DCIT 10(1), MUMBAI V. ZYMA LABORATORIES LTD, MUMBAI

ITA 5379/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3544 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 22-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VASANTIBEN PATEL
• Keywords: Scheme of amalgamation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5379/MUM/2013 ASSESSMENT YEAR: 2007-08 DCIT- 10(1), 455, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020. VS. M/S ZYMA LABORATORIES LTD. 159, CST ROAD, KALINA, SANTACRUZ (E), MUMBAI-400098. PAN: AAACZ0199A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ABANI KANTA N AYAK (DR) ASSESSEE BY : SHRI VASANTIBEN PA TEL DATE OF HEARING : 23.11.2015 DATE OF PRONOUNCEMENT : 13.01.2016 O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL IS DIRECTED BY THE REVENUE AGAINST THE ORDER DATED 21.05.2013 PASSED BY CIT(A)-21, MUMBAI RAISING ONLY ONE GROUND REGARDING THE DELETION OF ADDITION OF RS. 4,04,02,671/- MADE BY ASSESSING OFFICER (AO) IN ITS ORDER DATED 22.12.2009 ON ACCOUNT OF CESSATION OF LIABILITY. 2. THIS IS SECOND ROUND OF APPEAL, ON EARLIER OCCASION THE ASSESSEE APPROACHED THIS TRIBUNAL AGAINST THE VARIOUS ADDITIONS/DISALLOWANCE MADE BY AO, IN THE ASSESSMENT ORDER AGAINST WHICH THE APPEAL WAS PREFERRED TO THE CIT(A) AND THEREAFTER TO THIS TRIBUNAL. THE APPEAL OF ASSESSEE WAS REGISTERED VID E ITA NO. 8551/MUM/2010 AND WAS DISPOSED OF VIDE ORDER DATED 10.08.2012 AND THE MATTER WAS REMANDED TO THE FILE OF CIT(A) WITH THE DIRECTION TO GIVE PROPER OPPORTU NITY, AS THE ORDER PASSED BY THE CIT(A) WAS PASSED WITHOUT GIVING OPPORTUNITY TO TH E ASSESSEE. 3. THE IMPUGNED ORDER 21 .05.2013, AGAINST WHICH THE PRESENT APPEAL IS FILED WAS PASSED IN GIVING EFFECT THE ORDER OF ITAT DATED 1 0.08.2012, WHEREIN THE REVENUE HAS 2 ITA NO. 5379/M/2013 M/S ZYMA LABORATORIES LTD. RAISED ONLY ONE GROUND ABOUT THE DELETING OF ADDI TION OF RS. 4,04,02,671/- ON ACCOUNT OF CESSATION OF LIABILITY. 4. WE HAVE HEARD THE DEPARTMENTAL REPRESENTATIVE (DR) OF THE REVENUE AND AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE, DR ARGUED THAT THE AO PASSED THE ORDER AFTER CORRECTLY APPRECIATING THE FACT AS NARRATED IN PARA GRAPH NO. 2.2.3 OF ASSESSMENT ORDER AND THE ADDITION WAS WRONGLY DELETED BY THE CIT(A). 5. THE AR OF THE ASSESSEE HAS ARGUED THAT CIT(A) WHILE DEALING WITH THIS GROUND IN PARAGRAPH NO. 4.3 AND WHILE APPRECIATING THE FACT O F THE CASE AND LAW, THE CIT(A) HAS CORRECTLY APPRECIATING THE FACT THAT DELETION OF AD DITION AND THE FINDING OF CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 7. THE AO WHILE MAKING THE ADDITION HAS OBSERVED THAT THE ASSESSEE IN HIS PROFIT & LOSS A/C CREDITED RS. 4,04,87,771/- BEING BALANCES WRIT TEN BACK. HOWEVER, IN THE COMPUTATION OF INCOME WAIVER OF LOAN OF RS. 4,04,0 2,671/- IS REDUCED FROM THE NET PROFIT TAXABLE U/S 28(IV) OR 41(1) AND THE AO SOUGH T THE DETAILS OF RECEIPT BY WAY OF WAIVER OF LOAN ALONG WITH DOCUMENTARY SUPPORT. 8. THE ASSESSEE EXPLAINED BEFORE THE AO THAT ABOUT THE GENESIS OF LOAN THAT ZYMA LABORATORY LTD. AND M/S LOVIN CRAE PRODUCT PVT. LTD WAS AMALGAMATED W.E.F. 01.03.2004 IN ZYMA LABORATORY LTD AND EARLIER TO TH IS AMALGAMATION M/S LOVIN CRE LTD. BY BUSINESS TRANSFER AGREEMENT 01.04.2004 ACQUIRED MANUFACTURING PLANT AND LIABILITY FROM ORGO PHARMA CHEMICALS WHICH WAS A PARTNERSHIP FIRM. M/S ORGO FARMA CHEMICALS AFTER TRANSFER OF MANUFACTURING PLANT AND LIABILITY IS ALSO CARRIYING OTHER BUSINESS. THUS THE ASSETS AND LIABILITY INCLUDING MANUFACTURING PL ANT WAS TAKEN OVER BY M/S LOVIN CARE PRODUCT PVT. LTD IN THE SAID AGREEMENT FOR A CONSID ERATION FOR A CONSIDERATION OF RS.100,000/-, AND THE CONSIDERATION OF RS. ONE LACK S WAS IN EXCESS OF ASSETS AND LIABILITY OF ORGO PHARMACEUTICALS. AND AS PER THE DETAILS OF ASSEST AND LIABILITY OF ORGO CHEMICALS , THE ASSEST WAS OF RS. 163,44,43,978/- AND LIABLIT Y OF RS. 163,44,43,978/-. M/S ORGO CHEMICAL WAS EXTENDED A LOAN OF RS. 4,04,02,671/- BY M/S LANDMARK BUILDER WHICH IS UNIT OF M/S SYNCHEM CHEMICAL(I) PVT. LTD. AND THIS LOAN WAS ADVANCES TO M/S KHANDELWAL ESTATE BY ORGO, WHICH WAS USED FOR THE PAYMENT OF LOAN OF HDFC. 9. IT WAS FURTHER EXPLAINED TO THE AO THAT THE LOAN WH ICH ZYMA LAB LTD HAS WRITTEN OFF IS A PART OF LIABILITY WHICH IT HAS RECEIVED FROM PART NERSHIP FIRM OF ORGO PHARMA CHEMICAL THROUGH LOVIN CARE PRODUCT PVT LTD WHICH WAS AMALGA MATED AND LATER THIS ZYMA 3 ITA NO. 5379/M/2013 M/S ZYMA LABORATORIES LTD. DISCHARGED THIS LIABILITY OF LOAN OF RS. 40402671/- ON SETTLEMENT WITH KOTAWALA INDIA LTD BY PAYING A CONSIDERATION OF RS. 32,00,000/-. AND A FTER THE AMALGAMATION OF LOAN OF LOVIN CARE PRODUCT P LTD AND ZYMA LABORATORY LIABIL ITY INITIATED TO DISCHARGE THIS LIABILITY AND SYNCHEM CHEMICALS WHICH WAS THE ORIGI NAL CONCERN WHICH HAD ADVANCED THE LOAN WHICH WAS ASSIGNED TO KOTAWAL INDIA LTD AND W AS ENTITLED TO RECOVER AN AMOUNT OF RS. 4,60,75,285/- FROM ZYMA LABORATORY LTD. 10. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY THE AO AND TREATED THIS AMOUNT AS INCOME CHARGEABLE TO THE TAX WAS ADDED TO THE BUSIN ESS INCOME. 11. THE CIT(A) WHILE DEALING WITH THE GROUND HAS OBSERV ED THAT TO SATISFY THE CONDITION OF SECTION 41(1), THREE CONDITION MUST BE SATISFIED (I ) THE LOAN IS FOR CAPITAL PURPOSE OR TRADING PURPOSE, (II) IS THERE ANY DEDUCTION OR ALL OWANCE IN THE EARLIER YEAR WHICH ACCRUES BENEFIT IN RESPECT OF LOAN, EXPENDITURE, OR TRADING BY WAY OF REMISSION OF CESSATION (III) WHETHER THERE IS A SUCCESSION TO BUSINESS ON THE FA CT OF THE CASE AND FURTHER OBSERVED THAT THE EXEMPTION WHETHER THE LOAN ADVANCED BY LANDMARK BUILDERS TO ORGO PHARMA CHEMICALS IN FY-2002-03 IS FOR TRADING PURPOSE OR C APITAL PURPOSE, THE LOAN OF RS. 4.04 CRORE ADVANCED BY LANDMARK BUILDER WHICH WAS UNIT O F SYNCHEM CHEMICAL TO ORGO PHARM CHEMICAL WHICH IS PARTNERSHIP FIRM OF ORGO PH ARMA CHEMICAL IN TERM OF ADVANCE THIS LOAN TO KHANDELWAL ESTATES PVT. LTD. HAS UTILI ZED THIS AMOUNT FOR PAYMENT OF LOAN TO HDFC. THE CIT(A) FURTHER OBSERVED THAT M/S ORGO PHA RMA ENTERED IN BUSINESS TRANSFER AGREEMENT FROM 01.01.2004 AND SOLE CERTAIN ASSETS A ND LIABILITY TO M/S LOVIN CARE PVT. LTD. FOR A CONSIDERATION OF RS. 1,00,000/- AND THAT LOVIN CARE PVT. LTD. AMALGAMATED W.E.F 01.03.2005 WITH ZYMA LABORATORY LTD.. M/S ORG O AFTER TRANSFER OF LIABILITY AND ASSETS WAS ALSO CONDUCTING THEIR OWN BUSINESS ON EX AMINATION OF ABOVE DETAILS AND EXAMINING THE DETAILS IT HAD TO BE SEEN WHETHER THE LOAN WAS FOR TRADING PURPOSE OR CAPITAL PURPOSE AND CONCLUDED THE LOAN WAS UTILIZED ONLY AT THE END OF THE RE-PAYMENT OF LOAN WHICH IS CAPITAL IN NATURE AS IT IS TREATED AS A LO AN STANDARD FOR ANY TRADING PURPOSE AND FOR FULFILLING THE CONDITION NO. 2 & 3 OF SECTION 41(1) , THE CIT(A) OBSERVED THAT WHETHER ASSESSEE CLAIMED ANY DEDUCTION OR ALLOWANCE IN RESP ECT OF LOAN EXPENDITURE OF TRADING LIABILITY AND EXAMINED THE RETURNS OF ORGO PHARMA C HEMICALS TO WHICH LOAN WAS ADVANCED BY LANDMARK BUILDERS AND AFTER EXAMINING T HE RETURN OF INCOME FOR FY-2002- 03 OF M/S ORGO PHARMA CHEMICAL CONCLUDED THAT IT HA D NOT PAID ANY INTEREST TO THE LANDMARK BUILDER NOR CLAIM ANY INTEREST AND FURTHER CONCLUDED THAT NEITHER THE ASSESSEE CLAIMED DEDUCTION IN FY-2002-03 NOR ORGO PHARMA CHE MICAL CLAIMED AS INTEREST AS DEDUCTION FOR FY-2005-06 & 2006-07 BY M/S ORGO PHAR MA CHEMICALS AND FURTHER CONCLUDED THAT IF DEDUCTION IS CLAIMED BY THE ASSES SEE IN THE RETURN OF INCOME THEN SECTION 41(1) IS NOT ATTRACTED. 12. THE CIT(A) FURTHER CONCLUDED THAT M/S ORGO PHARMA CHEMICALS ENTERED INTO BUSINESS TRANSFER AGREEMENT IN WHICH CERTAIN LIABILITY AND A SSETS WERE TRANSFERRED TO M/S LOVIN CARE PVT. LTD. ON 01.01.2004 FOR A CONSIDERATION OF RS. 1,00,000/-. 4 ITA NO. 5379/M/2013 M/S ZYMA LABORATORIES LTD. 13. WHILE CONSIDERING THE VARIOUS TRANSACTIONS IN BETW EEN ORGO PHARMA TILL THE ASSESSEE, THE CIT(A) CONCLUDED AS UNDER: 4.3(V) FURTHER TO SATISFY THE CONDITION FOR SUCCES SION OF BUSINESS IN THIS CASE, AS PER I. T. ACT EXPLANATION 1 TO SEC.41(1) EXAMINE THE DETAILS OF TRANSFER OF M/S.ORGO PHARMA CHEMICALS ENTERED BUSINESS TRANSFER AGREEMENT IN WH ICH CERTAIN LIABILITIES AND ASSETS WERE TRANSFERRED TO M/S. LOVIN CARE PRODUCTS P. LTD. ON 01.01.2004 FOR A CONSIDERATION OF RS.1,00,000/-. THE ASSETS TRANSFERRED FROM PARTNERS HIP FIRM M/S. ORGO PHARMA CHEMICALS TO M/S. LOVIN CARE PRODUCTS P. LTD. 1S RS.163,44,34 ,971/- AND AGGREGATED LIABILITIES ARE RS.163,43,34,970/-. AFTER THE TRANSFER ALSO M/S.ORG O PHARMA CHEMICALS IS EXISTING AS A BUSINESS CONCERN AND CONDUCTING THE BUSINESS AND IT IS ALSO FILING INCOME-TAX RETURNS IN ITS OWN NAME I.E. M/S. ORGO PHARMA CHEMICALS, PARTNERSH IP FIRM. IF WE EXAMINE SEC.170 OF I. T. ACT IN WHICH SUCCESSION WAS DEFINED, IT IS EVIDE NT THAT AFTER THE SUCCESSION OF BUSINESS EXISTING UNIT FULLY LOOSES ITS IDENTITY AND INCOME- TAX RETURN WILL BE FILED UP TO THE DATE OF SUCCESSION ONLY, LATER SUCCESSOR FILES THE INCOME-T AX RETURN? .IT 'DOES NOT EVEN EXIST AS BUSINESS CONCERN. BUT WE EXAMINE THE ABOVE DETAILS ORGO PHARMA CHEMICALS WAS CONTINUING AS BUSINESS CONCERN AFTER TRANSFERRING C ERTAIN ASSETS AND LIABILITIES, .HENCE, A.O'S CONTENTION THAT THERE IS SUCCESSION IS NOT FACTUALL Y CORRECT AS PER LAW. THIS ISSUE HAS COME INTO CONSIDERATION IN THE CASE OF ORIENTAL FIRE & G ENERAL INSURANCE CO LTD V. CIT (2000) 244 ITR 631 (DEL). THE DELHI HIGH COURT HELD AS UND ER: SUCCESSION IMPLIES THAT THERE IS END OF AN ENTITY CARRYING ON THE BUSINESS, AND ITS PLACE HAS BEEN TAKEN BY AN ENTIRELY NEW ENTITY TO RUN IN CONTINUIT Y AND AS A GOING CONCERN, THE SAME BUSINESS. SUBSTANTIAL IDENTITY AND CONTINUITY OF THE BUSINESS MUST BE PRESERVED. THE TESTS OF CHANGE OF OWNERSHIP, INTEGRITY, IDENTITY AND CONTINUITY OF A BUSINESS HAVE TO BE SATISFIED BEFORE IT CAN BE SAID THAT A PERSON SUCCEEDED TO THE BUSINESS OF A NOTHER IT IS CLEAR FROM THE ABOVE DECISION ALSO THAT THE O RIGINAL CONCERN WILL LOOK THE IDENTITY AND NEED NOT FILE I.T. RETURN. AS ORGO PHARMA CHEMI CALS IS EXISTING AFTER THE TRANSFER OF CERTAIN ASSETS AND LIABILITIES, HENCE, THE CONDITIO N NO.(III) THAT THERE IS SUCCESSION IN BUSINESS IS NOT FACTUALLY CORRECT. AS THERE IS NO S UCCESSION BUSINESS AS PER SEC.41(1) EXPLANATION OF SEC. 170 OF I.T. ACT, HENCE CONDITIO N NO. (II) WAS NOT FULFILLED. A.OS ADDITION IS NOT TENABLE IN LAW. 14. THE AO WHILE MAKING THE ADDITION RELIED UPON THE C ASE OF CIT VS. T.V. SUNDRAM IYNGAR & SONS REPORTED VIDE 222 ITR 344(SC) AND SOLID CONT AINERS LTD. VS. DCIT 308 ITR 417 ON THE ISSUE OF TREATING THE LOAN AS TRADING LIABIL ITY. THE FACT OF THE T.V. SUNDRAM IYNGAR CASE ARE ENTIRELY DIFFERENT FROM THE FACT OF THE CA SE IN OUR HAND THE CASE IN OUR HAND IN RESPECT OF RE-PAYMENT OF LOAN WHICH WAS ASSIGNED ON ACCOUNT OF SCHEME OF AMALGAMATION WHICH WAS APPROVED BY HONBLE BOMBAY HIGH COURT AND IN THE CASE OF T.V.SUNDRAM, THE ASSESSEE WAS GIVEN TRADING ADVANCES WHICH WERE ADJUSTED BY CARRYING ON THE BUSINESS AND CREDIT BALANCE STANDING IN FAVOUR OF THE ASSESS EE WERE CLAIMED BY THE CUSTOMER, THE ASSESSEE TRANSFERRED THE SAID AMOUNT TO PROFIT & LO SS A/C AND THE CASE OF SOLID CONTAINERS PVT. LTD., THE FACT OF THE PRESENT CASE IS ALSO AT THE VARIANCE AND SOLID CONTAINERS, THE ASSESSEE HAS TAKEN A LOAN FOR PURCH ASE OF CAR AND DEDUCTED THE AMOUNT FROM PROFIT & LOSS A/C AND FURTHER CLAIMED DEDUCTIO N BUT IN THE PRESENT CASE THERE WAS NO DEDUCTION FROM RETURN OF INCOME FROM ANY OF THE PRE DECESSOR INTEREST OF THE ASSESSEE RATHER IT IS AN ASSIGNMENT OF LIABILITY ON TRANSFER /AMALGAMATION OF COMPANY AND ASSETS AND THE CIT(A) AFTER CONSIDERING THE ENTIRE FACT AVAILA BLE BEFORE HIM, THE ADDITION WAS DELETED. 5 ITA NO. 5379/M/2013 M/S ZYMA LABORATORIES LTD. 15. SO AS DISCUSSED ABOVE, WE DO NOT FIND ANY INFIRMIT Y OR ILLEGALITY IN THE ORDER PASSED BY CIT(A) WHILE DELETING THE ADDITION OF RS. 4,04,0 2671/- 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH JANUARY 2016. SD/- SD/- (N.K.BILLAIYA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 13 /01/2016 S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/