ITO 2(1)(1), MUMBAI V. ADORE TECHNOPAK LTD, MUMBAI

ITA 4922/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48596 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 02-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 27-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Scheme of amalgamation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SHRI V. DURGA RAO , JM I.T.A.NO. 4922/MUM/2009 ASSESSMENT YEARS: 2005-06 THE INCOME-TAX OFFICER, WARD 2(1)(1), AAYAKAR BHAVAN, R.NO. 575, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020. VS. M/S. ADOR TECHNOPAK LTD., 6 TH FLOOR, ADOR HOUSE, B.K. DUBHASH MARG, MUMBAI 400 023. PAN: AAACJ 1161 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PAVAN VED RESPONDENT BY : SHRI P.J. PARDIWALA O R D E R PER P.M. JAGTAP, AM: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST T HE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III, M UMBAI, DATED18.06.2009, AND IN THE SOLITARY GROUND RAISED THEREIN, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS. 8,52 ,58,400/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CESSATION OF LIABILITY OF THE ASSESSEE TOWARDS M/S. J.B. ADVANI & CO.LTD.. 2. THE ASSESSEE, IN PRESENT CASE, IS A COMPANY WHIC H GOT AMALGAMATED WITH M/S. J.B. ADVANI & COMPANY PVT. LTD., WITH EFFECT F ROM 01.11.2004, IN ACCORDANCE WITH THE SCHEME OF AMALGAMATION DULY APPROVED BY TH E HONBLE BOMBAY HIGH COURT. CONSEQUENTLY, THE ASSESSEE COMPANY CLOSED ITS BOOKS OF ACCOUNT ON 31.10.2004 AND THE BALANCES APPEARING IN THE SAID BOOKS OF ACCOUNT AS ON THAT DATE WERE AMALGAMATED WITH THE BOOKS OF ACCOUNT OF M/S. J.B.A DVANI & COMPANY PVT. LTD.. ON THE DATE OF AMALGAMATION, THERE WERE THREE LIABILIT IES APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY PAYABLE TO M/S. J. B. ADVANI & COMPANY PVT. LTD., REPRESENTING SHARE CAPITAL OF RS. 22,58,400/-, SECU RED NON-CONVERTIBLE DEBENTURES OF RS.3,99,50,000/- AND UNSECURED LOAN OF RS. 4,30,50, 000/-. ACCORDING TO THE ASSESSING OFFICER, THE SAID LIABILITIES AGGREGATING TO RS. 8,52,58,400/- HAD CEASED TO ITA NO.4922/MUM/2009 M/S. ADORE TECHNOPAK LTD.. 2 EXIST ON THE DATE OF AMALGAMATION AS PER THE ORDER OF THE HONBLE BOMBAY HIGH COURT APPROVING THE AMALGAMATION AND THE AMOUNT TH EREOF WAS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE UNDER SECTION 41(1) OF TH E ACT. HE, THEREFORE, ADDED A SUM OF RS. 8,52,58,400/- TO THE TOTAL INCOME OF THE ASSESSEE UNDER SECTION 41(1) IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE ORDER DATED 28.12.2007. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3), AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CHALLENGING THEREIN, INTER ALIA, THE ADDI TION OF RS. 8,52,58,400/- MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1). AFTER CO NSIDERING THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND THE MATERI AL AVAILABLE ON RECORD, THE LEARNED CIT(A) FOUND THAT THE SAID ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1) WAS NOT SUSTAINABLE AND ACCORDINGLY THE SAME WAS DELETED BY HIM FOR THE FOLLOWING REASONS GIVEN IN PARA 2.2. OF HIS IMP UGNED ORDER : I HAVE PERUSED THE FACTS OF THE CASE. I FIND THAT T HE AMALGAMATION OF APPELLANT COMPANY WITH JB ADVANI & CO. HAS TAKEN PL ACE CONSEQUENT TO APPROVAL BY HONOURABLE BOMBAY HIGH COURT. THE LIABI LITIES UNDER CONSIDERATION ARE THOSE WHICH ARE IN THE NAME OF TH E CORPORATE ENTITY WITH WHICH APPELLANT IS AMALGAMATING. IT IS A KNOWN ACCO UNTING CONCEPT THAT ON AMALGAMATION OF TWO ENTITIES, THE ENTRIES EXISTING IN THE BOOKS OF ACCOUNT OF ONE ENTITY SHALL AUTOMATICALLY GET NULLIFIED BEC AUSE OF IDENTICAL CORRESPONDING ENTRY IN THE BOOKS OF ACCOUNT OF THE OTHER ENTITY. IN SUCH A SITUATION ONE CANNOT SAY THAT THERE IS ANY CESSATIO N OF LIABILITY. ALSO, THE LIABILITIES UNDER CONSIDERATION ARE NOT THE ONES WH ICH WERE CLAIMED BY APPELLANT AS EXPENSE IN ANY OF THE EARLIER YEARS. T HEREFORE, STRICTLY SPEAKING, SECTION 41(1) IS NOT APPLICABLE AT ALL IN THE FACTS OF THE CASE. THEREFORE, THERE IS NO RATIONALE FOR THE ADDITION MADE BY THE ASSESSING OFFICER AND THE SAME IS DELETED. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SUBMITTED B Y THE LEARNED COUNSEL FOR THE ASSESSEE, THE SCHEME OF AMALGAMATION AND THE ACCOUN TING EFFECT THEREOF AS GIVEN IN THE BOOKS OF ACCOUNT WERE NOT PROPERLY APPRECIATED BY THE ASSESSING OFFICER WHILE COMING TO THE CONCLUSION THAT THERE WAS CESSATION O F LIABILITY PAYABLE BY THE ASSESSEE TO M/S. J.B. ADVANI & CO. PVT. LTD. WITH W HICH IT GOT AMALGAMATED. THE ITA NO.4922/MUM/2009 M/S. ADORE TECHNOPAK LTD.. 3 LEARNED CIT(A), ON THE OTHER HAND, WAS RIGHT IN OBS ERVING THAT ON AMALGAMATION OF TWO ENTITIES, THE LIABILITY APPEARING IN THE BOOKS OF ACCOUNT OF ONE ENTITY PAYABLE TO THE OTHER ENTITY GOT NULLIFIED AGAINST THE CORRESP ONDING ENTRY APPEARING IN THE BOOKS OF ACCOUNT OF THE OTHER ENTITY AND THERE WAS NO CES SATION OF LIABILITY AS A RESULT OF THESE ACCOUNTING ENTRIES. MOREOVER, AS RIGHTLY HELD BY THE LEARNED CIT(A), THE IMPUGNED LIABILITIES WERE NOT THE ONES WHICH WERE C LAIMED BY THE ASSESSEE AS EXPENDITURE IN ANY OF THE EARLIER YEARS AND THE SAM E, THEREFORE, COULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 41(1) ON THIS COUNT ALSO. AT THE TIME OF HEARING BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. V DCIT (308 ITR 417)( BOM.) IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. A PERUSAL OF THE JUD GMENT OF THE HONBLE HIGH COURT DELIVERED IN THE SAID CASE, HOWEVER, SHOWS THAT THE RE WAS WAIVER OF LOAN TAKEN BY THE ASSESSEE FOR BUSINESS PURPOSE AS A RESULT OF CO NSENT TERMS ARRIVED AT IN A SUIT AND SINCE THE AMOUNT OF THE SAID LOAN WAS WRITTEN B ACK BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BY CREDITING THE SAME TO THE RESERVE A CCOUNT, HONBLE BOMBAY HIGH COURT HELD THAT THE SAID AMOUNT HAD BECOME THE ASSE SSEES INCOME AND WAS ASSESSABLE IN ITS HANDS. IN THE PRESENT CASE, THE FACTS INVOLVED ARE ENTIRELY DIFFERENT FROM THE FACTS INVOLVED IN THE CASE OF SOLID CONTAI NERS LTD.(SUPRA) INASMUCH AS, THERE WAS NO WAIVER OF LIABILITY WHICH HAD BEEN WR ITTEN BACK BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BUT IT WAS A CASE WHERE ACCOUNTING ENTRIES WERE PASSED TO GIVE EFFECT TO THE SCHEME OF AMALGAMATION BY NULLIFYING THE LIABILITIES PAYABLE TO THE OTHER ENTITY WITH THE CORRESPONDING ENTRIES APPEARING IN THE BOOKS OF ACCOUNT OF THE SAID ENTITY. AS SUCH, CONSIDERING ALL THE FACTS OF THE C ASE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) DELETING THE A DDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1) HOLDING THAT THE SAID P ROVISION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. ITA NO.4922/MUM/2009 M/S. ADORE TECHNOPAK LTD.. 4 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT N THIS 29 TH DAY OF APRIL, 2011. SD. SD. (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 29 TH APRIL, 2011. KN COPY TO: 1. THE ASSESSEE 2. THE ITO -2(1)(1), MUMBAI 3. THE CIT-3 MUMBAI. 4. THE CIT(A)-III, MUMBAI 5. THE DR G BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI