The ACIT, Anand Circle,, Anand v. JSL Industries Ltd.,, Anand

ITA 1241/AHD/2005 | 2001-2002
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 124120514 RSA 2005
Bench Ahmedabad
Appeal Number ITA 1241/AHD/2005
Duration Of Justice 4 year(s) 9 month(s)
Appellant The ACIT, Anand Circle,, Anand
Respondent JSL Industries Ltd.,, Anand
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 29-01-2010
Date Of Final Hearing 31-12-2009
Next Hearing Date 31-12-2009
Assessment Year 2001-2002
Appeal Filed On 29-04-2005
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE SH RI D.C. AGRAWAL A.M.) I.T.A. NO. 951/AHD./2005 ASSESSMENT YEAR : 2001-2002 JSL INDUSTRIES LIMITED ANAND -VS .- ASSISTANT COMMISSIONER OF INCOME TAX (P.A. NO. AACJ 4986 F) ANAND CIRCLE ANAND (APPELLANT) (R ESPONDENT) & I.T.A. NO. 1241/AHD/2005 ASSESSMENT YEAR : 2001-2002 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- JSL INDUSTRIES LTD. ANAND ANAND CIRCLE ANAND (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J.P. SHAH DEPARTMENT BY : SHRI VINOD TANWANI S R. D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER :- THESE CROSS APPEALS ARE AGAINST THE ORDER DATED 03.02.2005 OF LD. COMMISSIONER OF INCOME TAX (APPEA LS)-II BARODA FOR THE ASSESSMENT YEAR 2001-02. 2. WE FIRST TAKE UP THE APPEAL OF ASSESSEE I.E. ITA NO.951/AHD/2005 . GROUND NO. 1 OF THIS APPEAL IS AGAINST CONFIRMING THE ADDITION OF RS.2 98 239/- BEING CLAIM OF INTEREST PAID UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT 1961. 3. BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED THE INTEREST PAID UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT AMOUNTI NG TO RS.1 73 250/- AND RS.1 24 989/- RESPECTIVELY AS REVENUE EXPENDITURE. THE A.O. DISAL LOWED THE SAME ON THE GROUND THAT THESE INTEREST PAYMENTS ARE TO BE CONSIDERED AS PAYMENT O F INCOME-TAX. THEREFORE THE SAME IS NOT ALLOWABLE. ON APPEAL THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) UPHELD THE ACTION OF A.O. 4. WE HAVE HEARD BOTH THE SIDES. THE HON'BLE SUPREM E COURT IN THE CASE OF BHARAT COMMERCE & INDUSTRY LIMITED VS.- CIT (1998) 230 IT R 733 (SC) HELD THAT INTEREST PAID UNDER SECTION 215 FOR FAILURE TO PAY ADVANCE TAX UPTO THE STATUTORY PERCENTAGE WOULD NOT BE ALLOWABLE 2 AS BUSINESS EXPENDITURE. THE HON'BLE GUJARAT HIGH C OURT IN THE CASE OF CIT VS.- ASHOKA MILLS LIMITED [218 ITR 526 (GUJ.)] AND CIT VS.- RAIPUR M ANUFACTURING CO. LIMITED [135 CTR (GUJ.) 248] HELD THAT INTEREST FOR LATE PAYMENT OF INCOME- TAX IS NOT DEDUCTIBLE AS REVENUE EXPENDITURE. THE INTEREST PAID BY THE ASSESSEE UNDER THESE TWO S ECTIONS IS NOTHING BUT INCOME-TAX THEREFORE THE SAME IS NOT ALLOWABLE. WE THEREFORE DECLINE T O INTEREST. THIS GROUND OF APPEAL IS REJECTED. 5. GROUND NO. 2 OF THE APPEAL OF ASSESSEE IS AGAINS T CONFIRMING THE DISALLOWANCE OF RS.16 85 340/- BEING THE COMMISSION PAYMENT MADE TO M/S. M.V. MARKETING PVT. LTD. NEW DELHI. 6. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL ARE THAT THE ASSESSEE PAID AGGREGATE COMMISSION OF RS.51 92 053/-. OUT OF THIS AMOUNT AN AMOUNT OF RS.16 85 340/- PERTAINED TO PAYMENT OF COMMISSION TO M/S. M.V. MAR KETING PVT. LTD. DELHI. IT WAS CLAIMED THAT THIS COMMISSION WAS PAID BY THE ASSESSEE IN RESPECT OF SUPPLY OF ACBS TO DELHI VIDYUT BOARD FOR THE VALUE OF RS.3 74 52 000/- @ 4.5% WHICH WOR KS OUT TO RS.16 85 340/-. THE A.O. ENQUIRED THE GENUINENESS OF COMMISSION PAYMENT THROUGH ADDL. DIRECTOR OF INCOME TAX (INVESTIGATION) NEW DELHI. AS PER LETTER DATED 16.03.2004 ADDL. DI RECTOR OF INCOME TAX INFORMED THAT STATEMENT OF ONE OF THE DIRECTOR OF M/S. M.V. MARKE TING PVT. LTD. NAMELY SHRI SURINDER PAL SINGH WAS EARLIER RECORDED IN CONNECTION WITH THE A DJUSTMENT ENTRIES BEING GIVEN BY THE SAID COMPANY TO VARIOUS PARTIES. IN THE STATEMENT SHRI SURINDER PAL SINGH ADMITTED THAT THE SAID COMPANY FACILITATED ADJUSTMENT ENTRIES TO VARIOUS P ARTIES AND THE MODUS OPERANDI IS THAT THE COMPANY ONLY RETAINED 0.25% TO .4% OF THE COMMISSIO N RECEIVED AND THE BALANCE USED TO BE SENT BACK IN CASH TO THE BENEFICIARY COMPANIES. THEREAFT ER THE A.O. ISSUED A LETTER DATED 17.03.2004 ASKING THE ASSESSEE TO SHOW-CAUSE WHY THE COMMISSIO N EXPENSES OF RS.16 85 240/- SHOULD NOT BE DISALLOWED IN THE LIGHT OF THE STATEMENT OF SHRI SU RINDER PAL SINGH. A COPY OF THE STATEMENT WAS ALSO SENT TO THE ASSESSEE WITH THE SHOW-CAUSE LETTE R. IN RESPONSE TO THIS SHOW-CAUSE LETTER THE ASSESSEE FURNISHED A WRITTEN SUBMISSION ON 22.03.20 04 WHICH READS AS UNDER :- THE COMPANY HAD ENGAGED THE SERVICES OF M/S. M. V. MARKETING PVT. LTD NEW DELHI FOR LIAISON AND INTERMEDIATORY WORK FOR THE ORDER R ECEIVED BY THE COMPANY FROM DELHI VIDYUT BOARD FOR THE SUPPLY OF MATERIALS. M/S . M.V. MARKETING PVT. LTD. WAS TO REPRESENT THE COMPANY AND ACT FOR AND ON BEHALF OF YOUR ASSESSEE AS IF THE REPRESENTATIVE WAS THE ASSESSES HIMSELF . M/S. M.V. MARKETING P. LTD DID UNDERTAKE THIS JOB AND WAS PAID AGREED COMMISSION OF RS.16 85 340/-. WHILE MAKING PAYMENT THE COMPANY WAS FULLY AWARE THAT THE' PAYMENT BEING MAD E WAS REASONABLE CONSIDERING 3 SERVICES RENDERED BY M/S. M. K MARKETING P. LTD. TRANSACTION BY NO STRETCH OF IMAGINATION WAS THE TRANSFER AND ADJUSTMENT ENTRY S OME ACCOMMODATION. YOUR ASSESSES REQUIRED SERVICES OF TO REPRESENT YOUR A SSESSES AS HIS AGENT FOR' ORDERS' RECEIVED FROM DELHI VIDYUT BOARD AND ARRANGEMENT WA S MADE FOR THE SAME. THE ORDER RECEIVED WAS SUCH AS IT REQUIRED FREQUENT VISIT TO THE OFFICE OF DELHI VIDYUT BOARD AND SINCE YOUR ASSESSEE COULD NOT SPARE THE EMPLOYEE OF ITS OWN THE SERVICES OF M.V. MARKETING LTD. WERE AVAILED. THE COMPANY THEREFORE . PAID DUE AMOUNTS TO THE M/S. M.V. MARKETING P. LTD. FOR THE SERVICE AVAILED. YOU R ASSESSEE IS NOT AWARE OF THE OTHER ACTIVITIES OF M/S. M.V. MARKETING P. LTD. AND NOR DOES YOUR ASSESSEE FIND IT NECESSARY TO ENQUIRE INTO OTHER ACTIVITIES OF M/S. M.V. MARKE TING P. LTD. SO LONG AS YOUR ASSESEES WORK IS COMPLETED AS DESIRED. YOUR ASSESSEE NEVER K NOW ABOUT THE ALLEGED PRACTICES UNDERTAKEN BY THE DIRECTOR OF M/S. M.V. MARKETING P . LTD. AS REGARDS FLOATING OF BOGUS PARTNERSHIPS COMPANIES ETC. SO FAR AS YOUR ASSESSE E IS CONCERNED M/S. M.V. MARKETING PVT. LTD. WAS COMPLETING ITS PART OF CONTACT AND HE NCE YOUR ASSESSEE RELEASED AGREED COMMISSION. IT IS THUS CLEAR THAT THE PAYMENT HAS B EEN MADE AGAINST SERVICES AVAILED FOR THE BUSINESS PURPOSE AND THEREFORE CLAIMED TO BE ALLOWABLE EXPENDITURE. IT IS THEREFORE HUMBLY SUBMITTED THAT EXPENDITURE BE ALLO WED. ALL THE PAYMENTS MADE TO M/S. M.V. MARKETING P. LTD. WERE MADE THROUGH A CROSSED CHEQUE/ DEMAND DRAFT AND THE COMPANY EMPHATICALLY STATES THAT THE COMPANY HAD NO T DEALT WITH M/S. M.V. MARKETING P. LTD. FOR ANY ADJUSTING ENTRY BUSINESS. M/S. M.V. MARKETING P. LTD. HAVE NOT REFUNDED ANY AMOUNTS TO THE COMPANY OR TO ANY OF ITS OFFICIA LS/ DIRECTOR. IT IS THUS CLEAR THAT THE TRANSACTIONS WITH M.V. MARKETING P. LTD. ARE GENUIN E AND FOR BUSINESS. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE STATEMENT OF THE D IRECTOR OF M/S. M.V. MARKETING P. LTD. LAYS EMPHASIS AND REVOLVES ROUND CASH DEPOSITS AND WITHDRAWS. IN YOUR ASSESSEES CASE ALL PAYMENTS TO M.V. MARKETING P. LTD. ARE THR OUGH A/C. PAYEE CHEQUES/ DRAFTS. THERE IS THEREFORE NO AMBIGUITY AS REGARDS PAYMENT S BY CHEQUES/ DEMAND DRAFTS AND SINCE ACCORDING TO THE STATEMENT ONLY CASH DEPOSITS HAVE BEEN WITHDRAWN IT IMPLIES THAT BANK PAYMENTS ARE NOT. IT CAN THEREFORE BE INFERRE D THAT NO AMOUNT HAS COME BACK TO YOUR ASSESSEE AND HENCE THE EXPENDITURE IS GENUINE AND ALLOWABLE. WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT YOU R ASSESSEE TO MEET THE ENDS OF JUSTICE REQUEST THAT HE BE GRANTED AN OPPORTUNIT Y TO CROSS EXAMINE THE DIRECTOR OF M.V. MARKETING P. LTD. TO PROVE HIS CASE. IT IS FURTHER SUBMITTED THAT ALL THE BILLS FOR SUPP LY OF MATERIAL TO DELHI VIDYUT BOARD WERE RAISED BY YOUR ASSESSEE AND PAYMENT FOR THE SAME WAS ALSO RECEIVED IN THE NAME OF YOUR ASSESSEE ONLY. THE JOB OF M.V. MARKETI NG P. LTD. WAS THAT OF OUR EMPLOYEE OF YOUR ASSESSEE. IT IS YOUR ASSESSEE WHO HAD REQUISIONED SERVICES OF M.V. MARKETING P. LTD. AND THEREFORE THE NORMS SET BY DE LHI VIDYUT BOARD ALSO ARE NOT VIOLATED. IN THE LIGHT OF ABOVE IT IS SUBMITTED THAT THE EXP ENDITURE BE ALLOWED AS BUSINESS EXPENDITURE. AFTER CONSIDERING THE AFORESAID REPLY IN THE ASSES SMENT ORDER THE A.O. OBSERVED THAT THE STATEMENTS OF SHRI SURINDER PAL SINGH MANAGING DIR ECTOR OF M/S. M.V. MARKETING PVT. LTD. WERE RECORDED ON 24.12.2003 AND 30.12.2003 BY ADDL. DIRE CTOR OF INCOME TAX (INVESTIGATION) UNIT-1 NEW DELHI. IT WAS STATED THAT THE MODUS OPERANDI OF THE SAID COMPANY IS THAT IT RECEIVES THE 4 CHEQUES/ DEMAND DRAFTS AND ONLY A MEAGER PERCENTAGE OF THE COMMISSION RECEIVED IS RETAINED AND THE REMAINING AMOUNT IS SENT BACK IN CASH TO THE BE NEFICIARY COMPANY. THE EXTRACT OF THE STATEMENT WHICH HAS BEEN RECORDED IN HINDI WAS TRA NSLATED AND RE-PRODUCED BY THE A.O. IN THE ASSESSMENT ORDER. THE RELEVANT PORTION OF BOTH THE STATEMENTS SO RE-PRODUCED BY THE A.O. IN THE ASSESSMENT ORDER READS AS UNDER :- STATEMENT OF SHRI SURINDER PAL SINGH RECORDED ON 2 4.12.2003 : Q. NO. 5 : WHAT IS YOUR OCCUPATION ? ANS. : I AM DOING ADJUSTMENT BUSINESS WITH CHEQUES / BILLS DISCOUNTING ETC. Q. 6. : WHAT IS MEANT BY ADJUSTMENT BUSINESS WITH CHEQUES/ BILL DISCOUNTING ETC.? ANS.: THE CHEQUES RECEIVED FROM PARTIES ARE DEPOSIT ED IN THE BANK ACCOUNT AND CASH IS WITHDRAWN AND PAID BACK TO THOSE PARTIES. Q.7 : DO YOUR RECEIVE ANY COMMISSION ON THIS CHEQUE DISCOUNTING ? ANS.: I RECEIVED ABOUT 25 PAISE PER 100 RUPEES AND THERE ARE SOME EXPENSES IN THIS BUSINESS. Q.8. HOW MANY NUMBER OF COMPANIES YOUR ARE OPERATIN G FOR THIS KIND OF BUSINESS? ANS.: I OPERATE SIX TO SEVEN COMPANIES (8 NAMES OF COMPANIES GIVEN). STATEMENT OF SHRI SURINDER PAL SINGH RECORDED ON 30 .12.2003 : Q.1: IN YOUR STATEMENT RECORDED ON 24.12.2003 YOU HAVE GIVEN NAMES OF 8 COMPANIES WHICH YOU ARE OPERATING. HAVE YOU CARRIED OUT ANY S UCH BUSINESS IN ANY OTHER NAME OF COMPANY WHEREIN YOU ARE A DIRECTOR? ANS.: YES I AM PROPRIETOR OR DIRECTOR IN THE FOLLO WING COMPANIES/ FIRMS : (I) AVTAR SALES CORPN. (II) C.V. METAL POWER (III) DIGNITY FINVEST P. LTD. (IV) FNS CONSULTANCY P. LTD. (V) JAYANTILAL & SONS (VI) M.V. MARKETING P. LTD. (VII) POLO LEASING & FINANCE LTD. (VIII) RAYKAR ELE. & ELECTRONICS P. LTD. (IX) SHIVA TEXTILE CORPN. 5 (X) SHRI GANESH JEWELLERS (XI) SHREE GANESH TEXTILES (XII) VENUS ENTERPRISES. Q.7.WHETHRE IN THESE COMPANIES OR FIRMS ANY REAL BU SINESS IS CARRIED OUT ? ANS.: IN THESE FIRMS AND COMPANIES NO REAL BUSINESS IS CARRIED OUT ONLY ADJUSTMENT BUSINESS IS BEING DONE IN THE NAME OF THESE COMPANI ES AND FIRMS. EARLIER ALSO I HAVE STATED SO. 7. WITH REGARD TO THE REQUEST OF THE ASSESSEE IN LE TTER DATED 22.03.2004 TO ALLOW AN OPPORTUNITY FOR CROSS EXAMINATION OF THE DIRECTOR O F M/S. M.V. MARKETING P. LTD. THE A.O. OBSERVED THAT THIS OPPORTUNITY CANNOT BE GRANTED AT THIS JUNCTURE. FROM THE STATEMENTS RECORDED IT IS CLEAR THAT HE WAS ONLY A NAME-LENDER AND WAS EN GAGED IN THE ADJUSTMENT BUSINESS. THE A.O. ACCORDINGLY DISALLOWED THE COMMISSION AMOUNTING TO RS.16 84 340/-. 8. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE MADE THE FOLLOWING S UBMISSIONS :- (I) THE APPELLANT COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND SALE OF SWITCHGEARS SWITCHBOARDS INSTRUMENT TRANS FORMERS RELAYS ETC. THESE ITEMS ARE CONSUMED MAINLY BY ELECTRICITY BOAR DS POWER TRANSMISSION COMPANIES HEAVY INDUSTRIES IRRIGATIO N DEPARTMENT ETC. THE CUSTOMERS OF THE APPELLANT ARE SPREAD OVER THE LENG TH AND BREADTH OF THE COUNTRY AND ALSO ABROAD. IN MOST OF THE CASE CLOSE LIAISON IS REQUIRED SINCE THE ORDERS ARE NORMALLY PLACED THROUGH TENDER S AND LOT OF FOLLOW UP IS REQUIRED FROM THE TIME OF GETTING THE ORDER EXE CUTING THE SAME GETTING PAYMENTS AND OBTAINING FINAL RETENTION MONEY FROM C USTOMERS. THE APPELLANT DOES NOT HAVE ANY MARKETING STAFF FOR ALL THESE REQUIREMENTS AND HENCE IT WAS DECIDED TO ENGAGE LOCAL PERSON FOR LIA ISON ON BEHALF OF APPELLANT. (II) ACCORDINGLY THE APPELLANT ENTERED INTO AN AGR EEMENT WITH M.V. MARKETING PVT. LTD. DELHI AS AN AGENT FOR SUPPLY O F AIR CIRCUIT BREAKERS TO DELHI VIDYUT BOARD. IT IS SUBMITTED THAT M.V. MARKE TING PVT. LTD. COMPLIED WITH THE REQUIREMENTS OF APPELLANT AND ITS PERFORMA NCE WAS FOUND TO BE VERY SATISFACTORY. THE PAYMENT OF COMMISSION WAS BY ACCOUNT PAYEE DEMAND DRAFTS/ CHEQUES AND SAME WAS IN ACCORDANCE W ITH THE AGREED TERMS. 6 (III) THE PAYMENT OF COMMISSION WAS INVESTIGATED BY THE A.O. THROUGH INVESTIGATION WING DELHI WHO RECORDED THE STATEMEN T OF SHRI SURINDER PAL SINGH OF M.V. MARKETING P. LTD. DELHI AND FORWARDED THE COPY OF REPORT TO THE A.O. IT IS SUBMITTED THAT A.O. RELYING ON THE S TATEMENT DISALLOWED THE COMMISSION WHICH WAS NOT RELEVANT TO DECIDE THE ISS UE. IT IS SUBMITTED THAT EVEN WHILE EXAMINING THE PERSON OPPORTUNITY OF CRO SS EXAMINATION TO APPELLANT WAS NOT AFFORDED BY THE A.O. AND HENCE EV IDENCE BROUGHT ON RECORD IS NOT FREE FROM DOUBT AND SAME ARE NOT ACCE PTABLE TO THE APPELLANT. (IV) WITHOUT PREJUDICE TO THE ABOVE THE COUNSEL SU BMITTED THAT IN THE STATEMENT RECORDED SHRI SURINDER PAL SINGH OF M.V. MARKETING PL. LTD. DELHI HAS STATED THAT HIS COMPANY WAS ENGAGED IN AD JUSTMENT BUSINESS WHICH MEANT THAT COMPANY WILL RETAIN THE AMOUNT REC EIVED FROM APPELLANT AND REFUND THE BALANCE AND THREE IS NO DISCUSSION W HETHER SUCH AMOUNT OF COMMISSION PAID HAS BEEN RETURNED TO THE APPELLANT. (V) THE PAYMENTS TO M.V. MARKETING P. LTD. DELHI AR E GENUINE COMMERCIAL BUSINESS TRANSACTIONS ESSENTIAL FOR THE PURPOSE OF BUSINESS AND HENCE DISALLOWANCE MADE IS NOT JUSTIFIED. (VI) THE APPELLANT HAS FURNISHED COPY OF RETURN FIL ED IN CASE OF M.V. MARKETING P. LTD. DELHI WHO ARE ASSESSED TO TAX AND ALSO OBTAINED COPIES OF MEMORANDUM AND ARTICLES OF ASSOCIATION FROM WHIC H IT IS EVIDENT THAT COMPANY IS IN EXISTENCE SINCE MANY YEARS. THE A.O. HAS OVERLOOKED ALL THESE DETAILS AND HAS ONLY RELIED ON THE STATEMENT OF SHRI SURINDER PAL SINGH OF M.V. MARKETING P. LTD. DELHI. 9. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FORWARDED THE AFORESAID SUBMISSIONS TO A.O. FOR HIS REPORT AND COMMENTS. TH E A.O. DURING THE REMAND PROCEEDINGS AGAIN REFERRED THE MATTER TO THE DDIT(INVESTIGATION) UNI T-4 DELHI WHO RECORDED THE STATEMENT OF SHRI SURINDER PAL SINGH DIRECTOR OF M.V. MARKETING P. L TD. ON 05.01.2005 A COPY OF WHICH HAS BEEN FORWARDED TO HIS OFFICE. THE A.O. IN THE REPORT DAT ED 05.01.2005 SUBMITTED THAT SHRI SURINDER PAL SINGH DIRECTOR OF M.V. MARKETING PVT. LTD. HAS REI TERATED THE SUBMISSION RECORDED EARLIER ON 31.12.2003 WHEREIN HE HAD STATED THAT NO REAL BUSIN ESS HAS BEEN DONE WITH THE ASSESSEE-COMPANY EXCEPT ISSUING ACCOMMODATION BILL. IN VIEW OF THIS THE A.O. SUBMITTED THAT NO SERVICES IN FACT WERE RENDERED BY M/S. M.V. MARKETING PVT. LTD. NEW DELHI THE COMMISSION PAYMENT IS NOT JUSTIFIED WHICH HAS RIGHTLY BEEN DISALLOWED IN THE ASSESSMENT ORDER. 7 10. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO CONFRONTED THE REPORT OF A.O. AND COPY OF STATEMENT RECORDED IN THE CASE OF SHRI SURINDER PAL SINGH TO THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE LD. A.R. REITERATED THE FACTS AND SUBMISSIONS MADE EARLIER AND STATED THAT COMMISSION PAYMENT BEING GENUINE BUSINESS EXPENDITURE BE ALLOWED. 11. AFTER CONSIDERING THE REMAND REPORT OF A.O. AR GUMENTS OF THE ASSESSEE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE D ISALLOWANCE OF COMMISSION FOR THE DETAILED REASONS GIVEN IN PARA 5.5. TO 5.9 ON PAGE 8 & 9 OF THE ORDER WHICH IS REPRODUCED BELOW :- 5.5. I HAVE CONSIDERED THE SUBMISSIONS MADE AS WEL L AS ARGUMENTS PUTFORTH BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT. THE ARGUMENTS OF THE ADDL. CIT/ACIT AND FINDINGS IN THE ASSESSMENT ORDER ARE A LSO CONSIDERED. THE DETAILED INVESTIGATION AND ENQUIRIES CLEARLY ESTABL ISH THAT M.V. MARKETING PVT. LTD. DELHI DID NOT RENDER ANY SERVICES SO AS TO JUS TIFY COMMISSION PAYMENT. THE APPELLANT FURNISHED A COPY OF RETURN WHICH ESTA BLISHES THAT PART IS IN EXISTENCE BUT THAT DOES NOT PROVE THE NATURE OF SER VICES RENDERED TO THE APPELLANT BY M.V. MARKETING PVT. LTD. DELHI IN EITH ER PROCURING ORDERS FROM DELHI VIDYUT BOARD OR ANY OTHER SERVICES OF PRE/POS T SUPPLY PERIOD. THE APPELLANT ALSO FAILED TO FURNISH ANY COPY OF AGREEM ENT WITH THE PARTY AND ALSO FAILED TO FURNISH ANY OTHER DOCUMENTARY EVIDENCE IN THE FORM OF CORRESPONDENCE SO AS TO SUPPORT ITS PLEA OF GENUINE COMMISSION. 5.6. ON THIS ASPECT THE GUJARAT HIGH COURT IN THE CASE OF DR. G.G. JOSHI 209 ITR 324 HAS PRONOUNCED THE FOLLOWING TEST BEFOR E ALLOWING SUCH DEDUCTION. TO ESTABLISH THE PRACTICE PREVAILING IN THAT TIME O F BUSINESS FOR MAKING SUCH PAYMENT. TO ADDUCE TO SATISFACTORY EVIDENCE TO ESTABLISH T HE PAYMENT. TO SATISFY THE AUTHORITIES THAT THE PAYMENTS WERE M ADE FOR THE PURPOSE OF THE BUSINESS. 5.7. IN CASE OF COMMISSION PAYMENT IT IS THE APPEL LANT TO ESTABLISH THAT WHAT TYPE OF SERVICES WERE AVAILED FROM THE PARTY T O WHOM COMMISSION IS PAID. MERELY THAT PAYMENTS WERE MADE THROUGH ACCOUN T PAYEE CHEQUES/ DEMAND DRAFTS WOULD NOT BE CONCLUSIVE EVIDENCE OF H AVING RENDERED SERVICES FOR THE PURPOSE OF BUSINESS. THE APPELLANT FAILED T O ESTABLISH THAT ANY SERVICES WERE REQUIRED TO PROCURE BUSINESS FROM DELHI VIDYUT BOARD AND ALSO FAILED TO 8 ESTABLISH THAT ANY FOLLOW UP WAS MADE BY M.V. CORPO RATION PVT. LTD. AND HENCE THE INFERENCE DRAWN BY THE A.O. IS FOUND TO B E P5ROPER. IT IS WORTHWHILE TO MENTION THAT IN THE STATEMENT RECORDED IN THE CA SE OF SHRI SURINDER PAL SINGH HE HAS CATEGORICALLY STATED OF HAVING ENTERED INTO ONLY ADJUSTMENT ENTRIES AND IN TURN HE HAS STATED TO HAVE RECEIVED .25% COMMISSION FOR SUCH PAPER ENTRIES. THIS FACT ITSELF GOES AGAINST THE AP PELLANT. 5.8. REGARDING THE CONTENTION OF THE APPELLANT THAT NO PROPER OPPORTUNITIES WERE AFFORDED BY THE A.O. IT IS OBSERVED THAT THE APPELLANT HAD SUFFICIENT TIME TO BRING THE MATERIAL ON RECORD SINCE THE A.O. IN T HE ASSESSMENT ORDER HAS CLEARLY NARRATED THE FACTS STATED BY SHRI SURINDER PAL SINGH OF M.V. MARKETING P. LTD. DELHI AND APPELLANT FAILED TO GATHER ANY M ATERIAL SO AS TO SUBSTANTIATE ITS PLEA AT APPELLATE STAGE. 5.9. CONSIDERING THE FACTS AN CIRCUMSTANCES OF THE APPELLANTS CASE I FULLY AGREE WITH THE VIEW TAKEN BY THE A.O. OF MAKING DIS ALLOWANCE OF COMMISSION TO M.V. CORPORATION PVT. LTD. DELHI. MATERIAL EVIDE NCES BROUGHT ON RECORD BY THE A.O. CLEARLY SUPPORT THE FINDINGS OF THE A.O. A ND THEREFORE ADDITION MADE OF RS.16 85 340/- STANDS CONFIRMED. 12. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW THE CLAIM OF COMMISSION OF RS.16 84 340/- TO M/S. M.V. MARKETING P. LTD. NEW DELHI COULD NOT BE ALLOWED FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PROVE AS TO WHAT SE RVICES M/S. M.V. MARKETING P. LTD. HAS RENDERED TO THE ASSESSEE. IT IS UNDISPUTED POSITION OF LAW THAT IT IS FOR THE ASSESSEE TO PRODUCE NECESSARY EVIDENCE IF IT HAS MADE A CLAIM OF EXPEND ITURE. IN THE CASE OF CLAIM OF COMMISSION THE ASSESSEE HAS TO PRIMARILY SHOW THE EXISTENCE OF THE PARTY TO WHOM PAYMENT OF COMMISSION IS SHOWN TO HAVE BEEN MADE SECONDLY THAT PAYMENT HAS BEEN ACTUALLY MADE AND THIRDLY PAYMENT HAS BEEN MADE FOR THE SERVICES RENDERED. IF ALL THE THREE INGREDIENTS ARE NOT SATISFIED CUMULATIVELY AND SIMULTANEOUSLY THEN DEDUCTION CANNOT BE ALLOWE D. IN THE PRESENT CASE FIRSTLY SO FAR AS THE IDENTITY OF THE PAYEE WAS CONCERNED IT WAS PRIMARI LY ESTABLISHED THAT M/S. M.V. MARKETING P. LTD. IS REGISTERED WITH REGISTRAR OF COMPANIES HAVI NG PROPER IDENTIFICATION WITH INCOME TAX DEPARTMENT. SECONDLY REGARDING PAYMENT OF MONEY TO THAT PARTY IS CONCERNED THE SAME IS ALSO APPARENTLY ESTABLISHED AS PAYMENTS WERE MADE BY ACC OUNT PAYEE CHEQUES WHICH WERE ADMITTED BY THE DIRECTOR OF THAT COMPANY NAMELY SHRI SUREND ER PAL SINGH TO HAVE BEEN RECEIVED BY THE ASSESSEE-COMPANY HOWEVER THE THIRD MOST IMPORTANT INGREDIENT REMAINED UNSATISFIED RATHER WENT CONTRARY TO THE CLAIM OF THE ASSESSEE. THE STA TEMENT OF SHRI SURENDER PAL SINGH DIRECTOR OF M.V. MARKETING P. LTD. WAS RECORDED BY INCOME TAX A UTHORITIES ON 24.12.2003 AND 30.12.2003 9 WHEREIN IT WAS ASSERTED BY HIM THAT HE IS ONLY RECE IVING CHEQUES FROM THE PARTIES FOR DOING ADJUSTMENT BUSINESS AND RETURNING CASH TO THEM AFTE R DEDUCTING THE COMMISSION OF 0.25%. HE STATED TO HAVE FLOATED 12 COMPANIES/ CONCERNS THROU GH WHICH HE HAS BEEN CARRYING ON THE ADJUSTMENT BUSINESS. SUBSEQUENTLY ON 05.01.2005 H IS STATEMENT WAS FURTHER RECORDED WHEREIN HE REITERATED THE STATEMENT GIVEN BY HIM ON EARLIER OCCASIONS THAT HE HAS NOT BEEN DOING ANY REAL BUSINESS BUT ONLY RECEIVING CHEQUES/ DEMAND DRAFTS ETC. DEPOSITING THE SAME IN THE BANK A/C. WITHDRAWING CASH AND PAYING BACK TO THE PARTIES WH O HAVE PAID THE CHEQUES/ DDS. TO HIM. HE CLEARLY STATED IN RESPONSE TO THE QUESTION NO. 4 TH AT HE HAS NOT DONE ANY REAL BUSINESS WITH M/S. JSL INDUSTRIES LTD. IT WAS IN FACT ONLY AN ENTRY BUSINESS. THE DEMAND DRAFT WAS PAID TO HIM AND CASH WAS RETURNED. IN ADDITION TO THIS SHRI SU RINDER PAL SINGH ALSO GAVE A LETTER ON 11.05.2004 TO THE DEPARTMENT THAT HE HAS BEEN DOING ENTRY BUSINESS ONLY. IN VIEW OF THIS CONSISTENT STAND TAKEN BY SHRI SURINDER PAL SINGH DIRECTOR OF M/S. M.V. MARKETING P. LTD. DELHI ONUS NOW SHIFTED HEAVILY BACK ON THE ASSESSE E TO FURNISH THE EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENDITURE OF COMMISSION HAVING BEEN INCU RRED FOR BUSINESS PURPOSES. IN DEFENCE IT WAS STRESSED BY THE LD. A.R. THAT THE ASSESSEE HAS NOT BEEN ALLOWED TO CROSS EXAMINE SHRI SURINDER PAL SINGH. IN OUR CONSIDERED VIEW THIS IS NOT NECESSARY UNLESS IT IS BROUGHT ON RECORD THAT WHATEVER IS STATED BY SHRI SURINDER PAL SINGH WAS PRIMA FACIE INCORRECT IN VIEW OF ASSESSEE HAVING CONCLUSIVE EVIDENCE OF SHRI SURINDER PAL SIN GH OR M/S. M.V. MARKETING P. LTD. RENDERING SERVICES TO THE ASSESSEE FOR PROCURING ANY BUSINESS FROM DELHI VIDYUT BOARD. IN FACT M/S. M.V. MARKETING P. LTD. OR SHRI SURINDER PAL SINGH OR ANY OTHER DIRECTOR OF THAT COMPANY WOULD BE ASSESSEES WITNESS AND ONUS IS ON THE ASSESSEE TO P RODUCE THEM BEFORE THE A.O. IN SUPPORT OF ITS CLAIM. 13. THE CLAIM OF THE ASSESSEE FOR COMMISSIONER PAYM ENT IS PRIMARILY BASED ON THE THREE INGREDIENTS AS STATED BY US ABOVE. IF ONE INGREDIEN T IS NOT SATISFIED LIKE IN THE PRESENT CASE THEN IT IS FOR THE ASSESSEE TO SUPPORT THIS INGREDIENT WITH OTHER EVIDENCE. SINCE THE ASSESSEE HAS NOT DONE SO THE ONUS FALLING BACK ON THE ASSESSEE REMAINED U N-DISCHARGED. THERE IS ABSOLUTELY NO EVIDENCE OF SERVICES HAVING BEEN RENDERED BY THAT COMPANY TO THE ASSESSEE. IN FACT LD. A.R. FOR THE ASSESSEE DURING THE COURSE OF HEARING SOUGHT TO DRA W OUR ATTENTION TO CERTAIN DOCUMENTS FILED BY IT IN SUPPORT OF THE CLAIM THAT THERE ARE EVIDENCES OF M.V. MARKETING P. LTD. HAVING RENDERED SERVICES TO HIM. FOR THE SAKE OF CONVENIENCE WE DE SCRIBE SUMMARILY AS TO WHAT WAS THERE IN THE 10 PAPER BOOK. THE DOCUMENT AT PAGE 1 IS A LETTER DATE D 24.01.2001 FROM M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN. NEW DELHI TO THE A SSESSEE WHEREIN IT IS MENTIONED THAT DELHI VIDYUT BOARD HAS PLACED ORDER OF 2400 NO. OF ACBS ON YOU WITH OUR BEST EFFORTS FOR THIS ORDER. KINDLY CONFIRM THE RECEIPT OF P.O. FROM DVB AND OUR COMMISSION OF 4.5% WHICH HAS BEEN AGREED BY YOU ON PHONE . THE DOCUMENT AT PAGE 3 IS A LETTER FROM M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN. NEW DELHI DATED 11 .02.2000 WHEREIN M/S. M.V. MARKETING PVT. LTD. INTRODUCED ITSELF AS DOING LIAISONING OF WORK WITH DVB NSS NDMC DESEB AND OTHER GOVERNMENT ORGANIZATIONS. IT SAYS THAT DVB HA S FLOATED TENDERS FOR ACBS AND IT CAN OFFER SERVICES FOR GETTING ORDERS AND SUBSTANTIALLY FOLLO W UP OF EXECUTION AND PAYMENTS. THE DOCUMENT AT PAGE 2 OF THE PAPER BOOK IS WRITTEN ON 08.06.200 0 FROM ASSESSEE TO M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN. NEW DELHI WHEREIN THE ASSESSEE SAYS THAT IT CONFIRMS HIS SERVICES AGAINST ACBS TENDER AND WILL GIVE THE COMM ISSION @ 4%. THEN THERE IS A LETTER DATED 24.01.2000 FROM M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN. NEW DELHI SAYING THAT DVB HAS PLACED AN ORDER FOR 2400 NO. OF ACBS. THERE ARE NO OTHER LETTERS AS TO WHAT M/S. M.V. MARKETING P. LTD. HAS DONE EXCEPT THESE DOCUME NTS REGARDING PAYMENT BY CHEQUES. THERE IS NO AGREEMENT BETWEEN M/S. M.V. MARKETING PVT. LT D. AND THE ASSESSEE AS TO WHAT SERVICES M/S. M.V. MARKETING PVT. LTD. WILL DO FOR THE ASSES SEE. FROM THE READING OF THE THREE LETTERS AS ABOVE IT TRANSPIRES THAT THERE IS NOTHING ON RECOR D AS TO WHETHER M/S. M.V. MARKETING P. LTD. HAS FILLED THE TENDER FOR THE ASSESSEE OR IT HAS DEPOSI TED THE SAME WITH DELHI VIDYUT BOARD OR IT HAS FILED ANY CORRESPONDENCE WITH DVB OR INTRODUCED ITS ELF TO THE DVB AS LIAISON AGENT FOR THE ASSESSEE COMPANY OR COLLECTED CHEQUES ISSUED BY DVB TO ASSESSEE-COMPANY OR IT HAS INCURRED ANY EXPENDITURE FOR CARRYING OUT TENDERING WORK OR ON RECEIVING PAYMENT OR FOR ANY OTHER CORRESPONDENCE WITH THE ASSESSEE-COMPANY OR WHETHER DVB IS ENTERTAINING ANY LIAISON AGENT FOR PROCURING OR EXECUTING ITS CONTRACT OR ANY TYPE OF OTHER WORK FROM THE STAGE OF FLOATING OF TENDER EXECUTION OF CONTRACT AND FINALLY RECEIVING AND TRA NSFERRING PAYMENT TO THE ASSESSEE-COMPANY. IN FACT DVB LIKE ANY OTHER GOVERNMENT ORGANIZATION FL OATS OPEN TENDERS INVITING ALL COMPETENT SUPPLIERS EXAMINE THE TECHNICAL FEASIBILITY AND FI NANCIAL FEASIBILITIES OF THE APPLICANT SUPPLIERS AND OTHER CAPABILITIES OF FULFILLING THE CONTRACT W ITHIN THE TIME SCHEDULE. IN FACT TENDERS ARE ACCEPTED AT LOWEST RATES AS SUGGESTED BY LD. A.R. T HERE IS NOTHING ON RECORD TO SUGGEST THAT M/S. M.V. MARKETING P. LTD. HAS DONE ANY WORK DURING THE WHOLE PROCESS. THE ENTIRE WORK RELATING TO FILLING OF THE TENDERS FURNISHING OF THE TENDERS FINANCIAL AND TECHNICAL FEASIBILITY EXAMINATION 11 EXECUTION OF THE CONTRACT AND FINAL RECEIPT OF MON EY HAS BEEN DONE BY THE ASSESSEE-COMPANY OR ITS EMPLOYEES. WHATEVER DOCUMENTS HAVE BEEN FURNISH ED BY THE ASSESSEE-COMPANY ARE ONLY SUPERFICIAL PAPER WORK CREATING APPARENT FORMAT BY INSERTING A MIDDLEMAN FOR SIPHONING OF PART OF THE PROFIT WITHOUT PAYING TAXES. IF THE ENTIRE P ROCEDURE OF INSERTING MIDDLEMAN LIKE M.V. MARKETING PVT. LTD. AND PAYING CHEQUE TO IT RECEIV ING CASH BACK FROM THEM AS STATED BY SURENDER PAL SINGH THE DIRECTOR OF M.V. MARKETING CO. WAS WITH THE INTENTION TO PAY GRATIFICATION TO AUTHORITIES AND DVB AS ARGUED BY L D. D.R. THE SAME CANNOT ALSO BE ALLOWED IN VIEW OF SECTION 37. IT CANNOT ALSO BE ALLOWED INDIR ECTLY BY CREATING A FORMAT OF MIDDLEMAN AND SHOWING SEMBLANCE OF GENUINE EXPENDITURE THOUGH IN FACT IT WAS NOT SO. IF INSERTION OF MIDDLEMAN WAS FOR INTENTION OF GRATIFICATION TO DVB THE SAME IS CLEARLY HIT BY EXPLANATION TO SECTION 37 OF THE INCOME TAX ACT AND HENCE DISALLOW ABLE. NOTWITHSTANDING THE STATEMENT OF SHRI SURINDER PAL SINGH CANNOT BE BRUSHED ASIDE LIGHTLY WHEN EVEN AFTER KNOWING AS TO WHAT SHRI SURINDER PAL SINGH HAS STATED NOT ONCE BUT FOUR TIM ES I.E. FIRSTLY ON 24.12.2003 SECONDLY ON 30.12.2003 THIRDLY BY LETTER DATED 11.04.2005 AND FOURTHLY IN STATEMENT DATED 05.01.2005 THE ASSESSEE-COMPANY HAS NOT TAKEN ANY ACTION IN THE CO URT OF LAW AGAINST HIM OR AGAINST M.V. MARKETING CO. FOR GIVING FALSE STATEMENT IF IT WAS SO IN THE EYES OF THE ASSESSEE. THE FACT THAT THE ASSESSEE-COMPANY HAS CHOSEN NOT TO TAKE ANY LEGAL A CTION FOR ALLEGEDLY FALSELY IMPLICATING THE ASSESSEE-COMPANY BUT ONLY TO HARP ON THE PROCEDURAL NON-COMPLIANCE IN INCOME-TAX ASSESSMENT SUCH AS NOT ALLOWING CROSS EXAMINATION SHOWS THAT THE CLAIM OF THE ASSESSEE WAS CLEARLY WRONG AND THEREFORE NOT ALLOWABLE. THIS GROUND OF APPEA L IS ALSO REJECTED. 14. NOW WE TAKE UP THE APPEAL OF REVENUE I.E. ITA NO. 1241/AHD/2005. GROUND NO.1 OF THIS APPEAL IS AGAINST DELETING THE ADDITION OF RS.10 00 500/- MADE ON ACCOUNT OF DOUBTFUL INVESTMENT IN THE EQUITY SHARES OF JMP ECOTECNIA LTD. 15. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL IS THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE (PUBLIC LIMITED COMPANY) HAS WRITTEN OFF INVESTMENT MADE BEING 1 00 500 SHARES O F RS.10/- EACH AGGREGATING TO RS.10 00 500/- OF JMP ECOTECNIA LTD. AN ASSOCIATE COMPANY. THE A. O. DISALLOWED THE AMOUNT WRITTEN OFF RS.10 00 500/- BECAUSE ACCORDING TO HIM IT IS NOT NORMAL TRADING ACTIVITY OF THE ASSESSEE. IT WAS A PURELY INVESTMENT TO START A NEW SISTER CONCERN W ITH INTENTION TO EARN INCOME BY WAY OF 12 DIVIDEND. THE A.O. FURTHER OBSERVED THAT THE COMPAN Y MAY WRITE OFF THE INVESTMENT BUT THE QUESTION IS WHETHER THE AMOUNT IN QUESTION IS A REV ENUE EXPENDITURE OR NOT. ACCORDING TO A.O. THE AMOUNT WAS INVESTED AS CAPITAL IN ANOTHER COMPA NY THEREFORE ANY WRITE OFF OF SUCH INVESTMENT IS A PURELY CAPITAL LOSS AND CANNOT BE A LLOWED AS REVENUE EXPENDITURE. HE THEREFORE DISALLOWED THE AMOUNT WRITTEN OFF OF RS.10 00 500/- . 16. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) IT WAS CONTENDED THAT THE AMOUNT OF INVESTMENT MADE IN THE NUMBER O F SHARES OF ASSOCIATE CONCERN BY THE ASSESSEE WAS WITH THE OBJECT OF NOT EARNING RETURN ON INVEST MENT BY WAY OF DIVIDEND SINCE JMP ECOTENIA LTD. WAS FORMED WITH THE OBJECT TO ENGAGE ITSELF IN THE MANUFACTURING OF WINDMILLS AND INSTALL THEM AT VARIOUS PLACES FOR ITS CLIENTS TO GENERATE ELECTRIC POWER ESPECIALLY WIND TURBINES. IT WAS ALSO ARGUED THAT SINCE THE ASSESSEE COMPANY IS ENGA GED IN THE TRADING OF CERTAIN ITEMS WHICH ARE DIRECTLY CONNECTED WITH MANUFACTURING AND TRANSMISS ION OF POWER THE ASSESSEE HAD EXPECTED A GROWTH IN THE PRESENT BUSINESS WITH THE GROWTH OF J MP ECOTENIA LTD. IT WAS ALSO SUBMITTED THAT THE SAID COMPANY HAD SHOWN GOOD PERFORMANCE IN THE INITIAL YEARS AND ACHIEVED GOOD TURNOVER IN BEGINNING YEARS OF ITS OPERATION BUT DUE TO CHANGE IN THE GOVERNMENT POLICY M/S. JMP ECOTENIA LTD. HAD CEASED ITS BUSINESS OPERATION AND CHANCES OF REVIVAL WERE ALMOST IMPOSSIBLE. IN SUCH CIRCUMSTANCES IT WAS PERTAINED ON THE PART OF ASSE SSEE TO WRITE OFF THE AMOUNT INVESTED IN IT. IN SUPPORT OF THIS RELIANCE WAS ALSO PLACED ON THE FO LLOWING DECISIONS :- (I) CIT VS.- ANJANI KUMAR CO. LTD. [259 ITR 114] ; (II) INDIAN COMMERCE & INDUSTRIES CO. PVT. LTD. VS.- CIT [213 ITR 533 (MAD.); (III) CIT VS.- INDIAN COMMERCE ENTERPRISERS PVT. LTD. [118 ITR 606]. 17. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) THE ASSESSEE ALSO PRODUCED THE FINAL ACCOUNTS AS ON 31.03.2001 IN THE CASE OF JMP ECOTENIA LTD. WHEREIN THE SAID COMPANY WAS MENTIONED OF HAVING BECOME SICK INDUSTRIAL COMP ANY WHICH IS EVIDENT FROM CLAUSE NO. 17 OF AUDITORS REPORT WHICH READS AS UNDER :_ ACCORDING TO THE INFORMATION AND EXPLANATION GIVEN TO US AND IN OUR OPINION THE COMPANY HAS BECOME SICK INDUSTRIAL COMP ANY WITHIN THE MEANING OF CLAUSE (O) OF SUB-SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985. 13 ON THE BASIS OF ABOVE IT WAS CONTENDED THAT THE N ET WORTH OF THE SAID COMPANY BECAME NEGATIVE SINCE TOTAL ACCUMULATED LOSS WAS RS.45 12 227/- AS AGAINST SHARE CAPITAL OF RS.25 00 000/- AND THEREFORE POSSIBILITIES OF ANY R EVIVAL WAS NOT FORESEEN AND ACCORDINGLY THE BOARD OF DIRECTORS PASSED THE RESOLUTION TO WRITE O FF THE INVESTMENT MADE WITH JMP ECOTENIA LTD. BEING 1 00 500 SHARES OF RS.10/- EACH AGGREGAT ING TO RS.10 00 500/-. 18. AFTER CONSIDERING THE AFORESAID ARGUMENT IN TH E IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DIRECTED THE AS SESSING OFFICER TO ALLOW THE AMOUNT WRITTEN OFF AMOUNTING TO RS.10 00 500/- FOR THE DET AILED REASONS GIVEN IN PARA 3.7 TO 3.9 OF THE ORDER WHICH READS AS UNDER :- 3.7. I HAVE CONSIDERED THE SUBMISSIONS MADE AS WEL L AS ARGUMENTS PUTFORTH BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT. THE DECISIONS RELIED UPON ARE ALSO PERUSED. THE ARGUMENTS OF THE AO AND FINDINGS IN TH E ASSESSMENT ORDER ARE ALSO CONSIDERED. IT IS OBSERVED THAT THE APPELLANT HAS W RITTEN OFF DURING THE YEAR THE AMOUNT OF INVESTMENT MADE BY THE APPELLANT IN SHARE S OF JMP ECOTECNIA LTD A GROUP COMPANY. IT IS THE CONTENTION OF THE APPELLAN T THAT THE INVESTMENT WAS MADE WITH THE OBJECT OF EARNING RETURN ON INVESTMENT BY WAY OF DIVIDEND SINCE JMP ECOTECNIA LTD WAS FORMED WITH THE OBJECT TO ENGAGE ITSELF IN THE MANUFACTURE OF WINDMILLS AND INSTALL THEM AT VARIOUS PLACES FOR IT S CLIENTS TO GENERATE ELECTRIC POWER ESPECIALLY WIND TURBINES AND APPELLANT COMPAN Y WAS ALSO ENGAGED IN THE TRADING OF CERTAIN ITEMS WHICH ARE DIRECTLY CONNECT ED WITH MANUFACTURING AND TRANSMISSION OF POWER. IT IS ALSO A PLEA OF COUNSEL THAT THE APPELLANT HAD EXPECTED A GROWTH IN THE PRESENT BUSINESS WITH THE GROWTH OF J MP ECOTECNIA LTD ARID SAID COMPANY HAD SHOWN GOOD PERFORMANCE IN THE INITIAL Y EARS AND ACHIEVED TURNOVER OF ABOUT 20 CRORES IN BEGINNING YEARS OF ITS OPERAT ION. THE ONLY REASON FOR DOWNFALL OF SAID COMPANY AS SLATED BY THE COUNSEL W AS THE CHANGE IN GOVERNMENT POLICIES TO WITHDRAW THE HOST OF CONCESSIONS ALLOWE D TO WIND TURBINE INDUSTRIES WHICH AS PER THE COUNSEL HAD VERY SERIOUS IMPACT O N THE INDUSTRY AS A WHOLE WHICH CAME TO A GRINDING HALT AND JMP ECOTECNIA LTD. COU LD NOT REMAIN AN EXCEPTION. 3.7. IT IS ALSO NOTICED (THAT THE ACCOUNTING STANDA RD 13 PROMULGATED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ALSO MADE IT MAND ATORY LO DISCLOSE THE INVESTMENT OF AN ENTERPRISE AT THEIR CORRECT VALUE AND THEREFORE THE APPELLANT WROTE OFF THE AMOUNT INVESTED SINCE JMP ECOTECNIA LTD HAD CEASED ITS BUSINESS OPERATION AND CHANCES OF ITS REVIVAL WERE ALMOST IMPOSSIBLE A ND AS A PRUDENT BUSINESS POLICY THE INVESTMENT WAS WRITTEN OFF WHICH ACCORDING TO T HE COUNSEL IS A REVENUE LOSS. SUCH ACTION OF APPELLANT IS ALSO SUPPORTED BY BOARD 'S RESOLUTION AND IT IS ALSO FOUND TO BE CORRECT THAT NET WORTH OF JMP ECOTECNIA LTD HAD BECAME NEGATIVE AND SAID COMPANY HAD BECOME A SICK INDUSTRIAL COMPANY A S CAN BE SEEN FROM AUDITORS' REPORT. THUS IT CAN BE EASILY ACCEPTED T HAT THERE WAS NO CHANCE OF ANY REVIVAL OF JMP ECOTECNIA LTD. 3.8. COMING TO THE LEGAL ASPECT OF THE CASE THE DE CISIONS RELIED UPON BY THE COUNSEL CLEARLY SUPPORTS THE CONTENTION OF THE APPELLANT. I N THE CASE OF INDIAN COMMERCE & 14 INDUSTRIES CO PO. LTD. VS CIT 213 ITR 533 (MAD) HAS HELD THAT THOUGH THE ASSSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF ST RUCTURAL ENGINEERING HAVING BUSINESS RELATION WITH ONE K LTD PURCHASED SHARES OF K LTD UNDER PRESSURE OF THAT COMPANY WITH A VIEW LO INCREASE ITS BUSINESS LOSS ON SALE OF SAID SHARES WAS AVOWED AS BUSINESS LOSS OBSERVING THAT THERE WAS NE XUS BETWEEN THE BUSINESS OF THE COMPANY AND PURCHASE OF SHARES OF K LTD. THE HIGH C OURT ALLOWED THE LOSS FROM SALE OF SHARES US BUSINESS LOSS. THE MADRAS HIGH CO URT WHILE ALLOWING THE CLAIM OF ASSESSES HAS MADE REFERENCE TO THE DECISION OF SUP REME COURT IN CASE OF PATNAIK & CO LTD VS CIT (1586) 58 LTR (SC) 92. THE REFERENC E WAS ALSO MADE TO THE DECISIONS OF THE ORISSA HIGH COURT IN CIT VS INDUST RY COMMERCE ENTERPRISE P LTD (1979) 118 ITR 606 (ORI) AND CIT VS DHANDAYUTHA PANI FOUNDRY (P) LTD (1980) 123 ITR 709 (MAD) WHICH WERE APPROVED BY SUP REME COURT 3 9. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION I HOLD THAT IN THE CASE OF APPELLANT THE AMOUNT WRITTEN OFF IS AN ALLOWABLE B USINESS LOSS SINCE THE INVESTMENT WAS MADE WITH AN INTENTION TO BOOST UP THE BUSINESS OF APPELLANT AS APPELLANT WAS TRADING IN ITEMS WHICH WERE ALSO FORM PART OF PRODU CT RANGE OF JMC ECOTECNIA LTD AS THE SAID COMPANY WAS INSTALLING WIND MILLS. THES E FACTS SUGGEST THAT THE APPELLANT COMPANY WAS NOT AN INVESTMENT COMPANY BUT INVESTMENT WAS TO PROMOTE THE BUSINESS LN VIEW OF THE ABOVE DISCUSSION THE A.O. IS DIRECTED TO ALLOW THE SAME AS CLAIMED. 19. AGGRIEVED WITH THE ABOVE THE REVENUE IS IN APP EAL BEFORE US. 20. BEFORE US THE LD. D.R. FOR THE REVENUE SUBMITT ED THAT IN THE PRESENT CASE THE ASSESSEE HAS NOT SOLD THE SHARES THEREFORE THE QUESTION OF INCURRING ANY LOSS OR GAIN WOULD NOT ARISE. FURTHER THE ASSESSEE IS HOLDING SHARES AS INVESTMEN T. THEREFORE EVEN IF SHARES ARE SOLD IT WILL INCUR ONLY A CAPITAL LOSS AND NOT A REVENUE LOSS. T HIRDLY THE LD. D.R. SUBMITTED THAT MERELY BECAUSE SHARES VALUE IN THE MARKET HAS DECREASED IT WILL NOT ENABLE THE ASSESSEE TO WRITE OFF THE DIFFERENCE OR ENTIRE VALUE OF SHARES IN THE BOOKS A ND CLAIM THE RESULTING DIFFERENCE AS BAD DEBT. THERE IS NO DEBT GIVEN TO ANYONE AND THEREFORE QU ESTION OF CLAIMING BAD DEBT BY WRITING OFF IN THE BOOKS WOULD NOT ARISE. FOR A BAD DEBT WHAT IS N ECESSARY IS THAT THERE SHOULD BE A DEBTOR- CREDITOR RELATIONSHIP WHICH DOES NOT EXIST IN THE P RESENT CASE. THE ASSESSEE IS ONLY AN INVESTOR IN JMP ECOTENIA LTD. THE COMPANY M/S. JMP ECOTENIA LTD . CANNOT RETURN ANY MONEY TO THE ASSESSEE AS IT HAS NOT TAKEN ANY LOAN FROM THE ASSE SSEE. THE ASSESSEE HAS SUBSCRIBED SHARES IN THAT COMPANY WHOSE MARKET VALUE IS APPARENTLY GONE DOWN. THE LD. D.R. ALSO SUBMITTED THAT ON APPRECIATION OF MARKET VALUE OF AN INVESTMENT NO P ROFIT CAN BE DECLARED IN THE PROFIT & LOSS A/C. THEN ON REDUCTION OF MARKET VALUE OF SHARES NO LOS S CAN BE CLAIMED IN THE PROFIT & LOSS A/C. HE SUBMITTED THAT THE DECISIONS RELIED ON BY THE LD. A .R. ARE DIFFERENT ON FACTS. IN PATNAIK & CO. LTD.S CASE (SUPRA) INVESTMENT WAS MADE BY THAT AS SESSEE IN GOVERNMENT LOANS. THOSE LOANS 15 WERE SOLD AND THAT ASSESSEE HAD INCURRED LOSS. IT W AS HELD THAT LOANS WERE HELD FOR COMMERCIAL PURPOSES FOR GETTING BUSINESS FROM GOVERNMENT AND H ENCE ON SALES THEREOF THERE WILL BE REVENUE LOSS. IN ANJANI KUMAR CO. LTD.S CASE (SUPRA) THAT ASSESSEE HAD LOST THE CASE IN COURT AND ACCORDINGLY HE DID NOT GET THE REFUND FROM THE AGRI CULTURIST TO WHOM ADVANCE WAS GIVEN FOR PURCHASE OF LAND TO SET UP A FACTORY BUILDING. IT W AS THEREFORE TREATED AS A BUSINESS LOSS BY THE HON'BLE RAJASTHAN HIGH COURT. IN INDIAN COMMERCE & INDUSTRIES CO. PVT. LTD.S CASE (SUPRA) SHARES WERE SOLD BY THAT ASSESSEE-COMPANY. THAT ASS ESSEE WAS PRESSURIZED BY OTHER COMPANY WHOSE SHARES IT HAD PURCHASED. IT WAS HELD BY THE H ON'BLE MADRAS HIGH COURT THAT SHARES WERE PURCHASED BY THE ASSESSEE BECAUSE OF COERCION BY TH E OTHER COMPANY AND TO INCREASE ASSESSEES BUSINESS. IN INDIAN COMMERCE ENTERPRISERS PVT. LTD. S CASE (SUPRA) GOVERNMENT LOAN BONDS WERE PURCHASED BY THAT ASSESSEE-COMPANY WHICH WERE LATER SOLD AND THAT ASSESSEE-COMPANY HAD INCURRED LOSS. IT WAS CLAIMED AS A BUSINESS LOSS. I T WAS HELD BY THE HON'BLE ORISSA HIGH COURT THAT BONDS WERE PURCHASED FOR BOOSTING BUSINESS AND ON THEIR SALE LOSS SO INCURRED WOULD BE A REVENUE LOSS. THE LD. D.R. SUBMITTED THAT IN ALL TH ESE CASES THERE IS AN EVENT WHICH HAS TAKEN PLACE. A TRANSFER HAS TAKEN PLACE AS DEFINED IN SEC TION 2(47) OF THE INCOME TAX ACT. ACCORDINGLY THE LD. D.R. SUBMITTED THAT LOSS SO CLAIMED ON REDU CTION OF THE VALUE OF INVESTMENT AT NIL SHOULD NOT BE ALLOWED AND THE ORDER OF LEARNED COMMISSIONE R OF INCOME TAX(APPEALS) ON THIS GROUND SHOULD BE REVERSED. 21. AGAINST THIS THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND STR ONGLY SUBMITTED THAT THIS CASE IS COVERED BY THE ABOVE DECISIONS REFERRED TO BY THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS). THERE IS A DIRECT NEXUS OF THE BUSINESS OF THE ASSESSEE W ITH THE BUSINESS OF JMP ECOTECNIA LTD. THAT ASSESSEE IS DEALING IN ITEMS IN WHICH THE ASSESSEE- COMPANY ALSO DEALING. IT IS PURCHASING ITEMS FROM THAT COMPANY FOR ITS BUSINESS PURPOSES. SINCE IT WAS AN INVESTMENT IN THE SUBSIDIARY COMPANY IT IS ALLOWABLE AS BAD DEBT. THE OTHER COM PANY I.E. M/S. JMP ECOTECNIA LTD. HAS BECOME A SICK COMPANY AND THEREFORE THE VALUE OF SHARES HAD BECOME NIL AND THE ASSESSEE- COMPANY SHALL BE JUSTIFIED IN WRITING OFF THE SAME. ACCORDING TO LD. A.R. THERE IS NO CAPITAL LOSS INVOLVED BECAUSE THE ASSESSEE HAD PURCHASED THE SHA RES NOT WITH THE INTENTION OF INVESTMENT BUT WITH THE INTENTION OF BOOSTING ITS TRADE WITH THAT COMPANY AND IN CONSEQUENCE BOOSTING ITS OVERALL BUSINESS. 16 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE STAND OF THE ASSESSEE A ND THAT OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED. EVEN THOUGH THERE M AY BE SOME SEMBLANCE OF BUSINESS NEXUS OF THE ASSESSEE WITH THE BUSINESS OF JMP ECOTECNIA LTD . BUT THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT M/S. JMP ECOTECNIA LTD. HAS COERCED THE ASSESS EE TO INVEST IN ITS OWN SHARES. EVEN WITHOUT INVESTMENT IN THE FORM OF SHARES OF THAT COMPANY B USINESS OF THE ASSESSEE WITH THAT COMPANY WOULD HAVE CONTINUED AS TWO ARE INTER-RELATED AND A RE CALLED SISTER CONCERNS. NOTWITHSTANDING THAT INVESTMENT IN JMP ECOTECNIA LTD. WAS FOR A BUS INESS CONSIDERATION NO EVENT SUCH AS TRANSFER OF THE SHARES HAD TAKEN PLACE WHICH WOULD HAVE RES ULTED IN ANY LOSS TO THE ASSESSEE. SINCE NO TRANSFER OF SHARES HAS TAKEN PLACE NO LOSS CAN BE COMPUTED AND THEREFORE QUESTION OF DECIDING WHETHER IT IS A REVENUE LOSS OR CAPITAL LOSS WOULD NOT ARISE AT THIS JUNCTURE. IN ALL THE CASES REFERRED TO LD. A.R. THE DISTINGUISHING FEATURE IS THAT TRANSFER OF SHARES/ INVESTMENT HAD TAKEN PLACE. IN THE CASE OF ANJANI KUMAR & CO. NO ASSET HAD BEEN ACQUIRED BY THAT ASSESSEE AS IT WAS ONLY AN ADVANCE WHICH WAS NOT RETURNED BY THE AGRIC ULTURIST AND HENCE IT WAS ALLOWED AS REVENUE LOSS. BUT IN THE PRESENT CASE THE ASSESSEE IS OWNE R OF AN ASSET OWNER OF INVESTMENT AND IT CANNOT BE EQUATED AS AN ADVANCE. THEREFORE THE RATIO OF T HE DECISION IN THE CASE OF ANJINI KUMAR & CO. WOULD NOT BE APPLICABLE. IN ALL OTHER THREE JUDGMEN TS REFERRED BY THE LD. A.R. AND DISTINGUISHED BY THE LD. D.R. EVEN OF TRANSFER OF SHARES/ INVESTM ENT HAD NOT TAKEN PLACE. IN INDIAN COMMERCE & INDUSTRIES CO. PVT. LTD. SHARES WERE SOLD AND LOSS WAS INCURRED. IN PATNAIK & CO. LTD.S CASE (SUPRA) GOVERNMENT LOAN BONDS WERE SOLD AND THAT A SSESSEE IN THAT PROCESS HAD SUFFERED A LOSS. IN INDIAN COMMERCE ENTERPRISERS PVT. LTD.S CASE (S UPRA) ALSO GOVERNMENT LOAN BONDS WERE SOLD RESULTING IN LOSS TO THE ASSESSEE. THUS THERE IS NO AUTHORITY FOR THE PROPOSITION THAT WITHOUT THERE BEING ANY TRANSFER LOSS COULD REMIT AND COULD BE ALLOWED. CAPITAL LOSS CAN BE OCCURRED IF AN ASSET AS DEFINED IN SECTION 2(14) OF THE INCOME TAX ACT IS TRANSFERRED. THE WORD TRANSFER IS DEFINED IN SECTION 2(47) OF THE INCOME TAX ACT 196 1 WHICH READS AS UNDER :- 2(47) 'TRANSFER' IN RELATION TO A CAPITAL ASSET I NCLUDES -- (I) THE SALE EXCHANGE OR RELINQUISHMENT OF THE AS SET ; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN ; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW ; OR 17 (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO OR IS TREATED BY HIM AS STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM SUCH CONVERSION OR TREATMENT ; OR (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CO NTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT 1882 ( 4 OF 1882) ; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF OR ACQUIRING SHARES IN A CO-OPERATIVE SOCIETY COMPANY OR OTHER ASSOCIATIO N OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT O F ANY IMMOVABLE PROPERTY: EXPLANATION.--FOR THE PURPOSES OF SUB-CLAUSES (V) A ND (VI) 'IMMOVABLE PROPERTY' SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 2 69UA. THERE IS A SEPARATE DEFINITION OF 'TRANSFER' FOR TH E PURPOSES OF CHAPTER XX-A OF THE ACT DEALING WITH THE RIGHT OF THE CENTRAL GOVE RNMENT TO PURCHASE IMMOVABLE PROPERTIES UNDER CERTAIN CIRCUMSTANCES AND IT IS C ONTAINED IN CLAUSE (F) OF SECTION 269UA. IN THE PRESENT CASE THERE IS NEITHER ANY SALE EXC HANGE OR RELINQUISHMENT OR EXTINGUISHMENT OF SHARES OR ANY RIGHTS THEREIN EITHER VOLUNTARILY OR BY OPERATION OF LAW OR BY ACT OF GOD. THERE IS ALSO NO COMPULSORY ACQUISITION OF THE SHARES. THERE IS NO CONVERSION OF ASSETS INTO STOCK-IN-TRADE. THERE IS ALSO NO CASE UNDER SECTION 53A OF TRANSFER OF PROPERTY ACT AS NO IMMOVABLE PROPERTY IS INVOLVED IN THE PRESENT CASE. ONCE THERE IS NO TRAN SFER WITHIN THE MEANING OF SECTION 2(47) QUESTION OF CONSIDERING ANY LOSS ALLOWABLE TO THE A SSESSEE DOES NOT ARISE. 23. FOR THE SAKE OF CONVENIENCE WE RE-PRODUCE THE HEAD-NOTES FROM THE FOUR JUDGMENTS REFERRED TO BY THE LD. A.R. AS UNDER :- 1. PATNAIK & CO. LTD. VS.- COMMISSIONER OF INCOME- TAX[1986] 161 ITR 0365[SUPREME COURT OF INDIA] THE APPELLANT WHICH DEALT IN AUTOMOBILES AND SPARE PARTS HAD SUBSCRIBED TO CERTAIN GOVERNMENT LOANS. IT SUSTAINED A LOSS OF RS. 53 650 WHILE SELLING THEM AND CLAIMED THAT THE LOSS WAS A REVENUE LOSS. THE APPELLATE TRIBUNAL FOUND THAT HAVING REGARD TO THE SEQUENCE OF EVENTS AND THE CLOSE PROXIMITY OF THE I NVESTMENT WITH THE RECEIPT OF GOVERNMENT ORDERS FOR MOTOR VEHICLES THE CONCLUSION WAS INESC APABLE THAT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE APPELLANT AND BOO ST ITS BUSINESS AND THAT THE INVESTMENT WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PU RPOSE OF CARRYING ON THE BUSINESS AND THEREFORE THE LOSS SUFFERED BY THE APPELLANT ON THE SALE OF THE INVESTMENT WAS A REVENUE LOSS. ON A REFERENCE THE HIGH COURT RE-EXA MINED THE FACTS ON RECORD AND HELD THAT 18 THE INVESTMENT WAS NOT CONNECTED WITH THE ORDERS PL ACED BY THE GOVERNMENT WITH THE APPELLANT AND HELD THAT THE LOSS WAS A CAPITAL LOSS . ON APPEAL TO THE SUPREME COURT: HELD (II) THAT ON THE FACTS NO ENDURING BENEFIT WAS D ERIVED BY THE APPELLANT BY THE INVESTMENT; (III) THAT THE TRIBUNAL WAS RIGHT IN ITS CONCLUSION THAT THE LOSS SUFFERED BY THE APPELLANT ON THE SALE OF THE INVESTMENT WAS A REVEN UE LOSS. WHERE GOVERNMENT BONDS OR SECURITIES ARE PURCHASED BY AN ASSESSEE WITH A VIEW TO INCREASING HIS BUSINESS WITH THE GOVERNMENT OR WITH THE OBJECT OF RETAINING THE GOODWILL OF THE AUTHORITIES FOR THE PURPOSE OF HIS BUSINESS TH E LOSS INCURRED ON THE SALE OF SUCH BONDS OR SECURITIES IS ALLOWABLE AS A BUSINESS LOSS. 2. COMMISSIONER OF INCOME-TAX VS.- ANJANI KUMAR CO. LTD. [2003] 259 ITR 0114- [RAJASTHAN HIGH COURT] DURING THE ASSESSMENT YEAR 1979-80 THE ASSESSING O FFICER NOTICED THAT A SUM OF RS. 52 489 WAS WRITTEN OFF ON ACCOUNT OF ADVANCE MADE TO AN AG RICULTURIST FOR PURCHASE OF AGRICULTURAL LAND. THE INTENTION OF THE ASSESSEE WAS TO ACQUIRE THE LAND TO SET UP A BOILER FACTORY BUT ULTIMATELY THAT DID NOT MATERIALISE. THE AGRICULTUR IST REFUSED TO REFUND THE AMOUNT. THE ASSESSEE FILED A CIVIL SUIT IN THE COURT WHERE THE ASSESSEE LOST ITS CLAIM. THE ASSESSEE HAD WRITTEN OFF THE AMOUNT IN ITS BOOKS OF ACCOUNT AND CLAIMED DEDUCTION OF THE INCURRED AMOUNT AS REVENUE LOSS. THE ASSESSING OFFICER REJEC TED HIS CLAIM BUT THE TRIBUNAL ALLOWED IT. ON A REFERENCE : HELD THAT WHEN LAND WAS NOT ACQUIRED NO CAPITAL ASSET HAD BEEN ACQUIRED AND THEREFORE THE PAYMENT OF RS. 52 489 WAS TO BE ALLOWED AS A BU SINESS LOSS. 3. INDIAN COMMERCE AND INDUSTRIES CO. P. LTD. VS.-. COMMISSIONER OF INCOME-TAX[1995] 213 ITR 0533-[MADRAS HIGH COURT ] THE ASSESSEE CLAIMED A LOSS OF RS. 39 000 ARISING O N SALE OF SHARES IN A COMPANY AS BUSINESS LOSS. THE ASSESSEE SUPPORTED THE CLAIM BY PRODUCING CORRESPONDENCE BETWEEN IT AND THE COMPANY TO SHOW THAT THE SHARES WERE PURCHASED ONLY ON BEING PRESSURIZED BY THE SAID COMPANY AND WITH THE INTENTION OF OBTAINING MORE BU SINESS FROM THEM. THE ASSESSEE ALSO SUBMITTED THAT BECAUSE OF THESE PURCHASES THERE WA S A PHENOMENAL INCREASE IN THE BUSINESS OF THE ASSESSEE WITH THE COMPANY. THE INCOME-TAX OF FICER DISALLOWED THE CLAIM AND THIS WAS UPHELD BY THE TRIBUNAL. ON A REFERENCE: HELD THAT THE SHARES WERE PURCHASED BECAUSE OF COERCION BY THE COMPANY AND ALSO WITH A VIEW TO INCREASE THE ASSESSEE'S BUSINESS WITH THE C OMPANY. HENCE THERE WAS A NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE AND THE PURCHA SE OF THE SHARES. THE SUM OF RS. 39 000 WAS ALLOWABLE AS A BUSINESS LOSS. 19 PATNAIK AND CO. LTD. V. CIT [1986] 161 ITR 365 (SC) FOLLOWED. 4. COMMISSIONER OF INCOME-TAX VS.-INDUSTRY AND COMMER CE ENTERPRISERS (P.) LTD. [1979] 118 ITR 0606- [ORISSA HIGH COURT] THE ASSESSEE-COMPANY CARRIED ON BUSINESS IN SALE OF FURNITURE IN GENERAL AND DURING THE RELEVANT ASSESSMENT YEAR ALSO COMMENCED BUSINESS OF A ROLLING MILL. DURING THE ASSESSMENT PROCEEDINGS THE ITO NOTICED CLAIM OF LOSS OF RS. 2 9 247 AS ARISING FROM SALES OF GOVT. LOAN BONDS AND OTHER ASSETS AND WHILE SCRUTINISING THE C LAIM FOUND THAT A SUM OF RS. 27 420 RELATED TO LOSS ARISING OUT OF SALE OF GOVT. LOAN B ONDS WORTH RS. 3 67 884. THE ASSESSEE CONTENDED THAT WITH A VIEW TO INCREASING ITS BUSINE SS WITH THE GOVT. IT BECAME NECESSARY TO PURCHASE GOVT. LOAN BONDS AND IN SUPPORT OF THE CLA IM PRODUCED A LETTER FROM THE CHIEF ENGINEER OF THE RURAL ENGINEERING ORGANISATION. THE ITO HELD THAT THE INVESTMENT WAS OF A CAPITAL NATURE AND THE LOSS ARISING THEREFROM COULD NOT BE TREATED AS REVENUE EXPENDITURE AND DISALLOWED THE CLAIM OF LOSS ON THE GROUND THAT THE PURCHASE OF THE BONDS WAS NOT A CONDITION TO SECURING PURCHASE ORDERS FROM THE GOVT . THAT THE ASSESSEE DID NOT DEAL IN GOVT. BONDS AND DID NOT HAVE ANY STOCK-IN-TRADE. ON APPEA L THE AAC SUSTAINED THE ORDER OF THE ITO. ON FURTHER APPEAL THE TRIBUNAL HELD THAT THE ASSESSEE HAD ACQUIRED BUSINESS FROM THE GOVT. BY THE PURCHASE OF THE SECURITIES AND ALTHOU GH THE RELEVANT CORRESPONDENCE DID NOT SPEAK OF ANY CONDITION PRECEDENT TO THE GRANT OF TH E BUSINESS TO THE ASSESSEE YET BECAUSE OF THE COINCIDENCE OF THE DATE OF PURCHASE OF THE BOND S AND THE BUSINESS ALLOTTED TO THE ASSESSEE WHICH WAS OF AN EQUAL SUM THERE WAS DIRECT NEXUS B ETWEEN THE BUSINESS SECURED BY THE ASSESSEE AND THE PURCHASE OF THE SECURITIES AND DEL ETED THE ADDITION AS BUSINESS EXPENDITURE. ON A REFERENCE: HELD THAT THE LETTER OF THE CHIEF ENGINEER OF THE RURAL ENGINEERING ORGANISATION WAS PRIOR TO THE INVESTMENT IN GOVT. LOANS AND THE BUSINESS W AS SECURED CONTEMPORANEOUSLY FROM THAT VERY DEPARTMENT. THE ASSESSEE DID NOT CLAIM THAT TH E BONDS WERE PURCHASED FOR ANY ENDURING RETURN AND MOREOVER THERE WAS A BOOSTING UP IN TH E BUSINESS IN THE VERY SAME YEAR. THEREFORE THE LOSS OF RS. 27 420 SUSTAINED BY THE ASSESSEE ON THE SALE OF GOVT. LOAN BONDS WAS A REVENUE LOSS. 24. A MERE READING OF ABOVE JUDGMENTS SHOWS THAT IN THREE CASES AS DISCUSSED BY US ABOVE THERE WAS A TRANSFER OF INVESTMENT AND IN ONE CASE THAT ASSESSEE HAD NOT ACQUIRED ANY ASSET AND IT WAS ADVANCED FOR ACQUIRING THE ASSET WHICH WAS LOS T. IN THE PRESENT CASE THE ASSESSEE HAS HELD THE SHARES AND VOLUNTARILY AT HIS OWN REDUCED ITS V ALUE AND CLAIMED RESULTING DIFFERENCE AS REVENUE LOSS. ALSO THERE IS NO DEBT AND HENCE CANN OT BE ALLOWED AS BAD DEBT EVEN IF THE ASSESSEE CHOOSES TO WRITE IT OFF IN THE BOOKS. FURTHER THERE IS NOT A LOSS AS NO TRANSFER HAS TAKEN PLACE THEREFORE IT CANNOT BE CONSIDERED EITHER AS REVENU E LOSS OR AS A CAPITAL LOSS. THE ASSESSEE CONTINUES TO BE THE OWNER OF THE SHARES DURING THE YEAR IN QUESTION. THE LOSS IF ANY CAN BE 20 CLAIMED IN THE YEAR WHEN THERE IS A LEGAL TRANSFER AS DEFINED IN SECTION 2(47) OF THE ACT. LOSS SO CLAIMED IS CLEARLY DISALLOWABLE. RESULTANTLY WE RE VERSE THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND UPHOLD THAT OF ASSESSING OF FICER. AS A RESULT THIS GROUND OF REVENUES APPEAL IS ALLOWED. 25. GROUND NO. 2 OF THE REVENUES APPEAL READS AS U NDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN DE LETING THE ADDITION OF RS.8 71 676/- BEING EXPENDITURE ON CONSTRUCTION OF ROADS CLAIMED AS REVENUE EXPENDITURE TREATED AS CAPITAL EXPENDITURE . 26. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUND OF APPEAL ARE THAT IN THE RETURN OF INCOME THE ASSESSEE CLAIMED REPAIRS OF RS.9 17 554/- IN RESPECT OF ROADS. IN THE ASSESSMENT ORDER THE A.O. TREATED THE SAME AS CAPI TAL EXPENDITURE AND ALLOWED THE DEPRECIATION AT NORMAL RATES. 27. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) ON BEHALF OF ASSESSEE-COMPANY IT WAS CONTENDED THAT THE COMPANY IS SITUATED IN A LARGE AREA AND SPREAD OVER HAVING LARGE DISTANCE BETWEEN PRODUCT-SHOPS. THE RO ADS CONSTRUCTED WERE DAMAGED AND THEREFORE ASSESSEE CARRIED OUT REPAIRS OF ROADS WI THIN THE FACTORY AREAS BETWEEN ONE PRODUCT-SHOP TO ANOTHER SO AS TO EASY ALLOW MOVEMENT OF MATERIAL WITHIN THE FACTORY PREMISES. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IT WAS ALSO CONTENDED THAT QUANTUM OF EXPENSES WOULD NOT DECIDE THE NATURE OF EXPENSE BECAUSE SMAL L AMOUNT MAY BE CAPITAL EXPENSE BUT A HUGE AMOUNT MAY BE REVENUE DEPENDING ON NATURE OF EXPENS E. IT WAS ALSO SUBMITTED THAT EVEN ACCUMULATED REPAIRS MAY BE CONSIDERED AS CURRENT RE PAIRS AND SAME CAN BE ALLOWED AS REVENUE EXPENDITURE. 28. AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT AS PE R PROVISIONS OF SECTION 30 OF THE INCOME TAX ACT IN RESPECT OF RENT RATES REPAIRS AND INS URANCE OF PREMISES USED FOR THE PURPOSE OF BUSINESS OR PROFESSION WHERE THE PREMISES ARE OCCU PIED AS A TENANT THE RENT PAID FOR SUCH PREMISES AND FURTHER IF ASSESSEE HAS UNDERTAKEN TO BEAR THE COST OF REPAIRS TO THE PREMISES THE 21 DEDUCTION IS ALLOWABLE FOR SUCH AMOUNT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO RELIED ON THE DECISION OF THE HON'BLE ALLAHABA D HIGH COURT IN THE CASE OF GIRDHARI DASS & SONS VS.- ACIT (1976) 105 ITR 339 WHEREIN THE HON 'BLE HIGH COURT OBSERVED AS UNDER :- THERE IS A DIFFERENCE BETWEEN REPAIRS AND CURRE NT REPAIRS. CURRENT REPAIRS MEANS ONLY SUCH REPAIRS AS ARE NE CESSITATED BY THE DAY-TO-DAY WEAR AND TEAR DURING THE RELEVANT PREVIO US YEAR ONLY WHILE REPAIR MAY MEAN ACCUMULATED REPAIRS OF SEVERAL YE ARS. APART FROM THE ABOVE THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) RELIED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS.- MAHALAXMI TEXTILES MILLS LTD. (1967) 66 ITR 710 WHEREIN IT WAS OBSERVED THAT EVEN A TOTAL REPL ACEMENT WOULD AMOUNT TO A CURRENT REPAIR. THIS POSITION IS ALSO CLARIFIED BY AN AMENDMENT IN SECTION 30 AND 31 BY WAY OF INSERTING EXPLANATION BELOW THE SECTION BY THE FINANCE ACT 2 003 W.E.F. 01.04.2004 AND NOW REPAIRS ARE SUBJECT TO CAPITALIZATION BUT THE AMENDMENT BROUGHT IN IS NOT RETROSPECTIVE BUT PROSPECTIVE IN NATURE. 29. ON THE BASIS OF THE ABOVE REASONING THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT BY INCURRING EXPENDITURE NO NEW ASSET HA S BEEN CAME INTO EXISTENCE BY REPAIRING ROAD. THOUGH REPAIR CARRIED OUT BY THE ASSESSEE IS ACCUMU LATED REPAIRS OF SEVERAL YEARS BUT STILL ALLOWABLE AS REVENUE EXPENDITURE IN VIEW OF THE DEC ISION OF THE HON'BLE APEX COURT IN THE CASE OF MAHALAXMI TEXTILES MILLS LTD. (SUPRA). CONSEQUEN TLY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DIRECTED THE A.O. TO DELETE THE ADDITI ON AND ALSO WITHDRAW THE DEPRECIATION ALLOWED. 30. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE REVENUE IS IN APPEAL BEFORE US. 31. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. FROM THE RECORD WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DELETED THE ADDITION MADE BY THE A.O. BY RELYING ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MAHALAXMI TEXTILES MILLS LTD. (SUPRA). BY CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE WE UPHOLD THE ORDER OF 22 LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND REJ ECT THIS GROUND OF APPEAL TAKEN BY THE REVENUE. 32. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DI SMISSED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER PRONOUNCED IN THE COURT ON 29.01.2010 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29 / 01 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED; (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.