Navin Detergent Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-5, Ahmedabad

ITA 4145/AHD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72962 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-12-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 19-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Initiation of penalty proceedings; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 32; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER NAVIN DETERGENTS PVT. LTD NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD PAN: AAACN5215B (APPELLANT) VS ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-5 AHMEDABAD (RESPONDENT) NAVIN DETERGENTS PVT. LTD NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD PAN: AAACN5215B (APPELLANT) VS ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-5 AHMEDABAD (RESPONDENT) ITA NO. 4144/AHD/2007 ASSESSMENT YEAR 2001-02 ITA NO. 4145/AHD/2007 ASSESSMENT YEAR 2003-04 ITA NO. 4243/AHD/2007 ASSESSMENT YEAR 2003-04 I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 2 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-5 AHMEDABAD (APPELLANT) VS NAVIN DETERGENTS PVT. LTD NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD PAN: AAACN5215B (RESPONDENT) REVENUE BY: SRI O.P. BATHEJA, SR.D.R. ASSESSEE BY: SRI S.N. SOPARKAR, A.R. DATE OF HEARING : 31-12-2013 DATE OF PRONOUNCEMENT : 31-01-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- ASSESSEES APPEAL FOR 2001-02 HAS BEEN FILED AGAINS T THE ORDER OF LD. CIT(A)-II AHMEDABAD DATED 05-09-2007. CROSS APPEALS FOR ASSESSMENT YEAR 2003-04 HAVE BEEN FILED AGAINST THE ORDER OF LD. CI T(A)-II AHMEDABAD DATED 10-09-2007. 2. SINCE THESE APPEALS BELONG TO SAME ASSESSEE, THE SE ARE BEING DISPOSED OFF BY PASSING A CONSOLIDATED ORDER. ITA NO. 4144/AHD/2007 3. GROUND NO. 1 IS GENERAL DOES NOT REQUIRE ANY ADJ UDICATION. GROUND NO. 2 AND 3 READ AS UNDER:- I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 3 2. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING ISSU E OF NOTICE U/S. 148 OF I.T. ACT. 3. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APP ELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING RE-A SSESSMENT ORDER PASSED U/S. 147 OF I.T. ACT. 4. BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 31-01-2004 ACCEPTING RETURN INCOME. SUBSEQUENTLY NOTICE U/S. 147 OF THE ACT WAS ISSUED ON 05-04-2004, AFTER RECORDING REASONS FOR RE- OPENING THE ASSESSMENT, ACCORDING TO WHICH THE ASSE SSEE HAD PURCHASED RUNNING BUSINESS OF ALPA MARKETING ENTERPRISES, A P ROPRIETARY CONCERN OF JALPA SPECIFIC FAMILY TRUST AS PER PROVISIONS OF SE CTION 50B OF THE INCOME TAX ACT. THEY HAD UNPAID SALES TAX LIABILITY OF RS . 2,01,778/- WHICH WAS TAKEN OVER BY THE ASSESSEE COMPANY. IN THE COURSE OF ASSESSMENT OF JALPA SPECIFIC FAMILY TRUST AO FOUND THAT AGAINST THIS UN PAID LIABILITY ASSESSEE PAID A SUM OF RS. 1,85,594/- BEFORE THE DUE DATE FO R FILING THE RETURN AND THE UNPAID LIABILITY OF RS. 16184 WAS NOT INCORPORATED IN THE TAX AUDIT REPORT. HENCE THE ASSESSMENT WAS REOPENED. BEFORE LD. CIT( A) ASSESSEE SUBMITTED THAT THE ORIGINAL ASSESSMENT WAS MADE AFTER VERIFIC ATION OF ALL THE DETAILS. THE RE-ASSESSMENT PROCEEDINGS WERE INITIATED MERELY ON CHANGE OF OPINION WHICH WAS NOT PERMISSIBLE AND THEREFORE REOPENING O F THE COMPLETED ASSESSMENT WAS VOID AB-INITIO. HOWEVER LD. CIT(A) WAS OF THE VIEW THAT SINCE OUTSTANDING LIABILITY HAVING REMAINED UNPAID WAS NOT VERIFIED AT THE TIME OF ORIGINAL ASSESSMENT AND SINCE THIS FACT WAS NOTICED ON COMPLETION OF ASSESSMENT ON THE TRANSFEROR JALPA SPECIFIC FAMILY TRUST, THIS LIABILITY REMAINED UN-ASSESSED AND HENCE AO WAS JUSTIFIED IN HOLDING THAT THERE WAS I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 4 ESCAPEMENT OF INCOME. THEREFORE INITIATION OF PROC EEDINGS U/S. 148 OF THE ACT WERE HELD TO BE VALID BY LD. CIT(A). 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT ASSESSING OFFICER WHILE INITIATING PROCEEDINGS U/S. 147 OF THE ACT HAD RECORDED FOLLOWING REASONS. THE ASSESSMENT U/S. 143(3) FOR A.Y. 2001-02 WAS CO MPLETED ON 30- 01-2004. 2. DURING THE A. Y. 2001-02, THE ASSESSEE COMPANY HAD BOUGHT OVER THE RUNNING OF ALPA MARKETING ENTERPRISE, PROP. JAL PA SPECIFIC FAMILY TRUST. THIS BUSINESS WAS BOUGHT OVER AS PE R THE PROVISIONS OF SLUMP SALE U/S.50B OF THE IT ACT. IN THIS, THE AS SESSEE COMPANY TOOK OVER WHOLE OF THE ASSETS AND LIABILITIES OF THE BUS INESS OF ALPA MARKETING ENTERPRISE W.E.F . 31.12.2000. 3. AT THE TIME OF SALE ALPA MARKETING ENTERPR ISE HAD UNPAID SALES TAX LIABILITY OF RS. 2,01,778, THIS LIABILITY WAS T AKEN OVER BY THE ASSESSEE COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF JALPA SPECIFIC FAMILY TRUST, PROP. ALPA MARKETING E NTERPRISE, IT WAS VERIFIED THAT OUT OF THIS UNPAID SALES TAX LIABILIT Y OF RS. 2,01,778/- ONLY RS. 1,85,594/- WAS PAID BY THE ASSESSEE COMPANY BEF ORE THE DUE DATE OF FILING OF RETURN. THE UNPAID LIABILITY OF RS. 1 6,184/- WAS NOT INCORPORATED IN THE FORM 3CD REPORT FILED BY THE AS SESSEE COMPANY AND IS LIABLE FOR DISALLOWANCE U/S. 13B. 4. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE T HAT INCOME CHARGEABLE TO TAX FOR A.Y. 2001-02 HAS ESCAPED ASSE SSMENT. IN VIEW OF THIS NOTICE U/S. 148 DATED 5-4-2004 IS ISSUED TO THE ASSESSEE. 6. ASSESSEE VIDE ITS SUBMISSION DATED 03-01-2006 HA D OBJECTED TO THESE PROCEEDINGS AS UNDER:- FROM THE REASONS RECORDED IT IS CLEAR THAT RE-OPEN ING HAS BEEN DONE TO DISALLOW THE UNPAID SALES TAX EXPENSES OF RS. 16 ,180/- WHICH WAS NOT INCORPORATED IN THE FORM 3CD REPORT FILED BY TH E ASSESSEE COMPANY. I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 5 IN THIS REGARD, AS IS EVIDENT FROM THE COMPUTATION OF INCOME ATTACHED TO THE RETURN OF INCOME FOR ASST. YEAR 2001-02 (COP Y ENCLOSED) THAT YOUR ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESP ECT OF THE SAID UNPAID SALES TAX OF ALPA MARKETING ENTERPRISE OF RS 16,180/-, THE QUESTION OF ANY DISALLOWANCE IN THIS REGARD DOES NO TARISE. YOUR GOOD SELF HAS REFERRED TO THE NON INCORPORATIO N OF THE REFERRED UNPAID SALES TAX LIABILITY IN FORM 3CD REPORT AND S TATED THAT THE SAME IS LIABLE FOR DISALLOWANCE. HOWEVER THE NON INCORP ORATION OF THE SAID LIABILITY IN 3CD REPORT CAN NOT BE THE BASIS FOR DI SALLOWANCE, WHEN THE EXPENSE IN RESPECT OF THE SAID LIABILITY HAS NOT BE EN CLAIMED AT ALL BY THE ASSESSEE COMPANY. IN VIEW OF ABOVE, THE NOTICE ISSUED U/S. 148 IS IN FRUCTUOUS AND REQUEST YOU TO KINDLY DROP THE PROCEEDINGS INITIATED. WE HOPE THE ABOVE DETAILS WOULD SUFFICE YOU REQUIRE MENTS. SHOULD YOU REQUIRE ANY OTHER INFORMATION IN THE MATTER OR ARE NOT IN AGREEMENT WITH ANY OF THE INFORMATION DETAILS, PLEA SE INFORM SPECIFYING THE REASONS FOR NON-AGREEMENT AND WE SHA LL BE PLEASE TO FURNISH/CLARIFY THE DETAILS. IT IS CLEAR FROM THE ABOVE THAT ASSESSEES STAND SI NCE BEGINNING HAS BEEN THAT ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESPECT O F UNPAID SALES TAX LIABILITY OF ALPA MARKETING ENTERPRISES OF RS. 16,1 80/- THEREFORE QUESTION OF ANY DISALLOWANCE OF THIS AMOUNT AND/OR ESCAPING ANY INCOME FROM ASSESSMENT DID NOT ARISE. SINCE THIS FACT REMAINED UNDISPUTED AT THE TIME OF HEARING BEFORE US ON THE PART OF REVENUE, WE ARE OF THE OPINION THAT AO WAS NOT RIGHT IN HOLDING THAT HE HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN ASSESSEES CASE AND H E SHOULD HAVE DROPPED THE PROCEEDINGS INITIATING U/S. 147 OF THE ACT BY H IM ACCEPTING THE OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD. IN VIEW OF THE ABOVE WE HAVE NO HESITATION IN HOLDING THAT IT WAS NOT A FIT CASE FO R INITIATED PROCEEDINGS FOR RE- I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 6 OPENING OF ASSESSMENT U/S. 147 OF THE ACT AND THERE FORE THE ORDER SO PASSED IS NOT SUSTAINABLE IN LAW AND IS HEREBY QUASHED. 6.1 GROUND NOS. 2 AND 3 OF ASSESSEES APPEAL ARE AL LOWED. 6.2 IN VIEW OF OUR ABOVE DECISION IN RESPECT OF GRO UND NO. 2 & 3 OTHER GROUNDS TAKEN BY ASSESSEE DO NOT REQUIRE ANY ADJUDI CATION ON OUR PART. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ITA NO. 4145/AHD/2007 8. GROUND NO. 1 IS GENERAL DOES NOT REQUIRE ANY ADJ UDICATION. GROUND NO. 2 READS AS UNDER:- 2. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION RS. 8,20,313/- 9. THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE OF DEPRECIATION OF RS. 8,20,313/- HAS OBSERVED AS UNDER:- 3. CLAIM OF DEPRECIATION OF RS. 80,20,313 IN THE L ICENSE FEE OF RS.50 LACS : FROM THE STATEMENT OF INCOME IT HAS BEEN FOUND THAT THE ASSESSES HAS CLAIMED DEPRECIATION ON THE LICENSE FE ES OF RS 8,20,313. IN THE ASSESSMENT ORDER U/S.147 OF I.T. ACT IN CASE OF THE ASSESSEE IN A Y 2001-02 A DETAILED DISCUSSION WAS MADE IN THIS RE GARD AND DISALLOWANCE OF CLAIM OF DEPRECIATION OF RS. 6,25,0 00 IN THAT YEAR WAS MADE. IN THE RETURN OF INCOME OF A Y 2001-02, IT WAS FOUND THAT IN NOTES FORMING PART OF RETURN OF INCOME NO.2, IT HAS BEEN WRITTEN THAT THE COMPANY PURCHASED RUNNING BUSINESS OF ALPA MARK ETING ENTERPRISE ON 10-12-2000 FOR THE CONSIDERATION OF B OOK VALUE OF NET ASSET PLUS RS 50 LACS. IN NOTE NO 3, IT HAS BEEN W RITTEN THAT THE DEPRECIATION OF RS 6,25,000 HAS BEEN CLAIMED AS PER STATEMENT I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 7 ATTACHED WITH THE RETURN. THE DEPRECIATION HAS BEEN CLAIMED AT THE RATE OF 25% ON INTANGIBLE ASSET, WHICH IS LICENSE F EE OF RS 50 LACS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THIS AM OUNT OF RS 50 LACS, WHICH HAS BEEN PAID AS LUMP SUM PAYMENT TO JA LPA SPECIFIC FAMILY TRUST, WHICH IS PROPRIETOR OF ALPA MARKETING ENTERPRISE, IS ELIGIBLE FOR DEPRECIATION SINCE THE SAME IS NOT A D EPRECIABLE ASSET. THE SAME ISSUE WAS THIS YEAR SINCE THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS 8,20,313 IN THE SAME LICENSE FEE . IN THE SHOW CAUSE NOTICE DATED 10-3-2006 THE ASSESSEE WAS ASKED AS UN DER: I) IN THE MATTER OF CLAIM OF DEPRECIATION ON LICENS E FEE, FURNISH THE DETAILS OF THE BALANCE SHEET OF ALPA MARKETING ENTE RPRISE, WHAT ARE THE ASSETS AND THE LIABILITIES AS HAVE BEEN RECEIVE D, AT THE TIME OF PURCHASE OF THIS CONCERN. II) YOU COULD NOT FURNISH THE VALUATION OF LICENSE FEE BASED ON WHICH RS. 50 LACS HAVE BEEN PAID. III) FURNISH THE BALANCE SHEET OF AME, TO VERIFY TH E ASSETS AND THE LIABILITIES OF THIS CONCERN. IV) FROM THE ENTIRE EPISODE IT SEEMS THAT YOU HAVE PAID THIS AMOUNT FOR THE RUNNING BUSINESS OF AME, THIS PAYMENT IS PA YMENT FOR THE GOODWILL OF THE BUSINESS. THEREFORE EXPLAIN AS TO WHY THE DEPRECIATION SHOULD BE ALLOWED ON THE SAME. V) FROM THE AGREEMENT DATED 10.12.2000, IT IS CLEAR THAT THE SELLER HAS SOLD THE ENTIRE BUSINESS OF AME AS GOING CONCER N. THE ENTIRE SET UP OF THE SELLERS PROPRIETARY CONCERN HAS BEEN SOLD W.E.F. 01.01.2001 FOR TOTAL CONSIDERATION OF RS. 50,000/-. THIS MEA NS THAT THE GOODWILL OF THE BUSINESS HAS BEEN SOLD AT RS. 50 LACS AND NO T THE LICENSE FEE. THERE IS NO LICENCE LIKE THING FOR WHICH THIS AMOUN T MAY BE PAID. JUST BY GIVING THE DIFFERENT NAME, THE NATURE OF THE GOO DWILL CANNOT BE CHANGED. THEREFORE EXPLAIN AS TO WHY THE DEPRECIAT ION SHOULD BE ALLOWED TO YOU SINCE NO DEPRECIATION CAN BE CLAIMED IN THE GOODWILL. VI) NEITHER IN THE AGREEMENT DATED 10.12.2000 NOR I N THE RETURN OF INCOME OF JALPA SPECIFIC FAMILY TRUST FOR A.Y. 2001 -02, IT HAS BEEN CLAIMED THAT ANY LICENSE HAS BEEN SOLD TO YOU, THEN WHERE FORM THIS LICENSE AND LICENSE FEE CAME, EXPLAIN. 3.1 DURING THE HEARING GIVEN TO THE REPRESENTATIVE S OF THE ASSESSEE, IT WAS CONTENDED THAT THIS AMOUNT HAS BEEN PAID FOR MARKETING SET UP ALREADY MADE BY AME, HAVING ITS OWN SALES DEPARTMEN T INFRASTRUCTURE IN VARIOUS STATES AND CENTERS WITH I TS OWN LICENSES AND ARRANGEMENTS AND VAST NUMBER OF DISTRIBUTORS, HELPI NG TO PENETRATE I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 8 INTO THE INTERIORS OF THE COUNTRY. IT WAS ALSO SUB MITTED THAT THE DATA BASE ON CONSUMER HABITS AND MARKET POTENTIAL HAVE A LSO BEEN ACQUIRED AND IN LIEU OF ALL THESE THIS AMOUNT OF RS .50 LACS HAVE BEEN PAID. IT WAS CLAIMED THAT IN THE AGREEMENT DATED 1 0-12-2000 VARIOUS CLAUSES HAVE BEEN WRITTEN WHICH DEARLY EXPLAIN THAT THIS PAYMENT OF RS 50 LACS WAS FOR THE LICENSE AND AS PER THE PROVI SION OF SECTION 32 OF THE ACT THE DEPRECIATION IS ALLOWABLE ON SUCH TANGI BLE ASSETS. 3.2 THE CONTENTION OF THE ASSESSEE WAS NOT FOU ND CORRECT SINCE THE FACT IS THAT THE LUMP SUM AMOUNT HAS BEEN PAID AND IF COULD NOT BE EXPLAINED AS TO WHY THE DEPRECIATION SHOULD BE ALLO WED ON THIS LUMP SUN PAYMENT MADE BY THE ASSESSEE TO THE FORMER PROP RIETOR OF ALPA MARKETING ENTERPRISE. THE AGREEMENT BETWEEN JALPA S PECIFIC FAMILY TRUST I.E. PROPRIETOR OF ALPA MARKETING ENTERPRISE, WHICH IS THE SELLER OF ENTIRE BUSINESS OF AME AND NAVIN DETERGENT P. LT D. I.E THE ASSESSEE. DATED 10-12-2000 IS PRODUCED AS UNDER AGREEMENT THIS AGREEMENT IS MADE AT AHMEDABAD ON THIS THE 10 TH DAY OF DECEMBER, 2000, BY AND BETWEEN JALPA SPECIFIC FAMILY TRUST, A FAMILY TRUST OPERAT ING AND TRADING UNDER THE NAME AND STYLE OF ALPA MARKETING ENTERPRISE HAVING ITS PRINCIPAL PLACE OF BUSINESS AT NIRMA HOU SE, ASHRAM ROAD, AHMEDABAD-380009 THROUGH ITS TRUSTEE SHRI SHAATILAL P. PANDYA, WHO IS AUTHORIZED TO EXECUTE THIS PRESENTS ON BEHALF OF SAID TRUST (HEREINAFTER REFERRED AS TO THE SELLER) WHICH EXP RESSION SHALL UNLESS IT BE CONTRARY OR REPUGNANT TO THE SUBJECT OR CONTE XT HEREOF, BE DEEMED TO MEAN AND INCLUDE ITS SUCCESSORS, REPRESEN TATIVES AND NOMINEES) OF THE OTHER PART. AND NAVJN DETERGENTS PRIVATE LIMITED A COMPANY INCORPOR ATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956, HAVING REGIS TERED OFFICE AT KASHMIR* CHAMBERS. B/H. POPULAR HOUSE, AS HRAM ROAD, AHMCDATAD - 380 009 (HEREINAFTER REFERRED TO AS TH E PURCHASE) WHICH EXPRESSION SHALL UNLESS IT BE CONTRARY OR REPUGNANT TO THE SUBJECT OR CONTEXT THEREOF, BE DEEMED TO MEAN AND INCLUDE ITS SUCCESSORS, REPRESENTATIVES AND NOMINEES) OF THE SECOND PART. W HEREAS. 1. THE SELLER IS INTER ALIA OWNER OF THE PROPRIETAR Y CONCERN IN THE NAME AND STYLE OF M/S. ALPA MARKETING ENTERPRISES ( AME) HAVING ITS I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 9 PRINCIPAL PLACE OF BUSINESS AT NIRMA HOUSE, ASHSRAM AHMEDABAD AND BRANCHES IN VARIOUS STATES. THE SAID AME IS ENGAGE D IN BUSINESS OF MARKETING VARIOUS PRODUCTS UNDER THE BRAND NAME MMA /NIRMA (HEREINAFTER REFERRED TO AS THE SAID BUSINESS). 2. THE SELLER HAS OBTAINED AND/APPLIED FOR VARIOUS GOVERNMENT APPROVAL/LICENSES AND REGISTRATIONS FOR THE SAID BU SINESS IN NAME OF M/S. ALPA MARKETING ENTERPRISE. 3. THE PURCHASER IS DESIROUS FOR ACQUIRING THE SAID BUSINESS OF AME OF SELLER AS A GOING CONCERN TOGETHER WITH THE INFRASTRUCTURE SO CREATED BY AME. 4. THE SELLER IS DESIROUS TO SELL THE ENTIRE BUSINE SS OF THE SAID AME AS A GOING CONCERN TO SELLER. 5. THE SELLER IS EXISTING IN GOOD STANDING, UNDER T HE LAWS AND ENTITLED TO SELL AND DEAL WITH THE PROPERTIES AND H AS THE REQUISITE POWERS AND AUTHORITY. THE SELLER ALSO DECLARE THAT ENTERING INTO AN AGREEMENT SHALL NOT RESULT IN A BREACH OF OR CONSTI TUTE A DEFAULT AT ANY INSTRUMENT TO WHICH THE SELLER IS A PARTY OR TO WH ICH IS BOUND. 6. THE PARTIES HERETO DESIROUS OF RECORDING THE TER MS AND CONDITIONS FOR TRANSFER OF RUNNING BUSINESS OF AME BY SELLER TO THE PURCHASER. NOW THIS AGREEMENT FOR SALE WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS: 1 THE SELLER AGREE TO SELL AND THE PURCHASER AGREE TO PURCHASE THE ENTIRE SET UP OF THE SELLER'S PROPRIETARY CONCE RN IN THE NAME AND STYLE OF ALPA MARKETING ENTERPRISE WITH EFFECT FROM V 1.2000 (HEREINAFTER REFERRED TO AS THE EFFECTIVE DATE GATE ) FOR TOTAL CONSIDERATION OF RS. 50,00,000/- (RUPEES FIFTY LACS ONLY) 2. THE PURCHASER SHALL PAY THE SAID CONSIDERATION AMOUNT OF RS.50,00,000./- (RUPEES FIFTY LACS ONLY) WITHIN A P ERIOD OF 12 MONTHS TO THE SELLER. 3. ALL THE ASSETS RIGHTS, LIABILITIES, OBLIGATIONS AND DUTIES RELATING TO AFORESAID AME OF THE SELLER EFFECTIVE FROM 01.01 .2001 SHALL STAND TRANSFERRED OR DEEMED TO HE TRANSFERRED WITHOUT FUR THER ACL OR DEED TO I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 10 THE PURCHASER SO AS TO BECOME ABSOLUTE ASSETS, RIGH TS, LIABILITIES, OBLIGATION AND DUTIES OF THE PURCHASER. 4. IN RESPECT OF THE ASSETS AS ARE MOVABLE IN NATU RE OR ARE OTHERWISE CAPABLE OF TRANSFER BY MANUAL DELIVERY, T HE SAME MAY BE SO TRANSFERRED BY THE SELLER AND SHALL BECOME THE PROP ERTY OF THE PURCHASER UPON SUCH TRANSFER, ENDORSEMENT OR DELIVE RY AS THE CASE MAY BE WHICH THE PURCHASER DIRECTED TO DELIVER, END ORSE, OR TRANSFER FROM THE DATE OF TRANSFER. 5. ALL THE PROFITS OR INCOME RELATING TO AME ACCRUI NG OR ARISING TO THE SELLER OR EXPENDITURE OR LOSSES ARISING OR INCU RRED BY THE SELLER IN RESPECT OF AME WITH EFFECT FROM (HE EFFECTIVE DATE SHALL FOR ALL THE PURPOSES AND INTENTS TREATED AND DEEMED TO BE AND A CCRUE AS THE PROFIT OR INCOME OR EXPENDITURE OR LOSSES OF THE PU RCHASER AS THE CASE MAY BE. 6. IN RESPECT OF SUCH OF THE ASSETS OTHER THAN THO SE REFERRED TO IN CLAUSE (4) ABOVE, THE SAME SHALL WITHOUT ANY FURTHE R ACT, INSTRUMENT OR DEED, BE AND STAND TRANSFERRED AND VESTED TO THE PU RCHASER. THE PURCHASER SHALL ALONE, AFTER THE EFFECTIVE DATE, BE ENTITLED TO RECOVER AND COLLECT VARIOUS AMOUNTS DEPOSITED BY THE SELLER WITH THE BANKS, GOVERNMENT AUTHORITIES AND OTHER PARTIES OR DUE TO THE SELLER BY DEBTORS OR OTHERS AND FOR THIS PURPOSE, THE SELLER SHALL AUTHORIZE THE PURCHASER TO TAKE ALL SUCH STEPS AS MAY BE NECESSAR Y FOR REALIZING SUCH AMOUNTS. 7. THE SELLER AND PURCHASER ALSO AGREE THAT ALL TH E CONTRACTS, DEEDS, AGREEMENTS AND OTHER INSTRUMENTS AND DOCUMEN TS OF WHATSOEVER NATURE TO WHICH THE SELLER COMPANY IS A PARTLY WITHOUT ANY FURTHER CONCURRENCE OF ANY PARTY OR PARTIES THE RETO, SHALL REMAIN IN FULL FORCE AND EFFECT AGAINST OR IN FAVOR OF THE PURCHASER, AS THE CASE MAY BE, AND THE SAME MAY BE ENFORCED FULLY AND EFFECTIVELY AS IF INSTEAD OF THE SELLER, AS THE CASE MAY BE THE PURCH ASER IS PARTY THERETO 8. ALL LEGAL SUITS, APPEALS OR OTHER PROCEEDINGS, P ENALTIES AND PROSECUTIONS OF WHATEVER NATURE BY OR AGAINST THE S ELLER UNDER ANY STATUTE, PENDING ON THE DATE OF TRANS, THE SAME SHA LL NOT ABATE BE DISCONTINUED OR BE IN WAY PREJUDICIALLY AFFECTED BY REASONS OF TRANSFER, BY THE SAID LEGAL SUITS, APPEALS OR OTHER PROCEEDINGS, I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 11 PENALTIES AND PROSECUTIONS OF WHATEVER NATURE BY OR AGAINST THE PURCHASE IN THE SAME MANNER AND TO THE SAME EXTENT AS IT WOULD OR MIGHT HAVE BEEN CONTINUED, PROSECUTED AND ENFORCED BY OR AGAINST THE PURCHASER FROM THE EFFECTIVE DATE. WITH EFFECT FROM THE EFFECTIVE DATE:- A) ALL BENEFITS AND OR INCENTIVES BEING PRESENTLY A VAILED BY THE SELLER AND TO WHICH THE SELLER IS ENTITLED TO UNDER ANY TAX LEGISLATION, RULE, REGULATION, SCHEME, ORDER DIRECTIVE ETC OF TH E CENTRAL GOVERNMENT OR STATE GOVERNMENT OR ANY LOCAL BODIES WITH RESPECT TO SALES TAX.. INCOME TAX, EXCISE LEASE TAX, LOCAL GRO UNDS TAX, LEVIES AND OTHER TAX, CHARGES FEES, DUTIES AND LEVIES ETC, AS PER THE RECORD OF THE SELLER IN RELATION TO AFORESAID AME SHALL WITHO UT ANY ACT OR DEED BE TRANSFERRED TO VESTED AND OR DEEMED TO BE TRANSF ERRED AND VESTED IN THE PURCHASER. B) THE PURCHASER SHALL APPLY FOR CHANGE OF NAME IN THE RECORDS OF VARIOUS AUTHORITIES OF THE CENTRAL GOVERNMENT OR ST ATE GOVERNMENT OR ANY LOCAL BODIES WITH RESPECT TO INTER ALIA SALE S TAX, INCOME TAX, EXCISE, LEASE TAX, LOCAL GROUNDS TAX, RECORDS OF RI GHTS ETC AND ALL THE EXPENSES RELATING THERETO SHALL BE BORNE BY THE PUR CHASER. C) ALL COSTS CHARGES, TAXES INCLUDING DUTIES, LEVIE S AND ALL OTHER EXPENSES, IF ANY HAVE AND EXPRESSLY PROVIDED OTHERW ISE ARISING OUT OF OR INCURRED IN CARRYING OUT AND IMPLEMENTING THE TE RMS OF TRANSFER AND INCIDENTAL THERETO SHALL BE BORNE AND PAID BY T HE PURCHASER. 10) NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN CONTAINED, THE SELLER AGREES AND UNDERTAKES TO INDEMNIFY AND KEEP THE PURCHASE HARMLESS AGAINST ANY CLAIM OR DEMAND OF ANY NATURE WHATSOEVER MADE AGAINST THE PURCHASER BY ANY PERSON ARISING DU E THE TRANSFER OF UNDERTAKING ARISING DUE TO NON-COMPLIANCE OF THE PR OVISIONS OF ANY THE LAW APPLICABLE BUT NOT IMPLIED BY THE SAID AME BEFORE THE DATE OF TRANSFER/EFFECTIVE DATE. 11. ALL DISPUTES AND DIFFERENCES ARISING HEREUNDER INCLUDING ABOUT THE VALIDITY AND EXISTENCE OF THIS AGREEMENT OR THE PURPORTED TERMINATION THEREOF, SHALL BE REFERRED TO SOLE ARBI TRATOR UNDER THE PROVISIONS OF THE ARBITRATION AND CONCILIATION ACT, 1996. THE VENUE OF THE ARBITRATION SHALL BE AT AHMEDABAD. I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 12 THE PARTIES EXPRESSLY AGREE THAT ONLY THE COMPETENT COURTS OF JURISDICTION AT AHMEDABAD SHALL HAVE EXCLUSIVE JURI SDICTION IN ALL MATERIALS ARISING HEREUNDER. IN WITNESS WHEREOF, THE PARTIES ABOVE MENTIONED HA VE SINGED SEALED AND DELIVERED THIS AGREEMENT ON THE D AY AND PLACE FIRST HEREINABOVE MENTIONED. FOR SELLER FOR PURCHASER SD. SD. FROM THIS AGREEMENT ITSELF, IT IS VERY CLEAR THAT T HIS AMOUNT OF RS. 50 LACS HAVE BEEN PAID OVER AND ABOVE THE TOTAL ASSETS AND LIABILITIES RECEIVED BY THE ASSESSEE. THIS PAYMENT IS IN LIEU OF THE TOTAL ASSETS (WITH THE LIABILITIES) AND IN LIEU OF THE RUNNING B USINESS OF ALPA MARKETING ENTERPRISE (AME). THIS MEANS THAT THIS A MOUNT OF RS. 50 LACS IS A LUMP SUM PAYMENT FOR THE RUNNING BUSINESS OF THE ASSESSEE AND IT HAS BEEN GIVEN A NAME OF LICENCE FEE TO CLAI M THE DEPRECIATION ON THE SAME. THOUGH THIS PAYMENT AND THE ENTIRE AS SET AND LIABILITY PURCHASED FROM THE SELLER IS NOT A DEPRECIABLE ASSE T BUT THIS HAS BEEN GIVEN A NAME OF LICENSE FEE TO CLAIM DEPRECIATION. 3.3 IN ITS REPORT FILED IN FORM NO. 3CEA IN ACCORDA NCE TO RULE 6H, THE AUDITORS HAVE ALSO GIVEN THE REPORT DATED 28/10 /2001 AS UNDER:- FORM NO. 3CEA REPORT OF ACCOUNTANT TO BE FURNISHED BY AN ASSESSEE UNDER SUB-SECTION (3) OF SECTION 50B OF THE INCOME-TAX ACT 1961 RELAT ING TO COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE I PARTICULARS OF THE ASSESSEE EFFECTING THE SLUMP SALE (A) NAME JALPA SPECIFIC FAMILY TRUST (B) ADDRESS C/O SEVANTILAL SHAH & CO, 28 DALAMAL CHAMBERS, 2 ND FLOOR, 17, NEW MARINE LINES MUMBAI- 400020. (C) PERMANENT ACCOUNT NUMBER AAACJ29371 I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 13 (D) NATURE OF BUSINESS TRADING IN DETERGENTS AND TOILET SOAPS 2 DETAILS OF THE U NDERTAKING OR DIVISION. TRANSFERRED BY WAY OF SLUMP SALE ALPA MARKETING ENTERPRISE (A) ADDRESS/ LOCATION 28, DALAMAL C'HAMBER 2ND FLOOR, 1 7, NEW MARINE LINES, MUMBAI-400020. (B) NATURE OF BUSINESS TRADING IN DETERGENTS AND TOILET SOAPS 3 NAME, ADDRESS AND PERMANE NT ACCOUNT NUMBER OF THE PERSON WHO HAS PURCHASED THE UNDERTAKING OR DIVISION REFERRED TO IN ITEM 2. NAVIN DETERGENTS PVT. LTD, 4 TH FLOOR, KASHMIRA CHAMBERS, B/H POPULAR HOUSE, ASHRAM ROAD, AHD-09 P.A. NO. AAACN5215B 4 DATE OF SLUMP SALE OF THE UNDERTAKING OR DIVISION REFERRED TO IN ITEM 2 31.12.2000 5 AMOUNT OF CONSIDERATION RECEIVED FOR SLUMP SALE REFERRED TO IN ITERN 2 RS. 12,13,16,557/- (NET ASSETS) + RS. 50,00,000/- (RS. TWELVE CRORES SIXTY THREE LACS SIXTEEN THOUSAN D FIVE HUNDRED AND FIFTY SEVEN ONLY) 6 NET WORTH OF UNDERTAKING OR DIVISION REFERRED TO IN ITEM 2 I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 14 (A)IN THE CASE OF DEPRECIABLE ASSETS, WRITT EN DOWN VALUE OF THE ASSETS OF THE UNDERTAKING OR DIVI SION OR DIVISION TRANSFERRED BY WAY OF SLUMP SALE, DETER MINED IN ACCORDANCE WITH SUB- ITEM (C) OF ITEM (I) OF SUB- CLAUSE (C) OF CLAUSE (6) OF SECTION 43. RS. NIL (B) IN THE CASE OF OTHER ASSETS, BOOK VALUE OF SUCH ASSETS. RS. 12,55,01.558/- (C)AGGREGATE VALUE OF TOTAL ASSETS OF THE UNDER- TAKING OR DIVISION TRANSFERRED BY WAY SLUMP SALE [(A) + (B) ] RS. 12,55,01.558/- (D)VALUE OF LIABILITIES RELATABLE TO T HE UNDERTAKING OR DIVISION US APPEARING IN THE BOOKS OF ACCOUNT RS. 41,85,001/- E)NET WORTH OF T HE UNDERTAKING OR DIVISION (C-D) RS. 12,13,16,557/- CERTIFICATE I RAJENDRA D SHAH HAVE EXAMINED THE ACCOUNTS AND RE CORDS OF JALPA SPECIFIC FAMILY TRUST, C/O SEVANATILAL SHAH & CO. 2 8, DALAMAL CHAMBERS, 2 ND FLOOR, 17 NEW MARINE LINES, MUMBAI-400020 DURING THE YEAR ENDED ON 31-01-01. I HAVE OBTAINED ALL THE INFORMATION AND EXPLANATION S WHICH TO BE BEST OF MY KNOWLEDGE AND BELIEF WERE NECESSARY FOR THE P URPOSE OF ASCERTAINING AND COMPUTING THE NET WORTH OF THE UND ERTAKING OR DIVISION WHICH HAS BEEN TRANSFERRED BY WAY OF SLUMP SALE. I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 15 I CERTIFY THAT THE NET WORTH OF THE UNDERTAKING OR DIVISON HAS BEEN COMPUTED CORRECTLY IN ACCORDANCE WITH THE PROVISION S OF SECTION 50B OF THE INCOME-TAX ACT, 1961. PLACE: AHMEDABAD SD/- DATE: 28-10-01 R.D. SHAH. FROM THIS REPORT AND CERTIFICATION IT IS CRYSTA L CLEAR THAT THE RS. 50 LACS ARE A CONSIDERATION FOR THE SLUMP SALE AND THIS AMOUNT OF RS. 50 LACS DOES NOT AMOUNT TO PURCHASE OF ANY LICE NSE OR INTANGIBLE ASSET AS IS DEPRECIABLE IN NATURE OR IT MAY BE ALLO WED DEPRECIATION BY ANY PROVISION OF LAW. 3.4 THE ASSESSEE CONTENDED THAT THE AGREEMENT DATED 10-12-2000 SHOWS THAT THE ASSESSEE HAS RECEIVED VARIOUS GOVERN MENT APPROVALS/ LICENCES AND REGISTRATIONS FOR THE SAID BUSINESS IN THE NAME OF AME AND THAT IS WHY THE DEPRECATION HAS BEEN CLAIMED ON THIS AMOUNT OF RS. 50 LACS. BUT THIS CONTENTION OF THE ASSESSEE IS NOT FOUND CORRECT SINCE THIS AMOUNT OF RS. 50 LACS DOES NOT AMOUNT TO VALUATION OF THESE GOVERNMENT APPROVALS/ LICENSES AND REGISTRATIONS. T HIS AMOUNT OF RS. 50 LACS IS A LUMP SUM PAYMENT OVER AND ABOVE THE EN TIRE ASSETS AND LIABILITIES OF THE ASSESSEE, THEREFORE THIS IS FOR THE RUNNING BUSINESS AND IS NOT IN LIEU OF ONLY 'LICENSES OR OTHER 'COM MERCIAL RIGHTS' IF ANY PERTAINING AND OWNED BY AME. THIS AMOUNT IS NOT EXACT VALUATION OF ANY 'LICENSE' OR COMMERCIAL RIGHT. THE ASSESSEE WAS ALSO ASKED TO GIVE THE DETAILS OF SUCH LICENSES' AND CORRESPONDIN G VALUATION OF THE SAME SO THAT THE DEPRECIATION ON ONLY CORRECT COST OF INTANGIBLE ASSET MAY BE ALLOWED BUT NO SUCH DETAILS COULD BE FURNISH ED. 3.5 FROM THE DETAILS OF BLOCK OF ASSETS OF ALPA MA RKETING ENTERPRISE, IT HAS BEEN FOUND THAT THIS CONCERN HAS ONLY TWO ASSETS, FIRST LAND OF RS.2,47,420 AND SECOND THIS LICENSE F EE OF RS 50 LACS. FROM THIS IT IS VERY CLEAR THAT THE ASSESSEE HAS RI GHT TO CLAIM THE DEPRECIATION ON THE LAND BECAUSE THAT WAS THE ONLY ASSET IN THE SCHEDULE OF FIXED ASSETS. THE ASSESSEE HAS CLAIMED DEPRECIATION ON THIS ASSET TO THE EXTENT OF RS 8 , 20,313, WHICH IS STRANGE AND THE SAME CANNOT BE ALLOWED AT ALL. 3.6 FROM THE ENTIRE EPISODE IT IS CLEAR THAT THE A MOUNT OF RS 50 LACS HAS BEEN MADE AS LUMP SUM PAYMENT AND IT IS NOT REL ATING TO ANY PARTICULAR LICENSE' OR ANY OTHER INTANGIBLE ASSET I N WHICH THE I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 16 DEPRECIATION IS MADE AVAILABLE BY LAW. THE ASSESS EE HAS ONLY GIVEN THIS PAYMENT OF RS 50 LACS, A NAME AS 'LICENSE FEE TO CLAIM THE DEPRECATION, WHICH IS NOT GENUINE AT ALL AND THEREF ORE, DEPRECIATION OF RS 8,20,313 IS HEREBY DISALLOWED AND THE AMOUNT OF RS. 50 LACS IS REDUCED FROM THE BLOCK OF ASSETS AND THE WDV OF THE BLOCK OF THE ASSETS IS REDUCED WITH THIS SUM OF RS 50 LACS ACCOR DINGLY. (DISALLOWANCE OF RS. 8,20,313) 10. IN APPEAL THE SAME WAS CONFIRMED BY LD. CIT(A). 11. AT THE TIME OF HEARING BEFORE US, IT WAS SUBMIT TED ON BEHALF OF THE ASSESSEE THAT ASSESSEE HAS PAID RS. 80 LACS TOWARDS INTANGIBLE ASSETS ON ACQUISITION OF BUSINESS OF M/S. ALPA MARKETING ENTE RPRISES. THIS CONSIDERATION WAS PAID TOWARDS INTANGIBLE ASSETS ON ACQUISITION OF BUSINESS AND BE CONSIDERED AS THE GOODWILL AND THEREFORE IN VIEW OF HONBLE APEX COURT DECISION IN THE CASE OF CIT VS. SMITH SECURIT IES LTD. 348 ITR 302 WHEREIN IT WAS HELD THAT GOODWILL WAS AN ASSET AS P ER EXPLANATION 3 TO SECTION 32(1) OF THE ACT AND THEREFORE DEPRECIATION ON THE SAME SHOULD BE ALLOWED. SINCE THIS ARGUMENT HAS BEEN ADVANCED BY THE ASSESSEE FOR THE FIRST TIME WE IN THE INTEREST OF NATURAL JUSTICE AN D FAIR PLAY DEEM IT PROPER THAT MATTER REQUIRE FRESH ADJUDICATION BY THE AO IN THE LIGHT OF THIS SUBMISSION OF THE ASSESSEE. FOR THIS PURPOSE, THE MATTER IS REST ORED BACK TO HIS FILE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 12. THIRD GROUND READS AS UNDER:- IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPEL LANTS CASE, THE LD. CIT(A) HAS ERRED IN NOT ENTERTAINING GROUND REGARDI NG NOT GRANTING TDS CREDIT OF RS. 89,152. I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 17 13. THE AO HAS DEALT THIS GROUND AS UNDER:- 5. THE ASSESSEE HAS CLAIMED TDS OF RS. 89,152 IN T HE NAME OF ALPA MARKETING ENTERPRISE (AME), THE CORRESPONDING INCOME RELATING TO THE SAME HAS BEEN OFFERED IN A.Y. 2000-01 AND A. Y. 2001-02. THEREFORE, THE TDS CLAIM CAN BE MADE IN THOSE YEARS ONLY, IN THE LIGHT OF CLEAR PROVISIONS OF SECTION 199, WHICH READ AS U NDER: 199. CREDIT FOR TAX DEDUCTED. (1) ANY DEDUCTION MADE IN ACCORDANCE WITH THE FOREG OING PROVISIONS OF THIS CHAPTER AND PAID TO THE CENTRAL GOVERNMENT SHALL BE TREATED AS PAYMENT OF TAX ON BEHALF OF THE PERSO N FROM WHOSE INCOME THE DEDUCTION WAS MADE, OR OF THE OWNER OF T HE SECURITY, OR DEPOSITOR OR OWNER OF PROPERTY OR OF UNIT-HOLDER OR OF THE SHAREHOLDER, AS THE CASE MAY BE, AND CREDIT SHALL BE GIVEN TO HI M FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE CERTIFICATE FURNI SHED UNDER SECTION 203 IN THE ASSESSMENT, IF ANY MADE UNDER THIS ACT F OR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE: FROM THIS PROVISION, IT IS CLEAR THAT THE ASSESSEE CAN CLAIM TDS AGAINST THE INCOME ONLY IN THAT PARTICULAR YEAR, IN WHICH THE CONCERNED INCOME HAS BEEN RETURNED. 14. THIS ACTION OF THE AO HAS BEEN CONFIRMED BY LD CIT(A). 15. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT A SUM OF RS . 89,152/- WAS DEDUCTED AS TDS BY ELECTROLUX KELVINATOR LTD. THE ASSESSEES C ASE IS THAT INCOME RELATING TO THIS TDS HAS BEEN OFFERED IN ASSESSMENT YEAR 01-02 & 2002-03 BUT TDS CERTIFICATE WAS RECEIVED LATE AND THEREFORE THE CREDIT WAS CLAIMED DURING THE YEAR UNDER APPEAL. THE LOWER AUTHORITIE S HAVE NOT ACCEPTED THIS SUBMISSION OF THE ASSESSEE. WE ARE HOWEVER OF THE OPINION THAT SINCE INCOME AGAINST TDS HAS ALREADY BEEN OFFERED IN THE EARLIER YEARS THE I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 18 ASSESSEE IS ENTITLED FOR CREDIT OF THIS TDS AND THE SAME BE GIVEN TO THE ASSESSEE IN THE YEARS IN WHICH INCOME RELATING TO T HIS TDS WAS OFFERED. THIS GROUND OF THE ASSESSEE IS ALLOWED. 16. GROUND NO. 4 IS CONSEQUENTIAL IN NATURE DOES NO T REQUIRE ANY ADJUDICATION. 17. GROUND NO. 5 RELATING TO INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) BEING PREMATURE IS ALSO DISMISSED. 18. GROUND NO. 6 IS GENERAL DOES NOT REQUIRE ANY AD JUDICATION. 19. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. ITA NO. 4243/AHD/2013 20. THIS IS REVENUES APPEAL AGAINST THE ORDER OF L D. CIT(A)-II DATED 10/09/2007 21. REVENUE HAS TAKEN FOLLOWING EFFECTIVE GROUND:- 1. THE LD. CIT(A) II AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN DELETING THE ADDITION MADE OF RS. 22,99,322/- ON AC COUNT OF DISALLOWANCE OF INTEREST EXPENSES. 22. AO WHILE MAKING DISALLOWANCE OF 22,99,322/- OF INTEREST EXPENSES HAS OBSERVED AS UNDER:- 4. DISALLOWANCE OF INTEREST EXPENSES OF RS. 22,99, 322 DURING THE ASSESSMENT PROCEEDINGS, FROM THE DETAIL S FURNISHED BY THE ASSESSEE, IT HAS BEEN FOUND THAT THE ASSESSE E HAS CLAIMED THE I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 19 FINANCIAL EXPENSES OF RS. 23,60,108 OUT OF THIS RS. 50,438 IS BANK COMMISSION AND RS. 10,338 IS BANK INTEREST EXPENSES AND RS. 22,99,322 IS INTEREST ON ICD FROM NIYA FINSTOCK P. LTD. FROM THE 3CD REPORT, IT WAS FOUND THAT THE ASSESSEE HAS TAKE N LOAN FROM RELATED PERSON NIYA FIN STOCK P. LTD 4 TH FLOOR. KASHIMIRA CHAMBER, B/H POPULAR HOUSE, ASHRAM ROAD, AHMEDABAD. THIS YEAR AM OUNT OF RS. 56,90,000 WAS TRANSFERRED TO THE ASSESSEE'S ACCOUNT AND THE MAXIMUM BALANCE OUTSTANDING DURING THE YEAR WAS RS. 2,74,43 ,221. FROM THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, IT WAS FOUND THAT THE ASSE SSEE HAS MADE TOTAL SALES OF RS.74,23,347 AND TOTAL PURC HASE WAS MADE OF RS. 54,65,375 AND IN THIS VOLUME OF THE BUSINESS, S UCH A HUGE FINANCIAL EXPENSE CLAIM OF RS. 23,60,108 HAS BEEN M ADE WHICH INCLUDES PAYMENT OF RS 22, 99,322 TO ITS RELATED PE RSONS I.E NIYA FIN STOCK P. LTD. THE ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF THIS CLAIM OF EXPENSE BECAUSE THIS WAS NOT JUSTIFIABLE A T ALL AND IT LOOKED AS IF THE ASSESSEE HAS TRIED TO REDUCE ITS PROFIT A ND DIVERTED ITS PROFIT BY PAYING SUCH HUGE INTEREST EXPENSE. HOWEVER THE RE WAS NO NEED OF SO LARGE FUNDS. THE ASSESSEE WAS ASKED TO EXPLAIN A S TO WHY IN THE LIGHT OF SEC TON 40A(2)(A) THIS CLAIM SHOULD NOT BE RESTRICTED. IT WAS ALSO FOUND THE ASSESSEE HAS GIVEN RS 27.54 LACS, WH ICH REFLECTED IN THE BALANCE SHEET, AS ADVANCE GIVEN TO SUPPLIERS. THER EFORE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY SUCH HUGE CLAIM OF I NTEREST EXPENSE OF RS. 22,99,322/- SHOULD BE ALLOWED TO IT WHEN IT HAS RETURNED AS GROSS LOSS BFORE DEPRECIATION AND TAX OF RS. 15,41,630/- 4.1 THE REPRESENTATIVE OF THE ASSESSEE HAS ARGUED T HAT THE FINANCIAL EXPENSES WERE THE GENUINE EXPENSES AND THE ADVANCE MADE TO SUPPLIERS WAS FOR THE BUSINESS PURPOSE, IT WAS ALSO ARGUED THAT THE PAYMENT OF RS. 22,99,322/- TO ITS RELATED PERSON WA S A GENUINE BUSINESS EXPENSES, THEREFORE THE SAME CAN BE NOT DI SALLOWED. IT WAS CLAIMED THAT THE ASSESSEE HAS TURN OVER OF RS. 74,2 3,347/- , THEREFORE, THE LOANS BORROWED FORM THE RELATED PERSON HAVE BEE N USED FOR THE BUSINESS PURPOSE AND HENCE NO DISALLOWANCE CAN BE M ADE IN THIS REGARD. 4.2 THE CONTENTIONS MADE BY THE ASSESSEE ARE NOT TE NABLE AT ALL AND THE REBUTTAL OF THE SAME IS AS UNDER:- I) FROM THE P & L ACCOUNT OF THE ASSESSEE, IT HAS B EEN FOUND THAT THE ASSESSEE HAS MADE TOTAL SALES OF RS. 74,23,347/ -. THE ASSESSEE HAS I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 20 MADE TOTAL PURCHASE OF RS. 54,65,375/-. IT HAS ALS O INCURRED SELLING AND DISTRIBUTION EXPENSES OF RS. 11,92,683/-. OVER AND ABOVE THESE EXPENSES, THE ASSESSEE HAS CLAIMED FINANCIAL EXPENS ES OF RS. 23,60,108/- WHICH INCLUDES INTEREST PAYMENT OF RS. 22,99,322/-. THIS INTEREST OF RS. 22,99,322/- HAS BEEN PAID TO ITS RE LATED PERSONS I.E. NIYA FIN STOCK P. LTD AND THE MAXIMUM BALANCE OUTST ANDING DURING THE YEAR HAS BEEN FOUND AT RS. 2,74,43,221/-. FROM THIS DETAIL, IT IS VERY CLEAR THAT THERE WAS NO NEED TO THE ASSESSEE T O TAKE SUCH HUGE FUNDS WHICH IS TOTALLY INCOMPARABLE TO THE BUSINESS VOLUME OF THE ASSESSEE. THIS MEANS THAT THE BORROWING OF FUND FR OM RELATED PERSON AND PAYMENT OF INTEREST TO IT WAS NOT REQUIRED AND THE ASSESSEE HAS DIVERTED PROFITS AND INCURRED THE GROSS LOSS BEFORE DEPRECIATION AND TAX OF RS. 15,41,630/- II) LAST YEAR, THE ASSESSEE HAD SHOWN GROSS PROFIT OF RS. 5,98,542/- BUT THIS YEAR IT HAS INCURRED A HUGE LOSS WHICH CAN NOT BE ALLOWED LOOKING INTO THE FACTS OF THE CASE. III) THE PAYMENT MADE TO RELATED CONCERN, IF THE SA ME IS NOT AS PER REQUIREMENT OF THE BUSINESS CAN NOT BE ALLOWED IN T HE LIGHT OF SEC. 40A(2)(A). IV) THE ASSESSEE HAS MADE ADVANCES TO THE SUPPLIER TO THE EXTENT TO RS. 27,53,908/- AND NO INTEREST HAS BEEN CHARGED FR OM THEM, THOUGH THE ASSESSEE INCURRING GROSS LOSS IN THE BUSINESS. V) FROM THE BALANCE SHEET OF THE ASSESSEE, IT HAS B EEN FOUND THAT ITS SHARE CAPITAL HAS INCREASED FROM RS. 10,520/- T O RS. 1,00,000/- AND THE ASSESSEE HAS RESERVES AND SURPLUS OF RS. 14,03, 199/- THIS MEANS THAT IT WAS HAVING REASONABLE LIQUID FUNDS TO MANAG E THE AFFAIRS OF THE BUSINESS. AT THE TOTAL VOLUME OF RS. 74,23,347/-, THE INITIAL LIQUID BALANCE OF AROUND RS. 15 LACS IS A SUFFICIENT FUND SINCE THE ASSESSEE DEALS IN THE FMCG MARKET. THIS MEANS THE UNSECURED LOANS HAVE BEEN TAKEN ONLY TO DIVERT THE PROFIT TO THE RELATED PERSON WHEN THERE WAS NO REQUIREMENT OF THE SAME. IN THE LIGHT OF THE ABOVE OBSERVATION, THE INTEREST CLAIM OF RS. 22,99,322/- PAID TO THE RELATED PERSON IS HEREBY DI SALLOWED. I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 21 23. THE SUBMISSION OF THE ASSESSEE BEFORE LD. CIT(A ) HAS BEEN NOTED BY HIM IN HIS ORDER AS UNDER:- IN THE WRITTEN SUBMISSIONS BEFORE ME THE APPELLANT SUBMITTED THAT THEY HAD BORROWED FUNDS FROM NIYA FINSTOCK PVT LTD FOR THE PURPOSE OF BUSINESS. THE QUANTUM OF PURCHASES AND SALES ARE NOT THE IMPORTANT FACTORS BUT THE FACTORS LIKE FIXED ASSETS, BORROWED FUNDS, CURRENT ASSETS, INVENTORIES, CASH AND BANK BALANCES WHICH W OULD REPRESENT SUCH BORROWINGS ARE RELEVANT. IT IS STATED THAT WH EN THE FUNDS ARC USED FOR THE BUSINESS, INTEREST EXPENSES SHOULD BE ALLOWED. IT IS ALSO ARGUED THAT NIYA FINSTOCK PVT. LTD. HAS CONFIRMED T HE RECEIPT OF INTEREST AND THEY ARE BEING ASSESSED TO TAX. SECTIO N 40A(2) HAS NO APPLICATION. THE OBSERVATION ABOUT DIVERSION OF PRO FIT ARE NOT CORRECT. IT IS ALSO ARGUED THAT THE INTEREST IS PAID AT 10% WHICH IS NOMINAL MARKET RATE AND HENCE THERE IS NO EXCESSIVE PAYMENT . 24. AFTER TAKING INTO CONSIDERATION THESE SUBMISSIO NS OF THE ASSESSEE LD. CIT(A) DELETED THIS DISALLOWANCE BY OBSERVING AS UN DER:- 3.1 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. IT IS SEEN THAT THE EXPENSES ARE CLAIMED WITH REFERENCE TO THE BORROWIN GS FROM NIYA FINSTOCK PVT. LTD. THE A.O. HAS APPLIED PROVISIONS ON SECTION 40A(2)(A) OF THE ACT. HE HAS OBSERVED ABOUT THE REQ UIREMENT OF FUNDS BY THE APPELLANT. I FIND THAT WHETHER THE FUNDS ARE TO BE BORROWED FOR THE PURPOSE OF BUSINESS OR NOT IS THE DECISION OF T HE ASSESSEE THEREFORE, THIS CANNOT BE THE GROUND FOR MAKING ADD ITION. HOWEVER, IT APPEARS THAT THAT TDS HAS NOT BEEN DEDUCTED WHILE G IVING CREDIT FOR SUCH INTEREST. CONSIDERING THE FACT THAT THE BORROW INGS SO MADE ARE REPRESENTED BY THE BUSINESS ASSETS OF THE APPELLANT , IT IS NOT THE CASE THAT THE AMOUNT SO OBTAINED HAS BEEN DIVERTED FOR N ON-BUSINESS PURPOSE, THE DISALLOWANCE MADE IS, THEREFORE, DIREC TED TO BE DELETED. 25. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT FUNDS BORR OWED BY ASSESSEE FROM M/S NIYA FINSTOCK PVT. LTD WERE USED BY THE ASSESSEE FO R BUSINESS PURPOSES AND INTEREST OF RS. 22,99,322/- WAS PAID BY ASSESSEE TO THEM AND SAME WAS I.T.A NOS.4144,4145 &4243 /AHD/2007 A.Y. 2001-02 ,03-04 &2003-04 PAGE NO NAVIN DETERGENTS PVT LTD VS. ACIT 22 OFFERED TO TAX. WE FURTHER FIND THAT DURING THE YE AR CREDIT BALANCE OF M/S NIYA FINSTOCK PVT. LTD WAS REDUCED BY SUM OF RS. 1, 15,42,627/-. THEREFORE IT CANNOT BE SAID THAT DURING THE YEAR UNDER APPEAL FUNDS WERE BORROWED TO REDUCE THE TAX LIABILITY OF THE ASSESSEE OR TO DIVE RT THE PROFIT TO THE RELATED PERSON. IN VIEW OF THIS WE FEEL NO NEED TO INTERFE RE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. 26. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 27. IN THE COMBINED RESULT, ASSESSEES APPEALS ARE PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 31/01/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,