ITO 8(3)(1), MUMBAI V. SERVOTECH PHARMA IMPEX LTD, MUMBAI

ITA 5644/MUM/2012

• Counselvise Citation: 564419914 RSA 2012
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Department
• Bench Allotted: E
• Next Hearing Date: 02-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-09-2012
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: RAJESH GUPTE
• Keywords: Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & MS. SUSHMA CHOWLA , J M ./ I TA NO. 5644 / MUM/20 1 2 ( / ASSESSMENT YEAR : 200 9 - 10 ) ITO 8(3)(1), MUMBAI VS. M/S SERVOTECH PHARMA IMPEX PVT. LTD., 209/10, BONANZA, SAHAR PLAZA, J.B.NAGAR, ANDHERI(E), MUMBAI - 59 ./ ./ PAN/GIR NO. : A A B C S 6035 P ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NEIL PHILIP /ASSESSEE BY : SHRI RAJESH GUPTE / DATE OF HEARING : 0 2 /0 6 / 2015 / DATE OF PRONOUNCEMENT 22/07 /2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 18, MUMBAI , DATED 8 - 6 - 2012 FOR THE ASSESSMENT YEAR 200 9 - 10 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE ACT . 2. THE GRIEVANCE OF REVENUE RELA TES TO CIT(A)S ACTION IN DIRECTING THE AO TO DELETE THE ADDITION/DISALLOWANCE OF RS.25,41,633/ - MADE U/S.28(IV)/41( 1 ) OF THE ACT. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED I N BUSINESS OF CHEMICALS . THE SISTER CONCERN OF ASSESSEE NAMELY SARVOTECH ITA NO. 5644 /1 2 2 INTERNATIONAL, DUBAI HAD EXPORTED MATERIAL TO ONE M/S VEEKAY PRODUCTS PVT. LTD. IN JUNE, 1998. SINCE M/S VEEKAY PRODUCTS PVT. LTD. WAS IN SERIOUS FINANCIAL PROBLEMS WITH ITS BANKER, I T WAS NOT ABLE TO REMIT THE PAYMENT TO DUBAI AS A RESULT THEY GAVE THE AMOUNT DUE OF RS.25,41,633/ - BY CHEQUE TO THE ASSESSEE COMPANY WHO IS A SISTER CONCERN OF M/S SERVOTECH INTERNATIONAL - DUBAI THROUGH THEIR MUTUAL BROKER MR. JAGDISH DOSHI, TO KEEP IT AS SECURITY DEPOSIT TILL THEY ARE INFORMED TO REMIT THE SAME TO DUBAI. THE SAID AMOUNT WAS RECEIVED AND SHOWN AS SECURITY DEPOSIT IN THE BOOKS OF ASSESSEE. THE ASSESSEE COMPANY HAD NO ROLE TO PLAY IN THE ABOVE TRANSACTION FURTHER CORRESPONDENCE BY M/S SERVO TECH INTERNATIONAL ASKING M/S VEEKAY PRODUCTS TO MAKE PAYMENT IS CLEAR EVIDENCE THAT THE ASSESSEE COMPANY HAD NO ROLE TO PLAY IN THE TRANSACTION AND ALSO THAT THE AMOUNT PAID BY M/S VEEKAY PRODUCTS WAS JUST SECURITY DEPOSIT ON BEHALF OF M/S SERVOTECH INTER NATIONAL - DUBAI. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO ASKED M/S VEEKAY PRODUCTS PVT. LTD. TO CONFIRM THE ABOVE, HOWEVER, IN REPLY TO AOS LETTER IT WAS STATED THAT THEIR RECORDS WERE DESTROYED BY FIRE AND COMPANYS BUSINESS HAS BEEN CLOSED FROM MANY YEARS. ACCORDINGLY, THE AO ADDED THE SECURITY DEPOSIT OF RS.25,41,633/ - TO THE TOTAL INCOME OF THE ASSESSEE APPLYING PROVISIONS OF SECTION S 41(1)/ 28(IV) OF THE ACT. 4 . BY THE IMPUGNED ORDER THE CIT(A) DELETED THE ADDITION SO MADE BY THE AS SESSING OFF ICER AFTER HAVING FOLLOWING OBSERVATIONS : - 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF LD. COUNSEL AND THE CASE LAWS RELIED UPON BY HIM AND THE FACT THAT THE APPELLANT ACTED ONLY AS GUARANTOR IN THIS CASE - WHICH IS CLEAR FROM THE FACT THAT THE APPELLANT H AS NO BUSINESS DEALINGS AT ALL WITH M/ S. VEEKAY PRODUCTS ITA NO. 5644 /1 2 3 PVT. LTD. - WHO HAVE ADVANCED THE SAID AMOUNT - CLEARLY SHOWS THAT THE PROVISIONS OF SECTION 28(IV) AND SECTION 41 (I) OR EXPLANATION( I) - ARE NOT APPLICABLE BECAUSE NEITHER THE SECURITY DEPOSIT ARI SES FROM ANY BUSINESS ACTIVITY OF THE ASSESSEE AS REQUIRED BY SECTION 28(IV) NOR DOES IT FALL TO BE CONSIDERED U/S 41 (1) BECAUSE AT NO STAGE HAS THE APPELLANT BEEN GIVEN ANY ALLOWANCE OR DEDUCTION IN RESPECT OF THE EXPENDITURE OR TRADING LIABILITY - WHICH IT IS NOT SO AND THEREFORE THE ACTION OF THE A.O. IN TAXING IT U/S 28(IV) AND ULS 41(1) IS STRUCK DOWN AND THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. FURTHER, THE CASE LAWS AS RELIED UPON BY THE APPELLANT - AS FOLLOWS ALSO REITERATE THE ABOVE PRINCIPLE: - (A) CCIT VS. KESARIA TEA CO. LTD. 254LTR 434 (SC) (B) CLT VS. SUGAULI SUGAR WORKS (P) LTD. 236LTR 518 (SC) (C) SMARTALK (P) LTD. VS. LTO 119 LTD 13 (ITAT MUMBAI 'C' BENCH) (D) UNIVERSAL RADIATORS VS. CLT 201LTR 800 (SC) (E) CLT VS. BHAVNA GAR BONE & FERTILISER CO. PVT. LTD. 166LTR 316 (GUJ) (F) CLT VS NITIN S.GARG 71DTR73 (GUJARAT) MOREOVER AS STATED BY LD. COUNSEL - THE RIGHT TO RECOVER THIS 'SECURITY MONEY' VESTS AND CONTINUES TO EXIST WITH M/S. SERVOTECH INTERNATIONAL - DUBAI AND THEREF ORE THERE CAN BE NO CESSATION OF LIABILITY. IN VIEW OF THE ABOVE, THE A.O. IS DIRECTED TO DELETE THE ADDITION/DISALLOWANCE OF RS.25,41,633/ - MADE ULS 28(IV) AND ALSO 41(1) OF LT. ACT, 1961. 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECOR D CAREFULLY. WE FOUND THAT THE ASSESSEE COMPANY HAS RECEIVED AMOUNT OF RS.25,41,633/ - FROM M/S VEEKAY PRODUCTS PVT. LTD. AS A SECURITY DEPOSIT ON BEHALF OF ITS SISTER CONCERN M/S SERVOTECH INTERNATIONAL - DUBAI . THIS AMOUNT OF SECURITY DEPOSIT WAS NEVER CLA IMED BY THE ASSESSEE COMPANY AS EXPENDITURE OR TRADING LIABILITY . THIS AMOUNT WAS NOT RECEIVED BY ASSESSEE IN THE COURSE OF ITS BUSINESS OF TRADING IN CHEMICALS. UNDER THE PROVISIONS OF SECTION 28(IV) OF THE ACT, THE VALUE OF ANY BENEFIT OR PERQUISITES, WH ETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR EXERCISE OF PROFESSION, CAN BE BROUGHT TO TAX. THE SAID AMOUNT WAS ITA NO. 5644 /1 2 4 SHOWN AS SECURITY DEPOSIT IN THE BOOKS OF THE ASSESSEE. THE ASSESSEE COMPANY HAD NO ROLE TO PLAY IN THE ABOVE TRANSACTION FUR THER CORRESPONDENCE BY M/S SERVOTECH INTERNATIONAL ASKING M/S VEEKAY PRODUCTS TO MAKE PAYMENT IS CLEAR EVIDENCE THAT THE ASSESSEE COMPANY HAD NO ROLE TO PLAY IN THE TRANSACTION AND ALSO THAT THE AMOUNT PAID BY M/S VEEKAY PRODUCTS IN 2000 WAS JUST SECURITY DEPOSIT ON BEHALF OF M/S SERVOTECH INTERNATIONAL - DUBAI. FURTHERMORE, THE ASSESSEE DID NOT RECEIVE ANY BENEFIT OR PERQUISITE ARISING FROM BUSINESS AS THE ASSESSEE COMPANY IS NOT IN THE BUSINESS OF TAKING SECURITY DEPOSIT OR LOANS. T HE TRANSACTION BETWEEN TH E SISTER CONCERN AND VEEKAY PRODUCTS PVT. LTD. ALSO PROVES THIS FACT. FURTHER THERE IS NO CESSATION LIABILITY AS NO DEDUCTION OR ALLOWANCE O N LOSS HAS BEEN CLAIMED BY ASSESSEE WITH REGARD TO THE AMOUNT OF SECURITY DEPOSIT RECEIVED IN ANY OF PREVIOUS YEAR. ALSO THE DEPOSIT AMOUNT WAS NEVER CLAIMED BY THE ASSESSEE COMPANY AS EXPENDITURE OR TRADING LIABILITY. THE SECURITY DEPOSIT KEPT WITH THE ASSESSEE IS NOT A REVENUE 'RECEIPT BUT IT IS OF A CAPITAL NATURE. THE ASSESSEE COMPANY ACTED AS A GUARANTOR BY RECEIV ING THE MONEY ON BEHALF OF M/ S. SERVOTECH INTERNATIONAL - DUBAI FOR SAFE KEEPING , AS VEEKAY PRODUCTS WERE NOT IN A POSITION TO DIRECTLY REMIT THE AMOUNT TO DUBAI AS IT WAS HAVING SOME PROBLEMS WITH ITS BANKERS FOR REMITTANCE ABROAD . THUS THE SECURITY DEPOSIT BEING IN THE NATURE OF CAPITAL RECEIPT AND DOES NOT TAKE THE CHARACTER OF REVENUE RECEIPT HENCE CANNOT BE BROUGHT INTO ACCOUNT IN COMPUTING PROFITS AND GAINS OF BUSINESS UNDER SECTION 28(IV) OF THE I.T.ACT . HON 'BLE SUPREME COURT IN THE CASE OF UNIVERSAL RADIATORS VS. ITA NO. 5644 /1 2 5 CIT 201 ITR 800 (SC) HAS OBSERVED THAT FOR BEING TAXABLE THE INCOME SHOULD HAVE ACCRUED OUT OF T HE BUSINES S CARRIED ON BY THE ASSESSEE. ANY AMOUNT RECEIVED BY ASSESSEE CARRY IN G ON BUS INESS DOES NOT BECOME AN INCOME FROM BUSINESS UNLESS THE NE CESSARY RELATIONSHIP BETWEEN THE TWO IS ESTABLISHED. IN THE CASE OF THE ASSESSEE THERE WAS NO BUSINESS RELATIONSHIP OR ANY BUSINESS NEXUS W ITH VEEKAY PRODUCTS PVT. LTD. FURTHER THE ASSESSEE'S CASE IS NEITHER COVERED BY SECTION 41 (1) OR EXPLANATION (I) - A S NO ALLOWANCE OR DEDUCTION HAS BEEN CLAIMED IN ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY BY THE ASSESSEE COMPANY. 6. AFTER GOING THROUGH THE ORDER OF THE CIT(A), WE FIND THAT THE FINDING RECORDED BY THE CIT(A) IS JUST AND PROPER FOR W HICH OUR INTERFERENCE IS NOT CALLED FOR. ACCORDINGLY, WE UPHOLD THE ORDER THE CIT(A). 7 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 22/07 / 201 5 . SD/ - SD/ - ( ) ( SUSHMA C HOWLA ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 22/07 /201 5 . . /PKM , . / PS / COPY OF TH E 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/