DCIT, New Delhi V. M/s. Sainik Finance and Industries Ltd., New Delhi

ITA 3799/DEL/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1303 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 31-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYA SAHU ACIT

Judgement Text

ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO. 3799/DEL/2010 ASSESSMENT Y EAR: 2007-08 DY. COMMISSIONER OF INCOME TAX, VS SAINIK FIN ANCE & INDUSTRIES LTD., CIRCLE 7(1), 129, TRANSPORT CENTRE, ROOM NO. 312, 3 RD FLOOR, NEAR ROHTAK ROAD , C.R. BUILDING, I.P.ESTATE, PUNJABI BAGH, NEW DELHI. NEW DELHI. C.O. NO. 31/DEL/2011 (IN ITA NO. 3799/DEL/2010) ASSESSMENT YEAR: 2007-08 SAINIK FINANCE & INDUSTRIES LTD., VS DY. COMMI SSIONER OF INCOME TAX, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. PRIYA SAHU, ACIT DR RESPONDENT BY: SHRI SALIL KAPOOR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-X, NEW DELHI DATED 21 .05.2010 FOR AY 2007-08. 2. THE MAIN GROUNDS RAISED IN THIS APPEAL READ AS U NDER:- ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 2 1. LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWANCE OF LOSS OF RS. 1,56,46,55 2/-FROM CEMENT SEGMENT AND IN DIRECTING THE AO TO REWORK TH E BUSINESS PROFIT FROM FINANCE SEGMENT WHICH WAS WORK ED OUT BY THE AO AT RS. 3,65,34,251/- AS AGAINST RS. 2,39,05,495/- DISCLOSED BY THE ASSESSEE IN ITS BOOK S WITHOUT APPRECIATING THE FACT THAT THE LOOSES FROM CEMENT MANUFACTURING BUSINESS CANNOT BE SET OFF AGAINST TH E PROFIT FROM FINANCE BUSINESS.' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT (A) HAS ERRED IN LAW IN SETTING ASIDE THE ISSUE OF SET OFF OF LOSSES FROM CEMENT MANUFACTURING BUSINESS AGAINS T THE PROFIT FROM FINANCE BUSINESS TO THE FILE OF AO SINC E AS PER THE PROVISIONS OF SECTION 251 OF THE ACT. LD. CIT(A ) IS NOT EMPOWERED TO SET ASIDE THE ISSUE TO THE FILE OF AO. ' 3. LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED, IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE IN DIRECTING THE AO TO CLUB & SUBSEQUENTLY APPORTION T HE COMBINED EXPENSES OF THE TWO BUSINESS OF THE ASSESS EE.' 4. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, AD D OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR D URING THE HEARING OF THIS APPEAL. 3. BRIEFLY STATED THE FACTS OF THE CASE GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEES CASE WAS TAKEN UP FOR SCRUTINY AND A NOTICE U/S 143(2) OF THE INCOME TAX ACT 1961 (FOR SHORT THE ACT) WAS SERVED ON THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER N OTED THAT ASSESSEE HAS CLAIMED QUANTUM OF LOSS INCURRED BY THE CEMENT MANU FACTURING SEGMENT AND LOSS OCCURRED FROM CEMENT MANUFACTURING SEGMENT BUS INESS WAS ADJUSTED ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 3 FROM THE INCOME OF THE FINANCE BUSINESS. THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAD FINANCE SEGMENT BUSINESS WHIC H CONSTITUTES THE FUNDAMENTAL AUTHORIZED PRINCIPAL BUSINESS OF THE AS SESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THIS SITUATION, ON LY THE FINANCE SEGMENT CONCERNED EXPENDITURE AND LOSSES WERE ALLOWABLE AND HE FINALIZED THE ASSESSMENT WITH A FINDING THAT LOSSES FROM CEMENT M ANUFACTURING BUSINESS CANNOT BE ADJUSTED FROM PROFIT OF FINANCE BUSINESS AND THE PROFIT OF THE ASSESSEE COMPANY FROM FINANCE BUSINESS WAS RECALCUL ATED AT RS.3,65,34,251. 4. THE AGGRIEVED ASSESSEE COMPANY FILED AN APPEAL B EFORE THE COMMISSIONER OF INCOME TAX(A)-X WHICH WAS PARTLY AL LOWED IN REGARD TO THE ISSUE OF ADJUSTMENT OF LOSS FROM THE CEMENT MAN UFACTURING SEGMENT. THE OPERATIVE PART OF THE IMPUGNED ORDER READS AS UNDER :- 7. AFTER CONSIDERING ALL THE FACTS, STATUTES, WRIT TEN SUBMISSIONS AND ARGUMENTS, AS DISCUSSED ABOVE, IT I S HELD THAT THE FINANCE BUSINESS REMAINS THE SANCTIONED LEGITIMATE PRINCIPAL BUSINESS OF THE APPELLANT AND CEMENT MANUFACTURING REMAINS THE PERMITTED LEGITIMA TE SECONDARY OR 'OTHER THAN PRINCIPAL' BUSINESS OF THE APPELLANT. ACCORDINGLY, APPELLANT'S CEMENT MANUFACTURING BUSINESS WILL BE CONSIDERED AS AUTHOR IZED OR LEGITIMATE OR LEGAL BUSINESS ACTIVITY. HELD ACCO RDINGLY. THE ARS HAVE TAKEN OBJECTION TO ASSESSING OFFICER'S SPLITTING UP OF APPELLANT'S DEPLOYMENT OF FUNDS INT O THREE SEGMENTS NAMELY FINANCE, INVESTMENT AND CEMENT MANUFACTURING. THE ARS HAVE ALSO TAKEN STRONG EXCEPTION TO THE CLUBBING OF EXPENSES OF BOTH THE BUSINESSES BY THE ASSESSING OFFICER AND SUBSEQUENT ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 4 APPORTIONING/ ALLOCATING OF THE COMBINED EXPENSES O F BOTH THE BUSINESSES IN THE PROPORTION OF DEPLOYMENT OF FUNDS (AS DETERMINED BY THE ASSESSING OFFICER) BETW EEN THE FINANCE BUSINESS (19%) AND INVESTMENT BUSINESS & CEMENT MANUFACTURING BUSINESS (81%). THE ARS HAVE POINTED OUT THAT THIS ACT OF ASSESSING OFFICER TANT AMOUNT TO REJECTION OF AUDITED BOOKS OF ACCOUNTS WITHOUT A NY COGENT BASIS AND WITHOUT GIVING ANY OPPORTUNITY TO THE APPELLANT. IT HAS BEEN STATED THAT THE APPELLANT HAD GIVEN A L OAN OF RS 6.84 CRORES TO SMAS LTD, HAD EARNED INTEREST ON THE SAID LOAN TILL 29.03.2007 AND HAD INCLUDED THE SAME IN ITS INCOME FROM FINANCE BUSINESS. THE APPELLANT WAS ALLOTTED SOME EQUITY SHARES AGAINST THE SAID LOAN O N 29.03.2007 AND THE SAID AMOUNT OF RS. 6.84 CRORES W AS SHOWN UNDER THE HEAD INVESTMENTS IN THE BALANCE SHE ET AS ON 31.03.2007. WHILE ASCERTAINING THE DEPLOYMENT OF FUNDS FOR THE PURPOSE OF APPORTIONING/ALLOCATING COMBINED EXPENSES, THE ASSESSING OFFICER HAD CONSID ERED THE AMOUNT OF RS 6.84 CRORES INVESTED IN SHARES OF SMAS LTD AS DEPLOYMENT OF FUNDS IN NON-FINANCE SEGMENT. IN THIS REGARD, IT HAS BEEN CONTENDED THAT INVESTME NT IS PART AND PARCEL OF FINANCE ACTIVITY. HOWEVER, THE A RS HAVE NOT BEEN ABLE TO EXPLAIN HOW OR WHY THE SAID AMOUNT WOULD FORM PART OF DEPLOYMENT OF FUNDS IN FINANCE SEGMENT. THE AO HAS SPECIFICALLY GIVEN A FINDING THAT THIS DEPLOYMENT OF FUNDS IS FOR STRATE GIC PURPOSES AND IS NOT IN THE NATURE OF TRADE OR INVES TMENT. THIS OBSERVATION OF THE AO IS SUPPORTED BY THE FACT THAT SMAS LTD. IS A SISTER CONCERN OF THE APPELLANT. HEN CE, THE ACTION OF THE AO IS UPHELD IN THIS REGARD. AS REGARDS THE ASSESSING OFFICER'S EXERCISE OF CLUB BING OF EXPENSES OF BOTH THE BUSINESSES AND THE SUBSEQUENT APPORTIONING/ ALLOCATING OF COMBINED EXPENSES BETWE EN FINANCE, INVESTMENT AND CEMENT MANUFACTURING BUSINESS, THE SAME HAS BEEN CLAIMED TO BE UNWARRANT ED - MORE SO, WHEN THE SAME WAS DONE WITHOUT CONFRONTING OR ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 5 GIVING ANY OPPORTUNITY TO THE APPELLANT. IT HAS BEE N STATED THAT THE ASSESSING OFFICER DID NOT BRING OUT ANY DEFECT IN THE AUDITED BOOKS OF ACCOUNTS OR THE SUPP ORTING VOUCHERS. THUS, IT IS CLAIMED THAT THERE ABSOLUTELY WAS NO NEED/ JUSTIFICATION FOR THE ASSESSING OFFICER TO JU GGLE WITH THE EXPENSES WHICH WERE DULY SUPPORTED WITH VOUCHER S WERE DULY AUDITED AND WERE DIRECTLY ATTRIBUTABLE/ RELATABLE TO SEPARATE AND DISTINCT BUSINESSES. FURT HER, THE BASIS ADOPTED BY THE ASSESSING OFFICER NAMELY SEGME NT WISE DEPLOYMENT OF FUNDS AS PER CLOSING BALANCE SHE ET HAS ALSO BEEN ARGUED TO BE INAPPROPRIATE AND INADEQUATE. AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT, AS DISCUSSED ABOVE, IT IS HELD THAT THERE WAS NO JUSTI FICATION OF DISTURBING THE AUDITED BOOKS OF ACCOUNTS UNLESS A SPECIFIC IRREGULARITY WAS DETECTED. THE ASSESSING O FFICER IS ACCORDINGLY HEREBY DIRECTED NOT TO CLUB AND SUBSEQUENTLY APPORTION THE COMBINED EXPENSES OF THE TWO BUSINESSES OF THE APPELLANT COMPANY. THE LAST ISSUE REMAINING IN THIS APPEAL IS THE ISSU E OF SETTING OFF OF LOSS OF CEMENT MANUFACTURING BUSINES S AGAINST THE PROFIT OF THE FINANCE BUSINESS. IT HAS ALREADY BEEN HELD ABOVE THAT CEMENT MANUFACTURING BUSINESS OF THE APPELLANT IS AN AUTHORIZED, LEGITIMATE AND LEGA L BUSINESS OF THE APPELLANT. BOTH THE BUSINESSES FALL UNDER THE SAME HEAD OF INCOME NAMELY PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE SET OFF OF LOSS FROM CE MENT MANUFACTURING BUSINESS AGAINST THE PROFIT FROM FINA NCE BUSINESS HAS TO BE DEALT WITH IN ACCORDANCE WITH TH E PROVISIONS OF SEC 70 OF THE I T ACT. THE AO IS DIRE CTED TO MAKE NECESSARY VERIFICATION AS PER LAW, AND THE GRO UND OF APPEAL SUCCEEDS SUBJECT TO SUCH VERIFICATION. ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 6 GROUND NO.1 &2 5. LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF LOSS OF R S.1,56,46,552 FROM CEMENT MANUFACTURING SEGMENT AND ALSO IN DIRECTING THE ASS ESSING OFFICER TO REWORK THE BUSINESS PROFIT FROM FINANCE SEGMENT. THE DR F URTHER SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) DELETED THE DISALLOWA NCE IGNORING THE FACT THAT THE LOSSES FROM CEMENT MANUFACTURING BUSINESS CANNOT BE SET OFF AGAINST THE PROFIT FROM FINANCE BUSINESS WHICH WAS THE CORE AND LEGAL ACTIVITY OF THE ASSESSEE COMPANY. THE DR FURTHER SUBMITTED THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCO ME TAX(A) ERRED IN LAW IN SETTING ASIDE THE ISSUE OF SETTING OFF OF LOSSES FROM CEMENT MANUFACTURING BUSINESS AGAINST THE PROFIT ACCRUED TO THE ASSESSEE FROM FINANCE BUSINESS TO THE FILE OF THE ASSESSING OFFICER BECAUSE AS PER SE CTION 251 OF THE ACT, THE COMMISSIONER OF INCOME TAX(A) IS NOT EMPOWERED TO S ET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER BECAUSE THE POWER OF THE COMMISSIONER OF INCOME TAX(A) IS COTERMINOUS WITH THE POWER OF THE ASSESSING OFFICER. 6. REPLYING TO THE ABOVE SUBMISSIONS, THE COUNSEL F OR THE ASSESSEE SUBMITTED THAT IT WAS NONE OF THE BUSINESS OF THE A SSESSING OFFICER TO EXAMINE THE ISSUE WHETHER CEMENT MANUFACTURING BUSI NESS OF THE ASSESSEE WAS LEGITIMATE AND LEGAL OR NOT. THE AR FURTHER SU BMITTED THAT THE ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 7 ASSESSING OFFICER WAS NOT JUSTIFIED IN SPLITTING UP OF ASSESSEES INVESTMENT INTO THREE SEGMENTS NAMELY FINANCE, INVESTMENT AND CEMENT MANUFACTURING. THE AR SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF ADJUSTMENT OF LOSSES RELATED TO THE CEMENT SEGMENT BUSINESS OF THE ASSESSEE. 7. ON CAREFUL CONSIDERATION OF THE ABOVE RIVAL SUBM ISSIONS OF BOTH THE PARTIES AND CAREFUL PERUSAL OF THE RECORD BEFORE US , WE OBSERVE THAT THE ASSESSING OFFICER WENT UP TO EXAMINATION OF LEGALIT Y OF THE CEMENT MANUFACTURING BUSINESS OF THE ASSESSEE. IN OUR CON SIDERED OPINION, WE OBSERVE THAT THE CEMENT MANUFACTURING ACTIVITY IS A CORE INDUSTRIAL ACTIVITY WHICH CANNOT BE CONDUCTED WITHOUT PRIOR APPROVAL OF VARIOUS CENTRAL AND STATE GOVERNMENT AUTHORITIES. AS FAR AS LEGAL AUTH ORIZATION AND EMPOWERMENT OF THE ASSESSEE COMPANY IS CONCERNED, T HIS IS NOT AN ISSUE TO BE EXAMINED BY THE ASSESSING OFFICER. 8. WE ALSO OBSERVE THAT WHEN THE FINANCE BUSINESS O F THE ASSESSEE REMAINS THE SANCTIONED LEGITIMATE BUSINESS OF THE A PPELLANT AND CEMENT MANUFACTURING SEGMENT WAS PERMITTED AS LEGITIMATE S ECONDARY OR OTHER THAN THE PRINCIPAL FINANCE BUSINESS, THEN THE APPELLANT S CEMENT MANUFACTURING BUSINESS WILL BE CONSIDERED AS AUTHORIZED AND LEGIT IMATE BUSINESS ACTIVITY. IN THIS SITUATION, WHEN ADMITTEDLY THE ASSESSEE COM PANY HAD DEPLOYED ITS ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 8 FUNDS INTO THREE SEGMENTS, THEN THE LOSSES FROM CEM ENT MANUFACTURING BUSINESS CAN BE SET OFF AGAINST THE PROFIT OF THE F INANCE BUSINESS. 9. IN VIEW OF ABOVE, WE FINALLY OBSERVE THAT THE FI NDINGS OF THE COMMISSIONER OF INCOME TAX(A) WERE BASED ON SOUND L EGAL PRINCIPLE AND THERE IS NO REASON BEFORE US TO INTERFERE WITH THE SAME. ACCORDINGLY, GROUND NOS. 1 AND 2 OF THE REVENUE ARE DISMISSED. GROUND NO. 3 GROUND NO. 3 BECOMES ACADEMIC IN VIEW OF OUR FINDI NGS RELATED TO GROUND NO. 1 AND 2, HENCE, WE ALSO DISMISS THE SAME . GROUND NO. 4 10. GROUND NO. 4 IS GENERAL IN NATURE WHICH NEEDS N O ADJUDICATION AND WE DISMISS THE SAME. CROSS OBJECTION OF THE ASSESSEE 11. THE ASSESSEE RESPONDENT HAS FILED CROSS OBJECTI ON ON THE FOLLOWING SOLE GROUND WHICH READS AS UNDER:- 1. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES O F THE CASE, THE COMMISSIONER OF INCOME TAX(A) HAS ERRED O N FACTS AND IN LAW IN UPHOLDING THE VIEW OF THE ASSESSING O FFICER THAT THE ADVANCE OF FUNDS TO M/S SAINIK MINING AND ALLIED SERVICES LTD. IS NOT PART AND PARCEL OF THE FINANCE ACTIVITY OF THE ASSESSEE AND THAT IT IS IN THE NATURE OF INVEST MENT. ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 9 12. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) HAS ERRED ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE, IN UPHOLDING THE VIEW OF THE ASSESSING OFFICER THAT TH E ADVANCE OF FUNDS TO M/S SAINIK FINANCE & INDUSTRIES LTD. WAS NOT A PART AND PARCEL OF THE FINANCIAL ACTIVITY OF THE ASSESSEE IN THE NATURE OF INVESTMEN T. THE AR FURTHER SUBMITTED THAT THE NOMENCLATURE OF THE BUSINESS OF THE ASSESSEE COMPANY WAS MAINLY IN THE FINANCE BUSINESS AND IN ADDITION TO THAT, INVESTMENT AND CEMENT MANUFACTURING BUSINESS WERE ALSO IMPORTANT S EGMENTS OF THE BUSINESS OF THE ASSESSEE COMPANY, THEREFORE, THE CO MMISSIONER OF INCOME TAX(A) WAS NOT JUSTIFIED IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER THAT THE CEMENT SEGMENT BUSINESS AND ADVANCEMENT OF FUNDS FOR THE SAME PURPOSE WAS NOT PART AND PARCEL OF THE FINANCE ACTI VITY OF THE ASSESSEE COMPANY. 13. LD. DR SUBMITTED THAT THE CEMENT MANUFACTURING BUSINESS WAS NOT A CORE BUSINESS SEGMENT OF THE ASSESSEE COMPANY AS AS SESSEE COMPANY BEING AN NFBC REGISTERED WITH RBI ENGAGED IN THE BUSINESS WAS NOT PERMITTED FOR MANUFACTURING OF CEMENT BUSINESS ACTIVITIES. THE D R SUPPORTED THE FINDINGS OF THE AUTHORITIES BELOW. 14. AFTER CAREFUL CONSIDERATION OF SUBMISSIONS OF B OTH THE PARTIES MENTIONED HEREINABOVE, WE OBSERVE THAT AS WE HAVE A LREADY DISALLOWED THE ITA NO. 3799/DEL/2010 ASSTT.YEAR: 2007-08 10 APPEAL OF THE REVENUE AND WE HAVE UPHELD THE FINDIN GS OF THE COMMISSIONER OF INCOME TAX(A), ACCORDINGLY THIS ISSUE BECOMES IN FRUCTUOUS AND ACADEMIC AND WE DO NOT FIND ANY MERIT IN THE C.O. OF THE ASS ESSEE AND WE DISMISS THE SAME. 15. IN THE RESULT, THE APPEAL OF THE REVENUE AND CR OSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.1.2013. SD/- SD/- (J.SUDHAKAR REDDY) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 4TH JANUARY 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. COMMISSIONER OF INCOME TAX(A) 4. CIT. 5. DR BY ORDER ASSTT. REGISTRAR