M/s. Coramandel Industries Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 181/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4848 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-06-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 18-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 181/MDS/2010 ASSESSMENT YEAR : 2002-03 M/S. CORAMANDEL INDUSTRIES PVT. LTD., 5, PYCROFTS GARDEN ROAD, CHENNAI 600 006. PAN AAACC 1273 C VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(3), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY : SHRI ANIRUD H RAI, CIT - DR O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2002-03. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I II, AT CHENNAI DATED 27.11.2009. THE APPEAL ARISES OUT OF THE ASS ESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1 961. ITA 181/10 :- 2 -: 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF BEING A SUPPLIER OF AUTO PARTS TO ITS CLIENT, WHEEL S INDIA LTD., SINCE 1964. THE ASSESSEE COMPANY AS AN ENGINEERING COMPA NY HAS BEEN CARRYING ON THE BUSINESS OF DEVELOPING OF PROT OTYPES PROVIDING TECHNICAL KNOWHOW AND ALSO MANUFACTURING OF COMPONENTS FROM ITS INCEPTION. PROVIDING OF TECHNI CAL KNOWHOW TO DEVELOP THE PROTOTYPES HAS BEEN CONSIDERED BY THE A SSESSEE AS A SEPARATE BUSINESS DIFFERENT FROM MANUFACTURING OF COMPONENTS. LATER ON, THE ASSESSEE DISCONTINUED ONE OF ITS ACTI VITIES NAMELY, MANUFACTURING, BUT IT CONTINUED TO CARRY ON THE OTH ER LINE OF BUSINESS OF PROVIDING TECHNICAL KNOWHOW AND SUPERVI SION OF MANUFACTURING AUTOMOBILE COMPONENTS. 3. THE DISCONTINUED ACTIVITY HAD CREATED A LOSS OF ` 37,63,157/- MAINLY ON ACCOUNT OF THE PAYMENTS MADE TO LABOURERS AT THE TIME OF RETRENCHMENT. THIS LOSS WAS SET OFF BY THE ASSE SSEE AGAINST ITS INCOME FROM CONSULTANCY BUSINESS. THE LOSS WAS DIS ALLOWED BY THE ASSESSING AUTHORITY TREATING IT AS A CAPITAL EX PENDITURE AND DENIED THE BENEFIT OF SET OFF. THE CONSULTANCY INC OME WAS ASSESSED INDEPENDENTLY. THIS WAS CONFIRMED IN FIRS T APPEAL. THEREFORE, THE SECOND APPEAL BEFORE US. ITA 181/10 :- 3 -: 4. SHRI R. VIJAYARAGHAVAN, THE LEARNED COUNSEL APPE ARING FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON'BLE M ADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. DIESEL ENGINEER (244 ITR 488) TO SHOW THAT WHEN A NUMBER O F ACTIVITIES ARE CARRIED OUT BY AN ASSESSEE AS A SINGLE BUSINESS , THE LOSS ARISING OUT OF ONE OF THE UNITS MUST BE ALLOWED TO SET OFF AGAINST THE PROFITS OF OTHER UNITS EVEN IF THE LOSS MAKING UNIT HAS BEEN CLOSED DOWN. 5. IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENT , HE CONTENDED THAT THE ASSESSEE WAS CARRYING ON THE BUS INESS OF PROVIDING TECHNICAL KNOWHOW AS WELL AS MANUFACTURIN G AUTOMOBILE COMPONENTS AS A SINGLE BUSINESS AND THEREFORE, THE LOSS ARISING OUT OF THE CLOSURE OF THE MANUFACTURING BUSINESS SH OULD BE TREATED AS THE LOSS OF THE BUSINESS CARRIED ON BY T HE ASSESSEE AND ALLOWED TO BE SET OFF AGAINST THE INCOME RETURN ED OUT OF ITS CONSULTANCY BUSINESS. 6. THE LEARNED COUNSEL HAS ALSO RELIED ON THE JUDGM ENT OF THE HON'BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATH AN NAIR VS. COMMISSIONER OF INCOME-TAX (247 ITR 178) WHERE THE COURT HAS HELD THAT CLOSURE OF ONE OF THE UNITS SHALL NOT BE CONSTRUED AS CLOSURE OF BUSINESS UNDER THE IN COME-TAX ACT AND ITA 181/10 :- 4 -: ACCORDINGLY, THE EXPENDITURE ON CLOSURE SHOULD BE S ET OFF AGAINST THE INCOME OF OTHER BUSINESS UNITS RUN BY THE ASSES SEE. HE HAS ALSO RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME C OURT IN THE CASE OF VEECUMSEES VS. COMMISSIONER OF INCOME-TAX (220 ITR 185). 7. SHRI ANIRUDH RAI, THE LEARNED COMMISSIONER OF IN COME-TAX, APPEARING FOR THE REVENUE RELIED ON THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF COIMBATORE PREMIER CORPORATION (P) LIMITED V. COMMISSIONER OF INCOME-T AX (244 ITR 445) TO SUPPORT HIS ARGUMENT THAT THE COMPENSATION PAID BY THE ASSESSEE TO ITS WORKERS ON CLOSURE OF THE BUSINESS CANNOT BE TREATED AS REVENUE EXPENDITURE AND THEREFORE, CANNO T BE SET OFF AGAINST THE INCOME EARNED FROM OTHER BUSINESS UNITS . THE LEARNED COMMISSIONER HAS ALSO RELIED ON THE JUDGMEN T OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF P. RM. S. R AMANATHAN CHETTIAR VS. COMMISSIONER OF INCOME-TAX (72 ITR 534 ) AND ALSO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF COMMISSIONER OF INCOME-TAX VS. GEMINI CASHEW SALES CORPORATION (65 ITR 643) WHERE THE SUPREME COURT HA S HELD THAT THE EXPENSES INCURRED ON CLOSURE OF BUSINESS SHOULD BE TREATED ITA 181/10 :- 5 -: AS CAPITAL IN NATURE AND THEREFORE, NOT ALLOWABLE A S DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE. 8. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE ISSUE. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE , THE HON'BLE SUPREME COURT HAS ALREADY HELD THAT IF DIFFERENT UN ITS ARE CARRIED ON BY THE ASSESSEE AS A SINGLE BUSINESS, CLOSURE EX PENDITURE OF ONE OF THE UNITS SHOULD BE TREATED AS REVENUE EXPEN DITURE ELIGIBLE FOR DEDUCTION IN COMPUTING THE BUSINESS INCOME OF T HE ASSESSEE. IF THAT PRINCIPLE IS APPLIED IN THE PRESENT CASE, T HEN THE LOSS OF THE ASSESSEE SHOULD BE ALLOWED TO SET OFF AGAINST THE C ONSULTANCY INCOME. THEREFORE, WE HAVE TO SEE WHETHER THE ASSE SSEE HAS CARRIED ON TWO UNITS AS A SINGLE BUSINESS OR NOT. 9. SINCE ITS INCEPTION IN 1964, THE ASSESSEE HAS BE EN CARRYING ON THE BUSINESS IN THE SAME LINE OF AUTOMOBILE INDU STRY. THE ASSESSEE HAD CARRIED ON TWO BRANCHES; ONE BRANCH TO PROVIDE TECHNICAL KNOWHOW AND THE OTHER BRANCH TO MANUFACTU RE AUTOMOBILE COMPONENTS. IT IS TO BE SEEN THAT BOTH THE ABOVE ACTIVITIES ARE OF THE SAME NATURE AND RELATING TO T HE SAME INDUSTRY. THEREFORE, AS A MATTER OF FACT, IT IS TO BE SEEN TH AT BOTH THE ACTIVITIES WERE CARRIED ON BY THE ASSESSEE AS A SINGLE ITA 181/10 :- 6 -: BUSINESS AND FOR ALL PRACTICAL PURPOSES ITS ONLY CU STOMER IS WHEELS INDIA LTD. CONSULTANCY IS SOMETHING DIFFERE NT FROM MANUFACTURING. THEREFORE, BY VIRTUE OF THE NATURE OF THE FUNCTIONS, THOSE TWO ACTIVITIES ARE TO BE TREATED AS TWO UNITS . BUT AT THE SAME TIME, THOSE TWO UNITS ARE CARRIED ON BY THE AS SESSEE AS A SINGLE BUSINESS. IN SUCH CIRCUMSTANCES, WHEN THE M ANUFACTURING UNIT IS CLOSED DOWN AND EXPENSES INCURRED HAVE RESU LTED IN LOSS, IT SHOULD BE SET OFF AGAINST THE INCOME ARISING TO THE ASSESSEE FROM ITS RUNNING BUSINESS OF PROVIDING CONSULTANCY SERVICES. THEREFORE, WE FIND THAT THE DECISION OF THE HON'BLE SUPREME COURT RELIED ON BY THE ASSESSEE IN THE CASE OF K. RAVINDR ANATHAN NAIR VS. COMMISSIONER OF INCOME-TAX (247 ITR 178) IS APP LICABLE TO THE PRESENT CASE. 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE IS ENTITLED FOR SETTING OFF OF LOSS OF ITS MANUFACTURING UNIT AGAINST THE INCOME OF CONSULTANCY UNIT. THE ASSESS ING OFFICER IS DIRECTED TO MODIFY THE ASSESSMENT IN THE ABOVE TERM S. 11. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA 181/10 :- 7 -: ORDER PRONOUNCED ON THURSDAY, THE 23 RD DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 23 RD JUNE, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR