M/s. FGP LTD., MUMBAI V. ACIT 1(1), MUMBAI

ITA 5002/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55693 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 08-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-08-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBACHAM RAM
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Bad and doubtful debts; Valuation report
• Section: 143(3); 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND V. DURGA RA O, J.M. ITA NO. 5002/MUM/2008 ASSESSMENT YEAR : 2004-05 M/S F.G.P. LTD., APPELLANT COMMERCIAL UNION HOUSE 9, WALLACE STREET, FORT, MUMBAI 400 001. VS. ASSTT. COMMISSIONER OF INCOME-TAX, RES PONDENT AAYKAR BHAVAN, M.K. MARG, MUMBAI 400 020. ITA NO. 5106/MUM/2008 ASSESSMENT YEAR : 2004-05 ASSTT. COMMISSIONER OF INCOME-TAX, AP PELLANT AAYKAR BHAVAN, M.K. MARG, MUMBAI 400 020. VS. M/S F.G.P. LTD., RESPONDENT COMMERCIAL UNION HOUSE 9, WALLACE STREET, FORT, MUMBAI 400 001. VS. ASSESSEE BY : MR. ARVIND SONDE RESPONDENT BY : MR. SUBACHAM RAM DATE OF HEARING : 08/09/2011 DATE OF PRONOUNCEMENT : 21/10 /2011 ORDER PER J. SUDHAKAR REDDY, A.M.: THESE ARE THE CROSS APPEALS AND ARE DIRECTED AGAIN ST THE ORDER OF CIT(A)-I, MUMBAI DATED FOR THE ASSESSMENT YEAR 2 004-05. 2. FACTS IN BRIEF ARE THAT THE AO STATES THAT THE ASSESSEE IS A COMPANY AND IT HAS VIRTUALLY NO BUSINESS ACTIVITY D URING THE YEAR ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 2 UNDER CONSIDERATION. IT CLAIMED TO HAVE EARNED INCO ME FROM LETTING OUT BUSINESS CENTRE AND OTHER INCOME, VIZ., INTERES T AND PROFIT ON SALE OF INVESTMENTS. THE ASSESSEE FILED ITS RETURN OF IN COME FOR THE AY 2004-05 ON 30/10/2004 DECLARING TOTAL LOSS OF RS. ( -)3,97,29,592/-. THE AO PASSED ORDER U/S 143(3) OF THE ACT ON 28/12/ 2006 DETERMINING THE TOTAL INCOME AT RS. 2,60,54,876/- A FTER MAKING CERTAIN ADDITIONS AND DISALLOWANCES. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE FIRST A PPELLATE AUTHORITY GRANTED PART RELIEF. ON THE ISSUES WHERE THE FIRST APPELLATE AUTHORITY REJECTED THE CONTENTIONS OF THE ASSESSEE, THE ASSES SEE IS IN APPEAL WHILE ON THE ISSUES WHERE THE FIRST APPELLATE AUTHO RITY DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASESSS EE MR. ARVIND SONDE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE M R. SUBHACHAM RAM. 4. WE TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 5 002/M/08: 5. GROUND NOS. 1 & 2 ARE ON THE ISSUES AS TO WHETH ER THE AO WAS RIGHT IN TREATING THE INTEREST INCOME OF RS. 82,97, 000/- AND DIVIDEND INCOME OF RS. 9,47,000/- AS INCOME FROM OTHER SOUR CES. 6. WE FIND THAT THESE ISSUES ARE COVERED AGAINST T HE ASSESSEE BY THE DECISION MUMBAI BENCH OF THE TRIUBNAL IN ASSESS EES OWN CASE FOR AY 2003-04 IN ITA NO. 2653/M/07, ORDER DATED 15/12/ 2010 WHEREIN AT PAGE NO. 3 & 4 VIDE PARA 2.1.2 OF ITS ORDER, THE TRIBUNAL HELD AS FOLLOWS: - 2.1.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NATURE OF DIVIDEND AND INTEREST INCOME RECEIVED BY THE ASSESS EE DURING THE YEAR. THE DIVIDEND HAS BEEN SPECIFICALLY DEFINED AS INCOME FROM OTHER SOURCES IN SECTION 56(1). NO CASE HAS BEEN MA DE OUT THAT DIVIDEND IN THIS CASE WAS INCIDENTAL TO ANY BUSINES S ACTIVITY. THEREFORE WE CONFIRM THE ORDER OF CIT(A) HOLDING TH E DIVIDEND INCOME AS INCOME FROM OTHER SOURCES. AS REGARDS THE INTEREST INCOME, THE SAME HAD BEEN RECEIVED BY THE ASSESSEE FROM INTER- ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 3 CORPORATE DEPOSITS, FIXED DEPOSITS AND DEPOSITS WIT H MUTUAL FUNDS. THE CASE OF THE ASSESSEE IS THAT TEMPORARY S URPLUS FUNDS HAD BEEN IN VESTED FROM WHICH INTEREST INCOME HAD B EEN RECEIVED AND THEREFORE IT SHOULD BE ASSESSED AS BUSINESS INC OME. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE HIGH COU RT OF MUMBAL IN CASE OF CIT VS PARAMOUNT PREMISES PVT. LT D. (SUPRA). WE HAVE GONE THROUGH THE SAID JUDGMENT AND IN OUR V IEW THE SAID CASE IS DISTINGUISHABLE. IN THAT CASE THE ASSESSEE WHO WAS IN THE REAL ESTATE BUSINESS HAD RECEIVED ADVANCE INSTALLME NTS IN CONNECTION WITH BOOKING OF FLATS AND PENDING UTILIZ ATION IN THE CONSTRUCTION BUSINESS THESE DEPOSITS WERE TEMPORARI LY PUT IN DEPOSITS AND LOANS. IT WAS THEREFORE HELD THAT INTE REST INCOME SPRANG FROM BUSINESS ACTIVITIES. IN THE PRESENT CAS E NO CASE HAS BEEN MADE OUT THAT ANY BUSINESS ADVANCES HAD BEEN T EMPORARILY PUT IN SHORT TERM DEPOSITS PENDING UTILIZATION IN T HE BUSINESS. THE ASSESSEE HAD DEPOSITED THE SURPLUS FUNDS FROM WHICH INTEREST INCOME HAD BEEN RECEIVED. THEREFORE IN OUR VIEW INT EREST INCOME HAS BEEN RIGHTLY ASSESSED AS INCOME FROM OTHER SOUR CES. THE ORDER OF CIT(A) IS CONFIRMED ON THIS POINT ALSO. 7. SINCE THE ISSUES UNDER CONSIDERATION ARE IDENTI CAL TO THAT OF AY 2003-04, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THAT YEAR, WE DISMISS GROUND NO.1 & 2. 8. GROUND NO. 3 & 4 ARE ON THE ISSUE AS TO WHETHER THE AO WAS RIGHT IN TREATING BUSINESS CENTRE INCOME OF RS. 34, 38,935/- - AS INCOME FROM OTHER SOURCES. 9. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION MUMBAI BENCH OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR AY 2003-04 (SUPRA) WHEREIN AT PAGE NO. 10 VIDE PARA 2.2.7 OF ITS ORDER, THE TRIBUNAL HELD AS FOLLOWS: 2.2. 70N CAREFUL CONSIDERATION OF THE VARIOUS ASPE CTS OF THE MATTER AS WELL AS THE VARIOUS JUDGMENTS PLACED ON R ECORD WE ARE OF THE VIEW THAT RENTAL INCOME ON THE FACTS OF THE CASE HAS TO BE ASSESSED AS BUSINESS INCOME. IT IS NOT A CASE OF SI MPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME. THE ASS ESSEE HAS DEVELOPED THE PROPERTY AND ALSO MADE PROVISIONS FOR VARIOUS SERVICES AS MENTIONED EARLIER WITH A VIEW TO COMMER CIALLY EXPLOIT THE PROPERTY. THE PROPERTY HAS BEEN LET OUT WITH VA RIOUS FACILITIES AND AMENITIES FOR CORPORATE CLIENTS SUCH AS BOARD R OOM FACILITIES, LETTERS RECEIPT/DISPATCH FACILITIES, COMPUTER WITH INTERNET FACILITIES, SECURITY ARRANGEMENTS IN ADDITION TO TE LEPHONE AND ELECTRICITY AND WATER FACILITIES ETC. THE INCOME HA S THEREFORE TO BE ASSESSED AS BUSINESS INCOME. THIS VIEW IS SUPPORTED BY THE ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 4 JUDGMENT OF HONBLE SUPREME COURT IN CASE OF S.G. M ERCANTILE CORPORATION PVT. LTD. VS CIT (83 ITR 700). IN THE S AID CASE ONE OF THE OBJECT OF THE ASSESSEE IN ITS MEMORANDUM OF ASS OCIATION WAS TO TAKE ON LEASE OR OTHERWISE ACQUIRE AND TO HOLD, IMPROVE, LEASE OR OTHERWISE DISPOSE OF LAND, HOUSES AND OTHER REAL ESTATE AND PERSONAL PROPERTIES AND TO DEAL WITH THE SAME COMME RCIALLY. THE ASSESSEE HAD TAKEN ONE PROPERTY WHICH WAS REMODELED AND REPAIRED SO AS TO MAKE IT FIT FOR SUBLETTING AS SHO P, STALLS AND GROUND SPACE TO SHOPKEEPERS ETC. THE ISSUE WAS WHET HER RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME OR INC OME FROM OTHER SOURCES. HON BLE SUPREME COURT OBSERVED THAT TAKING THE PROPERTY ON LEASE AND SUBLETTING PORTION THEREOF WA S PART OF BUSINESS OF THE ASSESSEE AND THEREFORE THE INCOME H AD TO BE ASSESSED AS BUSINESS INCOME SINCE THE ASSESSEE WAS NOT OWNER OF THE PROPERTY. THE CASE OF THE ASSESSEE IS SIMILA R. THE DECISION OF THE TRIBUNAL IN CASE OF HARVINDERPAL MEHTA (HUF) VS DCIT (122 7TJ 163) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN THAT CASE ALSO THE ASSESSEE WAS RUNNING A BUSINESS CENTRE IN THE P REMISES WITH VARIOUS FACILITIES SUCH AS RECEPTIONIST, TELEPHONE OPERATOR, COMMON WAITING/ GUEST ROOM, CENTRALIZED AIR CONDITI ONING WITH OTHER SERVICES LIKE SWEEPER, TELEPHONE, FURNITURE, FAX MACHINES ETC. THE TRIBUNAL OBSERVED THAT THE OBJECT OF THE A SSESSEE WAS TO RUN THE BUSINESS CENTRE BY EXPLOITING THE PROPERTY AND NOT MERE LETTING OUT THE SAME ON RENT. IT WAS ACCORDINGLY HE LD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM BUSINESS. THE LEARNED DR HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE H IGH COURT OF GUJARAT IN CASE OF HARIKRISHNA FAMILY TRUST VS CIT (306 ITR 303) IN SUPPORT OF THE CASE OF THE DEPARTMENT. THE SAID CASE IN OUR VIEW IS DISTINGUISHABLE. THE ASSESSEE IN THAT CASE HAD TAKEN THE PROPERTY ON LEASE WHICH WAS INCOMPLETE AND AFTER CO MPLETING THE CONSTRUCTION THE ASSESSEE LET OUT THE PREMISES TO P OSTS & TELEGRAPH DEPARTMENT. THE PROPERTY HAD NOT BEEN DEV ELOPED TO PROVIDE FOR ANY OTHER SERVICES. IT WAS A CASE OF SI MPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME FROM A S INGLE TENANT. IT WAS UNDER THESE CIRCUMSTANCES THAT THE HIGH COURT H ELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOUR CES. THE CASE OF THE ASSESSEE IS DIFFERENT AS POINTED OUT EA RLIER AS IN THIS CASE THE PREMISES HAD BEEN DEVELOPED AS A BUSINESS CENTRE AND SUBLET TO CORPORATE ENTITIES ALONG WITH VARIOUS SER VICES AND FACILITIES. WE THEREFORE HOLD THAT THE RENTAL INCOM E IN THIS CASE HAS TO BE ASSESSED AS BUSINESS INCOME. THE ORDER OF CIT(A) IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN AY 2003- 04 (SUPRA), GROUND NO. 3 & 4 ARE ALLOWED. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 5 11. GROUND NO. 5 IS ON THE ISSUE AS TO WHETHER THE AC WAS RIGHT IN DISALLOWING CO-SPONSORSHIP FEES OF RS. 5,00,000/- P AID TO RPG ACADEMY OF ART AND MUSIC. 12. WE FIND THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION MUMBAI BENCH OF THE TRIUBNAL IN ASSESSEES OWN CASE FOR AY 2003-04 (SUPRA) WHEREIN AT PAGE NO. 11 TO 12 VIDE P ARA 2.3.2 OF ITS ORDER, THE TRIBUNAL HELD AS FOLLOWS:2.3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING NATURE OF EXPENDITURE ON ACCOUNT OF PAYMENT OF RS.9 LACS T O RPG ACADEMY OF ART AND MUSIC BY THE ASSESSEE. THE CASE OF THE ASSE SSEE IS THAT RPG ACADEMY HAD ORGANIZED WELL ATTENDED ART EXHIBITIONS AND THE EXPENDITURE HAD BEEN INCURRED TO PUBLICIZE THE BUSI NESS CENTRE AND FACILITIES OFFERED TO CORPORATE CLIENTS AND THEREFO RE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS AND SHOULD BE ALLOWED. IN O UR VIEW THE CASE OF THE ASSESSEE CANNOT BE ACCEPTED THAT THE PAYMENT HAD BEEN MADE IN CONNECTION WITH PUBLICITY OF THE BUSINESS CENTRE BECAUSE THE AC HAS GIVEN A CLEAR FINDING THAT THE BUSINESS CENTRE WAS FULLY OCCUPIED AND HAD BEEN SUBLET TO COMPANIES ON LONG TERM BASIS . THIS FINDING HAS NOT BEEN CONTROVERTED BEFORE US BY PRODUCING AN Y MATERIAL. THEREFORE ONCE THE BUSINESS CENTRE IS FULLY OCCUPIE D ON LONG TERM BASIS THERE IS NO QUESTION OF MAKING ANY PAYMENT FO R PUBLICITY. OBVIOUSLY THE ASSESSEE HAD MADE THE PAYMENT AS A DO NATION TO RPG ACADEMY OF ART & MUSIC WHICH COULD NOT BE HELD AS E XPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE SEE NO INFIRMITY IN THE ORDERS OF AUTHORITIES BELOW DIS ALLOWING THE CLAIM. THE ORDER OF CIT(A) IS ACCORDINGLY UPHELD. 13. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUN AL IN AY 2003-04 (SUPRA), GROUND NO. 5 IS DISMISSED. 14. GROUND NO. 6 IS ON THE ISSUE AS TO WHETHER THE AO WAS RIGHT IN DISALLOWING VRS EXPENSES OF RS. 1,53,517/-. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 6 15. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION MUMBAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04 (SUPRA) WHEREIN AT PAGE NO. 12 TO 13 VIDE PARA 2.4. 2, THE TRIBUNAL HELD AS FOLLOWS: 2.4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. WE HAVE ALREADY HELD VIDE PARA 2.4.2 OF THIS ORDER THAT INCOME FROM BUSINESS CENTRE HAS TO ASSESSED AS BUSI NESS INCOME AND THEREFORE PROVISIONS OF SECTION 35DDA WILL BE A PPLICABLE IN CASE OF THE ASSESSEE AS PER WHICH ANY EXPENDITURE I N CONNECTION WITH ANY VRS SCHEME HAS TO BE ALLOWED IN FIVE EQUAL INSTALLMENTS STARTING WITH THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THE AC IS THEREFORE DIRECTED TO ALLOW THE EXPENDITURE U NDER THE PROVISIONS OF SECTION 35DDA. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN AY 2003- 04 (SUPRA), THIS GROUND OF APPEAL IS ALLOWED. 17. GROUND NO. 7 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 6,46,833/- MADE BY THE AO ON ACCOUNT OF RATES AND TAXES. 18. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY T HE DECISION OF MUMBAI BENCH OF THE TRIUBNAL IN ASSESSEES OWN CASE FOR AY 2003-04 (SUPRA) WHEREIN AT PAGES 16 TO 17 VIDE PARA 2.6.3 T HE TRIBUNAL HELD AS FOLLOWS: - 2.6.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS. 10,90,837/- BEING THE RATES AND TAXES RELATING TO THE LAND WHICH ADMITTEDLY WAS NOT USED FOR THE PURPOSE OF BU SINESS. THE ASSESSEE SOLD THE LAND DURING THE YEAR AND EARNED L ONG TERM CAPITAL GAIN OF RS.1,04,23,716/-. SINCE THE EXPENDI TURE HAD BEEN INCURRED IN RELATION TO LAND WHICH WAS NOT USED FOR THE PURPOSE OF BUSINESS THE EXPENDITURE CANNOT BE ALLOWED WHILE CO MPUTING THE INCOME FROM BUSINESS. AS REGARDS ALLOWABILITY OF CL AIM WHILE COMPUTING THE CAPITAL GAIN FROM SALE OF LAND THE AS SESSEE HAS RAISED AN ADDITIONAL GROUND ON THIS ISSUE AND THERE FORE THIS ASPECT WILL BE DEALT WITH WHILE DEALING THE ADDITIO NAL GROUND LATER. 19. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN AY 2003- 04(SUPRA), WE DISMISS GROUND NO. 7. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 7 20. GROUND NO. 8 IS ON THE ISSUE OF ALLOWABILITY O F BAD DEBTS WRITTEN OFF. 21. THE AO HAD OBSERVED THAT THE ASSESSEE HAD DEBI TED AN AMOUNT OF RS. 8,78,000/- UNDER THE HEAD BAD DEBTS WRITTEN OFF. SINCE NO EXPLANATION OFFERED BY THE ASSESSEE, THE AO DISALLO WED THE SAID CLAIM ON THE GROUND THAT THE ASSESSEE HAS NO EXPLANATION TO OFFER. ON APPEAL, THE FIRST APPELLATE AUTHORITY HAD OBSERVED THAT THE CORRECT AMOUNT IS RS. 8,76,000/- AND NOT RS. 8,78,000/-. AS NO FURTHER DETAILS WERE FURNISHED BY THE ASSESSEE, THE CIT(A) UPHELD THE DISALLOWANCE. AGGRIEVED, THE ASSESSEE IS IN FURTHER BEFORE US. 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF TRF LTD., 323 ITR 397 WHEREAS THE LEARNED DR POINTED OUT THAT THE ASSESSEE HAS NOT PROVED THAT T HE CONDITIONS OF SECTION 36(2) HAVE BEEN SATISFIED. 23. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSI NG THE RECORD, IT IS OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY EV IDENCE TO PROVE, THAT CONDITIONS OF SECTION 36(2) HAVE BEEN SATISFIE D. HENCE, WE UPHOLD THE DISALLOWANCE. THE BURDEN LIES ON THE ASSESSEE T O PROVE THAT THE REQUIREMENTS OF SECTION 36(2) HAVE BEEN COMPLIED WI TH AND THE SAME HAS NOT BEEN DISCHARGED. WE DISMISS GROUND NO. 8. 24. GROUND NO. 9 IS ON THE ISSUE OF DISALLOWANCE OF LOSS ON ASSIGNMENT OF DEBTS OF RS. 5,88,77,000/-. 25. THE FACTS ARE THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 5,88,77,000/- UNDER THE HEAD, LOSS ON ASSIGNMENT O F DEBTS. ON BEING ASKED TO EXPLAIN THE NATURE OF CLAIM BY THE A O, THE ASSESSEE SUBMITTED A COPY OF THE RESOLUTION PASSED AT THE ME ETING OF THE BOARD OF DIRECTORS AND A COPY OF THE DEED OF ASSIGNMENT O F DEBTS. THE AO FOUND THAT BETWEEN 31/03/2001 TO 26/12/2002 THE ASS ESSEE HAD ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 8 GIVEN A LOAN OF RS. 1.80 CRORE TO M/S SPENTEX INDUS TRIES LTD. (HEREINAFTER REFERRED TO AS SPENTEX) DURING THE P REVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, IT GAVE A FURTHER ADVANCE OF RS. 3.85 CRORES. SO THE TOTAL ADVANCE MA DE TO THIS PARTY WAS 5.65 CRORES. IN THE MEETING OF THE BOARD OF DIR ECTORS HELD ON 30/01/2004 IT WAS RESOLVED THAT SPENTEX IS SUFFER ING HEAVY LOSSES AND IS NOT IN A POSITION TO RETURN THE LOANS AND AD VANCES ALONG WITH THE INTEREST. UNDER THE CIRCUMSTANCES IT WAS RESOLV ED THAT DEBT BE ASSIGNED TO ANY INVESTMENT COMPANY FOR A CONSIDERAT ION OF RS. 7.50 LACS. IN PURSUANCE TO THIS AGREEMENT THE DEBT WAS ASSIGNED TO M/S RPG CELLULAR INVESTMENT & HOLDINGS ON 30/01/2004 FO R A CONSIDERATION OF 7.50 LACS. THE AO RECORDED THAT TH E OTHER ADVANCES MADE BY THE ASSESSEE MADE TO SPENTEX WERE ON THE FOLLOWING DATES (RS.) 03/04/2003 70 LACS 04/07/2003 80 LACS 07/07/2003 100 LACS 08/08/2003 10 LACS 11/09/2003 25 LACS 04/10/2003 100 LACS TOTAL 385 LACS ======= 26. THE AO WANTED THE ASSESSEE TO EXPLAIN THE REAS ONS FOR GIVING LOAN OF RS. 1.80 CRORES AND FURTHER A TRADE ADVANCE S OF RS. 3.85 CRORES TO SPENTEX WHILE THE KNOWN FACT WAS THAT SPENTEX WAS ALREADY SUFFERING HEAVY LOSSES. THE ASSESSEE DID NO T GIVE ANY EXPLANATION. THE AO OBSERVED THAT THE LOAN OF 1.80 CRORE WAS GIVEN BETWEEN 31/03/2001 TO 26/12/2002 WHEN THE ASSESSEE MAY NOT HAVE BEEN AWARE OF THE FINANCIAL STATUS OF SPENTEX. H OWEVER, WHEN THE RESOLUTION WAS PASSED BY THE BOARD ON 30/01/2004 TH E ASSESSEE WAS AWARE THAT THE SAID COMPANY WAS SUFFERING HEAVY LOS SES AND HAD AN ACCUMULATED LOSS TO THE TUNE OF RS. 25.40 CRORES. E VEN THEN THE ADVANCE OF RS. 3.85 CRORES WAS GIVEN TO SPENTEX D URING THE PREVIOUS YEAR RELEVANT TO THIS ASSESSMENT YEAR. AN ADVANCE O F RS. 1.25 CRORES WAS GIVEN ON 11/09/2003 AND 01/10/2003. ACCORDING T O HIM NO PRUDENT BUSINESSMAN WOULD HAVE ADVENTURED TO GIVE S UCH HUGE ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 9 AMOUNT OF ADVANCES TO THE COMPANY FROM WHOM THE REC OVERY OF EARLIER LOANS WAS NOT REMOTELY POSSIBLE. THE AO FURTHER FOU ND THAT THE ASSESSEE HAD GIVEN INTER CORPORATE DEPOSITS TO THE FOLLOWING PARTIES: RPF LIFE SCIENCES LTD. RS. 50 LACS RPG CABLES LTD. RS. 50 LACS RPG PAGING LTD. RS. 15 LACS 27. THE AO FURTHER FOUND THAT THE ASSESSEE HAD ALS O RECEIVED RENT OF 2,25,000/- FROM M/S SPENTEX INDS LTD. THE DEBT OF M/S SPENTEX LTD. HAD BEEN ASSIGNED TO M/S RPG CELLULAR INVESTMENT & HOLDING P. LTD. WHICH HAD CLOSE CONTACT WITH THE OTHER THREE COMPAN IES MENTIONED ABOVE TO WHOM THE ASSESSEE HAD GIVEN DEPOSITS. M/S SPENTEX INDS LTD. AND M/S SPENTEX LTD. BELONG TO ONE GROUP AND T HERE WAS A POSSIBILITY THAT ONE OR MORE DIRECTORS OF THE ASSES SEE COMPANY MIGHT BE CLOSELY ASSOCIATED WITH THE RPG GROUP. THE AO TH EREFORE WANTED THE ASSESSEE TO FURNISH THE DETAILS OF DIRECTORS OF M/S RPG CELLULAR INVESTMENT AND HOLDINGS P. LTD. BUT THE ASSESSEE FA ILED TO PRODUCE THE SAME. IN VIEW OF THIS THE AO PRESUMED THAT THE ASSESSEE HAD NO BONAFIDE EXPLANATION AND INTENTIONALLY AND DELIBERA TELY DID NOT SUBMIT THE DETAILS CALLED FOR. ACCORDING TO THE AO THERE IS A MALAFIDE INTENTION OF CLAIMING BOGUS LOSS ON ACCOUNT OF AS SIGNMENT OF DEBTS. ACCORDINGLY, HE DISALLOWED THE CLAIM OF LOSS AMOUNT ING TO RS. 5,88,77,000/- AND ADDED IT TO THE INCOME OF THE ASS ESSEE. ON APPEAL, THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE CAME TO THE CONCLUSION THAT IT IS Q UITE APPARENT THAT THE ASSESSEE HAD SOME INTEREST IN THAT PARTY OR THE TRANSACTION WAS SOMETHING MORE THAN A LOAN. HE POINTED OUT THAT MAJ OR PART OF THE LOAN HAD BEEN GIVEN JUST 3-4 MONTHS BEFORE CONCLUDI NG THAT THE ENTIRE LOAN AS IRRECOVERABLE. HE HELD THAT THIS IS NOT AN ORDINARY COMMERCIAL TRANSACTION. HE FINALLY CONCLUDED THAT THE TRANSACTION IS NOT A GENUINE TRANSACTION AND THAT THE ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE EITHER BEFORE THE AO OR BEFORE HIM IN SUPPORT OF ITS CLAIM, THAT THIS IS A GENUINE CLAIM. THE BOARDS R ESOLUTION WAS HELD AS SELF-SERVING DOCUMENT AND THE ADDITION MADE ON T HIS COUNT BY THE AO WAS CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN APP EAL BEFORE US. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 10 28. THE LEARNED COUNSEL FOR THE ASSESSEE MR. ARVIN D SONDE REFERRED TO THE NOTES TO THE ACCOUNTS AND THE ANNUAL REPORT OF THE COMPANY FOR ASSESSMENT YEAR 2003-04, SPECIFICALLY TO PAGES 20 TO 31 OF THE ANNUAL ACCOUNTS. HE SUBMITTED THAT THE FACT THAT TH E ASSESSEE HAD PAID MONEY TO SPENTEX. IS NOT IN DISPUTE. HE FURT HER SUBMITTED THAT RS. 7.50 LAKHS WAS RECEIVED ON ASSIGNING A DEBT IS ALSO NOT IN DISPUTE. HE DISPUTED THE FINDING OF THE AO AS WELL AS THE C IT(A), THAT THE TRANSACTION IS A SHAM/BOGUS/BENAMI TRANSACTIONS. TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE AO HE LD THAT THIS IS A SHAM TRANSACTION BY CALLING IT A BOGUS LOSS AND CIT (A) HAS CHANGED THE STAND AND HELD IT AS A BENAMI TRANSACTION. IN THIS CONNECTION, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDG MENT OF THE HONBLE SUPREME COURT IN THE CASE OF SREE MEENAKSHI MILLS L TD, 31 ITR 28, FOR THE PROPOSITION THAT THE TERM BENAMI IS DIFFE RENT FROM THE TERM SHAM AND TO EXPLAIN THE TERMS BENAMI AND SHAM . REFERRING TO THE FINDING THAT THE PARTIES ARE RELATED, HE SUBMI TTED THAT UNDER SECTION 40A(2), DISALLOWANCES CAN BE MADE ONLY IN C ASES WHERE THE TRANSACTIONS BETWEEN THE RELATED PARTIES ARE NOT AT ARMS LENGTH. HE POINTED OUT THAT 40A(2) HAS NOT BEEN INVOKED. HE S UBMITTED THAT NO DISALLOWANCE CAN BE MADE ON THE GROUND THAT THIS IS A SHAM TRANSACTION OR A BOGUS TRANSACTION AND THAT THIS A GENUINE TRANSACTION. THE LEARNED COUNSEL TOOK US THROUGH TH E DEED OF ASSIGNMENT DATED 30TH DAY OF JANUARY, 2004 BETWEEN THE ASSESSEE COMPANY AND RPG CELLULAR INVESTMENTS & HOLDINGS PVT . LTD. AND SUBMITTED THAT NONE OF THE AUTHORITIES BELOW HAVE E XAMINED THE FACTS ON MERITS OF THE CASE AND HENCE THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE AO. HE URGED THAT THE ISSUE BE DIRECTED TO BE EXAMINED DE- NOVO BY THE A.O. 29. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THIS IS A CLEAR CASE OF CAMOUFLAGING. HE POINTED OUT THAT THE ASSESSEE HAS GIVEN 1.00 CRORE RUPEES IN OCTOBER03 AND WHEREAS IN JANU ARY04 I.E. WITHIN 3 MONTHS, THIS DEBT WAS ASSIGNED TO RPG CELLULAR IN VESTMENTS & HOLDING PVT. LTD. AT A RIDICULOUSLY LOW FIGURE. HE POINTED OUT THAT THE ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 11 ASSESSEE HAS OFFERED NO EXPLANATION, AS TO THE PURP OSE AND NATURE OF LOAN. HE POINTED OUT THAT EVEN THOUGH THE ASSESSEE CAME TO KNOW THAT SPENTEX. HAD A NEGATIVE NETWORTH AND WAS REFERRED TO BIFR UNDER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES SPECIA L PROVISIONS ACT, 1985, IT CHOSE TO TRANSFER HUGE AMOUNTS TO THE SAI D COMPANY, WHICH WERE OBVIOUSLY NOT FOR BUSINESS PURPOSES. HE SUBMIT TED THAT THE LOSS IS IN THE CAPITAL FIELD AND THE SAME CANNOT BE ALLO WED. HE RELIED UPON THE FOLLOWING CASE LAWS FOR THIS PROPOSITION: 1. ITA NO. 7252/MUM/2007 IN THE CASE OF JCIT VS. M/ S VIDEOCON INDUSTRIES FORAY 2003-04, ORDER DATED 20/0 5/11. 2. GREAVES LTD. VS. CIT, [2001] 116 TAXMAN 771 (BOM .) 3. GRINDWELL NORTON LTD. VS. DCIT, [2004] 91 LTD 41 2 (MUM.)(TM). 4. VIJAYKUMAR MILLS LTD. V. CIT, [2001] 247 ITR 176 (MAD.) 30. THE LEARNED DR FURTHER SUBMITTED THAT THE ASSE SSEE HAS NOT FURNISHED COPY OF THE RESOLUTION PASSED BY THE BOAR D OF DIRECTORS WHILE GIVING LOAN, THE LOAN AGREEMENTS ENTERED INTO WITH SPENTEX AND THE PURPOSE AND NATURE OF THE LOAN, ETC. ON QUE RY FROM THE BENCH, HE SUBMITTED THAT HE CAN DEFEND THE ORDER OF THE CIT(A) ON A NEW LEGAL ARGUMENT, AS THE FACTS ARE NOT IN DISPU TE. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF JURISDICT IONAL HIGH COURT IN THE CASE OF B.R. BAMASI, 83 ITR 223. THUS, HE SUBMI TS THAT HIS ARGUMENT THAT THIS IS A CAPITAL LOSS AND HENCE NOT ALLOWABLE IS TO BE CONSIDERED. HE RELIED ON THE ORDER OF THE AO AS WEL L AS THE CIT(A)> 31. IN HIS REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE LEARNED DR AR E DISTINGUISHABLE ON FACTS AS THE GROUNDS IN THOSE DECISIONS FOR REJ ECTION OF A CLAIM WAS THAT THE ASSESSEE MADE CLAIMS AS BAD DEBTS AND NOT AS BUSINESS LOSS, EXCEPT IN THE CASE OF GREAVES LTD. VS. CIT (SUPRA). HE REITERATED HIS CONTENTIONS THAT NONE OF THE AUTHORITIES BELOW HAVE EXAMINED THE FACTS OF THE CASE AND AS SUCH THE ISSUE SHOULD BE S ET ASIDE TO THE FILE OF THE AO. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 12 32. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW AND THE DECISIONS CITED. ON CAREFUL CONSIDERATION OF TH E FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD, WE HOLD AS FOLLOWS: 33. IN THE NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2004, IT IS DISCLOSED AS FOLLOWS: THE COMPANY HAD GIVEN INTER CORPORATE DEPOSITS (RS . 180.00 LAKHS) AND OTHER ADVANCES (RS. 385 LAKHS DURING THE YEAR) TO M/S SPENTEX INDUSTRIES LTD.. IN OCTOBER 2003, THE S AID COMPANY WAS REFERRED TO BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION UNDER THE PROVISIONS OF SECTION 15(1 ) OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 . ON THE BASIS OF VALUATION OF THESE DEBTS (INCLUDING INTERE ST ACCRUED THEREON OF RS. 31.27 LAKHS BY AN INDEPENDENT VALUER , THE COMPANY ASSIGNED THESE DEBTS AND INTEREST FOR A CON SIDERATION OF RS. 7.50 LAKHS. (EMPHASIS OWN) 34. THE BOARD RESOLUTION RELIED UPON BY THE ASESSS EE, READS AS FOLLOWS: COPY OF THE RESOLUTION PASSED AT THE MEETING OF TH E BOARD OF DIRECTORS OF THE COMPANY HELD ON JANUARY 30, 2004. THE CHAIRMAN INFORMED THE BOARD THAT THE COMPANY HA S GIVEN A LOAN OF RS. 1.80 CRORE (RUPEES ONE CRORE EIGHTY LAK HS ONLY) TO SPENTEX INDUSTRIES LTD. (SPENTEX) FOR THE SMOOTH RU NNING OF THEIR BUSINESS. ALSO TO EXPAND COMPANYS BUSINESS CENTER OPERATIONS IN PUNE/BARAMATI, THE COMPANY HAS ADVANCED TO SPENT EX RS. 3.85 CRORE (RUPEES THREE CRORE EIGHTY FIVE LAKHS ON LY) IN THE FORM OF TRADE ADVANCE. (EMPHASIS OWN) SPENTEX INDUSTRIES LTD. (SPENTEX) IS A 100% EXPORT ORIENTED UNIT MANUFACTURING COTTON YARN. FOR THE YEAR ENDED MARCH 31, 2003, SPENTEX REPORTED NET LOSS OF RS. 11.1 7 CRORE ON A TURNOVER OF RS. 43.15 CRORE. THE ACCUMULATED LOSSES OF THE COMPANY ARE RS. 25.40 CRORE WHICH HAS WIPED OUT THE ENTIRE NET WORT H OF THE COMPANY. A REFERENCE TO BOARD FOR INDUSTRIAL AND FI NANCIAL RECONSTRUCTION (BIFR) UNDER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 HAS BEEN M ADE BY SPENTEX BECAUSE OF 100% EROSION IN NETWORTH. IN VIEW OF ACUTE FINANCIAL CRISIS, RECOVERABILITY O F LOAN OF RS. 1.80 CRORE AND TRADE ADVANCE OF RS. 3.85 CRORE IS REMOTE . IN VIEW OF THIS, COMPANY HAD APPOINTED ANMOL SEKHRI & ASSOCIAT ES, ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 13 RENOWNED VALUER TO FIND OUT THE VALUE OF THESE LOAN S FOR ASSIGNING TO SOME INVESTMENT COMPANY. A COPY OF THE VALUATION REPORT PREPARED BY THEM WAS TABLED FOR THE DISCUSSION. VAL UATION REPORT STATES THAT THE FINANCIAL HEALTH OF SPENTEX IS PREC ARIOUS. IT WOULD BE VERY DIFFICULT TO RECOVER ANY AMOUNT FROM THEM. ANY LEGAL PROCESS WOULD ALSO BE VERY TIME CONSUMING AND WOULD NOT YIELD ANY RESULT AS SPENTEX IS REFERRED TO BIFR. ACCORDIN G TO REPORT IT WOULD BE A GOOD PROPOSAL TO ASSIGN THE LOAN, IF IT IS POSSIBLE TO ANY INVESTMENT COMPANY FOR A CONSIDERATION OF RS. 7 .50 LACS. AFTER DISCUSSION IT WAS RESOLVED THAT A SUM OF RS. 5.65 CRORE (RUPEES FIVE CRORE SIXTY FIVE LAKHS ONLY) GIVEN TO SPENTEX INDUSTRIES LTD AS LOAN AND TRADE ADVANCE ALONG WITH ACCRUED INTEREST TILL DATE BE ASSIGNED TO ANY INVESTMENT COMPANY FOR NOT LESS THAN RS. 7.5 LA KHS. RESOLVED FURTHER THAT MESSERS FARID KAZANI, DIRECTO R, MR. KISHORE SHETE, MANAGER BE AND ARE HEREBY AUTHORIZED JOINTLY AND SEVERALLY TO SIGN ALL PAPERS AND DOCUMENTS THAT MAY BE REQUIRED IN CONNECTION WITH THE ABOVE. RESOLVED FURTHER THAT CERTIFIED TRUE COPIES OF THE ABOVE RESOLUTIONS BE FORWARED TO SPENTEX INDUSTRIES LTD. AND OTHERS AS MAY BE REQUIRED, FOR INFORMATION AND RECORD. 35. THE ASSESSEE HAS GIVEN UP ITS CLAIM U/S 36(1)( VII) R.W.S 36(2) AND MAKES A CLAIM ONLY U/S 28 AND SECTION 37(1) OF THE ACT. AS SUBMITTED BY THE LEARNED DR, THE ASSESSEE HAS NOT F URNISHED ANY MATERIAL OR DOCUMENT TO DEMONSTRATE THE PURPOSE FO R WHICH THE LOANS IN QUESTION WERE GIVEN. NO CORRESPONDENCE, AG REEMENT OF LOAN, BOARD RESOLUTION FOR SANCTIONING THE LOAN ETC. ARE FILED TO PROVE THAT PURPOSE OF ADVANCING THE LOAN WAS FOR BUSINESS. FRO M THE BOARD RESOLUTION PASSED FOR ASSIGNING THE DEBT, IT CAN BE SEEN THAT SPENTEX HAS REPORTED A NET LOSS OF 11.17 CRORE O N 31ST MARCH, 2003. WHILE SO, THE ASSESSEE STATES THAT FROM 3RD A PRIL03 TO 4TH OCTOBER03, IT HAS GIVEN TRADE ADVANCE OF RS. 3.85 CRORE TO SPENTEX. SUCH ADVANCING OF MONEY WAS DONE KNOWING FULLY WELL THAT NO RECOVERY IS POSSIBLE AND THE AMOUNT HAS TO BE WRITT EN OFF. WITHIN 3 MONTHS OF GIVING THE LAST AMOUNT, THE ENTIRE DEBT W AS ASSIGNED AT A FRACTION OF THE VALUE AND LOSS CLAIMED. IT IS NOT DEMONSTRATED THAT THE ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 14 ADVANCE WAS MADE FOR THE PURPOSE OF BUSINESS. FROM THE REPORT OF VALUERS, M/S AMNOL SEKHRI & ASSOCIATES, IT CAN BE S EEN THAT M/S SPENTEX INDUSTRIES LTD. IS A PART OF FGP GROUP. THE VALUERS HAD OBSERVED AS FOLLOWS: 2) IN FACT THE COMPANYS NETWORTH HAS TURNED NEGATI VE DUE TO THE ACCUMULATED LOSSES OF RS. 25.40 CRORE ON THE BASIS OF MARCH 31, 2003 AUDITED ACCOUNTS. (EMPHASIS OWN) 3) PURSUANT TO SECTION 3(1)(O) OF THE SICK INDUSTRI AL COMPANIES (SPECIAL PROVISIONS) ACT, 1985, (SICA) THE COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY AND A REFERENCE IS MADE TO BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION UNDER THE P ROVISIONS OF SECTION 15(1) OF SICA. 6) THE ADVANCES GIVEN BY FGP ARE IN THE NATURE OF U NSECURED DEBTS. THE SCHEME OF REHABILITATION WILL GIVE THE L AST PRIORITY TO UNSECURED DEBTS OVER THE SECURED DEBTS. 36. FROM THE ABOVE IT IS CLEAR THAT AS ON 31/03/20 03, THE NETWORTH OF SPENTEX WAS NEGATIVE AND REFERENCE WAS MADE TO BIFR. WHILE SO, HOW CAN THE ASSESSEE JUSTIFY TRANSFERRING AMOUNT OF RS. 3.85 CRORE FROM 03/04/2003 TO 04/10/2003 AND THEN TRY TO CALL THEM TRADE ADVANCES. AS ALREADY STATED, NO EVIDENCE HAS BEEN G IVEN TO PROVE THAT THESE ARE TRADE ADVANCES. 37. AT PAGE 71 OF THE PAPER BOOK, THE BREAK-UP OF INTER-CORPORATE DEPOSITS AND OTHER ADVANCES HAS BEEN GIVEN. FROM 31 ST MARCH, 2001 TO 26TH DECEMBER, 2002, THE INTER-CORPORATE DEPOSIT S WERE RS. 1.80 CRORES. AS THE UNDISPUTED FACT IS THAT THESE ARE DE POSITS, IT IS CLEAR THAT THE LOSS INCURRED BY THE ASSESSEE ON WRITE OFF OF THESE DEPOSITS IS IN THE CAPITAL FIELD. THE ASSESSEE IS NOT IN THE BU SINESS OF ADVANCING LOANS. LOSS OF FIXED DEPOSIT CANNOT BE ALLOWED EITH ER AS BAD DEBT OR AS BUSINESS LOSS, AS THE SAME IS IN THE CAPITAL FI ELD. EVEN IN THE CASE OF 3.85 CRORES, GIVEN AS ADVANCES, AS STATED, THE A SSESSEE HAS NOT FILED ANY DOCUMENT TO DEMONSTRATE THAT THE ADVANCE WAS A TRADE ADVANCE AND HENCE WE HAVE TO CONCLUDE THAT WHAT WAS GIVEN WAS A MERE LOAN. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 15 THE LOSS IN QUESTION IS ALSO IN THE CAPITAL FIELD. THE ADVANCE IS NOT MADE IN THE REVENUE FIELD AND THE ASSESSEE IS ADMIT TEDLY NOT IN THE BUSINESS OF ADVANCING LOANS. THUS, THE ARGUMENT OF THE LEARNED DR THAT THE LOSS IN QUESTION IS IN THE CAPITAL FIELD, HAS TO BE ACCEPTED. 38. THE LEARNED DR HAS RIGHTLY RELIED UPON THE JUD GMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF B.R. BAMAS I, 83 ITR 223 TO DEFEND THE ORDER OF CIT(A), THAT THE LOSS IN QUESTI ON IS A CAPITAL LOSS ON THE BASIS OF LEGAL PROPOSITIONS, AS THE FACTS AR E ON RECORD. THE ASESSSEE FAILED TO FURNISH ANY EVIDENCE OR DOCUMENT OR AT LEAST AN EXPLANATION IN SUPPORT OF IT CLAIM THAT THE ADVANCE S IN QUESTION IS FOR THE PURPOSE OF TRADE AND WAS NOT IN THE CAPITAL FIE LD. IN THE ABSENCE OF FURNISHING ANY SUCH EVIDENCE EITHER BEFORE THE AO O R BEFORE THE CIT(A) OR AT LEAST BEFORE THE TRIBUNAL, WE HAVE NO OTHER A LTERNATIVE BUT TO DISMISS THE CLAIM OF THE ASSESSEE ON THE GROUND THA T LOSS IN QUESTION IS IN THE CAPITAL FIELD . EVEN OTHERWISE, WE FIND T HAT THE ASESSSEE HAS INDULGED IN AN UNEXPLAINABLE AND ABNORMAL TRANSACT ION, WITH A SOLE INTENTION TO CLAIMING LOSS. WHEN THE ASSESSEE KNOWS THAT SPENTEX HAS A NEGATIVE NETWORTH AS ON 3 1/03/2003 AND WHEN IT KNOWS THAT SPENTEX HAS BEEN REFERRED TO BIFR, IT IS NOT UNDE RSTOOD AND SURPRISING AS TO WHY THE ASSESSEE CHOSE TO GIVE A FURTHER AMOUNT OF RS. 3.85 CRORES TO THE SAID COMPANY. IMMEDIATELY AF TER COMPLETING THE TASK OF TRANSFERRING FUNDS TO A SICK COMPANY, THE D EPOSITS AND LOANS ARE ASSIGNED. THE ASSIGNING OF THE DEBT IS ALSO TO A KNOWN CONCERN FOR A FRACTION OF THE COST. ON THIS FACTUAL MATRIX, WE AGREE WITH THE FINDINGS OF THE ASSESSING AUTHORITY AS WELL AS CIT( A) THAT THE ENTIRE TRANSACTIONS WERE STRUCTURED IN SUCH A MANNER SO AS TO GENERATE A NON-GENUINE LOSS. THE LEGAL ARGUMENT OF THE ASSESSE E THAT THE TERM SHAM IS DIFFERENT FROM BENAMI, ETC. DOES NOT CO ME TO THE RESCUE OF THE ASSESSEE, FOR THE REASON THAT THE TRANSACTIONS IN QUESTION ARE ON FACTS NOT GENUINE TRANSACTIONS. IN VIEW OF THE ABOV E DISCUSSION, WE UPHOLD THE FINDINGS OF THE CIT(A) FROM 18.5 TO 18.6 OF HIS ORDER. THUS, THIS GROUND OF APPEAL OF THE ASESSSEE IS DISMISSED. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 16 39. GROUND NO. 10 REGARDING DISALLOWANCE OF PROFESS IONAL FEES OF RS. 30,10,227/- AS BUSINESS EXPENDITURE, GROUND NO. 11 REGARDING DISALLOWANCE OF EMPLOYEE COSTS OF RS. 9,85,447/-, A ND GROUND NO. 12 REGARDING DISALLOWANCE OF ADMINISTRATIVE EXPENSES O F RS. 13,33,167/- AND GROUND NO. 13 REGARDING DISALLOWANCE OF DEPRECI ATION ON RS. 2,70,414/-, ARE CONSEQUENTIAL TO THE GROUND NOS. 3 & 4. SINCE GROUND NO. 3 & 4 ARE ALLOWED (SUPRA), FOLLOWING THE CONCLU SIONS DRAWN CONSEQUENTLY THESE GROUNDS ARE ALSO ALLOWED. IN THE RESULT GROUND NOS. 10,11, 12 & 13 ARE ALLOWED. 40. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND, WHICH READS AS FOLLOWS: WITHOUT PREJUDICE TO THE APPELLANTS CONTENTION THA T INCOME FROM INTEREST, DIVIDEND AND BUSINESS CENTRE INCOME IS TA XABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS, THE CIT (A) OUGHT TO HAVE DIRECTED THE AO TO ALLOW SET OFF OF INCOME ASS ESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AGAINST THE UNAB SORBED DEPRECIATION. 41. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPO N THE FOLLOWING CASE LAWS: 1. VIRMANI INDUSTRIES P. LTD. AND OTHERS (SC) 216 I TR 607 2. JAIPURIA CHINA CLAY MINES (P.) LTD. (SC) 59 ITR 555 3. TIMES GUARANTY LTD. (MUM SB) [2010] 4 ITR (TRIB) 210(MUMBA)(SB). 42. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT T HE ISSUE RAISED BY WAY OF AN ADDITIONAL GROUND, IS A LEGAL ISSUE AND HAS TO BE ADMITTED AS FACTS ARE ON RECORD. AS THE FIRST APPELLATE AUTH ORITY AS WELL AS THE AO HAVE NOT CONSIDERED THIS GROUND, WE SET ASIDE TH IS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW, AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 43. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED IN PART. ITA NO. 5106/MUM/2008 - REVENUES APPEAL ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 17 44. GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING AN AMOUNT OF RS. 11,960/- BEING SALES TAX PAYMENT RELATING TO SALES IN EARLIER YEARS. 45. THIS ISSUE IS COVERED AGAINST THE REVENUE BY T HE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2003-04, APPEAL FILED BY THE REVENUE, IN ITA NO. 2457/MUM/2007 ORDER DATED 1 5/12/2010 WHEREIN THE AT PAGE 25 VIDE PARA 3.1.1, THE TRIBUNA L HELD AS UNDER:3.1.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF SALES TAX RELATING TO THE SALES IN THE EARLIER YEARS. THE AC HAD DISALLOWED THE CLAIM ON T HE GROUND THAT THE BUSINESS OF THE ASSESSEE HAD CLOSED. CIT(A) HAS HOW EVER ALLOWED THE CLAIM ON THE GROUND THAT THE AC HAD ASSESSED INCOME ON ACCOUNT OF SUNDRY CREDITORS RELATING TO EARLIER YEAR UNDER SEC TION 41(1) AND THEREFORE THE CLAIM WAS ALLOWABLE. IN OUR VIEW THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED AS WE HAVE ALREADY HELD THAT THE INCOME FROM THE BUSINESS CENTRE HAS TO BE ASSESSED AS BUSI NESS INCOME AND THUS THE BUSINESS HAS NOT CLOSED. ACCORDINGLY WE CO NFIRM THE ORDER OF CIT(A) ALLOWING THE CLAIM. 46. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE T RIBUNAL IN AY 2003- 04, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. 47. GROUND NO. 2 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING PROFESSIONAL EXPENSES OF REVENUE NATURE U/ S 57(III) AGAINST INCOME FROM OTHER SOURCES. 48. THIS ISSUE IS COVERED AGAINST THE REVENUE BY T HE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2003-04 (APPEAL FILED BY THE REVENUE) (SUPRA) WHEREIN AT PAGE 26 VIDE PARA 3 .2.1, THE TRIBUNAL HELD AS UNDER:3.2.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DI SPUTE IS REGARDING ALLOWABILITY OF PROFESSIONAL EXPENSES. CIT(A) HAS A LLOWED THE CLAIM AGAINST INCOME FROM OTHER SOURCES WITH WHICH THE RE VENUE IS ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 18 AGGRIEVED. WE HAVE ALREADY CONSIDERED THE ISSUE WHI LE DEALING WITH THE APPEAL OF THE ASSESSEE AND HELD THAT THE CLAIM HAS TO BE ALLOWED AGAINST THE BUSINESS INCOME VIDE PARA 2.7.3 OF THIS ORDER AS WE HAVE HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASS ESSED AS BUSINESS INCOME. THE EXPENDITURE WILL THEREFORE BE ALLOWED A GAINST THE BUSINESS INCOME AND THE GROUND RAISED BY THE REVENU E IS DISMISSED. 49. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TR IBUNAL IN AY 2003- 04, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. 50. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING EMPLOYEE COST OF RS. 9,85,447/-. 51. THIS ISSUE IS COVERED AGAINST THE REVENUE BY T HE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2003-04 (APPEAL FILED BY THE REVENUE) (SUPRA) WHEREIN AT PAGE 26 VIDE PARA 3 .3.1, THE TRIBUNAL HELD AS UNDER:3.3.1 WE HAVE HEARD BOTH THE PARTIES , PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE EM PLOYEE COST HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT BUSINE SS HAD CLOSED. CIT(A) ALLOWED IT AGAINST INCOME FROM OTHER SOURCES . SINCE WE HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENTRE HAS T O BE ASSESSED AS INCOME FROM BUSINESS THE CLAIM WILL BE ALLOWED AGAI NST BUSINESS INCOME. THE GROUND RAISED BY THE REVENUE STANDS DIS MISSED. 52. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE T RIBUNAL IN AY 2003- 04, THIS GROUND OF APPEAL OF THE REVENUE IS D ISMISSED. 53. GROUND NO. 4 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING DEPRECIATION OF RS. 2,70,414/- ON PLANT AN D MACHINERY. 54. THIS ISSUE IS COVERED AGAINST THE REVENUE BY T HE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2003-04 (APPEAL FILED BY THE REVENUE) (SUPRA) WHEREIN AT PAGE 20 VIDE PARA 2 .8.1, THE TRIBUNAL HELD AS UNDER:2.8.1 WE HAVE HEARD BOTH THE PAR-TIE S PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DI SPUTE IS REGARDING ALLOWABILITY OF DEPRECIATION OF RS.3,49,915/- ON PL ANT AND MACHINERY. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 19 WE HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENT RE HAS TO BE ASSESSED AS BUSINESS INCOME. THEREFORE DEPRECIATION ON ALL THE PLANTS AND MACHINERY INSTALLED IN THE BUSINESS CENTRE HAS TO BE ALLOWED. WE HOLD ACCORDINGLY. 55. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TR IBUNAL IN AY 2003- 04, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. 56. GROUND NO. 5 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING EXPENSES OF RS. 3,43,893/- MADE ON AN ADHO C BASIS AT 10% OF BUSINESS CENTRE INCOME UNDER THE HEAD INCOME FR OM OTHER SOURCES. 57. THIS ISSUE IS COVERED AGAINST THE REVENUE BY TH E DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2003-04 (APPEA L FILED BY THE REVENUE) (SUPRA) WHEREIN AT PAGE 20 VIDE PARA 3.4.1 , THE TRIBUNAL HELD AS UNDER: 3.4.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING ALLOWABILITY OF ADMINISTRATIVE EXPENSES TO THE TUNE OF RS. 11,70,000/-. THE EXPENSES RELATED TO TRAVELLING, MO TOR VEHICLE, INSURANCE, TELEPHONE, PRINTING AND STATIONERY ETC. WE HAVE ALREADY HELD THAT INCOME FROM THE BUSINESS CENTRE H AS TO BE ASSESSED AS BUSINESS INCOME. WE THEREFORE HOLD THAT THE CLAIM WILL BE ALLOWABLE WHILE COMPUTING THE BUSINESS INCO ME FROM THE SERVICE CENTRE. WE THEREFORE DISMISS THE GROUND RAI SED BY THE REVENUE. 58. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TR IBUNAL IN AY 2003- 04, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. 59. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ITA NOS. 5002 & 5106/MUM/2008 FGP LTD. 20 60. TO SUM UP, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF OCTOBER, 2011. SD/- SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNT ANT MEMBER MUMBAI, DATED: 21 ST OCTOBER, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, F BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 03/10/11 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 05/10/11 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER