ACIT, CIRCLE - 5(2), KOLKATA, KOLKATA vs. M/S. BALMER LAWRIE & CO. LTD., , KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA (सम� �ी ए.ट�. वक�, �या�यक सद�य एवं डॉ ए.एल. सैनी, लेखा सद�य) [Before Shri A. T. Varkey, JM & Dr. A.L. Saini, AM] I.T.A. No. 111/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. DCIT 21 Netaji Subhas Road, Circle-5(2), Vs. Kolkata-700 001. Kolkata. (PAN: AABCB 0984 E) Appellant Respondent I.T.A. No. 98/Kol/2018 Assessment Years: 2012-13 DCIT Balmer Lawrie & Co. Ltd. Circle-5(2), 21 Netaji Subhas Road, Vs. Kolkata. Kolkata-700 001. (PAN: AABCB 0984 E) Appellant Respondent For the Appellant Shri D.S. Damle, FCA For the Respondent Dr. P.K. Srihari, CIT(DR) & Shri Supriyo Pal, JCIT, Sr. DR Date of Hearing 26.09.2019 Date of Pronouncement 31.10.2019 ORDER Per Shri A.T.Varkey, JM

These are cross appeals preferred by the assessee and the Revenue against the action of the Ld. CIT(A)-6, Kolkata dated 27.10.2017 for Assessment Year (hereinafter ‘AY’) 2012-13.

“1. That the Learned CIT (Appeals) erred in Law and in fact, in upholding the action of the Assessing Officer in considering the proportionate amount of advance rent amounting to ₹79,68,169/- paid by it to the lessor in respect of different lands taken on lease for the purpose of business, as capital expenditure and hence not allowable as business

2 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. expenditure and thereby enhanced the taxable income of the appellant by an amount of ₹79,68,169/-.” 3. At the outset, the Ld. Counsel for the assessee Sh. D.S. Damle pointed out that this issue is no longer res integra since the Tribunal has already adjudicated this issue for AY 2014-15 on the identical facts and identical ground as under:

3 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. such expenditure either in one lump-sum or by amortization over the tenure of the lease. Since the Special Bench was constituted at Mumbai, the judgment of the Hon’ble Bombay High Court was binding being the decision of the jurisdictional High Court. We however find that on the identical facts the Hon’ble Gujarat High Court in its later judgment dated 23.03.2009 in the case of Dy. CIT Vs Sun Pharmaceuticals Industries Ltd (supra) took the view, which was contrary to the view taken by the Hon’ble Bombay High Court. In the decided case the Hon’ble Gujarat High Court noted that the lease rent paid annually was very nominally and by obtaining by way of lease the capital structure of the assessee had not changed. It was therefore noted that, by making such payment, the assets of the assessee company had not increased because the land continued to belong to GIDC. The Hon’ble High Court noted that the only benefit, which the assessee got, was the advantage of carrying on the business more profitably by paying nominal rent on land. The Hon’ble High Court therefore did not find any reason to interfere with the order of the Tribunal wherein the Tribunal had allowed the deduction for upfront lease premium of Rs.42,02,616/- paid to GIDC holding it to be revenue expenditure. We therefore find that in the decision rendered in March 2009 the Hon’ble Gujarat High Court concurred with the view expressed by the Hon’ble Karnataka High Court in the case of CIT Vs HMT Ltd (supra). In both these decisions the Hon’ble High Courts had held that the lease premium paid did not constitute Capital expenditure but it was a revenue expenditure because by incurring such expenditure the assessees did not acquire any asset but only facilitated carrying on the business more profitably by paying token rent. In arriving at such conclusion the Hon’ble Gujarat High Court had relied on the judgment of the Hon’ble Supreme Court in the case of CIT VsMadras Auto Service (233 ITR 468). We note that although the judgment of the Hon’ble Gujarat High Court was rendered on 23.03.2009, the coordinate bench of this Tribunal while deciding the Revenue’s appeal in the assessee’s case for AY 2008-09 had not taken note of the same and went on to hold the expenditure claimed to be capital in nature. We however find that in the decision the Hon’ble Gujarat High Court rendered subsequent to the decision of the Special Bench in Mukund Ltd (supra), it has been specifically held that the nature of lease premium paid was revenue in nature and therefore allowable in computing business income. In light of the foregoing and the later decision of the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra) for reasons discussed in detail (infra), and also the CBDT Circular No. 9/2014 dated 23.04.2014 (infra), we are inclined to follow the later judgment of Hon’ble Gujarat High Court in the case of Dy. CIT Vs Sun Pharmaceuticals Industries Ltd (supra). 8. We also note that similar issue was considered by the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra). In that case the assessee, incorporated as a Special Purpose Vehicle, obtained right to operate and maintain an international airport at New Delhi from Airport Authority of India. The assessee was granted airport concessionaire’s right in consideration of the assessee making payment of non-refundable upfront fees of Rs.150 crores. Upon making such payment the assessee became entitled to use and occupy the airport property for a period of 30 years and after the expiry of lease the airport site was to the handed over back to the Airport Authority of India. In the assessee’s books it had capitalized the upfront fees of Rs.150 crores paid. In the computation of total income the assessee however claimed the deduction for the entire upfront lease premium paid on the plea that it was revenue in nature and since by making payment assessee did not acquire any asset, the deduction was permissible for the upfront payment in such year itself. The assessee’s plea was rejected by the AO on the ground that the payment of Rs.150 crores permitted the assessee right to use the airport premises for a period of thirty years and therefore applying the ratio laid down in the judgment of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd VsCIT (supra) the AO held that the assessee was entitled to claim the expenditure on prorate basis i.e.l/30th of the premium

4 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. amount in each year during the tenure of the lease. On appeal the Ld. CIT(A) agreed with assessee’s contention and allowed the deduction for entire upfront fee of Rs.150 crores paid to Airport Authority of India in the initial year. On appeal the Revenue relying on the decision of the Special Bench of this Tribunal at Mumbai in the case of Jt.CIT Vs Mukund Ltd (supra) and decision of the Hon’ble Supreme Court in the case of Enterprising Enterprises Vs DCIT (293 ITR 437) claimed that such expenditure was capital in nature and therefore not permissible. Rather it was canvassed by the Revenue that in terms of the judgment of Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs CIT (supra), the order of the AO be upheld. After considering the submissions of the parties and the judicial decisions relied upon, the Tribunal in Paras 30- 31 of its order held as follows: “30. Thus, herein this case the test of enduring benefit in acquisition of capital asset as propagated by the revenue would fail for the reason that, for the lease of Airport site which was for 30 years, the payment of Rs. 150 crores was a onetime payment so that the annual lease rent was chargeable at a very nominal rate of Rs.100/- for a huge Airport area of more than 4609 acres. Such a miniscule annual rent of huge area and facility (entire Airport Site) definitely would defy all commercial parlances. Once the any recurring payment towards lease rent is reckoned or classified as revenue expenditure, then even the lump-sum payment or one-time payment for the same purpose has to be given the similar treatment as it partakes the same character. There could not be two different classification of same nature of expenditure. That apart, such onetime payment cannot be classified as creating any capital asset or any kind of profit making apparatus or giving any enduring advantage of a benefit of a trade. At the most the said payment can be reckoned as lease premium or licence fee for the Airport site taken on lease for a period of 30 years. In this case, such a payment cannot be reckoned for the purpose of acquisition of business also, because both the parties have agreed to transfer the right of operating, development and maintenance of the airport on revenue sharing basis which has been termed an 'annual fee' which is recurring in nature. Now if such a lump sum payment for the lease of the Airport Site for a period of 30 years can be reckoned as revenue or not, appears to be quite settled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:- i. DCIT vs. Sun Pharmaceutical Ind. Ltd. - 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of Rs.40 per annum, the assessee paid Rs.48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for a period of 99 years in the form of use of the land and therefore he held that the payment was capital in nature. The High Court upheld the finding of the Tribunal that the land in question was not acquired by the assessee and that the lease rent was very nominal and the sum of Rs.48 lakh was in the nature of rent and the assessee only acquired a facility to carry on business profitably by paying a nominal lease rent together with lump sum amount of Rs.48 lakh. The fact that the lease deed was registered was irrelevant. Therefore, it was held that the payment was revenue in nature. ii. CITv,v. H.M.T Ltd - 203 ITR 820 (Kar HC) - A lease agreement was entered into with MIDC for the lease of the plot on which the assessee was mandatorily to construct a building within a period of 2 years for the use of the assessee. After the construction, the assessee was entitled to use both the land and building for 95 years. Under the agreement, the assessee paid a premium of

5 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. Rs.12,09,200foracquiring leasehold rights. The annual rent was fixed at a nominal sum of Re. 1 per annum. The assessee made a claim for deduction of the premium paid for the reason that it was actually rent paid in advance and, therefore, was to be considered as revenue expenditure. It was held by the Karnataka High Court that what was termed as premium and paid in a lump-sum to MIDC was future rent payable by it and that is evident from the fact that the assessee was paying only Re. 1 per annum which is for the purpose of evidencing the character of the transfer of property as a lessee and not for, any other purpose. Apart from that certain other judgments were also referred and relied upon which has also has been taken note by the Ld. CIT (Appeals) in the impugned order. Thus, the amount of Rs. 150 crores paid as onetime payment for taking the airport site for 30 years on the facts of the present case has to be treated as revenue expenditure. 31. Here one very important fact which is not in dispute is that AO himself has treated the payment of 'upfront fees' as revenue expenditure, in the sense that he has allowed part of the expenditure in this year and it is not the case of AO that it is capital expenditure in which case no part could be allowed in terms of section 37(1) of the Act. This action of the AO itself exonerates the case of the assessee. ”

6 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. 10. It is no doubt true that in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra) the coordinate Bench allowed the deduction for the entire upfront fee paid for obtaining lease in the year of payment itself even though the lease period was 30 years. Similarly theHon’ble Karnataka High Court in the case of HMT Ltd (supra) and Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd (supra) allowed the deduction for entire upfront lease premium in the year of payment itself though the lease periods were more than 90 years. In the present case however the assessee has not made claim for the deduction in the year of payment of upfront fees but has sought spread over of such lease premium over the effective life of the lease. The assessee’s claim for amortization over the lease period is supported by the judgment of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd (supra). The following observations in that judgment support the assessee’s methodology of claiming pro-rata deduction for the upfront lease premium over the lease period.

"15. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs.3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, ( 1982) 30 CTR (Cal) 363: (]983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question.

“17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period. 18. What follows from the above is that normally the ordinary rule is to be applied,

7 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto now has been restricted to the cases of debentures. ”

8 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. 16.1. Indeed, case law relied on by Ld DR as discussed above is against the assessee wherein it has been held by the Hon ’ble Madras High Court in the case of Enterprising enterprise (supra) and aforesaid judgement was delivered by the Hon’ble Madras High Court vide order dated 01.04.2004 which was subsequently affirmed by Hon’ble Supreme Court vide order dated 04.12.2006. However, subsequent to the aforesaid judgment, we find that the CBDT has issued a Circular 9/2014 dated 23.04.2014 wherein the impugned expenditure was allowed over the lease period after the commencement of business and relevant extract of the Circular is reproduced below:- 2. In such project, the developer (hereinafter referred to as “assessee”), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. It is seen that in retums-of-income, assessee are generally claiming depreciation on such capitalized expenditure treating it as an ‘intangible asset’ in terms of section 32(1 )(ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned, wholly or partly, by the tax payer which is an essential condition for claiming depreciation and further right to collect toll does not fall in an of the categories of ‘intangible assets’ specified in sub-clause (ii)of sub-section (1) of section 32 of the Act. 3. In BOT arrangements for development of roads/highways, as a matter of general practice, possession of land is handed over to the assessee by the Government/notified authorityfor the purposes of Construction of the project without any actual transfer of ownership and such assessee has only a right to develop and maintain such asset. It also enjoys the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such asset. Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an owner of the property, either wholly or partly, for purposes of allowability of depreciation under section 32(1 )(ii) of the Act. Thus, present provisions of the Act do not allow claim of depreciation on Toll ways due to non fulfilment of ownership criteria in such cases. 4. There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the constructions cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon ’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT in 225ITR 802= 2002-TIOL-290-SC-IT-LB allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period.

9 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement. 5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act. 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ shall be amortized equally over the remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement.

10 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. assessee regularly followed mercantile system of accounting. Brief facts of the case as noted by the AO are as under:

“2. Prior period expenses: Rs. 4,08,23,000/- Vide schedule X of the TAR the assessee has claimed Rs. 4,08,23,000/- as prior paid adjustment. In the details thereof the same has been stated as general expenditure in nature. The assessee was specifically required to explain why the claim as prior paid expenditure be not disallowed. No explanation whatsoever, could be submitted by the assessee. According to accounting standard, the expenses are debited to the Profit & Loss Account on accrual basis and the unpaid expenses are made provisions in the Balance Sheet. Any expenses accrued but not settled during any year are debited in the year of accrual and any deviation on settlement is charged in the profit and loss Account as income or expenses as is applicable in the following years. The assessee has not followed the mercantile system of accounting in respect of the prior period expenses debited in the P/L Account for the current year and the same is not allowable expenditure. In view of the above, the entire amount of Prior Period Expenditure of Rs. 4,08,23,000/- is disallowed as expenses and added to the total income of the assessee company.” 6. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same. Being aggrieved, the Revenue is now in appeal before us.

11 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. to earlier period, but the liability to pay got crystallized during the year under consideration. He further brought to our notice that the assessee is a body corporate and is regularly assessed to tax at the highest marginal rate in all the preceding years as well as in the current year. He submitted that the AO never questioned that the deduction claimed was for revenue expenses which were incurred wholly and exclusively for the purpose of carrying on the business and for which no deduction was allowed in the prior years’ assessments. In the circumstances no loss was caused to the Revenue if the deduction was allowed by the Ld. CIT(A) in the year in which the liability to pay the same stood crystallized and it was actually paid. The Ld. AR also drew attention to the detailed explanations filed before the AO as well as before the Ld. CIT(A) in which the assessee had demonstrated that the liability to incur expenditure was finalized / crystallized during the year and each item of expenditure was incurred or laid out wholly for the purposes of business.

12 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. claimed deduction in respect of items which were revenue in nature and fully allowable in arriving at its business income. The Revenue also did not controvert the Ld. AR’s submissions that no deduction in respect of these expenses was allowed in the prior years and tax rate in the earlier years and in the current year were same and therefore irrespective of the year of deduction allowed, the revenue effect was tax neutral. In this regard, the reliance placed by the Ld. AR on the decision of the Hon’ble Gujarat High Court in the case of PCIT Vs Adani Enterprises Ltd in Tax Appeal No. 566/2016 is found to be relevant. For the reasons set out in the foregoing we do not see any reason to interfere with the order of the Ld. CIT(A) and accordingly we dismiss this ground of the Revenue.

“2) Whether the Ld. CIT(A) has erred in law, in not consider the opinion of the A.O. in his Remand report and supported the irrelevant act of assessee to consider under the head ofother expenses, the claim made by assessee company of Rs 11.82 Crores as provision for diminution in the value of investments.” 10. Brief facts of the case that the AO observed on this issue is as under:

“6. Provision for diminution in the value of investments: Rs. 11,82,37,000 Under the head of other expenses, the assessee has claimed Rs. 11,82,37,000/- as provision for diminution in the value of investments. In the computation of income the assessee has chosen to disclose that the same has been considered as a deductible expenditure. By no stretch of imagination can provisions be treated as an allowable expenditure and the act of the assessee to claim the same can be treated nothing but absurd. The said claim of Rs. 11,82,37,000/- claimed as deduction is disallowed and added back. The same is also added back to the Book Profit u/s 115JB in accordance with the Explanation (i) to Sec 115JB(2) of the Income Tax Act,1961.” 11. Aggrieved by the AO’s order, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same. The Revenue is now in appeal before us. The Ld. CIT(A) has deleted the addition by observing as under:

“8.2. I have perused the material on record, the submissions of the appellant, and the factual matrix of the case. The appellant’s case revolves around the fact that out of its loan of Rs. 13.00 crore, advanced for the purpose of its business, Rs. 11.82 crores had turned bad. This investment was initially propelled by business expediency, and was subsequently thrust on the appellant by reason of the Corporate Debt Restructuring decision carried out by RBI’s mandated body. The additional material referred before the AO has not elicited

13 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. any refutal in the Remand Report dated 7th March, 2017, while the AO continues to abide by the views of the erstwhile AO. Thus following the ratio of the Apex Court’s decision in Vijaya Bank v Commissioner of Income Tax, (2010) 323 ITR 166 (SC), and BadridasDaga v CIT, (1958) 34 ITR 10 (SC), I direct deletion of the disallowance of Rs. 11,82,37,000/- made by the AO both in the normal computation and in the computation of Book Profit.” 12. Heard both the parties. From the facts and material on record we find that the assessee, a public sector undertaking, is engaged in the business of manufacturing / production of containers as also operating, managing and maintaining container freight stations in India. In order to promote this business, the assessee along with financial institutions such as IDBI, ICICI promoted a company in the year 1990 by the name, M/s Indian Container Leasing Co. Ltd which was later renamed as M/s Transafe Services Limited. Later on in 1996, a leading multinational M/s Trans America Leasing Inc. also joined the said company as its promoter but exited the same in 2003. In April 2006, the assessee being principal shareholder transferred its specialty container divisionto the said M/s Transafe Services Limited on leave and license basis and in the subsequent year sold the said division as a going concern basis. In order to meet its working capital needs the assessee advanced various loan amounts from time to time carrying interest at the rate of 9.5% per annum and such interest were assessed as business income. The financial institutions who were co- promoters had sanctioned loan of Rs.7.11 crores and for enabling M/s Transafe Services Limited to repay such loan, the assessee advanced loan of Rs.7.30 crores on the same terms. The said M/s Transafe Services Limited however incurred substantial losses in its operations consequent to which it defaulted in making payments of interest and repayment of principal to banks and institutions consequent to which corporate debt restructuring cell setup under the aegis of RBI in its meeting held on 18.11.2010 directed the assessee being principal promoter to infuse fresh contribution of Rs.7.8 crores out of which Rs.6 crores was to be in the form of 0.001% optionally convertible cumulative redeemable preference shares. Besides fresh infusion of Rs.6 crores, the corporate restructuring debt cell also required the assessee to convert its existing loan of Rs.7.3 crores into similar preference shares. In the foregoing circumstances the loans which were principally given by the assessee to its subsidiary

14 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. in the course of its business of freight containers got converted into preference shares. Keeping in view the fact that during the FY 2011-12 the net worth of the subsidiary of Rs.5.55 crores as against issued capital of Rs.49.99 crores, it was evident that the fair value of the loan which got converted into preference shares under compulsion was only Rs.1.48 crores as opposed to Rs.13.30 crores. Accordingly in order to disclose true and fair view of the state of affairs and to disclose true and correct operating results, the Board of Directors resolved to write off such loss by way providing Rs.11.82 crores towards the diminution in the value of investment made in subsidiary in regular course of business. Accordingly in its P&L Account the assessee debited Rs.11.82 crores and in its balance sheet, the amount so provided was written off against the gross investment value and only the net investment of Rs.147.63 lacs was disclosed in Note No. 10 of the Balance Sheet. According to the assessee, the amount provided in the P&L Account was in the nature of ascertained loss arisen in the course of business and was therefore rightly claimed as deduction in computing income under normal provisions as well as book profit under Section 115JB. As discussed in the foregoing para 10, the AO however noted that such loss was debited under then nomenclature ‘provision’ and that any provision is not allowable as deduction from the computation of total income. The AO accordingly denied the claim made the assessee in both the computations. The Ld. CIT(A) however held that such loss although being debited under the nomenclature ‘provision’ was in the nature of ascertained loss which was actually written off in the P&L Account and following the ratio laid down by the Hon’ble Supreme Court in the cases of Vijaya Bank vs CIT (2010) 323 ITR 166 (SC), and BadridasDaga v CIT, (1958) 34 ITR 10, deleted the impugned addition. Before us, the Ld. CIT, DR supported the action of the AO. According to the Ld. CIT, DR the fact that the assessee had debited such loss by way of ‘provision’ showed that it was not a realized loss and therefore the Ld. CIT(A) has misconstrued such provision to be in the nature of an ascertained loss. He drew our attention to clause (i) contained in Explanation 1 to Section 115JB, which requires that any provision for diminution in value of any asset is required to be added back while

15 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. computing book profit u/s 115JB. The Ld. CIT, DR therefore urged that the order of the Ld. CIT(A) be reversed and the action of the AO be restored.

16 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. therefore find merit in the Ld. AR’s submission that even though the nomenclature used was provision for diminution in value of investment, the same was in the nature of provision for ascertained business loss and therefore allowable. We find that since the provision was for ascertained loss, in Note No. 10 of the audited accounts, the value of investment in M/s Transafe Services Ltd was disclosed at Rs.147.63 lacs i.e. after netting off the loss provided in the P&L Account of the relevant year. Applying the principle laid down by the Hon’ble Apex Court in the case of Vijaya Bank Ltd Vs CIT (supra), we do not find any infirmity in the Ld. CIT(A)’s order.

“2.7. We have heard the rival submissions. From the objects contained in the Memorandum of Association of the assessee company, we find that the assessee company was engaged in promoting the growth of electronics, IT and ITES sectors in the State of West Bengal. The relevant clauses of the object clause in the memorandum of association are as under:- The Clause (1) of the Memorandum of Association of the assessee company stated as follows:- "To develop electronics and allied industry through establishment of manufacturing, research and development activities and such other means as will be conducive to the growth of electronics and allied technology."

17 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. The Clause (46) of the Memorandum of Association of assessee company stated as follows:- "To promote and undertake the formation of any institution or company for the purpose of acquiring all or any of the property and liabilities of the company or for any other purpose which may seem directly or indirectly calculated to benefit this company or form subsidiary company or companies. To carry on any business which may seem capable of being carried on conveniently with business or object of the company and to acquire any interest in any industry or undertaking." 2.7.1. In fulfilling the aforesaid objectives, the assessee company had made certain investments in subsidiaries, wholly owned subsidiaries, assisted sectors and joint venture companies. Hence it could be safely concluded that the investments made thereon in equity shares and preference shares were meant for the purpose of business of the assessee company in consonance with its objects and purpose of formation of the assessee company. It is not in dispute that the subsidiaries in which the assessee had made investments had huge losses and had eroded their net worth. When there is a diminution in the value of these investments made , the assessee had resorted to value those investments in its books at Re 1 for the purpose of retaining those investments in the balance sheet and had sought to write off the valuation difference, being the difference between the purchase price and realizable value, and claim the same as business loss of the assessee. It is not in dispute that the investments made in the aforesaid subsidiaries would not fetch any realizable value to the assessee. Hence the fact of irrecoverability of the same is proved beyond doubt due to erosion of net worth. We hold that the main object of the assessee company itself is to promote the growth of electronics industry in the State of West Bengal and hence the investments made thereon are to be considered as stock in trade and connected to the business of the assessee company. Hence any loss arising on account of valuation of those investments due to erosion of net worth of investee companies, would only have to be considered as a trading loss. This fact is directly addressed by the Hon'ble Madras High Court in the case of CIT vs Tamil Nadu Industrial Investment Corporation Ltd (TIIC) reported in (2017) 88 taxmann.com 528 (Mad HC) dated 15.2.2017 wherein the questions raised before the Hon'ble High Court were as under:- 1. Whether in the facts and circumstances of the case, the Tribunal had enough material to hold and was right in holding that the loans to companies in liquidation had become bad debts and ought to be written off ? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the shares are the stock in trade of the assessee company ? 3. Whether in the facts and circumstances of the case, the Tribunal was right in allowing the re-valuation of only loss making shares at market value ? In that case, TIIC Ltd was a State Government Undertaking and had made certain investment in shares of industrial companies and lent monies to those companies. M/s TIIC Ltd sought to write off the advances given and value of investments in those

18 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. industrial companies and claimed the same as deduction in its returns. The Hon'ble High Court held as under:- 3. We have heard the submissions of Mr. S. Swaminathan for the Revenue and Mr. Vijayaraghavan for the assessee. 4. The assessee is a State Government Corporation engaged in the business of promoting industrial development in the State of Tamilnadu. The Memorandum and Articles of Association reveals the main objects to be financing of long or medium term loans to any concern engaged or proposed to be engaged in businesses/activities such as manufacturing, processing, refrigeration of goods, exploitation of mineral resources, generation or distribution of electricity, shipping, transport or promotion of industrial growth etc. It also provides for the underwriting or subscription in shares, debentures or other securities of industrial concerns and the rendition of financial assistance by various modes including loans, guarantees and under writing subscription. The assessee was thus incorporated solely for the purpose of ensuring and facilitating growth and development of industries in the state of Tamilnadu. Investment by way of subscription to shares is solely on account of the under writing operations. Such being the position, the investments are of the nature of stock-in-trade and cannot be held to be otherwise. In fact, this aspect of the matter was decided by the Income Tax AppellateTribunal in the assessee's own case in respect of assessment year 1970-71 wherein, by a well reasoned order dated 14.3.1975, the stand of the assessee that investment in companies would constitute represent stock in trade, was accepted. Question No.2 is thus answered in favour of the assessee and against the revenue. 5. Question Nos.1 and 3 challenge the conclusions of the tribunal relating to facts and would have to be tested on the touchstone of perversity. The tribunal has noted that valuation of the shares is effected in order to ensure a proper depiction of the value of the asset in the balance sheet. A note prepared for the consideration of the Board in TIIC B.No.13587-88 dated 21.7.1987 has been placed before us. A detailed analysis has been undertaken therein with respect to various items identified and sought to be written off in view of the doubtful character of recovery of loans and investments. Investments in the shares of six industrial companies were undertaken by way of underwriting of issue of shares. Upon finding that the net worth was negative, it was proposed to write off 100% of such investment in five cases. In the matter relating to one defaulter, M/s. Southern Brick Works Limited, the recommendation for write-off was only 50% of the investment, in view of a proposal for take over of the entity by M/s Vinichem Private Limited. 6. The note also proposes the write-off of an amount of Rs.33.82 lakhs being 90% of the advances made to two companies, M/s. Upper India Bearings Limited and M/s. NedumbalamSamiappaAnnapoorani Mills Limited, where creditors had approached the High Court seeking their winding-up and receivers had been appointed. 7. The need for and criteria adopted for the valuation of the shares as well as the efforts taken and measures adopted by the assessee company for recovery of the advances have been duly noted by the tribunal. The erosion of capital leading to a fall in value of shares has been established. We are thus of the view that the conclusion of the tribunal in this

19 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. regard are well founded and are not vitiated by perversity. Question Nos. 1 and 3 are answered against the Department and in favour of the assessee. 8. The order of the tribunal is confirmed and the departmental appeal dismissed answering all Substantial Questions of Law in favour of the assessee and against the department. No costs. 2.7.2. We find that the ld DR placed reliance on the decision of the Hon'ble Jurisdictional High Court relied upon by the ld CITA in the case of W.B.Financial Corporation vs DCIT reported in 263 ITR 332 (Cal). In that case, the assessee was a State Financial Corporation and had invested in shares of various companies to the tune of Rs 14,05,785/- and the assessee wrote off the above sum as a bad investment in Asst Year 1992-93 on the ground that there was no possibility of getting any amount against the investment in shares of those companies. The Tribunal in that case had held that those investments by the assessee were not loans and the assessee never treated the shares as stock in trade. The Tribunal further held that if the shares were sold at a lesser value than the acquiring value, as and when that might be done, the assessee might be eligible to claim loss arising out of such sale. This was upheld by the Hon'ble Jurisdictional High Court in favour of the revenue. The SLP filed by the assessee before the Hon'ble Supreme Court was also dismissed. In our considered opinion, this judgement is distinguishable on facts in as much as the assessee before us had not made any investments in shares of subsidiaries as a pure and simple investment. It was done as a measure to promote the growth of electronics industry in the State of West Bengal. Moreover, in that case, the value of investments were completely written off in the books and deduction claimed for write off. Whereas in the instant case, the assessee continues to show the value of investments at Re 1 in its balance sheet, which conduct itself, proves that the investments were not made as a mere pure and simple investment for the purpose of earning dividends. On the contrary, these investments in subsidiaries were made with a view to promote the growth of electronics industry in the State of West Bengal. Moreover, the assessee had not completely written off in the books the value of investments. We find that the issue on diminution in value of investments was not before the Hon'ble Jurisdictional High Court . Whereas, in the case before us, the assessee had claimed partial write off in respect of diminution in value of investments after coming to a conscious conclusion that the value of investments is not realizable. We find that the decision of Hon'ble Madras High Court referred to supra would be squarely applicable to the facts of the instant case as it duly addresses the issue of diminution in value of investments. Moreover, we have already held that the investments though shown in the balance sheet as investments, the same were to be considered only as stock in trade as it was invested in consonance with the main objects stated in the memorandum of association of the assessee company, so as to make those companies wholly owned subsidiaries. It is also not in dispute that the assessee despite knowing the fact that the subsidiaries had incurred huge losses, had bothered to acquire the shares from outsiders during the year so as to enter into joint venture with renowned industrial houses for promoting the growth of IT and ITES sectors in the State of West Bengal. It is also not in dispute that the assessee company's proposal to enter into joint venture with renowned industrial houses had been abandoned and hence the assessee had no other choice after making investments in shares but to write off the same. This conscious business decision of the assessee cannot be questioned by the

20 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. revenue and if the shares held by the assessee results in any gain in future on sale of the same, the same would any way get taxed as income in the hands of the assessee company. We find that the objects of the assessee company includes financing also and that the financing could be by way of lending to parties by way of loans or by way of investing in shares of those companies. In effect the assessee had only brought down the value of investments on the ground of non-realisability of the value thereon. Hence we hold that the assessee is entitled for deduction in respect of write off of investments by respectfully following the decision of Hon'ble Madras High Court supra. Accordingly, the Ground No.1 raised for the Asst Years 2008-09 and 2009-10 by the assessee is allowed.” 15. We find that the facts involved in the assessee’s case are somewhat similar. As noted earlier M/s Transafe Services Ltd was a subsidiary promoted for furtherance of assessee’s freight container business and in furtherance of such business the loans were advanced from which interest income was earned. Such income was assessed under the head ‘Business’. In the extraordinary circumstances such loans was converted into preference shares which consequently eroded in the value because of the sustained losses of the subsidiary. Merely because the loss was debited under the nomenclature ‘provision’ did not alter the basic character of the transaction and the loss incurred due to non-recoverability of the amounts advanced in the ordinary course of business could not be disallowed by the AO.

“18. A perusal of the "Details of provision for diminution in value of investment" for assessment year 2003-04 as reflected in the Balance Sheet (at page 57 of the paper book) shows that provision created in the year is of Rs. 69,46,73,244/- Provision written back on account of rise in value as per paragraph 33 of Accounting Standard 13 is Rs. 55,61,73,244/-. The net amount of provision debited to Profit and Loss is Rs. 69,46,73,244/- minus Rs. 55,61,73,244/- which comes to Rs. 13,85,00,000/-. 19. A perusal of the details of "Provision for Diminution in the Value of Investments" as on 31st March, 2003 (page 60 of the paper book) shows that the total provision required as on 31st March, 2003 is Rs. 839,621,779/-; provision available as on 31st March, 2002 is Rs. 701,121,779/-; and the provision for the year ended 31st March, 2003 is Rs. 138,500,000/-.

21 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. 20. Schedule IV of the Schedule annexed to and forming part of the accounts (page 31 of the paper book), shows that the total investment as at 31st March, 2003 is Rs. 5,742,306,638/-. Deducting the amount of provision for diminution in value of investments viz. 839,621,779/- the total investment as at 31st March 2003 comes to Rs. 4,902,684,859/-. It may be noted that the provision for diminution in value of investment as at 31st March, 2002 is Rs. 701,121,779/- and the provision in diminution of value of investments as at 31st March 2003 is Rs. 839,621,779/-. The difference between the provision for diminution of value of investment as at 31st March 2002 and 31st March 2003 is Rs. 13,85,00,000/-. This amount of Rs. 13,85,00,000/-, which is the provision for diminution in value of investment for the year under consideration, is duly reflected in the Profit and Loss account. Thus, the entry is routed through profit and loss account. 21. In terms of the accounting standards, in view of the decline in the value of the provisions created in the current year (as shown at page 57 of the paper book) the carrying amount of such investments has been reduced and in case of provisions where there was a rise in the value, the provisions are written back and the net amount of provision has been debited to the profit and loss account. Thus, insofar as the provision for diminution of value of investment to the extent of Rs. 13.85 crores is concerned, the same has actually been reduced from the asset side of the balance sheet and, therefore, is in the nature of a write off. Under the circumstances, the amount of Rs. 13.85 crore though bearing the nomenclature of provision for diminution of value of investment, having been actually written off, cannot be added to the book profit under section 115JB(2)(i) of the Act. 22. Insofar as the contention that the details of the investments in respect of which there was a diminution in value are not provided is concerned, the Commissioner (Appeals) has recorded in the audited Profit & Loss account, on the expenditure side there are provisions for diminution in value of investments of Rs. 13,85,00,000/- (last year NIL); this provision is against the total provision in balance sheet of Rs. 83,96,21,779/-; no details are available in any form or category that to which type or kind of investment such diminution is related out of the total provisions. He has further recorded that the assessee's annual report and audited accounts do not reveal of such write off because, the diminution of asset in the balance sheet at Schedule IV for investment reflect "Provision in Diminution in value of investment of Rs. 83,96,21,779/- without specifying the details of type of investment of long term investments and current investments in shares, debentures, mutual funds, Government securities etc. to which such value apply. Further out of this only Rs. 13,85,00,000/- was debited in audited profit and loss account as "provision for diminution in value of investments." There are no details which type of shares, securities, debentures etc. are written off and why out of Rs. 83,96,21,779/- only Rs. 13,85,00,000/-is considered. The learned counsel for the appellant has reiterated the above reasoning adopted by the Commissioner (Appeals). 23. In the opinion of this court, the above findings recorded by the Commissioner (Appeals) that no details have been produced, is contrary to the record of the case, inasmuch as, in the balance sheet which forms part of the paper book, the details of diminution in the value of investment are clearly set out in the statement at page 57 of the paper book. The Tribunal, in the impugned order, has after perusing the statement

22 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. referred to hereinabove which formed part of the paper book, has found that the assessee has duly followed the netting principle in terms of the decision of this court in the case of Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra). Thus, the Commissioner (Appeals) has proceeded on incorrect factual findings, whereas the Tribunal has properly appreciated the material on record while holding that the assessee has duly followed the netting principle propounded in the full bench decision of this court in Vodafone Essar Gujarat (supra). 24. In the light of the above discussion, no infirmity can be found in the view adopted by the Tribunal so as to warrant interference. The question, therefore, is answered in the affirmative, that is, in favour of the assessee and against the revenue. It is hereby held that the Income Tax Appellate Tribunal was justified in deleting the disallowance of provision for diminution in value of investment of Rs. 13,85,00,000/- while computing book profit under section 115JB of the Income Tax Act, 1961. The appeal, therefore, fails and is, accordingly, dismissed.” 17. We therefore hold that there was no infirmity in the order of the Ld. CIT(A).Ground No. 2 of the Revenue is therefore dismissed.

Order is pronounced in the open court on 31st October, 2019.

Sd/- Sd/- (A.L. Saini) (A. T. Varkey) Accountant Member Judicial Member Dated: 31st October, 2019 Bidhan (P.S.)

23 I.T.A. Nos. 111 & 98/Kol/2018 Assessment Years: 2012-13 Balmer Lawrie & Co. Ltd. Copy of the order forwarded to: 1 Appellant – Balmer Lawrie & Co. Ltd., 21 Netaji Subhas Road, Kolkata-700 001. 2 Respondent – DCIT, Circle-5(2), Kolkata. 3 CIT(A)- 6, Kolkata. (sent through e-mail) 4 CIT 5 DR, Kolkata Benches, Kolkata. (sent through e-mail) /True Copy, By order, Assistant Registrar