DCIT, CIRCLE-II(I) vs. I.F.C.I. LTD.,,

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C ”: NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

ITA No Assessment Year 2120/Del/2005 2001-02

IFCI LIMITED The Deputy Commissioner of Vs. IFCI Towers Income Tax 61 Nehru Place Circle – 11(1) New Delhi C R Building PAN: AAACT0668G I P Estate New Delhi

(Appellant) (Respondent)

ITA No Assessment Year 2205/Del/2005 2001-2

The Deputy Commissioner of Income IFCI LIMITED Vs. Tax IFCI Towers Circle – 11(1) 61 Nehru Place C R Building New Delhi I P Estate PAN: AAACT0668G New Delhi

(Appellant) (Respondent)

For Assessee Shri saurav Sood Adv Shri Shahsnk Sharma Adv Ms Subhashree Rao Adv For Revenue Shri Samar Bhadra CIT DR Date of Hearing 21-08-2020 Date of pronouncement 31/08/2020

O R D E R Per Prashant Maharishi AM

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ITA No 2120/Del/2005 (By Assessee) & 2205/Del/2005 (By AO) Assessment Year 2001-02 1. These are the cross appeals filed by the assessee and the revenue against the order of the learned Commissioner of income tax (appeals) – XIV, New Delhi dated 23rd of February 2005. 2. The assessee is in appeal before us in ITA number 2120/del/2005 raising following grounds of appeal. “1. That the order of the learned CIT (appeals) is bad in law and wrong on facts. 2. That on the facts and circumstances of the case, the learned CIT (appeals) has erred in holding that the long-term capital loss of ₹ 432,967,174/– claimed by the assessee is not allowable. 3. That on the facts and circumstances of the case, the learned CIT (appeals) has erred in holding that the amount of ₹ 23,997,000/– claimed by the assessee as an expenditure towards raising funds for its business requirement is not allowable. 4. That on the facts and circumstances of the case, the learned CIT (appeals) has erred in holding that the deduction of Rs 5 354460000/– claimed on account of loans and advances return of allowable in the next year and not in the year under consideration. 3. The learned assessing officer has filed ITA number 2205/Del/2005 raising following grounds of appeal:- i. on the facts and in the circumstances of the case and in law, the CIT (A) has erred in ignoring that only return furnished u/s 139 (1) and (not u/s 139 (3)) or in pursuance of a notice issued u/s 142 (1) could be revised u/s 139 (5) of the income tax act 1961. ii. On the facts and in the circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of ₹ 314,822,069/– made by the AO on account of write off of four shares on the ground of double addition ignoring that the said amount was included in the bad debts written off in the

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computation of income aggregating to ₹ 5 510917934/– and that the assessee had further claimed long-term capital loss on the same investment. iii. On the facts and in the circumstances of the case and in law, the CIT (A) has erred in treating the upfront fees/underwriting commission et cetera of ₹ 329,175/– as income of the assessee since the same was in the nature of revenue receipts. iv. On the facts and in the circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of depreciation of ₹ 360,503,983/– on plant and machinery leased various authorities even though the assessee was no more the owner and the lease agreement was in the nature of higher purchase agreement. v. On the facts and in the circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of ₹ 87,226,387/– added back by the AO as redemption premium ignoring that the assessee had adjusted the same against the share premium account in the balance sheet. vi. On the facts and in the circumstances of the case and in law, the CIT (A) has erred in not treating the lease equalization adjustment of ₹ 104,875,733/– as income of the assessee ignoring that the assessee had claimed the said amount is lease equalization amount which was deducted for computing the return of loss and this amount had been treated as income by the assessee but had been stated as mere adjustment and therefore was not an allowable expenditure. By doing so, the CIT (A) also ignored the guidelines issued by ICAI. 4. Brief facts shows that the assessee has filed its return of income on 31/10/2001 declaring a total loss of ₹ 4,477,092,030/– which was revised on 13/3/2003 at ₹ 5,284,958,251. The learned assessing officer noted that the assessee has revised return of loss filed u/s 139 (3) and only return filed u/s 139 (1) can be revised. Therefore according to him the return filed u/s 139 (3) cannot be revised and therefore no cognizance is taken of the revised return filed by the assessee. Therefore the learned assessing officer computed the total income of the assessee taking the original return of income filed at ₹ 447,70,92,030 and determined the total income of the assessee at ₹ 2,202,089,491/– by passing an order u/s 143 (3) of the income tax act on 31st of March 2004. The learned assessing officer has

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made the addition of ₹ 6,679,181,521 to the total income of the assessee which was challenged by the assessee before the learned CIT – A. The learned CIT – A passed an order on 23rd of February 2005 giving a partial relief to the assessee and therefore both the parties are in appeal before us. 5. We first proceed to decide the appeal of the assessee. The ground number one of the appeal is general in nature and therefore it is dismissed. 6. The second ground of appeal is with respect to the disallowance of long-term capital loss of ₹ 432,967,174 claimed by the assessee. The learned assessing officer noted that assessee has claimed a long-term capital loss of Rs. 29,979,979 as per statement of computation of total income on the shares, which were written off as per the board‟s resolution, dated 28 June 2001. At this board meeting decision was taken to write of an amount of RS 314,822,069/– in respect of shares which in the opinion of the management has become irrecoverable or doubtful of recovery so the assessee has computed long-term capital loss of Rs 432,967,174/– and has set off this loss against long-term capital gain on sale of shares of Rs. 402,987,195/– resulting in long-term capital loss of ₹ 29,979,979/–. Write off shares has been made as this had become irrecoverable and since there was no transfer of any capital asset, thus there was no capital loss incurred by the assessee on this write off shares. Thus, set off long-term capital gain against long- term capital loss incurred on write-off of shares is disallowed. The AO further noted that the meeting of the board of directors in which this decision was taken to write of took place on 28th of June 2001 i.e. outside the financial year 2000 – 2001. The AO noted that as the write off does not pertain to the financial year 2000- 2001, as the date of the board meeting of approving audited financial results which were taken on record on that date is 28th & 29/6/2001. Accordingly, he disallowed the amount of ₹ 314,822,069 being the right of shares also along with the long-term capital loss of ₹ 432,967,174. 7. On appeal the learned CIT (A) noted that as it is a fact that there is no transfer of capital asset during the year, as per the definition of „transfer‟ as per Section 2 (47) of the act, there is no question of any capital loss arising to the assessee and therefore he confirmed the action of the learned assessing officer. The assessee challenged the same before us. 8. The learned authorised representative submitted before us as under-

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i. The Appellant submits that it claimed long-term capital loss on account of diminution in value of investment. The Appellant recorded the diminution in value of investment basis the RBI guidelines circular dated 09-11-2000 which mandated the Financial Institutions / banks to not reckon any income on securities if the principal/ interest is in arrears and were required to classify the entire investment portfolio under three categories viz. „Held to Maturity, “Available for Sale‟ and „Held for Trading. The afore-mentioned LTCL was disallowed by the Ld AO and upheld by the CIT(A) on the basis that there was no transfer of capital asset under section 2(47) of the IT Act. However, the Ld AO & CIT(A) erred in law while interpreting the provisions of section 2(47) of the IT Act, as the said section is not only restricted to transfer but the term transfer also includes relinquishment as one of the acts and such relinquishment is vis-à-vis the shares. Applying the analogy to the facts of our case, the Appellant in the instant case had relinquished the value of shares, thus satisfying the provision of section 2(47) of the IT Act. ii. It is submitted that the claim of the Appellant with respect to the long-term capital loss is well-founded in law on account of the following: i. Transfer is defined in an inclusive manner. a. In Kartikey V. Sarabhai v. CIT 288 ITR 163 , the Supreme Court while holding that that reduction of share capital by company paying a part of the capital would result in extinguishment of proportionate right in shares held by shareholder in terms of Section 2(47) of the IT Act, observed as follows: “Section 2(47) of the Income Tax Act defines „transfer‟ in relation to a capital asset. It is an inclusive definition which. inter alia, provides that relinquishment of an asset or extinguishment of any rights therein amounts to a transfer of capital asset. It is not necessary for a capital gain to arise, that there must be a sale of a capital asset. Sale is only one of the modes of transfer as envisaged by Section 2(47) of the Act”.

b. In CIT v. Grace Collis, 248 ITR 323 , the Supreme Court held that extinguishment of rights need not be on account of transfer and can be independent of transfer for the purposes of Section 2(47) of the IT Act. Relevant extract from the judgment is produced below:

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“The definition of transfer in section 2(47) contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. One should not approve the limitation of the expression „extinguishment of any rights therein‟ to such extinguishment on account of transfers, nor can one approve the view that the expression „extinguishment of any rights therein‟ cannot be extended to mean extinguishment of rights independent of or otherwise than on account of transfer. To so read the expression is to render it ineffective and its use meaningless. Therefore, the expression does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer.”

ii. Write-off of investment results in relinquishment of shares in terms of Section 2(47) of the IT Act a. The term „relinquishment‟ has not been defined under the Act. Therefore, reliance is placed on the Supreme Court judgment in CIT v. RasiklalManeklal 177 ITR 198 for the purposes of definition of the term „relinquishment‟. The court defined relinquishment as follows: “A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment.”

b. Webster‟s Comprehensive Dictionary, international Edition, 1984, relied on by the Supreme Court in Anarkali Sarabhai v. CIT, 224 ITR 422 gives the meaning of the word „relinquish‟ as follows: to give up; abandon; surrender, (2) to cease to demand, renounce; to relinquish a claim (3) to let go. It is, therefore, clear that relinquishment of asset need not be on account of transfer to a third party. Relinquishment occurs on the basis of will and decision of the owner of the property. The Appellant wrote off the shares following the guidelines of RBI as the shares became irrecoverable in the opinion of the management. Coming to the facts of the present case, there has been relinquishment of asset inasmuch as the Appellant relinquishes his right in the property as a result of write-off of shares.

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iii. Alternatively, write-off of investment amounts to extinguishment of rights in the shares in terms of Section 2(47) of the IT Act.

a. Reliance is placed on ruling of the Supreme Court in Kartikey Sarabhai (Supra). The Hon‟ble court held that reduction of share capital by company paying a part of the capital would result in extinguishment of proportionate right in the shares held by the shareholder in terms of Section 2(47) of the IT Act. The court observed in Para 10 of the judgement as follows: “While, it is no doubt true that appellant continues to remain a shareholder of the company even with the reduction of a share capital, it is not possible to accept the contention that there has been no extinguishment of any part of his right as a shareholder qua the company.” b. Explanation 2 of Section 2(47) of the IT Act inserted by Finance Act, 2012 with effect from 1-4-1962 expands the scope of „transfer‟ to disposing of or parting with an asset or any interest therein. The term „interest‟ is defined in Black Law‟s Dictionary, Ninth Edition as “1. Object of any human desire; esp., advantage or profit of a financial nature, conflict of interest. 2. A legal share in something; all or part of a legal or equitable claim to or right in property <right, title, and interest>. Collectively, the word includes any aggregation of rights, privileges, powers, and immunities; distributively, it refers to any one right, privilege, power, or immunity.”

In the present case the write-off of investment results in extinguishment of Appellant‟s interest in the shares inasmuch as the value of the shares held as investment eroded and therefore, the shares became non-tradable in the market. As a result, loss was incurred and the same should be allowed as capital loss. By writing-off the investments from books, the appellant has worded the intention to part with interest in investment.

iv. Charge of capital gains will not fail if consideration is nil

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a. The Karnataka High Court of DCIT v BPL Sanyo Finance Ltd, 312 ITR 63 held that the cancellation of allotment of shares leading to forfeiture of share application money on the taxpayer‟s failure to deposit call money resulted into short term capital loss. The court allowed a claim of capital loss even in absence of consideration and the transaction was treated as transfer. b. The Gujarat High Court in the case of CIT Jayakrishna Harivallah Das 231 ITR 108 observed that full value of consideration could be nil. The court observed as follows:

“There is, therefore, no reasons why a shareholder who in distribution of assets has, even if, not received any deemed consideration in satisfaction of his rights and interests in the holding and has thereby suffered a total loss, cannot claim the benefit of setoff or carry forward of losses suffered by him. Otherwise a startling and unjust situation may arise where the receipt of even one paisa would enable him to claim setoff or carry forward losses as worked out under section 4, while a shareholder who is a shade worse off and gets nothing in the event of such total loss should be denied the effect of section 46(2) read with section 71 and 74 of the act and be put to perpetual loss.”

The above-mentioned observation of the court is relevant to the facts of the present case inasmuch as the Appellant would have been allowed to claim setoff or carry forward of loss against capital gain had the appellant been able to sell the shares. However, since the value of the shares eroded, the appellant was not able to sell the shares and hence, the value of assets was taken as nil. This should not deny the appellant the benefit of setting off of capital loss against capital gains. Value or consideration being nil cannot be a ground to deny the benefits to the Appellant.

v. Without prejudice to the above, the loss is allowable as business expenditure under Section 37 of the IT Act. As mentioned above, the Appellant is a financial institution; subscription in shares is one of the ways to provide finance to the companies, which are in need of funds, thus akin to operations of bank. It is, therefore, submitted that loss on Page 8 of 29

write-off of shares which are held by the Appellant, where in case is not allowable as long-term capital loss, can otherwise be allowed as business expenditure u/s 37 of the IT Act. It is important to note that the claim u/s 37 of the IT Act with respect to loss on investment written off was allowed by CIT (A) for the AY 2002-03.

a. Commissioner of Income Tax v. The Karur Vysya Bank Ltd., [2005] 273 ITR 510 (Mad.). In this case, the issue was whether Government securities held by assessee bank is treated as stock in trade and not investment. The Hon‟ble Madras HC held that government securities form part of stock-in-trade of assessee.

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argument of the assessee that appellant recorded the diminution in the value of investment because of the RBI guidelines dated 9/11/2000 which mandated the financial institutions to not to record any income on securities if the principal or interest is in arrears and required to classify the entire investment portfolio under three different categories. We do not agree with the argument of the learned authorised representative that guidelines issued by Reserve Bank of India in this case apply. Those guidelines merely are for not recognizing revenue on non- performing assets. The guidelines do no say that permanent diminution in value of shares is a transfer. Even otherwise, according to those guidelines if the assessee is holding such investment as an inventory/stock in trade, then in such cases the investment is required to be valued according to the RBI guideline. That is not the case here, the case of the assessee is to claim the capital loss without transferring the asset and merely because permanent diminution in the value of the investment is recorded in the books of account, which is not permissible as per the income tax act unless capital assets are transferred. In view of this, we do not find any infirmity in the orders of the lower authorities. In view of this, the ground number two of the appeal of the assessee is dismissed. 11. Ground number 3 of the appeal of the assessee is with respect to the claim of expenditure towards raising of funds for its business requirements, which are held to be not allowable as expenditure by the lower authorities. The fact shows that the assessee has claimed amount of Rs 239,97,000 u/s 35D of the act. AO noted that since the assessee company is a financial institution and is not an industrial undertaking, the company is not eligible for any deduction u/s 35D for the expenses incurred by it. In the earlier years, also the above expenditure was disallowed. As the assessee is not an industrial undertaking the learned assessing officer made the above disallowance. Assessee carried the matter before the learned CIT – A without any success. Therefore, assessee is in appeal before us. 12. The learned authorised representative submitted as under :- “Deduction of expenditure on raising funds for business expenses, (issue of shares) denied to the Appellant (amount involved: Rs. 2,39,97,000/-) i. The Appellant submits that the deduction claimed by it on account of share issue expenses is in respect of the expenses incurred in previous year relevant to AY1994-95 and has been claimed as deduction on proportionate basis

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every year over a period of ten years. The Appellant was a statutory corporation till the year 1993 and subsequently it changed to a company, thus was allowed to issue shares. The deduction of 1/10th of the expenditure incurred on issue of shares has been claimed by the Appellant starting AY 1994-95, as 1/10th in each year from that year onwards and had been allowed to the Appellant accordingly. However, in the instant year, the afore mentioned deduction was denied on the grounds that Appellant is not an „industrial undertaking‟ which is one of the conditions for availing deduction under Section 35D of the IT Act. However, it is to mention that such condition of being an „industrial undertaking‟ was omitted w.e.f 1-4-2009. ii. Basis the above facts and law, it is submitted that the claim of the Appellant is well founded on account of the following:

i. Principle of consistency a. The deduction claimed by the Appellant is a follow up year deduction which has been allowed in all previous years. Although, this issue was agitated by the Ld AO in AY 1998-99, however, the Hon‟ble ITAT vide its order dated 29.6.2007 allowed the deduction of the expenditure. A copy of the said order has been provided at page 34 in the case law compilation submitted on 8-8-2019. The Hon‟ble ITAT had held that since the expenses were incurred in the previous year relevant to AY 1994-95, and allowed in subsequent years, there was no justifiable reason to disallow the same in the subsequent year under consideration by the ITAT. b. In VLS Finance Ltd. v.ACIT, Central Circle 21, New Delhi,[2019] 104 taxmann.com 297 (Delhi - Trib.), the Hon‟ble ITAT, Delhi allowed the deduction of preliminary expenses under Section 35D of the IT Act in order to adhere to the principle of consistency. 7. Further it is submitted that this issue is covered by an order dated 15.10.2010 of a coordinate bench of this tribunal in assesse's own case in, ITA No.306 to 308/De./05 preferred by the assessee and, ITA Nos. 719 to 721/Del/05 preferred by revenue for the A.Y. 1998-99, 1999- 2000 & 2000-01 and after discussing this issue in detail in paras 8.4, 8.5, 8.8 & 8.9 of the said order, the Tribunal decided the issue in favour of the assessee company. Page 11 of 29

ii. The Appellant qualifies as an industrial undertaking a. The Appellant qualifies as an industrial undertaking for purposes of Section 35D and has undertaken an extension of its undertaking. In Commissioner of Income-tax, Chennai v. Ashok Leyland Ltd, [2012] 23 taxmann.com 50 (Madras), it was held that an expansion of activities will qualify as extension of the undertaking. Also in Dhanalakshmi Bank Ltd. v. Commissioner of Income-tax, Cochin, [2019] 102 taxmann.com 442 (Kerala) , the High Court of Kerala while examining the allowability of deduction under Section 35D in the case of the assessee which was a bank, held that the word „industrial undertaking‟ has to be interpreted in an expansive manner and the assessee was eligible to claim the deduction. b. Further, the word „industrial‟ was omitted from the section w.e.f. 1.4.2009. As per Circular No.1 dated 27.2.2009 explaining the amendment since deduction was not being given to asessees in service sector they were facing a disadvantage. However, the words „industrial undertaking‟ or „undertaking‟ are not defined in Section 35D. Other sections of the Act for instance Section 72A or Section 80-IA or 80-IC specify what is an industrial undertaking.

c. As per Section 72A only specified businesses – manufacturing or processing of goods, software, telecommunication services etc. are covered. It is noteworthy that service industry is also included in the definition. Eligible business under Section 80-IA includes infrastructure undertakings and undertaking in Section 80-IC is defined to include eco-tourism and call centres. Thus, the adoption

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of a restricted meaning to the word „industrial‟ cannot be inferred from the Act and ambit of the words ‟undertaking‟ and „industrial undertaking‟ is quite wide. Section 35D was introduced to allow business to claim deduction of certain preliminary expenses which would otherwise not be eligible for deduction since they may be of capital nature. Thus, there is no rationale to restrict the same to manufacturing entities.

iii. A beneficial provision can have retrospective effect if it advances the object of the legislature a. Alternatively, without prejudice to other submissions it is submitted that the amendment deleting the word ‟industrial‟ from Section 35D to cover service sectors would have retrospective effect. b. In H Shiva Rao and Another v.Cecilia Pereira and Others, (1987) 1 Supreme Court Cases 258, the Hon‟ble Apex Court held that even an amendment which affected substantial rights could held to be retrospective if it advances the objective of the legislature. The question before the Court was whether a decree for eviction of tenant granted prior to the entry into force of the relevant Rent Control Act which provided that no order may be passed favouring a landlord as against a tenant. the Apex Court held that the decree which was issued before the relevant statute entered into force would not be executable against the tenant. It held that a beneficial provision can have retrospective effect if it advances the object of the legislature. c. In the case of the Appellant, it is submitted that even if the meaning of word „industrial‟ is read in a narrow manner prior to the amendment by Finance Act 2008, the applicability of the amendment should be held to be retrospective as it would unduly deny benefit of the deduction which would be available to the Appellant on a fair reading. It is further submitted that in the absence of a specific definition either in the provision or in the Act, there is ambiguity and the same may be resolved in favour of the Appellant-assessee.

d. In Commissioner of Income-tax v. Podar Cement (P.) Ltd,[1997] 92 Taxman 541 (SC), the Hon‟ble Apex Court held that the amendments to the definition of owner in Section 27 of the Act inserted w.e.f. from 1.4.1988 were to be read as retrospective. The

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question before the court was whether the amendment introduced Finance Act, 1987 with effect from 1-4-1988 relating to clauses (iii), (iiia) and (iiib) was declaratory/ clarificatory in nature and as such, provisions are retrospective in operation and the income from letting o property as to be assessed as income from house property or income from other sources.The Apex Court opined as follows: 52. From the circumstances narrated above and from the Memorandum explaining the Finance Bill, 1987 (supra), it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word 'owner' in section 22. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1988 was declaratory/clarificatory in nature so far as it relates to section 27(iii), (iiia) and (iiib ). Consequently, these provisions are retrospective in operation.

e. The Appellant humbly submits that its claim for deduction of share issue expenses under Section 35D is legally tenable since it would qualify as an industrial undertaking or alternatively if the term „industrial‟ is to be read in a narrow manner, the amendment may be read as having retrospective operation.

iv. Alternatively, share issue expenses are allowable under Section 37(1) of the IT Act. a. The Appellant is a financial institution engaged in assisting industries in medium- and long-term financial requirements of the industry. Thus, the funds obtained from the public issue were used to part finance the projected demand for financial assistance of Rs. 1735 crore during the financial year 1993-94. These funds therefore are for business operations and not for capital expenditure as the main business of IFCI is of making loans and advances to the industrial concerns. Expenditure incurred in share issue is expenditure incurred wholly and exclusively for the purpose of Appellant‟s business and therefore, is revenue expenditure and should be allowed as such under Section 37(1) of the IT Act. It is submitted that the decision of Brooke Bond India Ltd. v. Commissioner of Income Tax, Page 14 of 29

[1997] 225 ITR 798 is not applicable to the present case since the assessee involved, namely Brooke Bond was not a financial institution. b. In Commissioner of Income-Tax, Chennai v. Kreon Financial Services Ltd., [2013] 358 ITR 542, Madras High Court upheld the CIT(A) allowing share issue expenses under section 37(1) of IT Act. It is to be noted that in this case, the assessee was a financial institution and Commissioner (Appeals) had given categorical findings that nature of expenses are revenue in nature as those expenses were to meet out day to day transactions of business of assessee. c. The case of Kreon Financials (Supra) is discussed in Mascon Technical Services Ltd. v. Commissioner of Income-Tax, [2014] 268 CTR (Madras HC). The court observed as follows: “Learned counsel for the assessee placed reliance on the unreported decision of this Court in the case of CIT v. Kreon Financial Services Ltd., wherein this court had accepted the assessee‟s case that part of the expenses would go for expenses for deduction as revenue expenditure. We have gone through the said decision, to which one of us is a party. We do not find any justifiable ground to extend the benefit of the said case to the facts of the case on hand. In the decided case, the Commissioner had given categorical finding that nature of the expenses were allowed therein as a revenue, as those expenses were to meet out the day to day transactions of the business of the assessee.”

Thus, in light of the above submissions, the Appellant submitted that that deduction claimed under Section 35D of the IT Act in respect of share issue expenses be allowed and the impugned order of Ld. CIT(A) for AY 2001-02 be set aside. Alternatively, the Appellant prays that where in case the share issue expenses are not allowable as deduction under section 35D of the IT Act, it may be allowed as normal business expenditure under section 37(1) of the IT Act.” 13. The learned departmental representative vehemently supported the order of the lower authorities and submitted that in para number 5.3 of the order of the learned CIT – A is a clear-cut finding that the issue of expenditure for its deductibility could have been raised in assessment year 1994 – 1995 and not in this year as those expenditure have been incurred during that year. He therefore submitted that there Page 15 of 29

is no reason that deduction should be allowed to the assessee u/s 37 (1) of the act. With respect to the deduction u/s 35D of the income tax act, he submitted that assessee is a financial institute and not an industrial undertaking. Therefore, deduction under that Section is not allowable. 14. We have carefully considered the rival contention and perused the orders of the lower authorities. The claim of the assessee u/s 37 (1) of the income tax act is not sustainable because there is no expenditure incurred during the year by the assessee. With respect to the claim of the assessee u/s 35D of the income tax act, the fact shows that assessee has issued shares relevant to assessment year 1994- 95 and has been claimed deduction on proportionate basis every year. As per the stand of the assessee, it was a statutory corporation till the year 1993 and subsequently changed to a company and therefore it was allowed to issue the shares. Assessee also could not show that how it satisfies the definition of the „industrial undertaking‟ when it is engaged in the financing/ leasing business. It was also not shown to us that in earlier years this issue was decided conclusively that assessee is an industrial undertaking or not, such order cannot be followed as it is apparent that assessee is not doing any „industrial activity‟ but merely financing and leasing the assets. In terms of the submission of the assessee itself, it is stated that it is governed by reserve Bank of India and is a financial institution; we do not find any merit in the contentions of the assessee that it is also qualifying as an industrial undertaking. In view of this, we dismiss ground number three of the appeal and confirm the orders of the lower authorities denying the deduction of Rs. 2,39,97,000 claimed by the assessee as expenditure towards raising funds for the business requirement. 15. Ground number 4 of the appeal is with respect to the disallowance confirmed by the learned CIT – A of ₹ 5 354460000/– on account of loans and advances written off in the next year and not in the year under consideration. During the course of assessment proceedings, the learned assessing officer noted that Assessee Company has written of ₹ 535.446 crores on 31st of March 2001 from the loan Ledger (including debenture) in respect of certain loans and advances, which includes debentures as per the board meeting held on 28 June 2001. Therefore, learned assessing officer noted that this write off does not belong to the financial year 2000 – 2001 and thus it cannot be taken as expenses during this financial

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year and further as the meeting of the board of directors in which this decision has taken took place on 29th of June 2001, which is outside the financial year 2000 – 2001 and therefore, such write off did not pertain to the financial year 2000 – 2001 and hence disallowance was made. The assessee carried the matter before the learned CIT – A. As per para number 11.3 of the order, the learned CIT – A noted that assessee has not disputed the fact that the decision to write of the debt was taken by the management in the board meeting held on 29th of June 2001 and only after the board meeting debt could have been written off. As the board meeting has taken place in the next financial year, he confirmed the action of the learned assessing officer. 16. Learned authorised representative submitted that deduction on account of loans and advances written off is well founded in law and cannot be denied on the ground that the decision to write-off the same was taken by the board vide resolution passed after the end of financial year. For the same, the reliance is placed on the following decisions: a. The Allahabad HC in the case of Commissioner of Income Tax-1 v. M/s U.P/ RajkiyaNirma Nigam Ltd. [2013] 217 Taxman 367 (Allahabad HC) upheld the claim of assessee wherein bad debts were claimed in the AY 2004-05 whereas the decision to write-off bad debt, physically and actually was not taken in the relevant previous year. The High Court held as follows: “In the instant appeal, neither the department nor the assessee disputes that the debt had become bad and it was written off. The prescription in Section 36(1)(vii) is provided to write off bad debt by the assessee in the accounts „for the previous year‟, but it does not say to write off bad debt „in the previous year‟. Thus, there is a vast difference if the word „in‟ would have been there in place of „for‟. Further, the words „accounts of the assessee‟ are qualified with further words „for the previous year‟. Thus, it only means that the accounts in which the act of writing off is to be done by the assessee should be for the previous year. Therefore, the law requires to write off the bad debt in the accounts of the assessee in the relevant accounting year. There is neither any condition nor any provision that the writing off should be done in the previous year, i.e. before end of financial year”. (Emphasis Supplied) A SLP was filed by the department against the above-mentioned judgement and the said SLP was dismissed by the Supreme Court. Thus, the ratio of the above-mentioned is applicable to the case of the Appellant.

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b. In Jindal Iron and Steel Company limited v. Deputy Commissioner of Income Tax, [2013] 21 ITR (T) 414 (Mumbai-Tribunal), Assessee company had invested in optionally convertible debentures (OCDs) of some companies. Since, those companies were not able to pay interest, assessee under a restructuring proposal waived outstanding interest and same was claimed as bad debts. The Mumbai Tribunal allowed the claim of the bad debts even when the decision for such write-off was taken in the Board Resolution in the next financial year and observed as follows after relying on the decision of CIT v. United Bank of India, 115 CTR 35 (1993) :- “The Calcutta High Court also in the case of Union Bank of India (supra), has held that the resolution approving and accepting the recommendation relating to the treatment of certain items must relate back to the date upto which the accounts are finalised and such determination or approval must be treated as being effective from that date. By being retrospective effect, the nature and character of the entries have not been changed. From the proposition laid down by the aforesaid decisions, we hold that even the board resolution was passed in May 2002, with regard to the approval of writing-off the amount as irrecoverable in the accounts, it will relate back to that previous year in which it is being treated as irrecoverable and written off in the accounts of the assessee. There is no such condition in the said clause i.e., clause (vii) of sub-section (1) of section 36 that the decision for treating debt as bad or irrecoverable should be taken in the previous year itself. If the books of account are not closed and completed, it is permissible to make adjustments before being finally adopted. Thus, we do not find any merit in such a conclusion drawn by the learned Commissioner (Appeals).” (Emphasis Supplied)

Thus, in the light of the above submissions, the Appellant submits that deduction on account of loans and advances written-off should be allowed in the AY 2001-02 as the write-off of loans and advances pertained to AY 2001- 02. The fact that the decision to write-off the same is taken after the end of financial year is inconsequential. 17. The learned departmental representative relied upon the orders of the lower authorities. 18. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, assessee has written off the above loans,

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advances for the year ended on 31st of March 2001, the accounting entries have also been passed for that year writing off the above loans, and advances as bad. There is no dispute that the loans and advances were bad, they have been written off in the books of accounts and assessee being a company engaged in the business of advancing loans and advances to the borrowers is entitled to the deduction of the above sum in the year in which it is written off. Merely because the board resolution approving the entries of writing of the advances are approved in the board meeting held subsequent to the close of the year cannot come into way of allowing the deduction to the assessee. Further, the resolution stated by the learned assessing officer is merely for the consideration and approval of the balance sheet and profit and loss account for the year ended on 31st of March 2001 and to take on record audited financial results. Therefore prior to that board meeting, the accounts are made up, the provisions are made, such loans and advances written off in the books of account and then it is presented before the board for its approval. Therefore we do not find any merit in the orders of the lower authorities, reverse them and direct the assessing officer to allow the claim of deduction of writing of the bad debts on account of loans and advances amounting to Rs 5 354460000/– during the year. In view of this, ground number four of the appeal of the assessee is allowed. 19. In the result ITA number 2120/Del/2005 filed by the assessee is partly allowed. 20. Now we come to the appeal of the learned AO. 21. The first ground of appeal is with respect to the decision of the learned CIT – A wherein he held that loss return filed u/s 139 (5) is a valid return and takes the place of return filed u/s 139 (3) of the act. The brief facts of the case show that assessee has filed return of income on 31st of October 2001 declaring loss of ₹ 4,477,092,030. It was revised on 13th of March 2003 and the loss was increased to 528,49,58,249/-. According to the assessing officer only a return filed u/s 139 (1) of the income tax act can be revised and return filed u/s 139 (3) of the act cannot be revised. The learned CIT – A relying on the decision of Honourable madras High Court in case of Commissioner of income tax versus Periyar District cooperative Milk producers union Ltd (266 ITR 705) considered the revised return of the assessee. Therefore, revenue aggrieved with that order is in appeal before us.

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Sujani Textiles (P.) Ltd. v. ACIT [2004] 88 ITD 317 (Madras) 7. We heard both sides in detail. An assessee is eligible to claim the benefit of carry forward of unabsorbed business loss on condition that a return of loss is filed under section 139(3). This condition is laid down in section 80 of the Income-tax Act. Section 139(3) enables an assessee to file a loss return. Once a return is filed under section 139(3), for the procedure of assessment, the said assessment is deemed as a return filed under section 139(1). Once a return filed under section 139(3) is treated as a return under sub-section (1), the assessee gets the benefit of filing a revised return under sub-section (5). The revised return is to be filed within the time provided for it. Therefore, it is permissible to read sub-section (3) along with sub-section (5) of section 139. When read so, it is to be seen that it is permissible to file even a revised return. Whether the revised return is a loss return or an income return, it has to be filed within the time provided.Once a revised return is filed under sub-section (5), it replaces the return earlier filed by the assessee. If the assessee has filed a return under sub-section (1), filing of the revised return under sub- section (5) replaces the original return filed under sub-section (1). Likewise, if the assessee has filed the loss return under sub-section (3), and when a revised loss return is filed under sub-section (5), the revised loss return replaces the original loss return filed under sub- section (3). Therefore it is not proper to presume that there is no provision for filing a revised loss return. The only point to be looked into is whether the revised loss return was filed within the time provided under sub-section (5) of section 139. By filing a revised loss return under sub-section (5), the factom of filing a loss return under sub-section (3) is not lost, but what happens is the revised return replaces the original return. That procedural process provided under section 139 does not in any way affects section 80 or vice versa. The equation between section 139(3) and section 80 is independent. Section 80 provides that the loss determined by an Assessing Officer in pursuance of the loss return filed under section 139(3) shall be carried forward for the succeeding assessment years. The operation of section 80 ends there. The inter se relation between sub-sections (1), (3) and (5) of section 139 does not have an equation or inter-linkage with section 80 of the Income-tax Act. Therefore, if the assessee has filed a loss return under sub-section (3) of section 139 within the period provided under the Act, and if the assessee has filed a revised loss return under sub-section (5) thereof, again within the prescribed time limit, the Assessing Officer is bound to take cognizance of the revised return, because the original return is replaced by the revised return. (emphasis supplied) Page 21 of 29

EscortsMahle Ltd. v. DCIT [2009] 119 ITD 119 (DEL-Trib.) “5. That takes us to the original question whether the return filed on 27-3-2003 is to be treated as a valid revised return under section 139(5) . The earlier return filed on 31-10-2001 not having been considered as invalid return as can be seen from the fact that the Assessing Officer processed the same under section 143(1) and also did not issue any defect notice as required by section 139(9), we are of the view that the return filed on 27-3-2003 is a valid revised return. The revised return takes the place of the original return and the original return having been admittedly filed within the time allowed under section 139(1) , the loss will have to be carried forward. The return filed on 31-10- 2001 is a return of loss filed in accordance with section 139(3) and can be validly revised under section 139(5) as held by the judgment of the Madras High Court cited supra. Thus whichever way the matter is looked at, the loss claimed in the return filed on 27-3-2003 is to be carried forward to the subsequent years. The order of the CIT (Appeals) on this point is upheld and the ground is dismissed.” (Emphasis supplied)

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judgment dated February 23, 2004, of the above decision observing that that they saw "no reason to interfere" : CIT v. PERIYAR DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD. : S. L. P. (C.) No. 13472 of 2004. In view of this, we do not find any merit in the first ground of the appeal. Hence, it is dismissed. The second ground of appeal is against the deletion of the disallowance of ₹ 25. 31,48,22,0 69/– on account of write off of shares of the ground of double addition ignoring that the said amount was already included in the bad debts written off in the computation of the total income aggregating to ₹ 5,510,917,934/–. The fact shows that as per the board resolution dated 29 September 2001 the shares valuing ₹ 314,822,069 was written off on the basis of the opinion of the management that it had become irrecoverable and is doubtful of recovery. The issue is whether it is a double addition made by the learned assessing officer or not. The fact shows that investment of ₹ 31 4822069/- was written off f during the year and indexed cost of acquisition of the shares were ₹ 432,967,175 which has been claimed as a loss. The above loss has been disallowed by the learned assessing officer. ₹ 43 2967 175/– was the indexed cost of the original cost of ₹ 314,822,069/–. Therefore, apparently there is a double addition, which CIT appeal has deleted. The learned authorised representative and the learned department departmental representative also agreed on this issue. In view of this ground number 2 of the appeal is dismissed. 26. Ground number 3 is against the deletion of addition of ₹ 329,175/- on account of the upfront fees and underwriting commission as income of the assessee since the same was in the nature of the revenue receipt. The learned CIT appeal noted that the upfront fees and underwriting commission etc. are in the nature of revenue receipt and required to be assessed as income of the assessee. During the course of appellate proceedings, it was found that the above sum has been received by the assessee towards the direct subscription of debentures and incentive for making direct subscription in equity shares, which have been reduced from the cost of the equity shares as it, is related to this investment in those shares. The learned CIT – A also noted that the issue is squarely covered in favour of the assessee by the decision of the honourable Allahabad e High Court in case of UPSIDC versus Commissioner of income tax 130 ITR 835 as well as in the appellant‟s own case for assessment year 1979 – 80. Therefore, it was deleted. Page 23 of 29

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d. In M/s Apollo Tyres Ltd 2019 (4) TMI 370 Kerala HC, deduction in respect of premium on redemption of debentures was allowed to be spread over the period of maturity. Thus, the claim of the Appellant as regards proportionate deduction of premium on redemption of debentures is well founded in law since the expenditure is revenue in nature and should be spread over the period till maturity. 33. We have carefully considered the rival contention and perused the orders of the lower authorities. It was found that when the assessee has acquired the securities at a premium, such premium paid on this instrument was claimed as deduction over the useful life/tenure of such securities. The above claim of the assessee has been allowed by the learned CIT – A based on the decision of the honourable Supreme Court in case of Madras industrial investment Corp Ltd (supra) where the identical claim was allowed. The learned departmental representative could not show us that why the above securities premium should not be allowed to the assessee as deduction over a tenure of such securities. In view of this we do not find any infirmity in the order of the learned CIT – A and ground number 5 of the appeal of the learned assessing officer is dismissed. 34. The last sixth ground of appeal is against the order of the learned CIT – A who directed the learned AO to not to treat the lease equalization adjustment of ₹ 104,875,733 as income of the assessee. During the assessment year 2001 – 02, the assessee had changed accounting policy with respect to recognition of income on lease transactions in accordance with the Guidance Note on Accounting for Releases issued by the Institute Of Chartered Accountants Of India. The assessee followed this guidance note and according to that, profit and loss account has to reflect lease income calculated based on interest rate implicit, irrespective of the actual amount of lease rentals as per the agreement. The guidance provided that the difference between the lease rentals and the minimum finance income so arrived plus amount of depreciation has to be reflected by way of a lease equalization account. According to this, assessee has made claim for deduction of the lease equalization charges in the computation of the return of income. The learned assessing officer disallowed the same whereas the learned CIT – A allowed the deduction stating that the above amount has already been taxed in earlier years and cannot be taxed again. Therefore, this issue is challenged by the AO. Page 26 of 29

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