Bharti Airtel Ltd. v. Addl. CIT

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The Tax Publishers2014 TaxPub(DT) 1923 (Del-Trib) : (2014) 161 TTJ 0428 : (2014) 101 DTR 0154 Bharti Airtel Ltd. v. Addl. CIT INCOME TAX ACT, 1961 --Business income--Business lossLoss on transfer of telecom infrastructure--Where assessee debited certain amount to Profit and Loss Account, being loss suffered on transfer of telecom infrastructure to BIL and inner column of Profit and Loss Account was credited of same amount, being account squared up representing 'amount withdrawn from reserve for business restructuring. The AO was not justified in adding the loss on transfer of telecom infrastructure to the profit as per Profit and Loss Account, as the squared up reserve reflected in inner column was not taken into consideration, as such addition made by AO was to be deleted. Even if no adjustment was carried out in the computation of income, the resultant income would have been the same, but the adjustments, if at all required for the sake of completeness and transparency, were required for both the entries, i.e. loss on transfer of assets as also amount withdrawn from business restructuring. This is precisely what the assessee has done. As much as the loss on transfer of assets is not a tax deductible item, the amount transferred from reserves is also not a taxable item. The assessee thus reversed both these entries, as depicted above, in the computation of income. The AO has taken note of the fact that in the computation of income attached to the return of income, the assessee has first added Rs. 57,39,60,05,089 as 'loss on transfer of telecom infrastructure to Bharti Infratel Ltd.' and then reduced Rs. 57,39,60,05,089 as 'amount withdrawn from Reserve for Business Restructuring', but then, instead of taking note of the unambiguous fact that these two distinct entries representing two facets duly reflected in the Profit and Loss Account, the AO assumes that since debit and credit of the same amount, resulting in neutralizing each other, he is justified in adding the loss on transfer of telecom infrastructure to the profit as per P&L a/c. Neither there was an effective debit to the P&L a/c, since the loss was squared up by transfer from reserve rather than by debit to P&L a/c, nor was it open to the AO to take into account loss on transfer of assets, though reflected in the inner column, without taking into account another inner column item reflecting transfer from reserves to square up this loss. Whichever way one looks at these entries, the inescapable conclusion is that the addition made by the AO is wholly erroneous and devoid of any legally sustainable merits. In this case, the DRP has also been somewhat superficial in its approach in confirming the addition by observing that, 'the disallowance of Rs. 57,39,60,05,000 by the AO in normal computation provisions as capital loss representing loss on transfer of telecom infrastructure to Bharti Infratel Ltd. is held as perfectly in order' because the grievance raised by the assessee was specifically against the erroneous approach of the AO in not taking a holistic view of the accounting entries. There is no, and there was never, any dispute on whether such a loss is tax deductible or not. The dispute was confined to the question whether, on the given facts, the AO could have made an addition for this amount to the income returned by the assessee. The contention of the assessee was that no such addition was justified because the assessee has, on his own, made appropriate adjustments in the computation of taxable income and an addition by the AO will result in double disallowance of the said amount. No doubt, the DRP did mention that, 'as regards the claim of assessee of not reducing the equivalent sum from the computation of income, it is noted that it is a matter of pure verification' and directed the AO 'to verify the claim of the assessee from the records and take necessary action', but then it was the inaction and inability of the AO in correctly doing so that the objection was raised before the DRP and all the related facts, including accounting entries and treatment given in the computation of taxable income, were placed before the DRP. With these observations, the impugned addition of Rs. 57, 39,60,05,089 is deleted. [Para 11] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2014 TaxPub(DT) 1923 (Del-Trib) : (2014) 161 TTJ 0428 : (2014) 101 DTR 0154

Bharti Airtel Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Business income--Business lossLoss on transfer of telecom infrastructure--Where assessee debited certain amount to Profit and Loss Account, being loss suffered on transfer of telecom infrastructure to BIL and inner column of Profit and Loss Account was credited of same amount, being account squared up representing 'amount withdrawn from reserve for business restructuring. The AO was not justified in adding the loss on transfer of telecom infrastructure to the profit as per Profit and Loss Account, as the squared up reserve reflected in inner column was not taken into consideration, as such addition made by AO was to be deleted.

Even if no adjustment was carried out in the computation of income, the resultant income would have been the same, but the adjustments, if at all required for the sake of completeness and transparency, were required for both the entries, i.e. loss on transfer of assets as also amount withdrawn from business restructuring. This is precisely what the assessee has done. As much as the loss on transfer of assets is not a tax deductible item, the amount transferred from reserves is also not a taxable item. The assessee thus reversed both these entries, as depicted above, in the computation of income. The AO has taken note of the fact that in the computation of income attached to the return of income, the assessee has first added Rs. 57,39,60,05,089 as 'loss on transfer of telecom infrastructure to Bharti Infratel Ltd.' and then reduced Rs. 57,39,60,05,089 as 'amount withdrawn from Reserve for Business Restructuring', but then, instead of taking note of the unambiguous fact that these two distinct entries representing two facets duly reflected in the Profit and Loss Account, the AO assumes that since debit and credit of the same amount, resulting in neutralizing each other, he is justified in adding the loss on transfer of telecom infrastructure to the profit as per P&L a/c. Neither there was an effective debit to the P&L a/c, since the loss was squared up by transfer from reserve rather than by debit to P&L a/c, nor was it open to the AO to take into account loss on transfer of assets, though reflected in the inner column, without taking into account another inner column item reflecting transfer from reserves to square up this loss. Whichever way one looks at these entries, the inescapable conclusion is that the addition made by the AO is wholly erroneous and devoid of any legally sustainable merits. In this case, the DRP has also been somewhat superficial in its approach in confirming the addition by observing that, 'the disallowance of Rs. 57,39,60,05,000 by the AO in normal computation provisions as capital loss representing loss on transfer of telecom infrastructure to Bharti Infratel Ltd. is held as perfectly in order' because the grievance raised by the assessee was specifically against the erroneous approach of the AO in not taking a holistic view of the accounting entries. There is no, and there was never, any dispute on whether such a loss is tax deductible or not. The dispute was confined to the question whether, on the given facts, the AO could have made an addition for this amount to the income returned by the assessee. The contention of the assessee was that no such addition was justified because the assessee has, on his own, made appropriate adjustments in the computation of taxable income and an addition by the AO will result in double disallowance of the said amount. No doubt, the DRP did mention that, 'as regards the claim of assessee of not reducing the equivalent sum from the computation of income, it is noted that it is a matter of pure verification' and directed the AO 'to verify the claim of the assessee from the records and take necessary action', but then it was the inaction and inability of the AO in correctly doing so that the objection was raised before the DRP and all the related facts, including accounting entries and treatment given in the computation of taxable income, were placed before the DRP. With these observations, the impugned addition of Rs. 57, 39,60,05,089 is deleted. [Para 11]