SIL BUSINESS ENTERPRISES LTD, MUMBAI V. DCIT CEN CIR 3, MUMBAI

ITA 601/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1910 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 08-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2010
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

, , I, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI , , , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.601/MUM/2010 ASSESSMENT YEAR: 2006-07 SIL BUSINESS ENTERPRISES LTD. PLOT NO.1& 2, JIJAMATA NAGAR, NASIK RD. MUMBAI-422101 / VS. DCIT, CEN, CIR - 3, OLD CGO, MUMBAI -400020 (REVENUE) (RESPONDENT) P.A. NO. AACCS91 81K ASSESSEE BY NONE (A R) REVENUE BY SHRI B. YADAGIRI ( D R) / DATE OF HEARING : 8/12/2015 / DATE OF ORDER: 18/12/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S)-36, MUMBAI {(IN SHORT CIT(A)}, DATED 17.11.2009 FOR T HE SIL BUSINESS ENT.. 2 ASSESSMENT YEAR 2006-07, DECIDED AGAINST THE ASSESS MENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO ) U/S 143(3) OF THE ACT, ON THE FOLLOWING GROUNDS: 1.THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISAL LOWANCE OF CLAIM OF RS.31,67,739/- BEING EXCESS BALANCE WRI TTEN BACK (COMPENSATION ) ON ACCOUNT OF KILLICK HALCO LT D. 2. WITHOUT PREJUDICE TO ABOVE, THE CLAIM OF RS.31,6 7,739/- SHOULD BE ALLOWED AS A BUSINESS LOSS. 2. DURING THE COURSE OF HEARING, NONE APPEARED ON BEHA LF OF THE ASSESSEE AND SHRI B. YADAGIRI, DEPARTMENTAL REPRESENTATIVE (DR) APPEARED ON BEHALF OF THE REVEN UE. 3. ON THE EARLIER OCCASIONS, IT WAS BROUGHT TO THE NO TICE OF THE BENCH THAT THE ASSESSEE COMPANY HAS BEEN REFERRED T O BIFR AS A SICK UNIT. ACCORDINGLY, NOTICE WAS ISSUE TO THE O FFICIAL LIQUIDATORS, HIGH COURT BOMBAY. IT IS NOTED THAT TH E NOTICE WAS RECEIVED BY THE OFFICIAL LIQUIDATORS AS PER ACKNOWL EDGEMENT AVAILABLE IN FILE. EVEN AFTER THAT NONE APPEARED. I N VIEW OF THESE CIRCUMSTANCES, THE APPEAL WAS TAKEN UP FOR HE ARING FOR DISPOSAL ON MERITS. 4. THE SOLITARY GROUND RAISED IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF CLAIM OF RS.31,67,739/- BEING THE A MOUNT OF COMPENSATION ON ACCOUNT OF AMOUNT PAID TO M/S. KILL ICK HALCO LTD. SIL BUSINESS ENT.. 3 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S NOTED BY THE AO THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE COMPANY HAD DEBITED THE AFORESAID AMOUNT A S COMPENSATION PAID TO THE AFORESAID COMPANY. IT WAS NOTED BY THE AO THAT AMOUNT WAS ADVANCED TO THE SAID COMPANY FOR PURCHASE OF MACHINERY, AND THEREFORE, THESE EXPENSE S WERE CAPITAL IN NATURE. THUS, LOSS SUFFERED BY THE ASSES SEE BY WRITING OFF THIS ADVANCE WAS ALSO CAPITAL IN NATURE , AND THEREFORE, THE SAME WAS DISALLOWED IN THE ASSESSMEN T ORDER. 4.2. DURING THE COURSE OF APPEAL BEFORE LD. CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD PAI D ADVANCE OF RS.1,81,67,739/- TO THE SAID COMPANY FOR ACQUIRI NG CERTAIN MACHINERY. SUBSEQUENTLY, BOTH I.E. THE ASSESSEE COM PANY AS WELL AS SAID COMPANY, WERE DECLARED AS SICK UNITS. THEREAFTER, THE FACTORY PREMISES OF THE SAID COMPANY WERE SOLD, AND OUT OF THE SALE PROCEEDINGS A SUM OF RS.1.50 CRORES WAS RE PAID TO THE ASSESSEE COMPANY. THE BALANCE AMOUNT NOT RECOVERABL E FROM THE SAID COMPANY WAS WRITTEN OFF IN THE BOOKS OF AC COUNTS OF THE ASSESSEE COMPANY AS COMPENSATION, SINCE FURTHER RECOVERY WAS NOT POSSIBLE. IT WAS SUBMITTED THAT THE SAID CL AIM WAS ALLOWABLE AS REVENUE EXPENSES. IT WAS ALTERNATIVELY ARGUED THAT THE SAID AMOUNT WAS ALLOWABLE AS BUSINESS LOSS. 4.2. BUT THE LD. CIT(A) DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY GIV ING DETAILED FINDINGS AND REASONING. THE RELEVANT PARA OF THE ORDER SIL BUSINESS ENT.. 4 OF LD. CIT(A) IS REPRODUCED BELOW FOR THE SAKE OF R EADY REFERENCE: 6.4 'COMPENSATION' IS A LEGAL TERM FOR- DAMAGES REFERRING TO THE FINANCIAL COMPENSATION RECOVERABLE BY REASON OF ANOTHER'S BREACH OF DUTY THE MONEY PAID O R AWARDED TO A PLAINTIFF. IN THE PRESENT CIRCUMSTANCE S, THE APPELLANT DESERVED TO BE COMPENSATED AND NOT KILLICK HALCO LIMITED, WHO DEFAULTED IN THE DELIVER Y OF THE MACHINES. IT IS NOT THE CASE WHERE KILLICK HALC O LIMITED HAD MADE THE MACHINES AND THEY WERE READY F OR DELIVERY WHEN THE ORDER WAS CANCELLED AS THE FACTOR Y PREMISES OF KILLICK HALCO LIMITED ITSELF WAS AUCTIO NED AND MONIES RECOVERED TO THE APPELLANT. THE SUBMISSION O F THE APPELLANT THAT THE ADVANCE WAS GIVEN DURING THE COU RSE OF BUSINESS HAS NOT BEEN EVIDENCED AT ALL BY THE APPEL LANT AT THE STAGE OF THE AO OR ME. THE APPELLANT IS NEITHER IN THE BUSINESS OF DEALING IN MACHINES NOR IS ADVANCING MO NEY IS BUSINESS. IT WAS AN ORDER FOR MACHINES TO BE USED F OR MANUFACTURING AND SURELY WAS ACQUIRING CAPITAL ASSE T AND HENCE THE LOSS WAS ON CAPITAL ACCOUNT. THE CASE RELIED ON THE APPELLANT OF CIT VS. ANJANI KUMAR CO LTD (2002) 124 TAXMAN 429 (RAJ) WAS PERUSED. IN THAT CA SE, THE ASSESSEE WAS A BOILER MANUFACTURER AND HE HAD ACQUIRED AGRICULTURAL LAND FOR SETTING UP OF THE FACTORY WHICH DID NOT MATERIALIZE DUE TO HIS OWN ISSUES. TH E PAYMENT WAS MADE AN THE LAND WAS READY FOR USE. IN THESE CIRCUMSTANCES, THE HIGH COURT OF RAJASTHAN DE CIDED THAT THE IRRECOVERABLE ADVANCE PAYMENT MADE BY ASSE SSEE SIL BUSINESS ENT.. 5 FOR ACQUISITION OF A CAPITAL ASSET WHICH DID NOT MA TERIALIZE WAS ALLOWABLE AS BUSINESS LOSS. 6.5 THE DELHI ITAT HAS IN THE CASE OF TULIP STAR H OTELS LTD VS ADDL CIT 114 ITD 202(DEL)(2008) DISTINGUISHE D THE ABOVE DECISION AND DID NOT ALLOW IN THE SAME CIRCUMSTANCES AS ABOVE THE LOSS AS REVENUE BUT HELD IT TO BE CAPITAL LOSS. 6.6 IN THE PRESENT CIRCUMSTANCES, KILLICK HALCO LI MITED HAD NOT KEPT THE MACHINES READY FOR DELIVERY AND TH EN THE APPELLANT REFUSED TO TAKE THE DELIVERY. IN SUCH A C ASE, CERTAINLY, THERE IS A CASE FOR COMPENSATION TO BE P AID TO KILLICK HALCO LIMITED. HOWEVER, THE APPELLANT WITHO UT ANY EVIDENCE TO SHOW THAT THE MACHINES WERE READY FOR D ELIVERY HAD TREATED THE PORTION OF ADVANCE WHICH COULD NOT BE RECOVERED AS COMPENSATION. SUCH COMPENSATION WOULD CERTAINLY BE NOT ALLOWABLE AS REVENUE EXPENSE AND I S LIABLE TO BE TREATED AS CAPITAL LOSS ONLY. 6.7 THE ALTERNATE ARGUMENT OF THE APPELLANT, THAT THE MONIES BE TREATED AS BUSINESS LOSS IS ALSO NOT TENA BLE AS APPELLANT IS NOT IN THE BUSINESS OF ADVANCING MONIE S. HE IS ALSO NOT A TRADER OF MACHINES AND HENCE THE CLAIM O F BUSINESS LOSS IS ALSO NOT ALLOWABLE. 4.3. WE HAVE GONE THROUGH THE FINDINGS RECORDED BY THE LD. CIT(A). THE UNDISPUTED FACTS ARE THAT THE AMOUNT WA S GIVEN FOR THE PURPOSE OF PURCHASING MACHINERY WHICH WAS CAPIT AL ASSET FOR THE ASSESSEE COMPANY. THERE IS A NOTHING BROUGH T BEFORE US TO TREAT THE AFORESAID AMOUNT AS REVENUE EXPENDI TURE. WE SIL BUSINESS ENT.. 6 DO NOT FIND ANYTHING WRONG IN THE FINDINGS OF LD. C IT(A), NO INTERFERENCE IS CALLED FOR THEREIN, AND THEREFORE, THE ORDER OF LD. CIT(A) IS UPHELD. THE GROUNDS RAISED BY THE ASSESSE E ARE DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015. SD/- (SANJAY GARG ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; ' DATED : 18/12/2015 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. $ %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * ( $ ) / THE CIT, MUMBAI. 4. ) ) * / CIT(A)- , MUMBAI 5. -. ' /0 , ) $ /01 , / DR, ITAT, MUMBAI 6. 2 3 / GUARD FILE. / BY ORDER, ( -$ ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI