2010 (3) TMI 943 - AT - Income Tax

Summary

Issues Involved:
1. Replacement of machinery as revenue expenditure u/s 37 of the Income-tax Act.
2. Difference in power charges on sale of electricity to the assessee's sister concern.
3. Disallowance of long-term capital loss on transfer of shares as a sham transaction.
4. Validity of assessment order against a non-existent company post-amalgamation.

Summary:

Issue No. 1 - Replacement of Machinery:
The Tribunal remitted the matter back to the Commissioner of Income-tax (Appeals) to pass a fresh order in light of the Supreme Court's decision in CIT v. Hindustan Textiles and CIT v. Sugavaneeshwara Spg. Mills Ltd.

Issue No. 2 - Difference in Tariff Charged from Sister Concern:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the addition made by the Assessing Officer. It was determined that selling power at a concessional rate to the sister concern falls within the realm of commercial expediency, as the assessee received payments instantly, saving interest liability. The Tribunal relied on the Supreme Court's decision in S. A. Builders Ltd. v. CIT, which emphasized that commercial expediency includes expenditures incurred for business purposes, even if a third party benefits.

Issue No. 3 - Disallowance of Long-term Capital Loss:
The Tribunal upheld the disallowance of the long-term capital loss claimed by the assessee on the grounds that the transaction was a sham. The assessee failed to produce primary evidence such as the identity of the purchasers, market value of the shares, and details of the transactions. The Tribunal emphasized that the onus is on the assessee to prove the genuineness of the transaction, which the assessee failed to do.

Issue No. 4 - Validity of Assessment Order Against Non-existent Company:
The Tribunal noted that the assessment order was passed against M/s. Meridian Industries Ltd., which had merged into M/s. Precot Meridian Ltd. The Tribunal found a violation of natural justice as the Commissioner of Income-tax (Appeals) considered a rectification order without giving the assessee an opportunity to be heard. The issue was remitted back to the Commissioner of Income-tax (Appeals) for a fresh decision after giving due opportunity to the assessee.

Conclusion:
- The appeal by the Revenue in I.T.A. No. 2308/Mds/2008 was partly allowed for statistical purposes.
- The appeal by the assessee in I.T.A. No. 2261/Mds/2008 was dismissed.
- The appeal by the assessee in I.T.A. No. 2262/Mds/2008 was partly allowed for statistical purposes.

Pronouncement:
The order was pronounced in the court on March 19, 2010.