in the open court on 09-07-2018
Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 09/07/2018 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद