India Meters Ltd., CHENNAI V. ITO Corporate Ward 2(1), CHENNAI

ITA 960/CHNY/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2722 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-06-2021
• Assessment Year: 2003-2004
• Appeal Filed On: 20-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Capital asset; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO: 960/CHNY/2018 / ASSESSMENT YEAR : 2003-04 INDIA METERS LTD., (NOW KNOWN AS SAMRAKHSHANA ELECTRICALS LTD.) NO. 22A, AMBATTUR INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058. [PAN: AAACI 6509F] VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), (NOW ITO, CORPORATE WARD 2(1), CHENNAI. ( / APPELLANT) ( / RESPONDENT) &' / APPELLANT BY : SHRI. T.N. SEETHARAMAN, ADVOCATE *+&' / RESPONDENT BY : SHRI. SURESH PERIASAMY, JCIT ' /DATE OF HEARING : 14.06.2021 ' /DATE OF PRONOUNCEMENT : 21.06.2021 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 13, CHENNAI IN ITA NO. 01/CI T(A)-13/AY 2003-04 DATED 01.12.2017 FOR THE ASSESSMENT YEAR 2003-04. :-2-: ITA NO: 960/CHNY/2018 2. THE ASSESSEE FILED THIS APPEAL 9 DAYS BELATEDLY. THE LD. AR SUBMITTED THAT THE DIRECTOR WHO WAS ON OFFICIAL TOUR AND HENCE THE RE WAS DELAY IN GETTING THE APPEAL PAPERS SIGNED, THEREFORE, THE SHORT DELAY BE ING BONAFIDE BE CONDONED AND THE APPEAL BE DECIDED ON MERITS. 3. WE HEARD THE RIVAL CONTENTIONS AND CONDONE THE D ELAY. 4. M/S. INDIA METER LTD., THE ASSESSEE, A MANUFACTU RER OF ENERGY METERS AND AUTO COMPONENT PARTS, FILED ITS RETURN OF INCOME FO R ASSESSMENT YEAR 2003-04 ADMITTING THE BUSINESS LOSS OF RS. 10,65,62,368/- A ND CAPITAL LOSS OF RS. 94,96,400/-. WHILE MAKING THE ASSESSMENT U/S. 143( 3), THE AO DISALLOWED WRITTEN OFF EXPENDITURE CLAIMED AT RS. 78,54,918/- ON THE GROUND THAT SUCH EXPENDITURE IS RELATED TO EARLIER YEARS AND IT DID NOT PERTAIN TO THE ASSESSEE. FURTHER, THE AO DISALLOWED THE CAPITAL LOSS CLAIMED AT RS. 30,11,169/- ON SALE OF SHARES STATING THAT THE ASSESSEE COULD NOT SUBSTANT IATE THE CLAIM AND JUSTIFY AS TO WHY THE SHARES WERE SOLD AT COST PRICE. SIMILARLY, ANOTHER LOSS ON SALE OF SHARES AT RS. 2 CRORES WAS ALSO DISALLOWED FOR WANT OF DET AILS AND RELEVANT DOCUMENTS. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). DURING THE APPEAL PROCEEDINGS, THE ASSESSEE FILED CERTAIN DOCUMENTS I N SUPPORT OF ITS CLAIM. THE LD. CIT(A) OBTAINED REMAND REPORT FROM THE ASSESSIN G OFFICER AND AFTER CONSIDERING THE REBUTTAL FURNISHED BY THE ASSESSEE ON THE REMAND REPORT ETC, THE LD. CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS OF APPEAL: :-3-: ITA NO: 960/CHNY/2018 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND IS BAD IN LAW. 2. THE COMMISSIONER (APPEALS) ERRED IN NOT TAKING P ROPER NOTE OF THE GROUNDS OF APPEAL, BRIEF NOTES AND SUPPORTING DOCU MENTS DATED 29.05.07 AND THE APPELLANTS REJOINDER (DATED 27.11:2017) TO THE ACS REMAND REPORT ON THE ISSUES INVOLVED AND DISMISSING THE APPEAL. 3. THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING T HE DISALLOWANCE OF RS.78,54,918/- BEING EXPENDITURE TOWARDS SALARIES, TRAVELLING ETC INCURRED ON BEHALF OF AND APPORTIONED TO TWO OTHER GROUP COMPAN IES AND LATER ABSORBED BY THE APPELLANT DUE TO THEIR REFUSAL TO RESPOND THE H EREBY RECOGNISED AS EXPENDITURE OF THIS YEAR; THE REASONS STATED BY THE COMMISSIONER (APPEALS) IN THIS REGARD ARE INCORRECT AND UNSUSTAINABLE. 4. THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING T HE DISALLOWANCE OF RS. 13,11,169/- REPRESENTING LONG TERM CAPITAL LOSS ARISING ON SALE OF SHARES OF BHARAT TECHNOLOGIES AUTO COMPONENTS LTD AT INDEX ED COST. 5. THE COMMISSIONER (APPEALS) ERRED IN NOT NOTING T HAT THE SHARES WERE SOLD AT BOOK VALUE AND THE LOSS AROSE ONLY ON ACCOU NT OF INDEXATION OF THE COST AND IS PROPERLY ALLOWABLE. 6. .............. 7. ................ SINCE, THE GROUND NOS. 6 & 7 ARE NOT PRESSED BY THE ASSESSEE BY AN AFFIDAVIT DATED 05.07.2019, THEY ARE NOT EXTRACTED. 8. THE APPELLANT CRAVES LEAVE TO REFER TO ALL RELEV ANT MATERIAL AND ARGUE THE APPEAL AT THE TIME OF HEARING. 9. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE HONBLE TRIBUNAL BE PLEASED TO ALLOW THE APPEAL AND RENDER JUSTICE. 5. THE CASE WAS HEARD THROUGH VIDEO CONFERENCING. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD RS. 26,59,800/- EQUITY SHARES WITH M/S. BHARAT TECHNOLOGIES AUTO COMPONENTS AT RS. 10 PER SHARE, V ALUING RS. 2,65,98,000/. :-4-: ITA NO: 960/CHNY/2018 THESE INVESTMENTS WERE SOLD DURING THIS YEAR AT BOO K VALUE. THE INVESTMENTS BEING A LONG TERM CAPITAL ASSET, BASED ON THE INDEX ATION OF COST, THE ASSESSEE CLAIMED CAPITAL LOSS AT RS. 13,11,169/-. THE AO HE LD THAT THE ASSESSEE COMPANY HAS NOT GIVEN JUSTIFICATION FOR SALE OF INVESTMENT AT COST. THE INVESTEE COMPANY WAS IN THE FIRST YEAR OF OPERATION AND HENCE SHARES WERE SOLD AT COST PRICE. THE LD. AR SUBMITTED THAT THE COMPANYS LIQUIDITY POSIT ION WAS WEAK AND IN ORDER TO SETTLE SOME OF THE PRESSING PENDING LABOUR DISPUTES AND ALSO TO SETTLE SOME OF THE LOANS TAKEN BY THE COMPANY, THE ASSESSEE HAD TO UNDERTAKE THIS TRANSACTION AND HENCE THE LOSS CLAIMED IS ON ACCOUNT OF COMMERC IAL EXPEDIENCY AND IN ACCORDANCE WITH LAW. THE LD. AR ALSO INVITED OUR A TTENTION TO THE PAPER BOOK, WHEREIN THE COPIES OF RELEVANT DOCUMENTS FILED BEFO RE THE AO/CIT(A) WERE PLACED, PLEADED THAT THE LOSS CLAIMED BY THE ASSESS EE BE ALLOWED. PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSESSEE PROMOTED THE COMPANY M/S. BHARAT TECHNOLOGIES (INTERNATIONAL) PVT LTD., TO WHICH THE AUTO COMPONENT DIVISION OF THE ASSESSEE COMPANY HAS ALREADY BEING SOLD. SUBSE QUENTLY, THE ASSESSEE SOLD THE SHARES OF M/S. BHARAT TECHNOLOGIES AUTO COMPONE NT TO M/S. BHARAT TECHNOLOGIES (INTERNATIONAL) PVT. LTD., AT THE COST PRICE AND CLAIMED THE CAPITAL LOSS AT RS. 13,11,169/-. THE AO REQUIRED THE ASSES SEE SUBSTANTIATE THE CLAIM THROUGH RESOLUTION, MINUTES OF BOARD MEETING ETC. SINCE, THE ASSESSEE HAS NOT FURNISHED THEM, THE AO DISALLOWED THE ASSESSEES CL AIM. THE ASSESSEE HAS FURNISHED CERTAIN MATERIAL BEFORE THE LD. CIT(A) ON WHICH THE LD. CIT(A) SOUGHT REMAND REPORT. IN THE REMAND REPORT, THE AO EXTRAC TED THE BOARD RESOLUTION PASSED ON 17.12.2002 AND OBSERVED AS UNDER: :-5-: ITA NO: 960/CHNY/2018 RESOLVED THAT 26,59,800 EQUITY SHARE SO RS. 10/- E ACH HELD BY THE COMPANY IN THE EQUITY SHARE CAPITAL OF M/S. BHARAT TECHNOLOGIES AUTO COMPONENTS LTD., CHENNAI BE DISPOSED OFF AT THE BES T MARKET PRICE. FROM THE ABOVE RESOLUTION, IT IS CLEAR THAT THERE I S NO MENTION ABOUT THE SALE OF SHARES AT COST. THEREFORE, IN THE ABSENCE OF DETAI LS FOR SHARE TRANSFER AT COST, THE LTCL ARISING OUT OF THE SAID TRANSACTION IS NOT ACCEPTABLE. AFTER CONSIDERING THE ASSESSEES REBUTTAL ON THE RE MAND REPORT, THE LD. CIT(A) HAS HELD THAT JUST ON MERE CONTENTIONS, THE APPELLA NT IS NOT ABLE TO ESTABLISH COMMERCIAL EXPEDIENCY TO SHOW THAT THE SHARES WERE REQUIRED TO BE SOLD AT COST AND HENCE THE LD. CIT(A) HAS CORRECTLY CONFIRMED TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER. THOUGH, THE BOARD AUTHORISED SA LE OF EQUITY SHARES BE MADE AT THE BEST MARKET PRICE, THE ASSESSEE HAS NOT ABLE TO LAY ANY CONTEMPORANEOUS MATERIAL NEITHER BEFORE THE LOWER AUTHORITIES NOR B EFORE THE HONBLE TRIBUNAL AS TO HOW AND WHY IT SOLD AT COST PRICE. THEREFORE, THE LD. DR PLEADED THAT THE ORDERS OF THE LOWER AUTHORITIES BE UPHELD. 6. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL. IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE COMPANY P ROMOTED TO M/S. BHARAT TECHNOLOGIES (INTERNATIONAL) PVT. LTD., TO WHICH TH E AUTO COMPONENT DIVISION OF THE ASSESSEE COMPANY HAS BEEN SOLD. SUBSEQUENTLY, THE ASSESSEE SOLD ITS LONG TERM CAPITAL INVESTMENT WITH M/S. BHARAT TECHNOLOGI ES COMPONENT LTD. TO M/S. BHARAT TECHNOLOGIES (INTERNATIONAL) PVT. LTD., AT C OST PRICE. THOUGH, THE BOARD RESOLUTION AUTHORISED THE SALE OF SHARES AT THE BES T MARKET PRICE, THE ASSESSEE COMPANY CLAIMS THAT IT HAS SOLD AT COST PRICE AND I N VIEW OF THAT IT INCURRED THE :-6-: ITA NO: 960/CHNY/2018 CAPITAL LOSS OF RS. 13,11,169/-. WHEN THE ASSESSIN G OFFICER CALLED FOR THE JUSTIFICATION FOR SELLING THE SHARES AT COST PRICE, THE ASSESSEE COULD NOT FURNISH CONTEMPORANEOUS MATERIAL FOR THE PRICE AT WHICH IT SOLD ITS SHARES. IN THE FACTS AND CIRCUMSTANCES AND CONSIDERING THE CLOSENESS OF THE COMPANIES, THE LOSS CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE AO, W HICH WAS SUSTAINED BY THE LD. CIT(A). THE ASSESSEE COULD NOT FURNISH ANY CON TEMPORANEOUS MATERIAL IN SUPPORT OF ITS CONTENTION AND HENCE WE DO NOT FIND ANY MERIT IN THE CORRESPONDING GROUNDS OF THE ASSESSEE. THEREFORE, THESE GROUNDS FAIL. 7. THE NEXT ISSUE IS WITH RESPECT TO THE DISALLOWAN CE AT RS. 78,54,918/- BEING THE EXPENDITURE TOWARDS SALARY, TRAVELLING ETC. TH E LD. AR SUBMITTED THAT THE ASSESSEE DEBITED RS. 44.85 LAKHS TOWARDS MAGNETIC M ETER SYSTEMS (INDIA) LTD AND RS. 23.86 LAKHS TOWARDS BHARAT TECHNOLOGIES INT ERNATIONAL PVT LTD., RESPECTIVELY, TOTALLING TO RS. 68.7 LAKHS ONLY, ALT HOUGH, THE ASSESSING OFFICER HAS QUANTIFIED THE AMOUNT WRONGLY AT RS. 78,54,918/-. THE LD. AR SUBMITTED THAT THESE CLAIMS REPRESENTS SALARIES AND TRAVELLING EXP ENSES INCURRED BY THE ASSESSEE COMPANYS EMPLOYEES DEBITED TO THE ACCOUNT OF THE O THER TWO GROUP COMPANIES. SINCE, THESE TWO GROUP COMPANIES REFUSED TO ACCEPT THE DEBITS, THE ASSESSEE COMPANY DECIDED TO ABSORB THE EXPENDITURE DURING TH E CURRENT YEAR. THE LD. AR SUBMITTED THAT THESE CLAIMS REPRESENTS THE EXPENDIT URE OF THE ASSESSEE COMPANY AND RECOGNIZED THEM AS AN EXPENDITURE OF THIS YEAR AND THE WRITE OFF MADE IS IN ORDER AND HENCE PLEADED TO ALLOW THE ASSESSEES CLA IM. PER CONTRA, THE LD. DR SUBMITTED THAT AFTER CONSIDERING THE AOS REMAND RE PORT AND THE REBUTTAL ON THE :-7-: ITA NO: 960/CHNY/2018 REMAND REPORT FURNISHED BY THE ASSESSEE, THE LD. CI T(A) HELD THAT THE ASSESSEE HAS CLEARLY STATED THAT THE SUM OF RS. 78,54,918/- WAS ALREADY ESTABLISHED (SIC) BY THE ASSESSEES COMPANY AND THE SAME IS NOTHING B UT APPORTIONMENT OF TRAVELLING ANS SALARY EXPENDITURE INCURRED ON BEHAL F OF MAGNETIC METER SYSTEMS (INDIA) LTD AND BHARAT TECHNOLOGIES (INTERNATIONAL) PVT. LTD. THUS, THE EXPENDITURE DOES NOT PERTAIN TO THE ASSESSEE COMPAN Y AND MOREOVER THE EXPENDITURE PERTAINS TO EARLIER YEARS AND THE CHARA CTERISTICS OF THE EARLIER YEAR EXPENDITURE CAN NEVER BE TERMED AS EXPENDITURE FOR CURRENT YEAR. THEREFORE, THE LD. CIT(A) HAS HELD THAT THE CLAIM OF WRITTEN OFF E XPENDITURE IS NOT IN ORDER AND CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. THEREFORE, THE LD. DR SUBMITTED THAT THERE IS NO MERIT IN THE ASSESSEE S CLAIM AND HENCE THE ORDERS OF THE LOWER AUTHORITIES BE UPHELD. 8. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE ASSESSEE HAS CLEARLY ADMITTED THAT THE EXPENDIT URE IS RS. 68.70 LAKHS ONLY INSTEAD OF RS. 78,54,918/-. THE ASSESSMENT ORDER A LSO CLEARLY MENTIONED THAT DISALLOWANCE OF RS. 44.85 LAKHS WAS IN RESPECT OF M AGNETIC METER SYSTEM INDIA LTD AND RS. 23.84 LAKHS WAS TOWARDS BHARAT TECHNOL OGIES INTERNATIONAL PVT. LTD. THE ASSESSEE HAS CLEARLY ADMITTED THAT THESE AMOUNT S REPRESENT EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IN RESPECT OF TWO OF ITS GROUP COMPANIES IN THE EARLIER YEARS. WHEN THE TWO GROUP COMPANIES RE FUSED TO ACCEPT THE ASSESSEES CLAIM, THE ASSESSEE COMPANY PLEADS THAT IT DECIDED TO ABSORB THE EXPENDITURE DURING THE CURRENT YEAR AND HENCE THE L OSS CLAIMED BY IT SHOULD BE :-8-: ITA NO: 960/CHNY/2018 ALLOWED. THE ASSESSEE IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING. IT IS CLEAR THAT THE IMPUGNED CLAIM IS NOT RELATED TO THIS ASSE SSMENT YEAR. FURTHER, IT IS ALSO CLEAR THAT THE ASSESSEE HAS NOT FURNISHED RELEVANT MATERIAL BEFORE THE LOWER AUTHORITIES AS TO HOW AND WHY THIS CLAIM IS ALLOWAB LE AGAINST ITS CURRENT YEAR INCOME. THEREFORE, WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE LD. CIT(A) AND HENCE, DISMISS THE CORRESPONDING GRO UNDS OF THE ASSESSEE. 9. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON 21 ST JUNE, 2021 AT CHENNAI. SD/- ( . ' ) (DUVVURU RL REDDY) $% /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) % /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 21 ST JUNE , 2021 JPV '*2343 /COPY TO: 1. & / APPELLANT 2. *+& /RESPONDENT 3. 5 ) ( /CIT(A) 4. 5 /CIT 5. 3* /DR 6. 8 /GF