PERMANENT MAGNETS LTD ( SUYOG AGENCIES LTD. NOW MERGED), MUMBAI V. ASST CIT (OSD) CIR 2(3), MUMBAI

ITA 510/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5772 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER KOUR
• Assessee Lawyers: K SHIVARAM
• Keywords: Depreciation; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO.510/M/2012 ( / ASSESSMENT YEAR: 2007 - 2008 ) M/S. PERMANENT MAGNETS LTD (SUYOG AGENCIES LTD, NOW MERGED), 307, CHARTERED HOUSE, 297/299, DR. CAWASJI HORMASJI STREET, NR. MARINE LINE CHURCH, MUMBAI 400 002. / VS. ACIT (OSD), CIRCLE - 2(3), AAYAKAR BHAVAN, MUMBAI. ./ PAN : AAACS 6230 K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI K. SHIVARAM / RESPONDENT BY : SMT. PARMINDER KOUR, DR / DATE OF HEARING : 13.1.2014 / DATE OF PRONOUNCEMENT : 17 .1.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 24.1.2012 IS AGAINST THE ORDER OF THE CIT (A) - 6, MUMBAI DATED 21.11.2011 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO TAXING INTEREST INCOME EARNED FROM THE FINANCE BUSINESS OF RS. 23,96,589/ - AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS. SUCH TREATMENT IS MADE ON THE PRETEXT THAT FINANCE ACTIVITIES CARRIED OUT ARE NOT MAIN OBJECTS IN MEMORANDUM OF ASSOCIATION BUT IS IN THE OBJECTS INCIDENTAL OR ANC ILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS AND BASED ON SUCH PRETEXT, THE INTEREST INCOME HAS BEEN TAXED UNDER THE RESIDUARY HEAD OF INCOME I.E., INCOME FROM OTHER SOURCES. IT IS SUBMITTED THAT SUCH TREATMENT OF TAXING INTEREST EARNED DURI N G THE COURSE OF APPELLANTS FINANCE BUSINESS WHICH IS PRELIMINARY BUSINESS DURING THE YEAR UNDER CONSIDERATION IS AGAINST BASIC PRINCIPLES OF LAW. ACCORDIN G L Y, NECESSARY DIRECTION SHOULD BE GIVEN IN THIS REGARD. 2. THE CIT (A) ERRED IN CONFIRMING, ORDER OF THE AO, DI SALLOWANCE OF THE EXPENSES CLAIMED I.E., PAYMENT AND PROVISION FOR EMPLOYEES OF RS. 2 2,50,758/ - , ADMINISTRATIVE EXPENSES OF RS. 5,01,571/ - , INTEREST EXPENSES OF RS. 89,571/ - AND DEPRECIATION CLAIMED AS PER INCOME TAX RULES INCURRED IN THE REGULAR COURSE OF FINANCE BUSINESS ON THE PRETEXT THAT NO BUSINESS ACTIVITIES ARE CARRI DS ED OUT BY THE APPELLANT. IT IS THEREFORE, PRAYED THAT ALL THESE EXPENSES SHOULD BE ALLOWED IN FULL. 3. THE CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO DISALLOWING CLAIM OF INTE REST OF RS. 89,571/ - , ON THE PRETEXT THAT THE INTEREST BEARING BORROWED FUNDS WERE USED FOR MAKING THE INTEREST - FREE LOAN TO M/S. TRENDY TOGS PVT. LTD AND BASED ON SUCH PRETEXT INTEREST CLAIMED HAS BEEN DISALLOWED. IT IS PRAYED THAT SUCH EXPENSES SHOULD B E ALLOWED IN FULL. 3 . AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE WAS ORIGINALLY ASSESSED IN THE NAME OF M/S. SUYOG AGENCIES LIMITED. SUBSEQUENTLY, THE COMPANY IS MERGED UNDER THE NAME M/S. PERMANENT MAGNETS LTD. DESPITE FILIN G THE RELEVANT PAPERS AND THE COPY OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT, AFFIRMING THE MERGER , VIDE ORDER DATED 4 TH APRIL, 2008 , AO COMPLETED THE ASSESSMENT FOR ALL 12 MONTHS, WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE COPY OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IS ALSO MADE AVAILABLE TO THE CIT (A) , WHO IGNORED THE SAME AND CONFIRMED THE ADDITIONS MADE BY THE ASSESSING OFFICER. CONSIDERING THE ANOMALIES, DR. SHIVARAM, LD COUNSEL FOR THE ASSESSEE, FAIRLY M ENTIONED THAT THE ISSUE NEEDS TO RE - VISIT THE FILES OF THE AO. LD DR HAS NO OBJECTION FOR THE SAID PROPOSAL OF THE LD COUNSEL IN THIS REGARD. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT WITH REGARD TO THE AMALGAMATION OF THE M/S. SUYOG AGENCIES LIMITED WITH M/S. PERMANENT MAGNETS LIMITED VIDE COMPANY P ETITION NO.777 OF 2007 (CONNECTED WITH COMPANY APPLICATION NO.845 OF 2007). ON HEARING BOTH THE PARTIES , WE FIND THAT THE EFFECTIVE DATE OF MERGER IS 1.9.2006, WHICH IS REQUIRED TO BE CONSIDERED FOR TAXING THE INCOME IN ACCORDANCE WITH THE PERIODS MENTIONE D IN THE SAID JUDGMENT OF THE HIGH COURT. FOR THIS PURPOSE, WE AGREE WITH THE PROPOSAL OF THE LD COUNSEL TO REMAND THE MATTER TO THE FILES OF THE AO FOR FRESH ADJUDICATION OF THE ISSUE AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 3 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRON OUNCED IN THE OPEN COURT ON 1 7 T H JANUARY, 2014. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 17 .1 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI