The ACIT, Circle-4, Ahmedabad V. Indian Research Manifestation Labs Pvt. Ltd., Ahmedabad

ITA 3113/AHD/2004

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 56997 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-01-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 21-10-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SRIVASTAVA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Scheme of amalgamation
• Section: 14A

Judgement Text

ITA NO.311 3/AHD/2004 ASSESSMENT YEAR 2001-02 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH,AHM EDABAD. (BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI B.R.BHASKARAN) I.T.NO.3113/AHD/2004 (ASSESSMENT YEAR 2001-02) THE ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE-4, NAVJIVAN TRUST BUILDING, OFF.ASHRAM ROAD, AHMEDBAD. (APPELLANT) VS. INDIAN RESEARCH MANIFESTATION LABS PVT. LTD., IRM HOUSE,, OFF ASHRAM ROAD, AHMEDABAD. (RESPONDENT) PAN: AAACI 3678 M APPELLANT BY : SHRI P.K.SRIVASTAVA, SR. D.R . RESPONDENT BY : SHRI S.N.SOPARKAR, SR ADVOCATE . DATE OF HEARING : 16-1-2012 DATE OF PRONOUNCEMENT : 19-1-2012 ( (( ( )/ )/)/ )/ ORDER PER: SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 23-8-2004 PASSED BY THE LD. CIT (A) AHMEDABAD AND IT RELATES TO THE ASSESSMENT YEAR 2001-02. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETH ER THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF SEC. 14A SHALL NOT A PPLY WITH REGARD TO THE INVESTMENT MADE BY THE ASSESSEE COMPANY IN THE EQUITY SHARES O F MADHU IMPEX LTD. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THAT THE ASSESSEE HAS INVESTED A SUM OF RS.386.31 LAKHS IN THE EQUITY SHARES OF A COMPANY NAMED M/S MADHU I MPEX LTD, BESIDES MAKING INVESTMENTS IN THE EQUITY SHARES OF OTHER COMPANIES . IT WAS ALSO NOTICED BY THE AO THAT THE ASSESSEE WAS HAVING BORROWED FUNDS OF 11.93 CRO RES AND OWN FUNDS OF RS.1.60 CRORES AS ON THE OPENING DAY OF THE ACCOUNTING YEAR. THE AMOUNT INVESTED IN THE FIXED ASSETS ITA NO.311 3/AHD/2004 ASSESSMENT YEAR 2001-02 2 STOOD AT RS.5.67 CRORES AS ON THAT DATE. WITH THES E DETAILS, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS ONLY INVESTED INTEREST BEARING FUNDS I N THE EQUITY SHARES OF THE COMPANIES AND ACCORDINGLY OPINED THAT PROPORTIONATE AMOUNT OF INTEREST IS DISALLOWABLE U/S./14A OF THE ACT. ACCORDINGLY THE AO CALCULATED THE PROPORTI ONATE INTEREST PERTAINING TO THE INVESTMENTS SO MADE IN THE EQUITY SHARES AT RS.28,1 4,231/- AND DISALLOWED THE SAME. THE LD. CIT(A) NOTICED THAT ASSESSEE HAS FILED APPLICA TIONS BEFORE THE HONBLE HIGH COURT OF GUJARAT FOR THE AMALGAMATION OF M/S MADHU IMPEX LTD WITH IT, W.E.F. 5-2-2000 OR SUCH OTHER DATE AS MAY BE DIRECTED BY THE HIGH COURT. H ENCE, THE LD CIT (A) HELD THAT THE IMPUGNED INVESTMENT MADE IN M/S MADHU IMPEX LTD WAS NOT WITH THE OBJECTIVE OF EARNING DIVIDEND INCOME AND ACCORDINGLY DELETED THE DISALLOWANCE OF INTEREST RELATING THE SAID INVESTMENT. HOWEVER, HE PARTIALLY UPHELD THE DISALLOWANCE OF INTEREST RELATING TO THE INVESTMENTS MADE IN OTHER COMPANIES. AGGRIEVED AGAI NST THE ORDER OF THE LD. CIT (A) IN RESPECT OF M/S MADHU IMPEX LTD, THE REVENUE IS IN A PPEAL BEFORE US. 4. THE LD. DR SUBMITTED THAT THE INTENTION OF THE A SSESSEE IN MAKING IMPUGNED INVESTMENT IN THE EQUITY SHARES OF M/S MADHU IMPEX LTD WAS ONLY TO EARN DIVIDEND, WHICH IS EVIDENCED BY THE FACT THAT THE ASSESSEE HA S DISCLOSED THE SAME AS INVESTMENT IN ITS BALANCE SHEET. HE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY INTENTION OF TAKING OVER THE SAID COMPANY AT THE TIME OF MAKING IMPUGNED INVESTMENT AND IF THE INTENTION WAS SO, THE SAID INVESTMENT WOULD HAVE BE EN CLASSIFIED AS BUSINESS ADVANCE IN THE BALANCE SHEET. ON THE OTHER HAND, THE LD. A R INVITED OUR ATTENTION TO THE SCHEME OF AMALGAMATION OF MADHU IMPEX LTD WITH THE ASSESS EE-COMPANY, WHICH IS PLACED IN PAGES 13 TO 20 OF THE 36 PAGES PAPER BOOK FILED B Y THE ASSESSEE, WHEREIN THE APPOINTED DATE IS MENTIONED AS 5 TH FEBRUARY,2000 OR SUCH OTHER DATE AS MAY BE DIRECTE D BY THE HONBLE HIGH COURT OF GUJARAT. HE FURTHER INVITED OUR ATTENTION TO THE ORDER DATED 19 TH DECEMBER, 2001 PASSED BY THE HONBLE HIGH COURT OF GUJARAT, WHICH IS PLACED IN PAGES 9 ONWARDS OF THE 36 PAGES PAPER BOOK FILED BY THE A SSESSEE, WHEREIN THE HIGH COURT HAS SANCTIONED THE SCHEME OF AMALGAMATION. ACCORDINGLY THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO THE SCHEME OF AMALGAMATIO N, EVEN PRIOR TO THE COMMENCEMENT OF THE YEAR UNDER CONSIDERATION AND THE SAID FACT M AKES THE INTENTION OF THE ASSESSEE VERY CLEAR. HE FURTHER SUBMITTED THAT M/S. MADHU IMPEX LTD HAS LOST ITS IDENTITY UPON ITS ITA NO.311 3/AHD/2004 ASSESSMENT YEAR 2001-02 3 MERGER WITH THE ASSESSEE COMPANY W.E.F 5-2-2000 AS PER THE ORDER OF HONBL;E HIGH COURT AND HENCE THE QUESTION OF APPLICATION OF SECT ION 14A DOES NOT ARISE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE COMPANY HAS ENTERED INTO A SCHEME OF AMALGAMATION WITH M/S MADHU IMPEX LIMITED, ACCORDING TO WHICH M/S MADHU IMPEX L TD WAS TO GET AMALGAMATED WITH THE ASSESSEE COMPANY. AS PER THE SAID SCHEME OF AM ALGAMATION, THE APPOINTED DATE FOR THE PROPORTIONATE AMALGAMATION HAS BEEN FIXED AS 5 TH FEBURARY, 2000 OR SUCH OTHER DATE AS MAY BE DIRECTED BY THE HONBLE HIGH COURT. THERE C ANNOT BE ANY DISPUTE THAT THE SAID DATE FALLS IN THE PERIOD PRIOR TO THE COMMENCEMENT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02. THE HONBLE HIGH COURT HA S ALSO SANCTION THE SAID SCHEME OF AMALGAMATION BY ITS ORDER DATED 19 TH DECEMBER, 2001. THESE FACTS CLEARLY PROVE THAT TH E INTENTION OF THE ASSESSEE IN PURCHASING THE EQUITY SHARES OF M/S MADHU IMPEX LTD WAS ONLY TO ACQUIRE THE ENTIRE COMPANY AND NOT MERELY E ARNING DIVIDEND FROM IT. AS SUBMITTED BY THE LD A.R, M/S. MADHU IMPEX LTD WOULD LOOSE ITS IDENTITY UPON ITS AMALGAMATION WITH THE ASSESSEE COMPANY AND IT WAS S TATED THAT THE SAID AMALGAMATION WOULD BE EFFECTIVE FROM 5 TH FEBRUARY,2000, AS NO OTHER DATE HAS BEEN FIXED BY THE HONBLE HIGH COURT. IN THAT CASE, THE IMPUGNED INVE STMENT OF RS.386.31 LACS WOULD NOT BE REFLECTED IN THE BOOKS OF ASSESSEE-COMPANY AS ON 1-4-2000 AND INSTEAD ALL THE ASSETS AND LIABILITIES OF M/S MADHU IMPEX LTD WOULD BE INC ORPORATED IN THE BOOKS OF THE ASSESSEE COMPANY. IN VIEW OF THE FOREGOING DISCUSS IONS, WE ARE ALSO OF THE VIEW THAT THE INTENTION OF THE ASSESSEE IN MAKING THE IMPUGNED IN VESTMENT IN M/S MADHU IMPEX LTD IS NOT WITH THE OBJECTIVE OF EARNING DIVIDEND, BUT WIT H A BUSINESS MOTIVE. HENCE, IN OUR VIEW, THE QUESTION OF APPLICATION OF SECTION 14A WO ULD NOT ARISE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, WE DO NOT F IND ANY INFIRMITY IN THE DECISION REACHED BY THE CIT (A) ON THIS ISSUE. ITA NO.311 3/AHD/2004 ASSESSMENT YEAR 2001-02 4 5. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON 19-1-2012 SD/- SD/- ( G.C. GUPTA) (B.R.BASKARAN) VICE PRESIDENT ACCOUNTAN T MEMBER AHMEDABAD. DATED: 19 - 1 - 2012. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO.311 3/AHD/2004 ASSESSMENT YEAR 2001-02 5 1.DATE OF DICTATION 16 - 1 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 16 / 1 / 20121 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 18 - 1 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 19 - 1 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 19 - 1 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19 - 1 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..