TATA MOTERS LIMITED (FORMERLY KNOWN AS TATA ENGINEERING & LOCOMOTIVE COMPANY LTD.),MUMBAI vs. DY. CIT, CIR..-2(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “E”, BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH, JM ITA No.3333/Mum/2011 (Assessment Year :2003-04) M/s. Tata Motors Limited Vs. Dy. Commissioner of (Formerly known as Tata Income Tax-2(1), Engineering & Locomotive Aayakar Bhavan Company Limited M.K. Marg, Mumbai – 400 Bombay House, 24 020 Homi Mody Street Hutatma Chowk Mumbai – 400 001 PAN/GIR No.AAACT2727Q (Appellant) .. (Respondent) ITA No.4823/Mum/2011 (Assessment Year :2003-04) Dy. Commissioner of Vs. M/s. Tata Motors Limited Income Tax-2(1), (Formerly known as Tata Aayakar Bhavan Engineering & Locomotive M.K. Marg, Mumbai – Company Limited 400 020 Bombay House, 24 Homi Mody Street Hutatma Chowk Mumbai – 400 001 PAN/GIR No.AAACT2727Q (Appellant) .. (Respondent)

Assessee by Shri J.D. Mistri & Shri Nikhil Tiwari Revenue by Shri R. Manjunatha Swamy Date of Hearing 23/04/2019 Date of Pronouncement 17/07/2019

2 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited आदेश / O R D E R PER M. BALAGANESH (A.M): These cross appeals in ITA Nos.3333/Mum/2011 & 4823/Mum/2011 for A.Y. 2003-04 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-6, Mumbai in appeal No.CIT(A)XXX/IT-56/Rg.2(3)/08-09 dated 08/03/2011 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/01/2016 by the ld. DCIT, Circle-2(1), Mumbai (hereinafter referred to as ld. AO).

Let us take up the assessee appeal in ITA No.3333/Mum/2011.

3 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited 2.2. The ld. AO held that as per Circular No.674 dated 29/12/1993, the deduction was admissible for the sales tax dues provided, the sales tax liability was converted into loan in the previous year in which the conversion had been permitted by the Government. During the year, the sales tax collected amount in the sum of Rs.6,33,96,597/- was not converted into loan. Accordingly, the ld. AO disallowed the amount u/s.43B of the Act stating that the said amount could not be treated as paid during the year. This action of the ld. AO was upheld by the ld. CIT(A). 2.3. Aggrieved, the assessee is in appeal before us. 2.4. We have heard rival submissions. The ld. AR categorically stated that he would not be pressing his ground effectively in as much as the deduction was granted to the assessee for the very same sum in the subsequent year. He also requested that no penalty should be levied on the same. We find that disallowance was made by the lower authorities on the ground that agreement for conversion of sales tax deferral amount into loan was signed by the assessee subsequent to the due date of filing of return of income for the A.Y.2003-04. Hence, even according to the revenue, the deduction would be permissible to the assessee in A.Y.2004- 05. What is before us is only the quantum issue and not the penalty and adjudication of penalty on the aforesaid disallowance at this stage by this tribunal would be premature. Hence, we refrain to give our opinion on the aspect of penalty which might arise on account of this disallowance.

4 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited Accordingly, the ground No.1 raised by the assessee is dismissed as not pressed.

3.1. Revenue has raised ground No.3 in this regard as under:- “On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding the loss on sale of items as capital loss whereas the assessee company following the project completion method of accounting and loss should have been capitalized in the work in progress making the AO’s action relevant.”

3.2. The brief facts of this issue are that the ld. AO observed that in the computation of income, the assessee has reduced a sum of Rs.3,26,29,707/- on account of loss on sale of items held in capital work in progress. As per Note No.14 to the return of income, the assessee has stated that during the F.Y.2001-02 relevant to the A.Y.2002-03 (immediately preceding A.Y), certain items lying in capital work in

5 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited progress of Rs.6,46,81,880/- were adjusted against Securities Premium Account as per the provisions of Section 78 r.w.s.100 of the Companies Act, 1956. These items have been sold during the previous year for a sum of Rs.3,20,52,173/-. Sale proceeds of those items were credited to Securities Premium Account and consequent loss of Rs.3,26,29,707/- was claimed as revenue expenditure by the assessee. The assessee explained before the ld. AO that in the earlier years, the assessee had constructed and fabricated certain steel columns and steel structures which were not attributable with any particular project and hence the same were treated by the assessee as capital work in progress to the tune of Rs.6,46,81,880/- which were debited to the Securities Premium Account without routing the same through profit and loss account. Since these items were sold for a lesser sum which resulted in a loss of Rs.3,26,29,707/-, there is no point in retaining the loss in Securities Premium Account and accordingly, the same were claimed as deduction by the assessee as business loss. The assessee pleaded that these items were meant for the purpose of business of the assessee only and loss arising thereon would become incidental business loss to the assessee and thereby eligible for deduction. The ld. AO however, disregarded these contentions on the ground that assessee was not able to point out as to for what projects these items were purchased / installed vis-à-vis the business nexus thereon. The assessee is following work completion method for certain projects according to which the work in progress at

6 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited the end of the year was shown as asset and the receipts, if any, on that account is shown as liability till the work is substantially completed. The project is not identifiable as well as in the earlier years and assessee has not carried this work in progress in the profit and loss account. In view of these facts, the ld. AO held that the project is not incidental to the assessee’s business. Accordingly, he disallowed the sum of Rs.3,26,29,707/- in the assessment. 3.3. Before the ld. CIT(A), the assessee reiterated the submissions made before the lower authorities and also made an alternative plea that if the present losses were to be treated as losses incurred on capital amount then, it should be allowed as capital loss u/s.45 of the Act, siince on these items, no depreciation was ever claimed by the assessee. The ld. CIT(A) upheld the contentions of the ld. AO, but however, found merit in the alternative submissions made by the assessee before him and directed the ld. AO to treat the said loss as capital loss u/s.45 of the Act. 3.4. Aggrieved, both assessee as well as revenue is in appeal before us. 3.5. We have heard rival submissions. At the outset, the ld. AR pointed out that these expenses incurred towards steel structures and steel fabrications were not incurred for a new project as such. Moreover, the assessee is not following project completion method. It is not known from where the ld. AO had material to come to this conclusion. These expenditures were incurred for an ongoing project which was kept in capital work in progress. We find that the reliance placed by the ld. AR on

7 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited the Co-ordinate Bench decision of this Tribunal in the case of Idea Cellular Ltd., vs. Additional Commissioner of Income Tax reported in 47 Taxman.com 341 dated 13/05/2014 is well founded and consequently applicable to the facts of the instant case. The facts in that case before the Co-ordinate Bench of Mumbai Tribunal and the decision rendered thereon are as under:-

“2. Ground No. 1 is regarding disallowance of expenditure on abondoned project. 2.1 During the course of assessment proceedings, the AO noted that the assessee has incurred expenses on abondoned project to the tune of Rs. 3,94,75,619/-. On query from the AO, the assessee submitted that the assessee was required to put up cellsites for enabling its business. In certain cases the assessee had incurred expenses for putting up cellsites but this could not be completed and were abondoned. The assessee claimed that the expenses were incurred for the purpose of its business and, therefore, is allowable as business expenditure. The AO disallowed the claim of the assessee on the ground that the expenditure has been spent by the assessee on sites to bring into existence the new asset and new source of income. Accordingly the AO held that the loss incurred due to abondonment of project, is capital in nature and accordingly disallowed the deduction claimed by the assessee. 2.2 On appeal, the CIT(A) has concurred with the view of the AO and held that the expenses incurred on cell sites were definitely capital expenses, when such a project is abondoned, the entire expenditure incurred is a capital loss.. 2.3 Before us, Shri J.D. Mistri, Ld. Senior Counsel for assessee submitted that the expenditure in question has been incurred for setting up/construction of cell towers which were abondoned due to unavoidable circumstances/reasons as it was not found if and suitable in the area of operation, therefore, the expenditure was incurred for the purpose of existing business of the assessee and not intended for any new business. Since the towers could not be brought into existence, therefore, the expenditure on the abondoned project is allowable business expenditure. In support of his contention, the Ld. Senior Counsel has referred the various decisions, however reliance is placed on the decision of Hon'ble

8 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited Jharkhand High Court in the case of CIT Vs. Tata Robins Fraser Ltd. ( (211 Taxman 257). The Ld. Senior Counsel has submitted that the Hon'ble High Court has held that the pre-operational expenses on an abondoned project can be treated as revenue expenditure and not capital expenditure. He has stressed the point that in the case of the assessee the project of construction of tower were abondoned due to the reasons that the sites were not found suitable, therefore, the decision in the case of Tata Robins Fraser Ltd. is squarely applicable in the facts of the assessee's case. 2.4 On the other hand, the Ld. DR has submitted that the expenditure has been incurred not only on suvey of the sites but also for the development of the sites as well as feasibility report, therefore, the expenditure of such nature is in the capital field and loss due to the abandonment of the project would certainly be a capital loss and not revenue loss. He has relied uon the orders of authorities below and reiterated that the entire expenditure has been incurred for the purpose of brining into existence new asset and new source of income. Therefore, the expenditure of such nature is not allowable as revenue expenditure. 2.5 We have considered the rival submissions as well as relevant material on record. There is no dispute that the expenditure in question was incurred by the assessee for the purpose of construction/erection of cellular towers which were abondoned due to the reason that the same were not found suitable. The authorities below have disallowed the claim of the assessee on two reasons viz. (i) the expenditure has been incurred for bringing up a capital asset into existence.(ii) the capital asset being cellular sites/towers would be the new source of income. As far as the cellular towers being new source of income is concerned, we find, that the towers were being erected for the purpose of assessee's own business of providing cellular services to its customers. Therefore, the tower is only a mean through which the assessee is able to provide cellular services and it is not an independent source of income It is only to facilitate the assessee to manage and run the business of providing cellular services in a more efficient, convenient and profitable manner. Therefore, when the towers are not exclusively meant for leasing out to third parties for earning the revenue but used for transmission of telephone signals of assessee's own cellular services then it cannot be said that the towers which are used for the assessee's own business are new source of income. A cellular tower can be a new independent source of income if it is erected exclusively for leasing out to the other operators. Since this project of erecting towers is undisputedly abondoned by the assessee, therefore, there is no question of any new asset came into existence. The expenditure no doubt has been incurred wholly and exclusively for the purpose of assessee's business. Therefore, to examine the allowability of such expenditure u/s 37(1), the only requirement which has to be seen is that the expenditure is of revenue

9 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited nature and not capital nature. There are series of decisions wherein the Hon'ble High Courts and Hon'ble Supreme Court has laid down the principle that if an expenditure is incurred for doing the business in a more convenient and profitable manner and has not resulted in brining any new asset into existence then such expenditure is allowable business expenditure. It is also pertinent to note that in the case in hand the expenditure has been incurred only in respect of the existing business and not for setting up of a new business or line of business. An identical issue has been considered by the Hon'ble High Court of Jharkhand in the case of CIT Vs.Tata Robins Fraser Ltd Vs. (supra), and held in para 12 to 16 as under:- "12. So far as issue relating to the lease of the articles are concerned, that has been answered in Tax Appeal Nos. 3 of 2000, 4 of 2000, 5 of 2000, 6 of 2000 and 8 of 2000. In Tax Appeal No. 7 of 2000, one more issue is involved and that is relating to the claim of the assessee of spending an expenditure to the tune of Rs. 3,16,490. It has been on the ground that the assessee though had one project in contemplation, but that was not completed and the project was abandoned, therefore, it is an abortive expenditure. The expenditure incurred by the assessee is as under :- 1. Architectural fee in respect of abandoned project Rs.2,57,335/- 2. Old capital work in progress abandoned Rs. 46,379/- 3. Cost of damaged cabinets Rs. 12,776/- 13. The company's contention was that the company had entrusted the study and design, detail working and drawings of a multi-storied (12 storied) building to a party names Acme Compartments Pvt. Ltd., Calcutta. After the preliminary work was undertaken, the project was to be abandoned due to adverse soil and other adverse conditions at the proposed site. The assessee company had to incur some expenditure on preliminary work. It was said that all designs, drawings etc. became useless and that was why the expenditure was written off. After narrating the detail facts in respect of the above expenditure, it has been claimed that it may be treated to be abortive expenditure. The Assessing Officer rejected the claim of the assessee as misconceived on the ground that it is a case of capital expenditure. The C.I.T.(Appeals) also upheld the said finding but the Tribunal has reversed the finding. 14. In the case of Indo Rama Synthetics (I) Ltd. v.CIT [2009] 185 Taxman 277 (Delhi) it has been held that if expenditure has been incurred for setting up a new unit which was subsequently abandoned, then the aforesaid expenditure will be treated as revenue in nature as no new industrial asset came in existence. 15. The Tribunal has relied upon the judgement of the Calcutta High Court delivered in the case of CIT v . Graphite India Ltd. [1996] 221

10 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited ITR 420 and decision of the Hon'ble Supreme Court in the case of Jonas Woodhead & Sons (India) Ltd. v. CIT [1997] 224 ITR 342/ 91 Taxman 1 and Allembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377/ 43 Taxman 312 (SC) and held that in view of the ratio of above judgements, if the expenditure is incurred for acquisition of an asset which gives or renders enduring benefit to the assessee, naturally it is to be considered as capital expenditure otherwise revenue expenditure. 16. Substantially this is also a question of fact where an expenditure incurred by the assessee was of the revenue in nature or it was a capital expenditure. However, in view of the fact that question has been framed and we have narrated the facts of the case including the break-up of the expenditure which includes the fee of Rs. 2,57,335/- paid to the Architect and some expenses of Rs. 46,379/- incurred on old capital work in progress which was abandoned and cost of damaged cabinets and that too, amounting to Rs. 12,776/-, total expenditure including all three of the heads is Rs. 3,16,490/-. It is not in dispute that the project could not be accomplished because of the reason that the place where it was to be undertaken had a poor quality of soil and all the construction already damaged. The other articles bought by the assessee also got damaged and, therefore, in that fact situation, the Tribunal was fully justified in holding that such expenditure which may be pre-operational expenditure for a project can be treated to be a revenue expenditure actually and not a capital expenditure." 2.6 Since the expenditure has been incurred for the project which could not be accomplished and it was intended to facilitate the assessee's business activity to be carried out more conveniently and profitably, therefore, the said expenditure is an allowable revenue expenditure. Hence by following the decision of Hon'ble High Court of Jharkhand in the case of CIT Vs. Tata Robins Fraser Ltd. (supra), we set aside the order of authorities below qua this issue and allow the claim of the assessee.” 3.6. We find that this decision of this Tribunal was also approved by the Hon’ble Jurisdictional High Court in the case of CIT vs. Idea Cellular Ltd., reported in 76 taxmann.com 77 wherein it was held as under: “9. We have carefully perused the memo of the appeal. We have also perused the order of the assessing officer and that of the first appellate authority. Mr. Malhotra has elaborately taken us through these orders to submit that the assessing officer found from the record itself and particularly from a document, namely, a letter or response from the assessee that the purpose of the expenditure cannot be said to be other than bringing up a capital asset into existence. The fact that later on the site was

11 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited not chosen for hoisting the tower is immaterial. However, we find that the tribunal applied the correct test. The tribunal found that there is no dispute that the expenditure in question was incurred for the purpose of construction of a cellular tower, but the project was then abandoned due to the reason that the site was not suitable. The reasons assigned by the assessing officer and the first appellate authority are unsustainable, according to the tribunal for the simple reason that cellular towers were being erected for the purpose of assessee's own business of providing cellular services to the customers. The towers are meant for the business of providing cellular services. It is by utilising these towers that such services are provided. It is not an independent source of income. It is only to make the cellular services provided more efficient, convenient and profitable. When the towers are not exclusively meant for leasing out to third parties for earning the revenue, but used for transmission of telephone signals of assessee's own cellular services, then, it cannot be said that the towers, which are used for the assessee's own business, are new source of income. A cellular tower can be a new independent source of income, if it is erected exclusively for leasing out to the other operators. However, on facts, this was not the position and the tribunal, therefore, rightly concluded that in series of decisions, the High Courts and the Hon'ble Supreme Court of India has laid down the principle that if an expenditure is incurred for doing the business in a more convenient and profitable manner and has not resulted in bringing any new asset into existence, then, such expenditure is allowable business expenditure. In the present case, no new business was set up, but towers in addition to which were already set up were proposed at site, which project was later on abandoned. 10. We do not find that the tribunal has committed any perversity or applied incorrect principles to the given facts and circumstances. When the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that questions (a) and (b), as pressed, are substantial questions of law. The appeal is devoid of merits and it is dismissed. There would be no order as to costs.” 3.7. Respectfully following the aforesaid decision, we hold that the losses incurred by the assessee in the sum of Rs.3,26,29,707/- has to be treated as incidental business loss and hence to be allowed as revenue expenditure to the assessee for the A.Y.2003-04. Accordingly, the ground No.2 raised by the assessee is allowed and ground No.3 raised by the revenue is dismissed.

12 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited 4. The ground No.3 raised by the assessee is challenging the action of the ld. CIT(A) in making enhancement to book profit computation u/s.115JB in respect of following items:- a) Provision of deferred tax b) Provision for diminution in value of investments c) Provision for bad and doubtful debts 4.1 We have heard rival submissions. We find that the ld. CIT(A) during the course of appellate proceedings show-caused the assessee vide order sheet noting dated 07/03/2011 wherein he proposed to enhance the book profit computed u/s.115JB by making the aforesaid three disallowances. In response to the said show-cause notice, the assessee vide letter dated 08/03/2011 gave a reply before the ld. CIT(A) that the said items cannot be the subject matter of enhancement in view of re-assessment order already framed for this A.Y.2003-04 u/s.143(3) r.w.s. 147 of the Act on 31/12/2007, wherein the very same items were duly added back by the ld. AO in the computation of book profits u/s.115JB of the Act. It was submitted by the ld. Counsel for the assessee that the said reply was refused to be taken on record by the ld. CIT(A), but however, it was informed by the ld. CIT(A) to the assessee’s representative that the objections would be considered by the ld. CIT(A) in his order. It is a fact that the ld. CIT(A) had indeed considered the objections of the assessee in para 15.1 of his order. Now, the short point that arises for our consideration is as to whether the ld. CIT(A) could have validly invoked

13 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited his enhancement powers vested in terms of Section 251(1)(a) of the Act in the facts and circumstances of the case. In this regard, the list of dates and gists would be relevant to understand the entire facts in totality. SEQUENCE OF EVENTS Sr No. Date Particulars 1 30 October 2003 Filing of Return of Income 2 31 January 2006 Assessment Order under section 143(3) 3 13 April 2006 Filing of appeal before CIT(A) against 143(3) Order 4 29 May 2006 Issue of Notice under section 148 5 31 December 2007 Assessment Order under section 147 read with143(3)

6 1 February 2008 Filing of appeal before CIT(A) against 147 order 7 8 March 2011 CIT(A) order against AO's 143(3) order 8 10 March 2011 CIT(A) order against AO's 147 order 9 27 April 2011 Assessee filed appeal before Tribunal against 143(3) order 10 27 April 2011 Assessee filed appeal before Tribunal against 147 order 11 16 June 2011 Department filed appeal before Tribunal against 143(3) Order 12 16 June 2011 Department filed appeal before Tribunal against 147 Order

4.2. From the aforesaid sequence of events it could be noticed that the ld. AO in the order passed u/s.143(3) r.w.s. 147 of the Act dated 31/12/2007 had already made additions to book profits by considering the aforesaid three items. While this is so, there is no scope left with the ld. CIT(A) to enhance the very same items in the appellate proceedings pending before him against the order passed u/s.143(3) of the Act. It

14 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited could be seen that the interest of the revenue is well protected by the action of the ld. AO resorting to make the adjustments in the computation of book profits with regard to aforesaid three items in re-assessment order framed on 31/12/2007. Hence, we hold that there is no need for the ld. CIT(A) to have utilized his enhancement powers to do the very same additions in the appellate order against the ld AO’s order u/s 143(3) of the Act. In this regard, we also find that with regard to provision for deferred tax, vis-à-vis the computation of book profits u/s.115JB of the Act, the ld. AO in the original scrutiny assessment proceedings u/s.143(3) had indeed called for a detailed note and assessee vide its letter dated 25/11/2005 had filed a detailed note thereon which are enclosed in pages 70 & 71 of the paper book. The ld. AO on due appreciation of the said note came to conscious conclusion that the same need not be added to the book profits u/s.115JB of the Act. In this scenario, can this be a subject matter of enhancement by the ld. CIT(A) is to be looked into. In this regard, the ld. AR placed reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Rai Bahadur Hardutray Motilal Chamaria reported in 66 ITR 443 (SC) wherein the facts of the issue before the Hon’ble Supreme Court and the decision rendered thereon are as under:-

“2. The respondent (hereinafter called the assessee) is an individual carrying on business in Jute, Cloth and Films, The assessment year is 1952-53, the corresponding accounting year being the, calendar year 1951 for all business except Katihar Cloth Importing Co. and the Jute Mills for which the accounting year is financial year ending March 31, 1952. During the year of account the assessee claimed

15 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited that he had borrowed three sums of Rs. 2,50,000, 1,50,000 and Rs. 30,000 from three parties from ,Nepal, Khara- Bahadur Nepali, Jiwanmal Santockchand and Sohanlal Subhkaran respectively. The Income-tax Officer added these amounts to the total income of the assessee on the ground that the assessee had inflated the purchase of raw jute. The Income-tax Officer was not satisfied that these three loans were genuine loans but considered that they represented secret profits made by the assessee by inflating the purchase of raw jute. The Income-tax Officer noted that die assessee had withdrawn at Calcutta on March 31, 1952, a sum of Rs. 5,30,000 from a Calcutta bank and had sent a sum of Rs. 5,95,000 to his Forbesganj branch on the same day to enable that branch to make payments including the repayment of Rs. 2,50,000 to Sri Kharag Bahadur one of the alleged creditors noted above. The Income-tax Officer discussed the impossibility of the amount having reached Forbesganj branch in Bihar on the very same day in order to enable discharge of the creditors there on March 31, 1952. In regard to this amount of Rs. 5,85,000 the Income-tax Officer observed as follows : "On 31-3-1952 the Calcutta Office has withdrawn Rs. 5,30,000 from the Bank and has sent Rs. 5,95,000 to Forbesganj How the cash has reached Forbesganj (in remote corner in North Bihar) on the same day to enable the branch to make payments (including the sum of Rs. 2,50,000 to Kharag Bahadur) is something difficult to understand even in these days of fast travel. Lloyds Bank in Calcutta would not have obliged the assessee by paying out cash before 10 A.M. on 31- 3-1952 and the only available train leaves in the night. The journey including the ferry trip over the broad ganges takes over 24 hours. Hence the entries in the book cannot be taken to 'be genuine." 3. The assessee took the matter in appeal to the Appellate Assistant Commissioner and contended that the Income-tax Officer should not have added the three items of Rs. 2,50,000, Rs. 1,50,000 and 'Rs. 30,000 to the total assessable income. The Appellate Assistant Commissioner did not agree with this contention and confirmed the addition of Rs. 4,30,000. At the same time, the Appellate Assistant Commissioner noticed the fact of the alleged transfer of Rs. 5,85,000 from Calcutta to Forbesganj on March 31, 1952 and its credit in the accounts books of the latter branch on the same date. The Appellate Assistant Commissioner considered that the amount of Rs. 5,85,000 should also be included in the total income of the assessee, but before doing so lie gave the assessee a deduction of Rs. 1,80,000 being the amount withdrawn earlier from the accounts of the two creditors, namely, Jiwanmal Santokchand and Sohanlal Subhkaran and added the balance of Rs. 4,05,000. This addition by the Appellate Assistant Commissioner amounted to an enhancement of the income which the Income-tax Officer had assessed. The assessee

16 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited took the matter in further appeal to the Appellate Tribunal which held that the Appellate Assistant Commissioner was justified in coining to the conclusion that the cash credits in the accounts were not explained satisfactorily and some of the payments made at Forbesganj branch on March 31, 1952 were not made from the remittance from Calcutta but from secret funds. The Appellate Tribunal pointed out that out of the payments claimed to have been made at Forbesganj payments to Kharag Bahadur Nepali amounting to Rs. 2,50,000 must also be excluded because it had been held by the Income-tax Office and the Appellate Assistant Commissioner that the loan was not genuine; and since the loan. was not genuine it was not logical to say that it required repayment from secret funds. The Appellate 'tribunal accordingly reduced the enhancement to Rs. 1,55,000. In doing so the Appellate Tribunal rejected the contention of the, assessee ,hat the Appellate Assistant commissioner had no authority to enhance the income on the ground that it was not the subject-matter of the assessment made by the Income-tax Officer. The Appellate Tribunal took the view that the subject-matter in respect of which the enhancement was made was, in fact, considered by the Income Tax Officer and accordingly the Appellate Assistant Commissioner had jurisdiction to make the enhancement. At the instance of the assessee the Appellate Tribunal referred the following question of law for the opinion of the High Court under s. 66 ( 1) of the Income-tax Act, 1922 (hereinafter called the 'Act') : "Whether on the facts and in the circumstances of the case the Appellate Assistant Commissioner was within his authority in enhancing the assessment of the assessee by Rs. 1,55,000 for the assessment year 1952-53 ?"

17 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited Appellate Assistant Commissioner against his assessment for the year 1947 - 48. While the appeal was pending, the Income-tax Officer wrote a letter to the Appellate Assistant Commissioner requesting him to assess the amount of Rs. 40,000. The Appellate Assistant Commissioner, after issuing notice, assessed the amount and included it in the original assessment. The question which was debated before this Court was whether in an appeal filed by an assessee, the Appellate Assistant Commissioner can find a new source of income not considered by the Income-tax Officer and assess it under his powers granted by s. 31 of the Income-tax Act. It was held by this Court that the powers of enhancement conferred on the Appellate Assistant Commissioner under s. 31 only extended to matters considered by the Income-tax Officer and if a new source has to be considered then the power of remand may be exercised and the Income-tax Officer should be required to deal with that new source of income. At page 895 of the Report, Hidayatullah, J. speaking for the Court stated as follows : "The only question is whether in enhancing the assessment for any year lie can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income- tax that the word 'assessment' here means the ultimate would it which an assessee must pay, regard being had to the charging section and his total income. In this view, it is said that the words 'enhance the assessment' are not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. There is no doubt that this view is also possible. On the other hand, it must not be overlooked that there are other provisions like sections 34 and 33B, which enable escaped income from new sources to be brought to tax after following a special procedure. The assessee contends that the powers of the Appellate Assistant Commissioner extend to matters considered by the Income-tax Officer, and if a new source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of a finding by two tribunals and one right of appeal. The principle that emerges as a result of the authorities of this Court is that the Appellate Assistant Commissioner has no jurisdiction, under s. 31(3) of the Act, to assess a source of income which has not been processed by the Income- tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore. the Appellate Assistant Commissioner cannot travel beyond the subject- matter of the assessment. In other words, the

18 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited power of enhancement under s. 31 (3) of the Act is restricted to the subject-matter of assessment or the sources of income which have been considered expressly or by clear implication by the Income-tax Officer from the point of view of the taxability of die assessee. It was argued by Mr. Vishwanath lyer on behalf of the appellant that by applying the principle to the present case, the Appellate Assistant Commissioner had jurisdiction to enhance the quantum of income of the assessee. It was pointed out that the fact of alleged transfer of Rs. 5,85,000 to Forbesganj branch was noted by the Income-tax Officer and also the fact that it did not reach Forbesganj on the same day. So, it was argued that in the appeal the Appellate Assistant Commissioner had jurisdiction to deal with the question of the taxability of the amount of Rs. 5,85,000 and to hold that it was taxable as undisclosed profits in the hands of the assessee. We are unable to accept the argument put forward on behalf of the appellant as correct. It is true that the Income-tax Officer has referred to the remittance of Rs. 5,85,000 from the Calcutta branch, but the Income-tax Officer considered the despatch of this amount only with a view to test the Genuineness of the entries relating to Rs. 4,30,000 in the books of the Forbesganj branch. It is manifest that the Income-tax Officer did not consider the remittance of Rs. 5,85,000 in the process of assessment from the point of view of its taxability. It is also manifest that the Appellate Assistant Commissioner has considered the, amount of remittance of Rs. 5,85,000 from a different aspect, namely, the point of view of its taxability. But since the Income-tax Officer has not applied his mind to the question of the taxability or nontaxability of the amount of Rs. 5,85,000, the Appellate Assistant Commissioner had no jurisdiction, in the circumstances of the present case, to enhance the taxable income of the assessee on the basis of this amount of Rs. 5,85,000 or of any portion thereof. As we have already stated. it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income- tax Officer with a view to find out new sources of income and the power of enhancement under s. 31(3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context "consideration" does not mean "incidental" or "collateral" examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. In the present case it is manifest that the Income-tax Officer has not considered the entry of Rs. 5,85,000 from the point of view of its taxability and therefore the Appellate

19 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited Assistant Commissioner had no jurisdiction, in an appeal unders. 31 of the Act, to enhance the assessment. For these reasons we hold that the High Court rightly answered the question in favour of the assessee and this appeal must be dismissed with costs.

4.3. Hence, respectfully following the aforesaid decision, in any case, the provision for deferred tax could not be the subject matter of addition in the computation of book profits u/s.115JB of the Act.

4.4. We find that the Co-ordinate Bench of Jaipur Tribunal in the case of Sh. Jagdish Narayan Sharma vs. ITO in ITA Nos.751 – 753/JP/2015 for A.Y.2006-07, 2008-09 dated 25/05/2018 had held as under:- “32. Regarding Ground No. 3, the facts of the case are that during the appellate proceeding for AY 2006-07, the ld. CIT(A) noticed that sale transactions entered into by the assessee with his two daughter- in-laws pertains to AY 2007-08 instead of AY 2006-07. The ld. CIT(A) thereafter, exercising the power of enhancement u/s 251(2)(a) enhanced the income by Rs. 1,62,72,000/- for impugned assessment year and correspondingly, she directed the deletion of the said addition of an equivalent amount in AY 2006-07. 38. In view of the ratio as laid by Hon’ble Allahabad High Court, the contention of ld. CIT (A) that action u/s 251 (1) (a) is also strengthened by the fact that the AO could have taken remedial action for which direction could be given u/s 150(1) of IT Act has no legal force. Ld. CIT(A) cannot by herself enhance the income when a separate machinery has been provided in law. In support, reliance was placed on the decision of the Hon’ble Supreme Court in case of CIT vs. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC) and it was submitted that the ratio laid down by the said decision of the Hon’ble Supreme Court is clearly applicable in the instant case and which has not been appreciated by the ld CIT(A). 50. The issue which is being disputed before us has to be considered and decided in light of facts on record and the legal proposition which emerges from the above referred decisions. In the instant case,

20 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited the enhancement of income by the ld CIT(A) relates to long term capital gains on sale transactions executed through the registered sale deeds of even date i.e, 11.01.2007 whereby the assessee has sold certain plots of land at Village Goner, Tehsil Sanganer, Jaipur to his two daughters-in-law namely Narangi Devi w/o Chhaju lal and Jamna Devi w/o Kaluram for a total consideration of Rs 1,62,72,000. Now, if we look at the return of income filed by the assessee, it is noted that pursuant to issuance of notice u/s 148, the assessee had filed his return of income disclosing agricultural income of Rs. 1,10,000/- and prior to that, no return of income was filed by the assessee. The notice issued under section 148 dated 15.03.2013 talks about an amount of Rs 16,50,000 deposited in assessee’s bank account maintained with PNB, the source of which has not been explained and the same has thus escaped assessment. On perusal of the assessment order passed under section 143(3) read with section 147 of the Act, it is noted that the said deposits in assessee’s bank has been examined however, there is no linkage with the impunged sale transactions which are the subject matter of enhancement by the ld CIT(A). Further, there is a sale transaction which is the subject matter of assessment which relates to sale of ancestral land situated at the same village Goner, Village Goner, Tehsil Sanganer, Jaipur vide sale deed dated 26.12.2006 to M/s Fine Tech Macro Developers Pvt. Ltd for a consideration of Rs 13,20,000 and which has been valued by the stamp duty authorities at Rs 14,88,000. The said transaction has been brought to tax by the Assessing officer after providing the index cost of acquisition. We thus find that the impunged sale transactions relating to sale of land by the assessee to his two daughters-in-law for a total consideration of Rs 1,62,72,000 was neither the subject matter of notice issued under section 148 and the subsequent return filed by the assessee nor the subject matter of assessment order passed by the Assessing officer. It is clearly a new source of income which has been discovered by the ld CIT(A) while adjudicating the matter and not a matter arising out of the assessment proceedings. Our view is fortified by the fact that the impugned sale transactions relating to sale of land by the assessee to his two daughters-inlaw for a total consideration of Rs 1,62,72,000 was the subject matter of reopening of assessment for preceding A.Y. 2006-07 whereby these transactions were identified with specific particulars in the reasons recorded before issuance of notice under section 148 for the said assessment year. Subsequently, the AO while passing the assessment order for A.Y. 2006-07 has discussed the taxability of such transaction in the body of the assessment order and has brought the same to tax. It is therefore a case where the impugned transactions are subject matter of assessment and arising out of the assessment order for A.Y 2006-07 and not that of A.Y 2007- 08. It is not a case that the additions in respect of the said transactions are made on substantive basis in A.Y 2006-07 and on

21 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited protective basis in A.Y 2007-08. The ld CIT(A) while adjudicating the matter for A.Y. 2006-07 had determined that the said transaction pertains to A.Y 2007-08 and not to A.Y 2006-07 and has deleted the additions in A.Y. 2006-07 and brought the same to tax in the impugned A.Y 2007-08 by way of exercising her enhancement powers under section 251(1)(a) of the Act which is clearly beyond her powers. In light of the legal propositions so laid down by the Hon’ble Supreme Court and other High Courts referred supra, the powers of the ld CIT(A) are circumscribed by the assessment order in the matters arising thereof or a matter arising out of the proceedings. As held by the Courts, even though, the ld CIT(A) has suo moto power to consider the questions arising thereof but there is no provision to go beyond the matter arising out of the proceedings before the Assessing officer, more particularly as separate provisions for such eventuality are provided in the Act. In light of the same, the enhancement so done by the ld CIT(A) whereby the impugned sale transactions are brought to tax in the year under consideration are beyond the scope of her powers envisaged under section 251(1)(a) and the same thus cannot be accepted. However, the AO shall be free to take action as per law.

4.5. We find that the aforesaid decision of Jaipur Tribunal squarely addresses the issue in dispute before us. At the cost of repetition, we would like to state that the aforesaid three issues viz. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts vis-à-vis computation of book profits u/s.115JB of the Act were already added by the ld. AO in the re- assessment order framed on 31/12/2007. Admittedly, the ld. CIT(A) issues enhancement notice to the assessee by way of recording in the order sheet only on 07/03/2011, on which date these three additions have already been made by the ld. AO in the re-assessment order. Hence, by respectfully following the decision of Jaipur Tribunal, supra we hold that the ld. CIT(A) erred in exercising enhancement powers in terms of

22 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited Section 251(1)(a) of the Act in the facts and circumstances of the case before us. 4.6. Even on merits, we find that the ld. AO in the original assessment proceedings u/s.143(3) of the Act completed on 31/01/2006 had applied the law prevailing on that date. These three items i.e. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts were sought to be added in the computation of book profits u/s.115JB of the Act only pursuant to an amendment brought by the Finance Act 2008 with retrospective effect from 01/04/2001. Hence, on the date of passing of order u/s.143(3) of the Act on 31/01/2006, the ld. AO could not have added these three items in the computation of book profits u/s.115 JB of the Act. Hence, what could not have been done by the ld. AO as per law prevailing at that time, the ld. CIT(A) could not do by exercising enhancement powers. Reliance in this regard is placed on the decision of Hon’ble Calcutta High Court in the case of CIT vs. Hardeo Das Agarwala Trust reported in 198 ITR 511(CAL), wherein it was held as under:- “16. In our view, the result of ignoring such return or the audit report will be denial of exemption to the trust although the income has been spent for charitable or religious purposes. This was not intended by the legislators. If an assessee fails to obtain the audit report in the prescribed form before the assessment is completed, he may not, ordinarily, be entitled to get the benefit of exemption. In this case, however, as we have indicated, the assessee was not given an opportunity to file the audit report in the prescribed form which was available with the assessee before the assessment was completed. In such a case, the appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit

23 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited report and direct the Assessing Officer to redo the assessment. The appellate authority has plenary powers in disposing of an appeal and the scope of the power is coterminous and co-extensive with that of the Assessing Officer. He may, therefore, consider and decide any matter arising out of the proceedings in which the order appealed against is passed. He can do what the Assessing Officer can do and direct him to do what he has failed to do. Such powers are, however, subject to the limitation that what an Assessing Officer could not do validity, the first appellate authority also cannot do in appeal. This question, however, does not arise in this case as the assessee was entitled to file the audit report before the completion of the assessment with or without a revised return for the purpose of curing the defect in the original return filed without the audit report.”

4.7. Respectfully following the observations of Hon’ble Calcutta High Court in para 16 above, the enhancement made by the ld. CIT(A) with respect to aforesaid three items in the computation of book profits u/s.115JB of the Act deserves to be deleted and is hereby deleted. 5. The next issue to be decided in the appeal of the revenue is as to whether the ld. CIT(A) was justified in allowing the assessee’s claim of provision of warranty expenses in the facts and circumstances of the case. 5.1. We have heard the rival submissions. We find that this issue is squarely covered by the decision of this Tribunal in assessee’s own case for A.Yrs. 1994-95, 1995-96, 1996-97, 1997-98, 1999-2000, 2004-05, 2005-06 & 2006-07. The facts of A.Y.1996-97 and the decision rendered thereon in ITA No.1015/Mum/2001 dated 31/07/2007 are as under:- “22. Ground No. 7 in the, revenue's appeal relates Co provision for warranty expenses of Rs.12,55,68,000/-. Both the parties agreed that (his issue is covered in favour of the assesses by the decisions of the Tribunal in the assessee's own case for the assessment years 1992-93,

24 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited 1994-95 and 1995-96 (ITA No, 961/M/03 dated 23.8.03. ITA No.6705/M/98 dated I9.4.06, and ITA No.1690/M/00 dated 6.2.07), wherein the Tribunal has allowed She claim of the assessee. Following the same, the issue is decided in favour of the assessee and again the revenue.”

5.2. We find that the ld. CIT(A) had also followed this Tribunal order while rendering the decision in favour of the assessee, which in our considered opinion, does not call for any interference. Accordingly, the ground No.1 raised by the revenue is dismissed. 6. The next ground to be decided in the appeal of the revenue is as to whether the ld. CIT(A) was justified in holding the expenses towards issue of foreign currency convertible notes as revenue expenditure in the facts and circumstances of the case. 6.1. We have heard the rival submissions. We find that the ld. AR stated that this issue is also covered by the order of this Tribunal in assessee’s own case for A.Yrs. 2004-05 to 2006-07 apart from various other decisions of this Tribunal which is reproduced as under:-

“8. In ground no.2, the assessee has challenged disallowance of expenditure incurred for issue of Foreign Currency Convertible Notes (FCCN). 9. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of ` 7,60,13,852, towards expenditure incurred for issue of FCCN. Therefore, he called upon the assessee to justify its claim. After considering the submissions of the assessee, the Assessing Officer observed that as per the annual report of the company, the assessee has issued FCCNs aggregating to 11,760 Japanese Yen. He observed, FCCNs were listed in the Singapore Stock Exchange. He observed, as per the terms of issue the holders have an option to convert the FCCNs into ordinary shares or American Depository Shares. Thus, from the aforesaid facts, he concluded that

25 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited FCCNs are in the nature of convertible debentures. Hence, any expenditure relatable to it has to be considered as share issue expenses, therefore, capital in nature. Accordingly, he disallowed assessee's claim of deduction. Though, the assessee objected to the aforesaid disallowance before the DRP, however, it was unsuccessful. Accordingly, the Assessing Officer carried out the disallowance in the final assessment order. 10. The learned Authorised Representative submitted, while deciding identical issue in assessee's own case for assessment year 2005-06, the Tribunal has deleted the disallowance made by the Assessing Officer. Thus, he submitted, the issue is covered by the decision of the Tribunal in assessee's own case for assessment year 2005-06. In this context, he drew our attention to the relevant observations of the Tribunal. Further, in support of his contention, he relied upon the decision of the Tribunal in Tata Iron & Steel Co., ITA no.3965/Mum./ 2003 & Ors., dated 7th March 2014. He also relied upon the decision of the Hon'ble Rajasthan High Court in CIT v/s Secure Meters Ltd., 321 ITR 611 (Raj.). 11. The learned Departmental Representative relied upon the observations of the Assessing Officer and the DRP. 12. We have considered rival submissions and perused material on record. Undisputedly, the Assessing Officer has disallowed assessee's claim on the reasoning that FCCNs issued by the assessee are in the nature of convertible debentures, hence, expenditure related to issue of such debenture is capital in nature. However, it is observed that while deciding identical issue in assessee's own case for assessment year 2005-06, in ITA no.3336/Mum./2011, dated 13th April 2018, the Co- ordinate Bench following the decision of the Hon'ble Rajasthan High Court in Secure Meters Ltd. (supra) has held that irrespective of the fact whether the debenture issued is convertible or non- convertible, it is in the nature of loan. Therefore, any expenditure incurred in relation to issuance of such debenture is allowable as expenditure. There being no material difference in facts in the impugned assessment year, the aforesaid decision of the Co-ordinate Bench clearly applies to the facts of the present appeal. Therefore, respectfully following the decision of the Co-ordinate Bench referred to above, we delete the addition made by the Assessing Officer. 6.2. We find that the ld. CIT(A) had followed the decision of Hon’ble Rajasthan High Court referred to in the aforesaid Tribunal order in assessee’s own case and had granted relief to the assessee which do not

26 ITA Nos.3333/Mum/2011 & 4823/Mum/2011 M/s. Tata Motors Limited call for any interference. Accordingly, ground No.2 raised by the revenue is dismissed. 7. Ground No.4 raised by the revenue is general in nature and does not require any specific adjudication. 8. In the result, appeal of the assessee is partly allowed and appeal of the revenue is dismissed.

Order pronounced in the open court on this 17/07/2019 Sd/- Sd/- (AMARJIT SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 17/07/2019 Karuna Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai