Gamma Organics Limited , Hyderabad V. Income Tax Officer, Ward-2(2), Hyderabad

ITA 1657/Hyd/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8185 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 02-12-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 28-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Depreciation; Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC BENCH, HYDERABAD BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER ITA NO. 1657 / HYD /201 7 (ASST. YEAR : 200 7 - 0 8 ) M/S. GAMMA ORGANICS LTD., PLOT NO. 207, ROAD NO. 76, JUBILEE HILLS, HYDERABAD. V S . IT O , WARD - 2 ( 2 ), HYDERABAD . PAN NO. AADFG 4301 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.V. RAGHURAM A R . DEPARTMENT BY : SHRI KIRAN KATTA SR. DR DATE OF HEARING : 02 / 12 /201 9 . DATE OF PRONOUNCEMENT : 22 / 0 1 /20 20 . O R D E R TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 2 , HYDERABAD , DATED 30 /0 6 /201 7 FOR THE ASSESSMENT YEAR 200 7 - 0 8 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE - COMPANY IS IN THE BUSINESS OF MANUFACTURING OF BUL K DRUGS AND INTERMEDIARIES, FILED ITS RETURN OF INCOME BY ADMITTING LOSS OF RS. 8,22 ,757/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER FOLLOWING DUE PROCEDURE ASSESSMENT WAS COMPLETED U/SEC. 143(3) DATED 24/12/2009 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE - COMPANY HAS 2 ITA NO. 1657 / HYD /2017 ( M/S. GAMMA ORGANICS LTD. ) A DMITTED RS. 23,70,729/ - UNDER THE HEAD INCOME FROM OTHER SOURCES BEING CREDIT BALANCES RETURN BACK. WHEN ASKED FOR CLARIFICATION, IT WAS STATED THAT INCOME ADMITTED BY THE COMPANY UNDER THE HEAD OTHER INCOME IS NOTHING BUT BUSINESS INCOME AS IT I S EXPEN DITURE RETURN BACK BY THE ASSESSEE WHICH WAS CLAIMED IN EARLIER YEARS ALSO FOR THE BUSINESS CARRIED ON BY THE ASSESSEE. AS THERE IS NO BUSINESS ACTIVITY DURING THE YEAR, IT IS PROPOSED TO DISALLOW THE EXPENDITURE OF RS. 32,15,295/ - WHICH INCLUDES DEPRECIATION ALLOWANCE OF RS. 44,813/ - AND BANK INTEREST OF RS.31,50,175/ - . IN RESPONSE TO THE ABOVE PROPOSAL OF THE ASSESSING OFFICER, THE ASSESSEE HAS FILED A LETTER BY STATING AS UNDER: - THE COMPANY IS INCORPORATED DURING NOVEMBER, 2001 WITH A OBJECT TO MANUFACTURE BULK DRUGS AND INTERMEDIATES. THE PERFORMANCE OF THE COMPANY FOR THE YEARS 2000 - 01 AND 20 01 - 02 IS UNDER: - FINANCIAL YEAR TURNOVER (RS. IN LAKHS) 2000 - 01 420.73 2001 - 02 606.21 ALTHOUGH THE COMPANY DOES NOT HAVE THE REQUIRED PLANT AND MACHINERY TO CARRY OUT MANUFACTURING ACTIVITY, IT ISSUED TO GET ITS WORK DON E BY USING OTHER COMPANIES INFRAST R U CT URE . DURING THE YEAR, DUE TO ADVERSE BUSINESS DUE TO ADVERSE BUSINESS CONDITIONS COUPLED WITH INADEQUATE WORKING CAPITAL FACILITIES, THE OPERATIONS OF THE COMPANY WERE SEVERELY AFFECTED AND THERE IS NO ACTIVITY FOR THE SUBSEQUENT PERIOD. THE COMPANY WITH AN INTENTION TO RESTORE TO MANUFACTURE ACTIVITY AVAILED CERTAIN FACILITIES FROM UCO BANK AND DEPLOYED 3 ITA NO. 1657 / HYD /2017 ( M/S. GAMMA ORGANICS LTD. ) THESE FUNDS IN OTHER COMPANIES WITH AN INTENTION TO DEVELOP CERTAIN HIGH VALUE PRODUCTS FOR THE EVENTUAL BUSINESS ACTIVITY. IN VIEW OF THIS ARRANGEMENT, WE REQUEST YOU TO KINDLY ALLOW THE INTEREST AMOUNT OF RS. 31,50,175/ - PAID TO UCO BANK AS EXPENDITURE. THE ASSESSING OFFICER HAS CONSIDERED THE REPLY GIVEN BY THE ASSESSEE AND OBSERVED THAT THE COMPANY ITSELF HAS MENTIONED THAT IT DID NOT CARRIED OUT ANY ACTIVITY DURING THE YEAR UNDER CONSIDERATION. FURTHER , AS PER THE ANNEXURE TO THE AUDITOR REPORT, THE COMPANY HAS GRANTED UNSECURED LOANS TO GROUP COMPANIES. THE COMPANY HAS NOT CHARGED ANY INTEREST ON THESE LOANS. I N VIEW OF THE ABOVE, THE ENTIRE BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE IS DISALLOWED A ND ASSESSMENT IS COMPLETED ACCORDINGLY. 3 . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING TH A T THE ASSESSEE FAILED TO ESTABLISH TH A T THE COMPANY WAS CARRYING ON ITS BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION AND THE ASSESSEE FAILED TO PROVE THE COMMERCIAL EXPEDIENCY . 4 . BEFORE ME, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT INTEREST FREE LOANS ARE GIVEN TO THE GROUP COMPANIES , THERE IS A BUSINESS AND COMMERCIAL EXPEDIENCY BETWEEN THE ASSESSEE - COMPANY AND ITS GROUP COMPANIES, THEREFORE THE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED. 4 ITA NO. 1657 / HYD /2017 ( M/S. GAMMA ORGANICS LTD. ) 5. ON THE OTHER HAND, LD.DR HAS STRONGLY OPPOSED AND SUBMITTED THAT ASSESSING OFFICER AND LD. CIT(A) HAVE CORRECTLY DECIDED THE ISSUE AND REQU ESTED TO DISMISS THE APPEAL OF THE ASSESSEE. 6 . I HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 7 . IT IS A FACT THAT ASSESSEE IS NOT CARRYING ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION EVEN SUBSEQUENT YEARS ALSO. IT IS ALSO A FACT THAT ASSESSEE HAS GIVEN INTEREST FREE LOANS TO OTHER COMPANIES WITHOUT CHARGING ANY INTEREST . THE ASSESSEE HAS INCURRED EXPENDITURE BY PAYING INTEREST TO THE BANKS. THE CASE OF THE ASSESSEE IS THAT INTEREST FREE LOANS GIVEN TO THE GROUP COMPANIES HAS TO BE TREATED AS COMMERCIAL EXPEDIENCY AND EXPENDITURE HAS TO BE ALLOWED. THE ASSESSEE NEITHER BEFORE THE ASSESSING OFFICER NO R BEFORE THE LD. CIT(A), EVEN BEFORE ME , HAS NOT ABLE TO SUBSTANTIATE THAT THE INTERE ST FREE LOANS GIVEN BY THE ASSESSEE TO THE GROUP COMPANIES ARE FOR COMMERCIAL EXPEDIENCY . THE ASSESSEE ALSO NOT ABLE TO SUBSTANTIATE TH A T WHAT IS THAT BUSINESS RELATIONSHIP WITH THE ASSESSEE AND THE OTHER COMPANIES PARTICULAR L Y WHEN THE ASSESSEE - COMPANY ITSELF IS A CLOSED, NO ACTIVITIES ARE CARRIED OUT HOW THE INTEREST FREE LOANS GIVEN BY THE ASSESSEE IS A BUSINESS EXPEDIENCY FOR THE ASSESSEE COMPANY . 5 ITA NO. 1657 / HYD /2017 ( M/S. GAMMA ORGANICS LTD. ) THEREFORE, I FIND THAT ASSESSEE FAILED TO EXPLAIN THE PROXIMITY BETWEEN THE LOANS GIVEN TO THE GROUP COM PANIES AND BUSINESS EXPEDIENCY TO THE ASSESSEE. HENCE, I FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 8 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON TH IS 2 2 N D DAY OF JAN. , 20 20 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 2 2 N D JANUARY , 20 20 . VR/ - COPY TO: 1. THE ASSESSEE M/S. GAMMA ORGANICS LTD., PLOT NO. 207, ROAD NO. 76, JUBILEE HILLS, HYDERABAD. 2. THE REVENUE - ITO, WARD - 2(2), HYDERABAD. 3. THE PR. CIT - 2, HYDERABAD. 4. THE CIT(A) - 2, HYDERABAD. 5. THE D.R . , HYDERABAD. 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.