M/s. UP Electronics Corporation Limited, Lucknow V. JCIT, Lucknow

ITA 348/LKW/2005

• Counselvise Citation: 34823714 RSA 2005
• Duration Of Justice: 6 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 19-04-2011
• Assessment Year: 1992-1993
• Appeal Filed On: 20-04-2005
• Court: TRIBUNAL
• Department Lawyers: ANADI VERMA
• Assessee Lawyers: R C JAIN
• Keywords: Depreciation; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: LUCKNOW BENCH A, LUCKNOW (BEFORE HONBLE SHRI H. L. KARWA AND HONBLE SH. N. K.SAINI) ITA NO.348/LKW/2005 ASSESSMENT YEAR:1992-93 M/S U.P. ELECTRONICS CORPORATION LIMITED, 10, ASHOK MARG LUCKNOW V. JCIT SPL. RANGE I LUCKNOW PAN:AAACU3391H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. R. C. JAIN, C.A RESPONDENT BY: SHRI. ANADI VERMA, D.R. O R D E R PER N. K. SAINI: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 19.11.2004 OF THE CIT(A)-I, LUCKNOW. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL R ELATES TO THE REJECTION OF ITS CLAIM FOR DEDUCTION OF LOSS OF $ 6.50 LAKHS IN RESPECT OF SHARES OF M/S BHARAT PHOTO CIRCUITS LIMITED FOR COM PUTING ITS TAXABLE INCOME. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS A GOVERNMENT COMPANY AND WAS ENGAGED IN THE BUSINESS OF PROMOTIO N AND DEVELOPMENT OF ELECTRONICS INDUSTRY IN THE STATE OF UTTAR PRADE SH. THE ASSESSEE- COMPANY FURNISHED THE RETURN OF INCOME SHOWING LOSS OF $ 4,06,395 ON 28.12.1992 WHICH WAS PROCESSED UNDER SECTION 143(1) (A) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) ON 26.3.1993. SUBSE QUENTLY, THE ASSESSMENT WAS FRAMED BY THE ASSESSING OFFICER UNDER SECTION 1 43(3) OF THE ACT ON 25.7.1994 AT AN INCOME OF $ 11,6,540 AFTER MAKING CERTAIN ADDITIONS. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO H AD GRANTED RELIEF OF $ 6.50 LAKHS ON ACCOUNT OF WRITE OFF OF REVENUE CAPIT AL OF M/S BHARAT PHOTO CIRCUITS LIMITED AS THERE WAS NO CHANCE OF ITS RECO VERY AND ALSO ALLOWED :-2-: DEDUCTION OF INTEREST OF $ 10,87,995 AS CLAIMED BY THE ASSESSEE-COMPANY ON ACCOUNT OF OVERDRAFT INTEREST CHARGED BY THE BANK. THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE ITAT AGAINST THE ORD ER OF THE LD. CIT(A) AND THE ITAT VIDE ORDER DATED 10.2.2003 SET ASIDE THE M ATTER AND RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECID E THE SAME AFRESH BY OBSERVING THAT WHETHER THE SHARES OF M/S BHARAT PHO TO CIRCUITS LIMITED WERE PURCHASED BY THE ASSESSEE AS INVESTMENT AND IF SO, WHAT WAS THE TREATMENT IN RESPECT OF THE SHARES AND BASIS AS TO HOW THE APPRECIATION IN THE VALUE OF SHARES OR DEPRECIATION IN THE VALUE OF THOSE SHARES. 4. IN COMPLIANCE OF THE DIRECTIONS OF THE ITAT, THE AS SESSING OFFICER DECIDED THE ISSUE AFTER CONSIDERING THE SUBMISSIONS FILED BY THE ASSESSEE AND MADE AN ADDITION OF $ 6.50 LAKHS BY OBSERVING AS UNDER:- THE ASSESSEE HAS INVESTED $ 6,50,000 IN SHARES CAPITAL OF M/S BHARAT PHOTO CIRCUITS LIMITED. THE COMPANY HAS MAD E AN APPLICATION BEFORE BIFR FOR ITS REHABILITATION WHIC H IS PENDING FOR SETTLEMENT. THE ASSESSEE COMPANY HAS CLAIMED THAT SINCE THERE ARE NO POSSIBILITIES OF RECOVERY OF THIS AMOUNT AND THE REFORE, IT HAS BEEN SHOW AS WRITTEN OFF. THIS ISSUE HAS BEEN CONS IDERED AND IT HAS BEEN FOUND THAT THE COMPANY HAS FURNISHED NO FURTHE R EVIDENCE OR DOCUMENTS IN SUPPORT OF ITS CLAIM OF BEING UNREALIZ ABLE SUM AND THE JUSTIFICATION OF WRITING OFF OF A SUM OF $ 6,50,000 HAS NOT BEEN FURNISHED DURING THE COURSE OF RE-ASSESSMENT PROCEE DINGS AS WERE REQUIRED IN TERMS OF DIRECTIONS OF HON'BLE ITAT IN THEIR ORDERS IN ITA NO.322/ALLD/95 AND MISC. PETITION MA NO.116/LUC/200 2 DATED 10.2.2003. THE SPECIFIC POINT OF CONSIDERATION INV OLVED IS WHETHER THE INCOME OR LOSS WAS ACCOUNTED FOR IN THE EVENT O F APPRECIATION AND DEPRECIATION IN THE VALUE OF SHARES OF M/S BHAR AT PHOTO CIRCUITS LIMITED. THE NATURE OF EQUITY SHARES AS TO WHETHER THE SHARES WERE PURCHASED BY WAY OF INVESTMENT FOR DERIVING PROFIT OR GAIN OR GAIN FROM SALE AND PURCHASE OF SHARES COULD ALSO NOT BE EXPLAINED. FROM :-3-: THE MATERIAL AVAILABLE INFERENCE CAN BE DRAWN THAT MERELY ON THE GROUND THAT THE CHANCES OF RECOVERY OF THIS SUM WER E REMOTE AND THE COMPANY IS BEFORE BIFR FOR REHABILITATION THE T OTAL AMOUNT OF $ 6,50,000 HAS BEEN WRITTEN OFF. MERELY THIS GROUND OF THE ASSESSEE IS NOT TREATED AS A SUFFICIENT GROUND FOR WRITING O FF A SUM OF $ 6,50,000 AS SHARE AMOUNT OF M/S BHARAT PHOTO CIRCUI TS LIMITED. IN ABSENCE OF SPECIFIC REASON IT IS NOT POSSIBLE TO CO NSIDER THIS SUM LEGIBLE FOR BEING WRITTEN OFF. THIS AMOUNT IS THER EFORE, ADDED TO THE INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE-COMPANY HAD GONE BE FORE THE BIFR AND THE AMOUNT SHOULD HAVE BEEN WRITTEN OFF AS THERE WA S NO CHANCE OF RECOVERY. THE ASSESSEE ALSO SUBMITTED THE COPY OF BALANCE SHEET AND PROFITS AND LOSS ACCOUNT BEFORE THE LD. CIT(A). 6. THE LD. CIT(A) WAS NOT SATISFIED WITH THE EXPLANATI ON OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE ASS ESSING OFFICER BY OBSERVING IN PARA 4 OF THE IMPUGNED ORDER AS UNDER: - THE COPIES OF BALANCE SHEET AND PROFITS AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.92 SHOWS INVESTMENT IN BHARAT PHOTO CIRCUITS LIMITED WRITTEN OFF SCHEDULE E ANNEXED TO THE BALA NCE SHEET SHOWS UNDER INVESTMENT 65,000 EQUITY SHARES OF RS.10 EA CH FULLY PAID UP. IN SCHEDULE K ON PAGE 4 AGAINST POINT NO.18 IT IS A GAIN WRITTEN THAT THE APPELLANT COMPANY HAS INVESTED A SUM OF RS.6,50 ,000/- IN BHARAT PHOTO CIRCUITS LIMITED. AGAIN IN THE ANNUAL REPORT OF 1992- 93, IT IS MENTIONED THAT THE APPELLANT CORPORATION HAS PROVIDED EQUITY OF RS.6.50 LAKHS TO THE SAID COMPANY. IT IS MENTIONED THAT THE BIFR HAS DECIDED TO WIND UP THE COMPANY. THUS FROM THE FACTS MENTIONED ABOVE, IT IS ABUNDANTLY CLEAR THAT THE AP PELLANT CORPORATION HAD MADE INVESTMENT OF RS.6.50 LAKHS IN BHARAT PHOTO CIRCUITS LIMITED. THEREFORE, THERE IS NO DOUBT THA T THE ALLEGED :-4-: SHARES WERE PURCHASED FOR INVESTMENT AND NOT FOR TR ADING. IT HAS NEVER BEEN ENTERED IN THE TRADING ACCOUNT OF THE AP PELLANT CORPORATION. THEREFORE, ANY QUESTION OF ITS WRITE OFF DOES NOT ARISE. IT IS IN THE NATURE OF CAPITAL LOSS AND MUST BE TRE ATED ACCORDINGLY. IT IS CLEARLY PROVIDED IN SECTION 36(2) OF THE ACT THAT NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT HAS BEE N TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN ANY PREVIOUS YEAR. IT MAY BE SAID THAT SINCE BIFR HAS NOW DECID ED FAVOURABLY, THE DEBT WAS NOT RECOVERABLE. BUT THAT BY ITSELF D OES NOT JUSTIFY A CLAIM FOR DEDUCTION. THE CLAIM IS NOT JUSTIFIED EV EN UNDER THE PROVISIONS OF SECTION 37 AS IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. ON A CAREFUL CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, I AGREE WITH THE ASSESSI NG OFFICER THAT THE SUM OF RS.6,50,000/- CANNOT BE ALLOWED TO BE DE DUCTED FROM THE PROFIT. THE ADDITION IS UPHELD. 7. NOW THE ASSESSEE IS IN APPEAL. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) FAILED TO APPRECI ATE THAT THE ASSESSEE- COMPANYS BUSINESS WAS TO PURCHASE/INVEST IN THE SH ARES OF ELECTRONICS INDUSTRY IN THE STATE OF UTTAR PRADESH FOR THE OBJE CTIVE OF ITS DEVELOPMENT AND GROWTH AND HENCE SUCH SHARES WERE HELD IN PURSU ANCE OF THE MAIN OBJECTS ENSHRINED IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE- COMPANY. OUR ATTENTION WAS DRAWN TOWARDS CLAUSES ( 1) AND (18) OF THE MEMORANDUM OF ASSOCIATION, COPY OF WHICH IS PLACED AT PAGES 109 TO 128 OF THE ASSESSEES COMPILATION. IT WAS FURTHER SUBMITT ED THAT THE LOSS ON WRITE OFF WAS A BUSINESS LOSS AND THAT IN EARLIER AND SUB SEQUENT YEARS, THE CLAIM OF SUCH LOSSES HAVE BEEN ALLOWED AT THE ASSESSMENT STAGE ITSELF AND THE PROFIT ON SALE OF SHARES WHERE MADE HAD BEEN OFFERE D AND ASSESSED AS BUSINESS PROFIT. IN SUPPORT OF THE ABOVE CONTENTIO N, THE LD. COUNSEL FOR THE ASSESSEE FURNISHED A CHART (WHICH IS PLACED ON RECO RD) WHEREIN LOSSES OF :-5-: SIMILAR NATURE HAVE BEEN ALLOWED AND THE PROFIT HAS BEEN TAXED. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT V. H.P. MINERAL AND INDUSTRIAL DEVE LOPMENT CORPORATION LIMITED [2008] 305 ITR 111. 9. IN HIS RIVAL SUBMISSIONS, THE LD. D.R. SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS M ADE BY THE LD. CIT(A) IN PARAS 2 AND 4 OF THE IMPUGNED ORDER. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE MAIN OBJECT OF THE ASSESSEE-COMPANY AS PER CLAUSE (1) OF THE MEMORANDUM OF ASSOCIATION WAS TO PROMOTE AND DEVELO P ELECTRONICS INDUSTRY IN THE STATE OF UTTAR PRADESH. FOR THAT P URPOSE, THE ASSESSEE- COMPANY WAS REQUIRED TO UNDERTAKE THE SETTING UP OF A NEW ELECTRONICS AND INFORMATION TECHNOLOGY INDUSTRIAL UNITS OR EXPANSIO N OR DIVERSIFICATION OF EXISTING INDUSTRIES IN PART OR IN FULL ON ITS OWN B EHALF OR AS AGENTS OF ENTREPRENEURS, FIRMS, CONCERNS AND COMPANIES OR JOI NTLY WITH THEM. THE AFORESAID OBJECTS HAVE BEEN MENTIONED IN CLAUSES (1 ) AND (18) OF THE MEMORANDUM OF ASSOCIATION, A COPY OF WHICH IS PLACE D AT PAGES 109 TO 128 OF THE ASSESSEES COMPILATION. THE SAID CLAUSES RE AD AS UNDER:- 1. TO PROMOTE AND DEVELOP ELECTRONICS INDUSTRY IN THE STATE OF UTTAR PRADESH-THE TERM ELECTRONIC INDUSTRY WOULD IN CLUDE ALSO ANY INDUSTRY MAKING PRODUCTS USED, BY ELECTRONIC INDUST RY PRODUCTS IN THE MAKING OF WHICH ELECTRONIC COMPONENTS ARE USED, OR INDUSTRIES AND ACTIVITIES NECESSARY FOR THE GROWTH OF ELECTRON IC INDUSTRY INCLUDING SUPPLY OF RAW MATERIAL AND OTHER INPUTS F OR SUCH INDUSTRY AS WELL AS INFRASTRUCTURE FOR SUCH INDUSTRY, 18. TO UNDERTAKE THE SETTING UP OF A NEW ELECTRONIC S AND INFORMATION TECHNOLOGY INDUSTRIAL UNITS OR EXPANSIO N OR DIVERSIFICATION OF EXISTING INDUSTRIES IN PART OR I N FULL INCLUDING ANCILLARIES TO LARGER UNITS PUBLIC OR PRIVATE, ON I TS OWN OR ON BEHALF :-6-: OF OR AS AGENTS OF ENTREPRENEURS, FIRMS, CONCERNS A ND COMPANIES OR JOINTLY WITH THEM. 11. THE CLAIM OF THE ASSESSEE IS THAT TO FULFILL ITS OB JECT, AN AMOUNT OF $6.50 LAKHS WAS INVESTED IN SHARES OF M/S BHARAT PHOTO C IRCUITS LIMITED AND SIMILAR INVESTMENTS WERE ALSO MADE IN OTHER INDUSTR IES. THE CLAIM OF THE ASSESSEE ON SUCH TYPE OF LOSSES INCURRED IN PRECEDI NG AND SUBSEQUENT YEAR HAS BEEN ALLOWED BY THE DEPARTMENT AND ALSO PROFIT OF SIMILAR NATURE HAS BEEN TAXED IN THE SUBSEQUENT YEAR. THE ASSESSEE-CO MPANY INCURRED LOSS BECAUSE THERE WAS NO CHANCE OF RECOVERY. THE ASSES SEE-COMPANY HAS WRITTEN OFF THE AMOUNT IN ITS PROFITS AND LOSS ACCO UNT, THE COPY OF WHICH IS PLACED AT PAGES 9 OF THE ASSESSEES COMPILATION. I N THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD WRITTEN OFF TH E AMOUNT IN ITS PROFITS AND LOSS ACCOUNT. THE CLAIM OF THE ASSESSEE THAT T HERE WAS NO CHANCE OF RECOVERY OF THIS AMOUNT HAS NOT BEEN REBUTTED BY TH E DEPARTMENT AT ANY STAGE. ON SIMILAR ISSUE, THE HON'BLE HIMACHAL PRAD ESH HIGH COURT IN THE CASE OF CIT V. H.P. MINERAL AND INDUSTRIAL DEVELOPM ENT CORPORATION LIMITED (SUPRA) HAS HELD AS UNDER:- THAT ONCE A COMPANY HAD BEEN ORDERED TO BE WOUND U P, THERE WAS NO QUESTION OF ANY PARTY DEALING IN THE SHARES OF T HAT COMPANY. THE TRIBUNAL HAD COME TO A FINDING THAT THE SHARES WERE STOCK-IN- TRADE AND HAD THEREFORE ALLOWED THE LOSS. THE LOSS HAD TO BE TREATED AS TRADING LOSS. THE MERE FACT THAT THE SH ARES WERE NOT SOLD WAS OF NO SIGNIFICANCE SINCE IN FACT THE SHARE S COULD NOT HAVE BEEN SOLD AND HAD BECOME WORTHLESS. 12. IN THE PRESENT CASE ALSO, THE COMPANY, M/S BHARAT P HOTO CIRCUITS LIMITED WAS ORDERED TO BE WOUND UP AND THE ASSESSEE DECIDED TO WRITE OFF THE VALUE OF THE SHARES HELD BY IT IN THE SAID COMP ANY. THE RATIO LAID DOWN IN THE ABOVE REFERRED TO CASE IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. MOREOVER, THE DEPARTMENT ITSELF HAS ACCEPTED THE CL AIM OF SIMILAR NATURE IN THE SUBSEQUENT YEAR WHEREIN THE ASSESSEE-COMPANY HA D WRITTEN OFF SIMILAR :-7-: TYPE OF INVESTMENT IN SAB ELECTRONICS DEVICES LTD W HICH IS EVIDENT FROM THE CHART FURNISHED BY THE ASSESSEE, THE COPY OF WHICH IS AVAILABLE ON RECORD. FROM THE SAID CHART, IT IS ALSO NOTICED THAT THE PR OFIT FROM SALE OF INVESTMENTS IN HINDUSTAN COMPUTERS LTD WAS OFFERED TO TAX IN ASSESSMENT YEAR 1988-89. THE CONTENTS OF THE ABOVE REFERRED T O CHART FURNISHED BY THE ASSESSEE WERE NOT REBUTTED. IN THE PRESENT CASE WH EN THE DEPARTMENT WAS ACCEPTING SIMILAR TYPES OF CLAIM IN THE EARLIER AS WELL AS IN SUBSEQUENT YEARS, THERE WAS NO OCCASION TO DEVIATE FROM THE SA ID STAND FOR THE YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, THE LOSS SUFFERED BY THE ASSESSEE-COMPANY WAS IN THE COURSE OF ITS REGULAR B USINESS; THEREFORE, THE ASSESSEE-COMPANY WAS ENTITLED TO CLAIM LOSS SO SUFF ERED. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE ARE OF THE VIEW THAT THE ASSESSEE-COMPANY WAS ENTITLED FOR THE CLAIM OF LOSS AMOUNTING TO $ 6.50 LAKHS ON ACCOUNT OF WRITE OFF OF THE INVESTMEN T IN THE SHARES OF M/S BHARAT PHOTO CIRCUITS LIMITED. IN TH AT VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 21.4.2011) SD/- SD/- [H. L. KARWA] [N. K. SAINI] VICE PRESIDENT ACCOUNTANT MEMBER DATED:21.4.2011 JJ:2004 COPY FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR