ACIT, CHENNAI V. Vivek Ltd., CHENNAI

ITA 1937/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4821 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 10-04-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 27-06-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Keywords: Business income; Reasonable cause; Scheme of amalgamation; Assessment record
• Section: 143(3); 260A; 148; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , # $ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1937/MDS/2016 & C.O. NO. 20/MDS/2017 / ASSESSMENT YEAR : 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(2), CHENNAI - 600 034. VS. M/S. VIVEK LTD., NO. 150, LUZ CHURCH ROAD, MYLAPORE, CHENNAI - 600 004. [PAN: AAACV 1186B] (APPELLANT) (RESPONDENT/ CROSS O BJECTOR) & ' / APPELLANT BY : SHRI SUPRIYO PAL, JCIT *+& ' / RESPONDENT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE ' /DATE OF HEARING : 10.04.2017 ' /DATE OF PRONOUNCEMENT : 21.04.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AND THE ASSESSEE FILED CROSS OBJECTION AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI IN ITA NO. 60/2014-15/CIT(A)-11 DATED 29.03 .2016. :-2-: I.T.A. NO. 1937/MDS/2016 C.O. NO. 20/MDS/2017 2. BEFORE WE PROCEEDED FOR HEARING THERE IS A DELAY OF 3 DAYS IN FILING THE APPEAL BY THE ASSESSEE. THE LD. DR FILED CONDONATIO N PETITION AND EXPLAINED THE CIRCUMSTANCES FOR DELAY WHICH ARE NOT DELIBERATE. FURTHER, LD. AR OF THE ASSESSEE HAS NO SERIOUS OBJECTIONS FOR CONDONATION OF DELAY. AFTER HEARING THE SUBMISSIONS, WE ARE SATISFIED WITH THE REASONABLE CAUSE EXPLAINE D IN AFFIDAVIT FOR FILING THE APPEAL BELATEDLY. THEREFORE, THE DELAY IS CONDONED AND AP PEAL IS ADMITTED. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 3.1 THE LD. CIT(A) ERRED IN DELETING THE EXCESS VAL UE OF ASSETS OVER LIABILITIES, IN CONSEQUENCE OF AMALGAMATION OF M/S. JAINSONS CORPORATION LTD AND M/S. BYSANI CONSUMER ELECTRONIC S LTD, WHICH WAS DIRECTLY CREDITED TO THE GENERAL RESERVE ACCOUNT OF M/ S. VIVEK LIMITED. THE CIT(A) ALLOWED THE AMOUNT AS IT WAS NO T IN THE NATURE OF ANY BENEFIT OR PERQUISITE AND NOT TAXABLE U/ S 28(I V) OF THE IT ACT. 3.2 THE LD. CIT(A) FAILED TO NOTE THAT THE AMALGAM ATION TOOK PLACE ONLY OUT OF BUSINESS EXPEDIENCY AND THEREFORE EXCESS VAL UE OF ASSETS AND LIABILITIES CREDITED TO GENERAL RESERVE OUGHT TO BE ASSESSED AS BUSINESS INCOME ONLY U/S. 28(IV) OF THE ACT. 3.3 THE LD. CIT(A) FAILED TO NOTE THAT THE ASSESSE E COMPANY HAS TRANSFERRED EXCESS VALUE ONLY DURING THE FY 2005-06 RELEVANT TO ASST. YEAR 2006-07 AND IT IS REFLECTED IN THE BALANCE SHE ET AS ON 31/03/2006 AND IT IS NOT TRANSFERRED IN THE EARLIER FINANCIAL YEAR RELEVANT TO ASST. YEAR 2005-06. 3.4 IT IS SUBMITTED THAT THE DECISION OF THE HON'B LE ITAT RELIED UPON BY THE CIT(A) IN THE CASE OF SPENCERS & CO LTD HAS NOT ACC EPTED BY THE DEPARTMENT AND THE APPEAL FILED IN HIGH COURT IS PE NDING IN TCA NO.396/2015. :-3-: I.T.A. NO. 1937/MDS/2016 C.O. NO. 20/MDS/2017 4. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE C OMPANY IN ENGAGED IN THE BUSINESS OF RETAIL TRADING OF CONSUMER GOODS AN D FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 30.11.201 6 WITH TOTAL INCOME OF RS. 1,696/- AFTER SET OFF OF BROUGHT FORWARD LOSS A ND THE RETURN OF INCOMEWAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, TH E ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 30.12.2008. TH E ASSESSING OFFICER ON PERUSAL OF THE ASSESSMENT RECORD FOUND THAT THE ASS ESSEE'S GENERAL RESERVE ACCOUNT IS CREDITED RS. 1,91,10,864/- BEING THE EXC ESS VALUE OF ASSETS OVER LIABILITIES ON ACCOUNT OF AMALGAMATION OF COMPANIES JCL LTD AND BCEL LTD. THEREFORE, EXCESS VALUE IN THE GENERAL RESERVE ACCO UNT HAS TO BE TREATED AS INCOME U/S. 28(IV) OF THE ACT AND THE LD. AO ISSUED NOTICE U/S. 148 OF THE ACT. IN RESPONSE TO NOTICE, LD. AR OF THE ASSESSEE APPEA RED FROM TIME AND TIME AND FILED THE EXPLANATIONS ON 21.01.2014, ON CREDIT TO GENERAL RESERVE ACCOUNT AND EXPLAINED THE EFFECT OF THE AMALGAMATI ON OF COMPANIES EFFECTIVE FROM 01.04.2004 AND RELIED ON CO-ORDINATE BENCH DEC ISION OF TRIBUNAL OF M/S. SPENCER & COMPANY LTD. VS ACIT (SUPRA). WHEREAS, T HE LD. AO DISTINGUISHED THE TRIBUNAL DECISION AND IS OF THE OPINION THAT TH E EXCESS OF ASSETS OVER LIABILITIES HAS TO BE TAXED AND MADE ADDITION TO TH E RETURNED INCOME AND PASSED ORDER U/S. 143(3) R.W.S. 147 OF THE INCOME T AX ACT ON 10.03.2014. :-4-: I.T.A. NO. 1937/MDS/2016 C.O. NO. 20/MDS/2017 5. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED A N APPEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR A RGUED ON THE VALIDITY OF RE- ASSESSMENT PROCEEDINGS AND THE ADDITION OF EXCESS V ALUE OF ASSETS OVER LIABILITIES DUE TO SCHEME OF AMALGAMATION RS. 1,91, 10,864/-. THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE COMPANY ON 01.02.2016 AND REFERRED AT PAGE 9 TO 13 OF THE ORDER. THE LD. CIT (A) CONFIRM THE RE- ASSESSMENT PROCEEDINGS AND CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER, SUBMISSIONS AND THE JUDICIAL DECISION OF SPENCERS & COMPANY (SUPRA) AND HELD THAT THE PROVISIONS OF SECTION 28(IV) OF THE A CT ARE NOT APPLICABLE TO ASSESSEE AND DIRECTED DELETING OF THE ADDITION AS R EFERRED AT PARA 5.3.3 AND 5.3.4 OF THE ORDER WHICH READ AS UNDER: '5.3.3 FURTHER, THE APPELLANT'S AR HAS CATEGORICAL LY STATED AS MENTIONED ABOVE UNDER PARA 5.2.1 THAT AS PER THE OR DER OF THE HON'BLE MADRAS HIGH COURT DATED 13.02.2006, THE AMALGAMATIO N CAME INTO EFFECT FROM 01.04.2004 RELEVANT TO ASSESSMENT YEAR 2005-06. THE AR HAS STATED THAT SINCE THE AFORESAID AMOUNT WAS CRED ITED TO THE GENERAL RESERVE ACCOUNT IN ASSESSMENT YEAR 2005-06, THE SAM E AMOUNT CANNOT BE CHARGEABLE TO TAX IN THE RELEVANT ASSESSMENT YEA R 2006-07 UNDER CONSIDERATION. 5.3.4 AFTER GOING THROUGH THE APPELLANT'S SUBMISSI ON AS MENTIONED ABOVE, I HAVE COME TO THE FOLLOWING CONCL USION: A) THE EXCESS VALUE OF ASSETS OVER LIABILITIES IN CONS EQUENCE OF AMALGAMATION CREDITED TO THE GENERAL RESERVE ACC OUNT AS PER THE ACCOUNTING STANDARD 14 CANNOT BE REGARDE D AS :-5-: I.T.A. NO. 1937/MDS/2016 C.O. NO. 20/MDS/2017 A VALUE OR BENEFIT TO THE APPELLANT COMPANY U/S. 28 (IV) OF THE ACT. B) THE DECISION RELIED ON BY THE APPELLANT ARE DIRECTL Y APPLICABLE TO THE ISSUE UNDER CONSIDERATION IN FAVO UR OF THE APPELLANT. C) THE AFORESAID AMOUNT WAS CREDITED TO THE GENERAL RE SERVE ACCOUNT IN EARLIER ASSESSMENT YEAR 2005-06 AND THER EFORE CANNOT BE CONSIDERED IN THE ASSESSMENT YEAR 2006-07 . ' THE LD CIT(A) WITH ABOVE OBSERVATIONS PARTLY ALL OWED THE APPEAL. 6. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE HAS F ILED AN APPEAL BEFORE THE TRIBUNAL. BEFORE US, THE LD. DR SUBMITT ED THAT THE CIT(A) HAS ERRED IN DELETING THE VALUE OF EXCESS ASSETS OVER L IABILITIES IN THE CASE OF AMALGAMATION OF COMPANIES CREDITED TO THE GENERAL R ESERVE AS NOT TAXABLE U/S. 28(IV) OF THE ACT. THE DECISION RELIED BY THE CIT(A) HAS NOT BECOME FINAL AND THE REVENUE HAS FILED APPEAL U/S. 260A OF THE A CT AGAINST THE TRIBUNAL ORDER IN TCA NO. 396/16 AND PRAYED FOR SETTING ASID E OF THE CIT(A) ORDER. CONTRA, THE LD. AR RELIED ON THE ORDERS OF THE CIT( A), AND DECISIONS OF THE JURISDICTIONAL HIGH COURT AND OPPOSED THE REVENUE G ROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. THE SOLE CRUX OF THE DISPUTED ISSUE BEING CREDIT OF EXCESS VALUE OF ASSETS OVER LIABILITIES TO THE GENERAL RES ERVE ACCOUNT BY THE ASSESSEE WHICH THE ASSESSING OFFICER HAS TREATED AS INCOME U /S. 28(IV) OF THE ACT. WE :-6-: I.T.A. NO. 1937/MDS/2016 C.O. NO. 20/MDS/2017 FIND DISPUTED ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE CO-ORDINATE BENCH OF TRIBUNALIN THE CASE OF M/S. SPENCER AND CO MPANY LIMITED VS ACIT IN ITA NO. 440/MDS/2011 DATED 20.04.2012. THE FACT TH AT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION AND THE APPEAL HAS BEEN F ILED WITH HON'BLE HIGH COURT OF MADRAS AND THE SAME IS PENDING. WE ARE OF THE OPINION THAT MERE FILING OF APPEAL BEFORE THE HON'BLE HIGH COURT, THE TRIBUNAL CANNOT TAKE DIFFERENT VIEW AND WE SUPPORT OUR VIEW RELYING ON T HE DECISION OF JURISDICTIONAL HIGH COURT CIT VS. STADS LTD. (2015) 61 TAXMAN.COM 339MDS), WHERE IT WAS HELD AS: '11. A PLAIN READING OF THE ABOVE SAID PROVISION M AKES IT CLEAR THAT THE AMOUNT REFLECTED IN THE BALANCE SHEET OF THE AS SESSEE UNDER THE HEAD 'RESERVE AND SURPLUS' CANNOT BE TREATED AS A B ENEFIT OR PERQUISITE ARISING FROM BUSINESS OR EXERCISE OF PROFESSION. T HE DIFFERENCE AMOUNT POST AMALGAMATION WAS THE AMALGAMATION RESERVE AND IT COULD NOT BE SAID THAT IT IS OUT OF NORMAL TRANSACTION OF THE BU SINESS. THE PRESENT TRANSACTION IS CAPITAL IN NATURE AROSE ON ACCOUNT O F AMALGAMATION OF FOUR COMPANIES. HENCE, WE HAVE NO HESITATION TO HO LD THAT THE MANNER IN WHICH THE REVENUE WANTS TO TREAT THIS AMOUNT IS NOT IN CONSONANCE WITH SEC. 28(IV) OF THE INCOME TAX ACT.' WE APPLY THE RATION OF JURISDICTIONAL HIGH COURT DE CISION TO THE PRESENT CASE AND ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE CIT(A) WHO HAS DEALT ON THE DISPUTED ISSUE EXHAUSTIVELY ON THE PROVISIONS, FACTS AND JUDICIAL DECISIONS AND ACCORDINGLY, UPHELD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. :-7-: I.T.A. NO. 1937/MDS/2016 C.O. NO. 20/MDS/2017 8. THE ASSESSEE HAS FILED CROSS OBJECTIONS IN CO NO . 20/MDS/2017, AT THE TIME OF HEARING, LD. AR OF THE ASSESSEE HAS NOT PRESSED THE GROUNDS AND MADE ENDORSEMENT. ACCORDINGLY, THE CO FILED BY THE ASSESSEE IS DISMISSED. IN THE RESULT, REVENUE APPEAL IN ITA NO. 1937/MDS/ 2016 AND CROSS OBJECTION FILED BY THE ASSESSEE IN CO NO. 20/MDS/20 17 ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 21ST DAY OF APRIL, 2017 AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER /CHENNAI, 1 /DATED: 21ST APRIL, 2017. JPV ' *#34 54 /COPY TO: 1. &/ APPELLANT 2. *+& /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 /CIT 5. 4 *## /DR 6. : /GF