HALLMARK ENGINEERS, MUMBAI V. ITO 21(3)(1), MUMBAI

ITA 6216/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9462 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 22-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Principle of natural justice
• Section: 10B; 28

Judgement Text

, , H , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SAN JAY ARORA, ACCOUNTANT MEMBER ITA NO. 6216 /MUM/201 1 ASSESSMENT YEAR: 200 8 - 09 HALLMARK ENGINEERS C/O., N.A. KULKARNI, WADAL BLDG., 1 ST FLOOR, NEAR DNSB, MANPADA ROAD, DOMBIVALI(E) MUMBAI - 4 21 201 . / VS. ITO - 21(3)(1) AAYAKAR BHAVAN, BKC COMPLEX MUMBAI - 4000 5 2 . ( / APPELLANT) ( / R ESPONDENT) P.A. NO. / ASSESSEE BY SHRI DEEPAK TRALSHAWALA / REVENUE BY SHRI JEETENDRA KUMAR DR / DATE OF HEARING : 12 /03/2015 / DATE OF PRONOUNCEMENT : 12 /03/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 21.7.2011 OF THE LD. FIRST APPELLATE A UTHORITY, MUMBAI UPHOLDING THAT THE LOSS 2 ITA NO. 6216 /MUM/201 1 DETERMINED BY TH E LD. ASSESSING OFFICER IS CAPITAL LOSS INSTEAD OF BUSINESS LOSS CLAIMED BY THE ASSESSEE. 2. DURING HEARING OF THIS APPEAL , SHRI DEEPAK TRALSHAWALA, LD. COUNSEL FOR THE ASSESSEE , ADVANCED HIS ARGUMENT WHICH IS IDENTICAL TO THE GROUNDS RAISED BY PLEADING THAT THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE LD. ASSESSING OFFICER AS WELL AS THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DID NOT EXAMINE THE BASIC FACTS. IT WAS CONTENDED THAT THERE WAS AN AGREEMENT WITH CHINA AND WHATEVER PROFIT OR LOSSES WERE INCURRED IN CHINA FROM CARRYING OUT THE BUSINESS ARE NOTHING BUT PROFIT AND LOSSES OF HALLMARK ENGINEERS K - 2 UNIT , MUMBAI. THE CRUX OF THE ARGUMENT IS THAT IT HAS TO BE TREATED AS BUSINESS LOSS. ON THE OTHER HAND, THE LD. DR DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. ASSESSING OFFICER AND CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A FULLY OWNED SUBSIDY COMPANY . THE ASSESSEE IS MANUF ACTURING CARBIDE TOOLS HAVING TWO SEPARATE UNITS IN INDIA I.E., HALLMARK ENGINEERS (K - 2), WHICH IS A DOMESTIC UNIT AND HALLMARK ENGINEERS (J - 3), WHICH IS 100% EXPORT ORIENTED UNIT (EOU). THE UNIT J - 3 IS ELIGIBLE FOR DEDUCTION U/S. 10B OF THE ACT. IN THE YE AR 2006 - 07, THE ASSESSEE DECIDED TO SET UP A MANUFACTURING UNIT IN C HINA, FOR WHICH, A SEPARATE COMPANY NAMED NINGBO HALLMARK PRECISION TOOLS LTD. (WOS) WAS SET US IN CHINA. THE ASSESSEE, REMITTED USD 2,00,000/ - (EQUIVALENT TO RS.92,68,917/ - ) , TO CHINA F OR SETTING UP THE NEW UNIT AND THAT COMPANY WAS 100% OWNED BY THE ASSESSEE. HEAVY LOSSES WERE INCURRED (IN CHINA), AND ULTIMATELY 3 ITA NO. 6216 /MUM/201 1 THE SAME WAS WOUND UP. THE ASSETS OF THIS UNIT (WOS) WERE SOLD OUT AND SOME OF THE ASSETS WERE PURCHASED BY THE DOMESTIC UNIT IN INDIA. THE TOTAL SALE PROCEEDS OF CHINESE UNIT WERE RECEIVED BACK TO THE TUNE OF RS.47,07,000/ - AGAINST THE INITIAL INVESTMENT OF RS.92,68,917/ - , RESULTING INTO LOSS OF RS.45,61,917/ - WHICH WAS CLAIMED AS BUSINESS LOSS IN THE BOOKS OF DOMESTIC UNIT. TH E LD. ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY AS TO HOW THE LIQUIDATION LOSS OF RS.45,61,917/ - OF WOS UNIT WAS ALLOWABLE AS BUSINESS LOSS IN THE DOMESTIC UNIT OF THE ASSESSEE AND FURTHER AS TO WHY IT MAY NOT BE TREATED AS CAPITAL LOSS. THE STAND OF THE ASSESSEE WAS THAT THE WOS UNIT (IN CHINA), WAS EXPANSION OF BUSINESS OR MANUFACTURING, THEREFORE, IT WOULD BE A BUSINESS LOSS U/S. 28 OF THE ACT AS THE SAID UNIT WAS 100% OWNED BY THE DOMESTIC UNIT OF THE ASSESSEE. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT THE ASSESSING OFFICER DID NOT EXAMINE THE BASIC DOCUMENTS AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT INDEPENDENTLY EXAMINING THE DOCUMENTS MERELY ENDORSED THE STAND OF THE ASSESSING OFFICER. WITHOUT GOING INTO MUCH DELIBERATION AND KE EPING IN VIEW THE PRINCIPLE OF NATURAL JUSTICE AND FURTHER THE MATERIAL AVAILABLE ON RECORD, WITHOUT EXAMINATION OF THE DOCUMENTS, IT CANNOT BE DECIDED WHETHER IT IS A CAPITAL LOSS OR A BUSINESS LOSS. THEREFORE, THE LD. ASSESSING OFFICER IS DIRECTED TO EXA MINE/VERIFY THE CLAIM OF THE ASSESSEE ON EXAMINATION OF DOCUMENTS AND THEN DECIDE AS TO HOW MUCH IS BUSINESS LOSS OR CAPITAL LOSS, MORE SPECIFICALLY WHEN THE NECESSARY DETAILS /DOCUMENTS WERE DULY FILED BEFORE THE ASSESSING OFFICER. THE ASSESSEE BE GIVEN O PPORTUNITY OF BEING HEARD WITH FURTHER LIBERTY TO FURNISH EVIDENCE, IF ANY, IN SUPPORT OF 4 ITA NO. 6216 /MUM/201 1 ITS CONTENTION, THUS THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. FINALLY THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. TH IS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 12 /03/2015. 12 / 0 3 / 2015 SD/ - ( SANJAY ARORA ) SD/ - ( JOGINDER SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 12 /03/2015 JV, SR. P.S./ . . . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3 . ( ) / THE CIT, MUMBAI. 4. / CIT(A) - , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI .