RESONANCE SPECIALTIES LIMITED, MUMBAI V. INCOME TAX OFFICER-13(3)(1), MUMBAI

ITA 5723/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5905 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 08-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKASH KR AGARWAL
• Keywords: Principle of natural justice; Commercial expediency
• Section: 143(3); 142(1); 28

Judgement Text

, ,, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ./ ITA NO.5723/MUM/2017 ( / ASSESSMENT YEAR :2013-2014) RESONANCE SPECIALTIES LIMITED, 301, EVERSHGINE MALL, LINK ROAD, CHNCHOLI BUNDER, MALAD (WEST), MUMBAI - 400064 VS. ITO-13(3)(1), MUMBAI ./PAN NO. : AAACA 9590 Q ( /APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI VIJAY MEHTA, AR /REVENUE BY : SHRI VIKASH KR. AGARWAL, CITDR / DATE OF HEARING : 01/01/2019 /DATE OF PRONOUNCEMENT 15/01/2019 / O R D E R PER SHRI RAJESH KUMAR, AM : THIS APPEAL BY ASSESSEE ARISES OUT OF THE ORDER OF THE CIT(A) 21, MUMBAI, DATED 01.06.2017, WHICH IN TURN HAS ARISEN OUT OF THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) RELATING TO A.Y. 2013-2014. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1.(A) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS ERRED IN LAW AND FACTS ON RECORDS IN UPHOLDING THE A.O.'S ACTION OF DISALLOWING RS.46,21,044/-, BEING THE AMO UNT GIVEN FROM TIME-TO-TIME TOWARDS MARKETING RELATED SUPPORT ACTIVITIES, WHICH SUBSEQUENTLY BECAME IRRECOVERABLE AND ACTUALL Y WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND THEREFORE ALLOWABLE EITHER U/S 36(1)(VII) OR U/S 37(1). THE LOWER AUTHO RITIES HAVE WRONGLY TREATED THE SAME AS EXPENDITURE ON CAPITAL ACCOUNT AND CONCLUDED AS NOT ALLOWABLE, 1. (B) THE LD. C.I.T. (APPEALS) HAS ERRED IN LAW AN D FACTS ON RECORDS IN DISMISSING THE APPELLANT'S ADDITIONAL GROUND, IN WHICH THE APPELLANT HAD MADE ALTERNATE CLAIM OF THE SAID AMOU NT OF RS. 46,21,0447- TO BE CONSIDERED AS BUSINESS LOSS ALLOW ABLE UNDER SECTION 28 ITSELF. ITA NO.5723/17 2 2. THE LD. CIT (APPEALS) DECIDED/ DISMISSED THE SAID GROUNDS WITHOUT PROVIDING TO THE APPELLANT THE COPY OF A.O. 'S REMAND REPORT DATED 18/05/2017 AND WITHOUT AFFORDING THE O PPORTUNITY TO THE APPELLANT OF REBUTTING THE A.O.'S SUBMISSION , THUS VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. THE APPELLANT PRAYS THAT THE APPEALS PRAYED FOR BE ADMITTED AND ALLOWED AND PENALTY IMPOSED BY THE A.O. BE DELE TED. THE APPELLANT CREAVES LEAVE TO ADD, TO ALTER OR TO AMEND ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF H EARING. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF FERTILIZERS, CHEMICALS, PAINTS ETC. AND FILED IT S RETURN OF INCOME ON 28.09.2013 DECLARING TOTAL INCOME AT RS.24,64,150/- WHICH WAS PROCESSED U/S.143(1) OF THE ACT. THEREAFTER THE CASE OF THE A SSESSEE WAS SELECTED FOR SCRUTINY AND NOTICES U/S.143(2) & 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE WERE ISSUED AND SERVED ON THE ASSESSE E. DURING THE ASSESSEE HAS WRITTEN OFF VARIOUS DEBIT AND CREDIT B ALANCES THE NET OF WHICH IS RS. 35,65,427/-. ONE OF THE ITEM OF DEBIT WRITTEN OFF WAS THE LOAN ADVANCED TO RELATED ENTITY M/S USHMA TECHNOLOGIES P VT. LTD OF RS. 46,21,044/- UNDER AGREEMENT DATED 20.03.2010 FOR SE TTING UP MANUFACTURING PLANT FOR MANUFACTURE OF ONCOLOGY PRO DUCTS AND PARTLY MARKET THE SAME BY USING THE MARKETING NETWORK OF T HE ASSESSEE COMPANY AND TO SHARE THE TO SHARE THE BENEFITS ARIS ING FROM THE SAME. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON TO FURNISH VARIOUS DETAILS WHICH WERE FILED FROM TIME TO TIME WHICH WERE VERIFIED BY THE AO. THEREAFTER AO ISSUED SHOW CAU SE NOTICE TO THE ASSESSEE AS TO WHY THE AMOUNT OF RS.46,21,044/- GIV EN AS ADVANCE TO USHMA TECHNOLOGIES PVT. LTD. SHOULD NOT BE DISALLOW ED AS THE AMOUNT ADVANCED IS NOT ROUTED THROUGH PROFIT AND LOSS ACCO UNT AND USHMA ITA NO.5723/17 3 TECHNOLOGIES PVT. LTD. IS A CLOSELY RELATED PARTY. THE AO STATED THAT THE AS THE ASSESSEE COULD NOT PROVIDE ANY REASONABLE JU STIFICATION FOR WRITING OFF THE AMOUNT IN QUESTION BY DEBITING TO THE PROF IT AND LOSS ACCOUNT, THEREFORE, HE ADDED TO THE TOTAL INCOME OF THE ASSE SSEE BESIDES MAKING DISALLOWANCE OF OTHER EXPENSES AMOUNTING TO RS.5,70 ,379/- BY FRAMING ASSESSMENT U/S.143(3) OF THE ACT, VIDE ORDER DATED 28.03.2016. 4. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF OTHER EXPENSES, HOWEVER SUS TAINED THE ADDITION MADE ON ACCOUNT OF SUNDRY BALANCE WRITTEN OFF, AGAI NST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5. LD. AR VEHEMENTLY SUBMITTED BEFORE THE BENCH THA T ADVANCE TO M/S USHMA TECHNOLOGIES PVT. LTD., A CLOSELY RELATED PAR TY TO THE ASSESSEE COMPANY WAS WRITTEN OFF DURING THE YEAR AS BUSINESS LOSS AND CLAIMED AS SUCH AND, THEREFORE, THE PROVISIONS OF SECTION 36(1 )(VII) OF THE ACT ARE NOT APPLICABLE. LD. AR SUBMITTED THAT THE AO HAS NOT BR OUGHT ANYTHING ON RECORD AND HARPED MERELY ON THE FACT THAT ADVANCE W AS GIVEN TO THE RELATED PARTY WHICH CANNOT BE A GROUND FOR DISALLOW ING THE LEGITIMATE BUSINESS LOSS RESULTING FROM WRITING OFF THE ADVAN CE TO THE RELATED PARTY AS THE PROPOSED MANUFACTURING PLANT COULD NOT BE SE T UP AND ULTIMATELY THE ADVANCE BECAME RECOVERABLE. LD. AR SUBMITTED TH AT THE TOTAL ADVANCE OF RS.46,21,044/- WAS COMPRISED OF AMOUNTS PAID OF RS.30 LAKHS BEFORE MARCH, 2010 AND RS.46,21,044/- PAID BETWEEN 17.02.2011 TO 07.04.2012. LD. AR FURTHER SUBMITTED THAT SINCE THE ASSESSEE COMPANY IS ALREADY IN THE BUSINESS OF CHEMICALS AND BULK DRUGS AND WISHED TO ITA NO.5723/17 4 EXPLORE ITS MARKETING BY ALLOWING RELATED ENTITY TO USE ITS DOMESTIC MARKETING SET UP FOR SALE OF ONCOLOGY PRODUCTS FROM THE PROJECT BEING SET UP BY USHMA TECHNOLOGIES PVT. LTD. IN ORDER TO EXPL OIT THE DOMESTIC MARKET HAS ADVANCED THE SAID MONEY. THE ASSESSEE HA S AGREED TO PROVIDE A SUM OF RS.75 LAKHS TO USHMA TECHNOLOGIES PVT. LTD. FOR ITS PROJECT AND OUT OF THIS AMOUNT, RS.30,00,000/- WAS ALREADY PROVIDED BEFORE THE DATE OF EXECUTION OF AGREEMENT AND IT W AS UNDERSTANDING BETWEEN THE ASSESSEE AND RELATED ENTITY THAT THE SA ID ENTITY WOULD SELL THE PRODUCTS THE DOMESTIC MARKET AND SALE PROCEEDS ARE TO BE SHARED AND WOULD GO TO THE EXTENT OF 25% TO THE ASSESSEE COM PANY. LD. AR FURTHER SUBMITTED THAT THE PLAN TO SET UP THE PLANT WAS NOT THROUGH AND ADVANCE GIVEN HAD TO BE WRITTEN OFF WHICH WAS DEBITED INTO THE PROFIT AND LOSS ACCOUNT. LD. AR SUBMITTED THAT SINCE THE MONEY WAS ADVANCED OUT OF THE COMMERCIAL EXPEDIENCY IN ORDER TO EXPAND THE BUSINE SS OF THE ASSESSEE AND EARN ADDITIONAL REVENUE THROUGH RELATED ENTITY. THE LD COUNSEL SUBMITTED THAT ANY MONEY GIVEN ON THE SAID UNDERSTA NDING WOULD BECOME BAD HAS TO BE ALLOWED AS BUSINESS LOSS. LD. AR FURT HER SUBMITTED THAT THE LD. AO AND CIT(A) HAS ERRED IN LAW BY DOUBTING THE WHOLE TRANSACTION WITHOUT BRINGING ON RECORD ANY EVIDENCE TO THAT EFF ECT WHICH CANNOT BE APPARENTLY THE BASIS FOR MAKING DISALLOWANCE. LD. A R ALSO PLACED BEFORE THE BENCH COPY OF BALANCE SHEET AS ON 31.03.2010 AN D SUBMITTED THAT THE ADVANCE OF RS.30 LAKHS TO SAID ENTITY WAS GIVEN IN THE EARLIER YEARS WHICH IS COMING FROM FINANCIAL YEAR 2008-2009. LD. AR FIN ALLY RELIED ON THE ITA NO.5723/17 5 DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DISCOVERY COMMUNICATION INDIA, [2015] 370 ITR 57 (DELHI). 6. PER CONTRA , LD. DR SUBMITTED THAT THE ASSESSEE IS A FERTILISE R MANUFACTURING COMPANY WHEREAS THE USHMA TECHNOLOGIE S PVT. LTD. IS A PHARMA COMPANY AND, THEREFORE, THERE IS NO SIMILARI TY IN THE BUSINESS OF TWO COMPANIES AND THE MONEY WAS ADVANCED FOR SETTIN G UP A PLANT FOR MANUFACTURING IN SEEPZ WHICH WAS EXTENSIVELY WAS OF CAPITAL NATURE AND, THEREFORE, CANNOT BE ALLOWED TO THE ASSESSEE AS REV ENUE LOSS. ACCORDINGLY, LD. DR PRAYED THAT THE ORDER OF CIT(A) NEEDS TO BE UPHELD. 7. IN REBUTTAL, LD. AR SUBMITTED THAT THOUGH THE MO NEY WAS ADVANCED FOR SETTING UP OF PLANT AND WAS OF CAPITAL IN NATUR E SO FAR AS THE RELATED ENTITY IS CONCERNED, HOWEVER, THE ASSESSEE HAS ADVA NCED MONEY OUT OF COMMERCIAL EXPEDIENCY IN ORDER TO EXPAND ITS BUSINE SS ACTIVITY AND HAS TO CONSIDERED AS REVENUE IN NATURE AND, THEREFORE, HAS TO BE ALLOWED AS BUSINESS LOSS ON ACCOUNT OF BUSINESS EXPEDIENCY UND ER THE PROVISIONS OF SECTION 28 OF THE ACT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER. WE FIND THAT I N THIS CASE THE ASSESSEE HAS ADVANCED MONEY OF RS.46,21,044/- OUT O F WHICH RS.30 LAKHS WAS GIVEN IN THE EARLIER YEARS EVEN PRIOR TO 31.03.2009. AS PER THE AGREEMENT OF THE ASSESSEE WITH THE RELATED ENTITY, THE SAID ENTITY WAS TO SET UP A MANUFACTURING PLANT IN SEEPZ AND HAS TO SH ARE 25% OF THE REVENUE WITH THE ASSESSEE. THUS, THIS IS CLEAR FROM THE FACT THAT MONEY WAS ADVANCED OUT OF THE COMMERCIAL EXPEDIENCY AND B USINESS ITA NO.5723/17 6 CONSIDERATIONS IN ORDER TO EXPAND THE BUSINESS INT EREST OF THE ASSESSEE. THEREFORE, IN OUR OPINION, THE SAID LOSS EVEN IF NO T CLAIMED AS BUSINESS LOSS, HAS TO BE ALLOWED U/S.28 OF THE ACT AS BUSIN ESS LOSS AS IT HAS ESSENTIALLY A CHARACTER OF BUSINESS LOSS. ACCORDI NGLY, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF THIS AMOUNT AS BUSINESS LOSS IN VIEW OF THE AFORESAID OBSERVATIONS. HENCE, WE REVERSE TH E ORDER OF CIT(A) AND DIRECT THE AO TO ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 15/01/2019. (RAM LAL NEGI) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 15/01/2019 . . /PRAKASH KUMAR MISHRA , SR.PS. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSISTANT 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//