TaxTMI 
TaxTMI 
TaxTMI 
2011 (10) TMI 674
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....ed the matter in appeal before the CIT(A). The First Appellate Authority granted part relief. On the issues where the First Appellate Authority rejected the contentions of the assessee, the assessee is in appeal while on the issues where the First Appellate Authority decided the issues in favour of the assessee, the revenue is in appeal. 3. We have heard the learned counsel for the asesssee Mr. Arvind Sonde and the learned Departmental Representative Mr. Subhacham Ram. 4. We take up the assessee's appeal being ITA No. 5002/M/08: 5. Ground Nos. 1 & 2 are on the issues as to whether the AO was right in treating the interest income of ₹ 82,97,000/- and dividend income of ₹ 9,47,000/- as 'income from other sources'. 6. We find that these issues are covered against the assessee by the decision Mumbai Bench of the Triubnal in assessee's own case for AY 2003-04 in ITA No. 2653/M/07, order dated 15/12/2010 wherein at page No. 3 & 4 vide para 2.1.2 of its order, the Tribunal held as follows: - "2.1.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding the nature of dividend and interest income received by the assessee during....
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....roperty to enjoy the rental income. The assessee has developed the property and also made provisions for various services as mentioned earlier with a view to commercially exploit the property. The property has been let out with various facilities and amenities for corporate clients such as board room facilities, letters receipt/dispatch facilities, computer with Internet facilities, security arrangements in addition to telephone and electricity and water facilities etc. The income has therefore to be assessed as business income. This view is supported by the judgment of Hon'ble Supreme Court in case of S.G. Mercantile Corporation Pvt. Ltd. Vs CIT (83 ITR 700). In the said case one of the object of the assessee in its memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real estate and personal properties and to deal with the same commercially. The assessee had taken one property which was remodeled and repaired so as to make it f it for subletting as shop, stalls and ground space to shopkeepers etc. The issue was whether rental income should be assessed as business income or income from other ....
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....ssee's own case for AY 2003-04 (supra) wherein at page No. 11 to 12 vide para 2.3.2 of its order, the Tribunal held as follows:"2.3.2 We have perused the records and considered the matter carefully. The dispute is regarding nature of expenditure on account of payment of ₹ 9 lacs to RPG Academy of Art and Music by the assessee. The case of the assessee is that RPG Academy had organized well attended art exhibitions and the expenditure had been incurred to publicize the business centre and facilities offered to corporate clients and therefore expenditure was for the purpose of business and should be allowed. In our view the case of the assessee cannot be accepted that the payment had been made in connection with publicity of the business centre because the AC has given a clear finding that the business centre was fully occupied and had been sublet to companies on long term basis. This finding has not been controverted before us by producing any material. Therefore once the business centre is fully occupied on long term basis there is no question of making any payment for publicity. Obviously the assessee had made the payment as a donation to RPG Academy of Art & Music which cou....
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....ill be dealt with while dealing the additional ground later." 19. Respectfully following the decision of the Tribunal in AY 2003- 04(supra), we dismiss Ground No. 7. 20. Ground No. 8 is on the issue of allowability of bad debts written off. 21. The AO had observed that the assessee had debited an amount of ₹ 8,78,000/- under the head 'bad debts written off'. Since no explanation offered by the assessee, the AO disallowed the said claim on the ground that the Assessee has no explanation to offer. On appeal, the first appellate authority had observed that the correct amount is ₹ 8,76,000/- and not ₹ 8,78,000/-. As no further details were furnished by the assessee, the CIT(A) upheld the disallowance. Aggrieved, the assessee is in further before us. 22. The learned counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of TRF Ltd., 323 ITR 397 whereas the learned DR pointed out that the assessee has not proved that the conditions of section 36(2) have been satisfied. 23. After hearing the rival contentions and perusing the record, it is observed that the assessee has not furnishe....
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....mulated loss to the tune of ₹ 25.40 crores. Even then the advance of ₹ 3.85 crores was given to "Spentex" during the Previous Year relevant to this Assessment Year. An advance of ₹ 1.25 crores was given on 11/09/2003 and 01/10/2003. According to him no prudent businessman would have adventured to give such huge amount of advances to the company from whom the recovery of earlier loans was not remotely possible. The AO further found that the assessee had given inter corporate deposits to the following parties: RPF Life Sciences Ltd. ₹ 50 lacs RPG Cables Ltd. ₹ 50 lacs RPG Paging Ltd. ₹ 15 lacs 27. The AO further found that the assessee had also received rent of 2,25,000/- from M/s Spentex Inds Ltd. The debt of M/s Spentex Ltd. had been assigned to M/s RPG Cellular Investment & Holding P. Ltd. which had close contact with the other three companies mentioned above to whom the assessee had given deposits. M/s Spentex Inds Ltd. and M/s Spentex Ltd. belong to one group and there was a possibility that one or more directors of the assessee company might be closely associated with the RPG Group. The AO therefore wanted the assessee to furnish the d....
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....nder section 40A(2), disallowances can be made only in cases where the transactions between the related parties are not at arm's length. He pointed out that 40A(2) has not been invoked. He submitted that no disallowance can be made on the ground that this is a sham transaction or a bogus transaction and that this a genuine transaction. The learned counsel took us through the Deed of Assignment dated 30th Day of January, 2004 between the assessee company and RPG Cellular Investments & Holdings Pvt. Ltd. and submitted that none of the authorities below have examined the facts on merits of the case and hence the issue should be set aside to the file of the AO. He urged that the issue be directed to be examined denovo by the A.O. 29. The learned DR, on the other hand, submitted that this is a clear case of camouflaging. He pointed out that the assessee has given 1.00 crore rupees in October'03 and whereas in January'04 i.e. within 3 months, this debt was assigned to RPG Cellular Investments & Holding Pvt. Ltd. at a ridiculously low figure. He pointed out that the assessee has offered no explanation, as to the purpose and nature of loan. He pointed out that even though the assessee cam....
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...... In October 2003, the said company was referred to Board for Industrial and Financial Reconstruction under the provisions of section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985. On the basis of valuation of these debts (including interest accrued thereon of ₹ 31.27 lakhs by an independent valuer, the company assigned these debts and interest for a consideration of ₹ 7.50 lakhs." (Emphasis own) 34. The Board Resolution relied upon by the asesssee, reads as follows: "Copy of the resolution passed at the meeting of the Board of Directors of the Company held on January 30, 2004. The Chairman informed the Board that the Company has given a loan of ₹ 1.80 crore (Rupees One Crore Eighty Lakhs Only) to Spentex Industries Ltd. (Spentex) for the smooth running of their business. Also to expand Company's business center operations in Pune/Baramati, the company has advanced to Spentex ₹ 3.85 crore (Rupees Three Crore Eighty Five lakhs only) in the form of trade advance. (Emphasis own) Spentex Industries Ltd. (Spentex) is a 100% Export Oriented Unit manufacturing cotton yarn. For the year ended March 31, 2003, Spentex reported net loss of &....
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....rore on 31st March, 2003. While so, the assessee states that from 3rd April'03 to 4th October'03, it has given trade advance of ₹ 3.85 crore to "Spentex". Such advancing of money was done knowing fully well that no recovery is possible and the amount has to be written off. Within 3 months of giving the last amount, the entire debt was assigned at a fraction of the value and loss claimed. It is not demonstrated that the advance was made for the purpose of business. From the report of Valuers, M/s Amnol Sekhri & Associates, it can be seen that M/s Spentex Industries ltd. is a part of FGP Group. The valuers had observed as follows: 2) In fact the company's networth has turned negative due to the accumulated losses of ₹ 25.40 crore on the basis of March 31, 2003 audited accounts. (Emphasis own) 3) Pursuant to Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985, (SICA) the company has become a sick industrial company and a reference is made to Board for Industrial and Financial Reconstruction under the provisions of Section 15(1) of SICA. 6) The advances given by FGP are in the nature of unsecured debts. The scheme of rehabilitation will giv....
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.... 1/03/2003 and when it knows that "Spentex" has been referred to BIFR, it is not understood and surprising as to why the assessee chose to give a further amount of ₹ 3.85 crores to the said company. Immediately after completing the task of transferring funds to a sick company, the deposits and loans are assigned. The assigning of the debt is also to a known concern for a fraction of the cost. On this factual matrix, we agree with the findings of the assessing authority as well as CIT(A) that the entire transactions were structured in such a manner so as to generate a non-genuine loss. The legal argument of the assessee that the term 'sham' is different from 'benami', etc. does not come to the rescue of the assessee, for the reason that the transactions in question are on facts not genuine transactions. In view of the above discussion, we uphold the findings of the CIT(A) from 18.5 to 18.6 of his order. Thus, this ground of appeal of the asesssee is dismissed. 39. Ground No. 10 regarding disallowance of professional fees of ₹ 30,10,227/- as business expenditure, Ground No. 11 regarding disallowance of employee costs of ₹ 9,85,447/-, and Ground No. 12 regarding dis....
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.... ground that the AC had assessed income on account of sundry creditors relating to earlier year under section 41(1) and therefore the claim was allowable. In our view the claim of the assessee has to be allowed as we have already held that the income from the business centre has to be assessed as business income and thus the business has not closed. Accordingly we confirm the order of CIT(A) allowing the claim." 46. Respectfully following the said order of the Tribunal in AY 2003- 04, this ground of appeal of the revenue is dismissed. 47. Ground No. 2 is directed against the action of the CIT(A) in allowing professional expenses of revenue nature u/s 57(iii) against income from other sources. 48. This issue is covered against the revenue by the decision of ITAT, Mumbai in assessee's own case for AY 2003-04 (appeal filed by the Revenue) (supra) wherein at page 26 vide para 3.2.1, the Tribunal held as under:"3.2.1 We have heard both the parties perused the records and considered the matter carefully. The dispute is regarding allowability of professional expenses. CIT(A) has allowed the claim against income from other sources with which the revenue is aggrieved. We have already con....