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TMI Blog2014 (2) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... late - The credit of tax was claimed during the year under appeal - Decided in favour of assessee. Disallownace of interest expenses - Held that:- Funds borrowed by assessee were used by the assessee for business purposes and interest was paid by assessee to the lender and same was offered to tax - The AO has observed the requirement of funds by the appellant - The borrowings so made are represented by the business assets of the appellant, it is not the case that the amount so obtained has been diverted for non-business purpose - The disallowance should be deleted - Decided against Revenue. - ITA No. 4144/Ahd/2007, ITA No. 4145/Ahd/2007, ITA No. 4243/Ahd/2007 - - - Dated:- 31-1-2014 - Sri D. K. Tyagi And Shri Anil Chaturvedi,JJ. For the Petitioner : Sri O. P. Batheja, Sr. D. R. For the Respondent : Sri S. N. Soparkar, A.R. ORDER Per : D. K. Tyagi, Judicial Member:- Assessee's appeal for 2001-02 has been filed against the order of Ld. CIT(A)-II Ahmedabad dated 05-09-2007. Cross appeals for assessment year 2003-04 have been filed against the order of Ld. CIT(A)-II Ahmedabad dated 10-09-2007. 2. Since these appeals belong to same assessee, these are being d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running of Alpa Marketing Enterprise, Prop. Jalpa Specific Family Trust. This business was bought over as per the provisions of slump sale u/s.50B of the IT Act. In this, the assessee company took over whole of the assets and liabilities of the business of Alpa Marketing Enterprise w.e.f . 31.12.2000. 3. At the time of sale Alpa Marketing Enterprise had unpaid sales tax liability of Rs. 2,01,778, this liability was taken over by the assessee company. During the course of assessment proceedings of Jalpa Specific Family Trust, Prop. Alpa Marketing Enterprise, it was verified that out of this unpaid sales tax liability of Rs. 2,01,778/- only Rs. 1,85,594/- was paid by the assessee company before the due date of filing of return. The unpaid liability of Rs. 16,184/- was not incorporated in the Form 3CD report filed by the assessee company and is liable for disallowance u/s. 13B. 4. In view of the above, I have reason to believe that income chargeable to tax for A.Y. 2001-02 has escaped assessment. In view of this notice u/s. 148 dated 5-4-2004 is issued to the assessee." 6. Assessee vide its submission dated 03-01-2006 had objected to these proceedings as under:- "From the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds taken by assessee do not require any adjudication on our part. 7. In the result, assessee's appeal is allowed. ITA No. 4145/Ahd/2007 8. Ground no. 1 is general does not require any adjudication. Ground no. 2 reads as under:- "2. In law and in facts and circumstances of the Appellant's case, the ld. CIT(A) has erred in confirming disallowance of depreciation Rs. 8,20,313/-" 9. The assessing officer while making disallowance of depreciation of Rs. 8,20,313/- has observed as under:- "3. Claim of depreciation of Rs. 80,20,313 in the license fee of Rs.50 lacs : From the statement of income it has been found that the assesses has claimed depreciation on the license fees of Rs 8,20,313. In the assessment order u/s.147 of I.T. Act in case of the assessee in A Y 2001-02 a detailed discussion was made in this regard and disallowance of claim of depreciation of Rs. 6,25,000 in that year was made. In the return of income of A Y 2001-02, it was found that in notes forming part of return of income No.2, it has been written that the company purchased running business of Alpa Marketing Enterprise on 10-12-2000 for the consideration of book value of net asset plus Rs 50 lacs. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sales department infrastructure in various states and centers with its own licenses and arrangements and vast number of distributors, helping to penetrate into the interiors of the country. It was also submitted that the data base on consumer habits and market potential have also been acquired and in lieu of all these this amount of Rs.50 lacs have been paid. It was claimed that in the agreement dated 10-12-2000 various clauses have been written which dearly explain that this payment of Rs 50 lacs was for the license and as per the provision of section 32 of the Act the depreciation is allowable on such tangible assets. 3.2 The contention of the assessee was not found correct since the fact is that the lump sum amount has been paid and if could not be explained as to why the depreciation should be allowed on this lump sun payment made by the assessee to the former proprietor of Alpa Marketing Enterprise. The agreement between Jalpa Specific Family Trust i.e. proprietor of Alpa Marketing Enterprise, which is the seller of entire business of AME and Navin Detergent P. Ltd. i.e the assessee. dated 10-12-2000 is produced as under AGREEMENT This agreement is made at Ahmedabad on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ETWEEN THE PARTIES AS FOLLOWS: 1 The Seller agree to sell and the Purchaser agree to purchase the entire set up of the seller's proprietary concern in the name and style of Alpa Marketing Enterprise with effect from V 1.2000 (hereinafter referred to as the effective date Gate) for total consideration of Rs. 50,00,000/- (Rupees Fifty lacs only) 2. The Purchaser shall pay the said consideration amount of Rs.50,00,000./- (Rupees fifty lacs only) within a period of 12 months to the seller. 3. All the assets rights, liabilities, obligations and duties relating to aforesaid AME of the Seller effective from 01.01.2001 shall stand transferred or deemed to he transferred without further acl or deed to the Purchaser so as to become absolute assets, rights, liabilities, obligation and duties of the Purchaser. 4. In respect of the assets as are movable in nature or are otherwise capable of transfer by manual delivery, the same may be so transferred by the Seller and shall become the property of the purchaser upon such transfer, endorsement or delivery as the case may be which the purchaser directed to deliver, endorse, or transfer from the date of transfer. 5. All the profits or inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid AME shall without any act or deed be transferred to vested and or deemed to be transferred and vested in the Purchaser. b) The Purchaser shall apply for change of name in the records of various authorities of the Central Government or State Government or any local bodies with respect to inter alia Sales tax, Income tax, Excise, Lease tax, Local Grounds tax, records of rights etc and all the expenses relating thereto shall be borne by the Purchaser. c) All costs charges, taxes including duties, levies and all other expenses, if any have and expressly provided otherwise arising out of or incurred in carrying out and implementing the terms of transfer and incidental thereto shall be borne and paid by the Purchaser. 10) Notwithstanding anything to the contrary herein contained, the Seller agrees and undertakes to indemnify and keep the Purchase harmless against any claim or demand of any nature whatsoever made against the Purchaser by any person arising due the transfer of undertaking arising due to non-compliance of the provisions of any the law applicable but not implied by the said AME before the date of transfer/effective date. 11. All disputes and differences arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and permanent account number of the person who has purchased the undertaking or division referred to in item 2. Navin Detergents Pvt. Ltd, 4th Floor, Kashmira Chambers, B/h Popular House, Ashram Road, Ahd-09 P.A. No. AAACN5215B 4 Date of slump sale of the undertaking or division referred to in item 2 31.12.2000 5 Amount of consideration received for slump sale referred to in itern 2 Rs. 12,13,16,557/- (Net Assets) + Rs. 50,00,000/- (Rs. Twelve Crores sixty Three Lacs Sixteen Thousand five hundred and fifty seven only) 6 Net worth of undertaking or division referred to in item 2 (a)In the case of depreciable assets, written down value of the assets of the undertaking or division or division transferred by way of slump sale, determined in accordance with sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43. Rs. NIL (b) In the case of other assets, book value of such assets. Rs. 12,55,01.558/- (c)Aggregate value of total assets of the under-taking or division transferred by way slump sale [(a) + (b) ] Rs. 12,55,01.558/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first land of Rs.2,47,420 and second this license fee of Rs 50 lacs. From this it is very clear that the assessee has right to claim the depreciation on the land because that was the only asset in the Schedule of fixed assets. The assessee has claimed depreciation on this asset to the extent of Rs 8,20,313, which is strange and the same cannot be allowed at all. 3.6 From the entire episode it is clear that the amount of Rs 50 lacs has been made as lump sum payment and it is not relating to any particular license" or any other intangible asset in which the depreciation is made available by law. The assessee has only given this payment of Rs 50 lacs, a name as 'license fee to claim the deprecation, which is not genuine at all and therefore, depreciation of Rs 8,20,313 is hereby disallowed and the amount of Rs. 50 lacs is reduced from the block of assets and the WDV of the block of the assets is reduced with this sum of Rs 50 lacs accordingly. (Disallowance of Rs. 8,20,313)" 10. In appeal the same was confirmed by Ld. CIT(A). 11. At the time of hearing before us, it was submitted on behalf of the assessee that assessee has paid Rs. 80 lacs towards intangible assets on acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at income relating to this TDS has been offered in assessment year 01-02 2002-03 but TDS certificate was received late and therefore the credit was claimed during the year under appeal. The lower authorities have not accepted this submission of the assessee. We are however of the opinion that since income against TDS has already been offered in the earlier years the assessee is entitled for credit of this TDS and the same be given to the assessee in the years in which income relating to this TDS was offered. This ground of the assessee is allowed. 16. Ground no. 4 is consequential in nature does not require any adjudication. 17. Ground no. 5 relating to initiation of penalty proceedings u/s. 271(1)(c) being premature is also dismissed. 18. Ground no. 6 is general does not require any adjudication. 19. In the result, assessee's appeal is partly allowed for statistical purpose. ITA No. 4243/Ahd/2013 20. This is revenue's appeal against the order of Ld. CIT(A)-II dated 10/09/2007 21. Revenue has taken following effective ground:- "1. The Ld. CIT(A) -II Ahmedabad has erred in law and on facts in deleting the addition made of Rs. 22,99,322/- on account of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence no disallowance can be made in this regard. 4.2 The contentions made by the assessee are not tenable at all and the rebuttal of the same is as under:- i) From the P L account of the assessee, it has been found that the assessee has made total sales of Rs. 74,23,347/-. The assessee has made total purchase of Rs. 54,65,375/-. It has also incurred selling and distribution expenses of rS. 11,92,683/-. Over and above these expenses, the assessee has claimed financial expenses of Rs. 23,60,108/- which includes interest payment of Rs. 22,99,322/-. This interest of Rs. 22,99,322/- has been paid to its related persons i.e. Niya Fin Stock P. Ltd and the maximum balance outstanding during the year has been found at Rs. 2,74,43,221/-. From this detail, it is very clear that there was no need to the assessee to take such huge funds which is totally incomparable to the business volume of the assessee. This means that the borrowing of fund from related person and payment of interest to it was not required and the assessee has diverted profits and incurred the gross loss before depreciation and tax of Rs. 15,41,630/- ii) Last year, the assessee had shown gross profit of Rs. 5,98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. The A.O. has applied provisions on section 40A(2)(a) of the Act. He has observed about the requirement of funds by the appellant. I find that whether the funds are to be borrowed for the purpose of business or not is the decision of the assessee Therefore, this cannot be the ground for making addition. However, it appears that that TDS has not been deducted while giving credit for such interest. Considering the fact that the borrowings so made are represented by the business assets of the appellant, it is not the case that the amount so obtained has been diverted for non-business purpose, the disallowance made is, therefore, directed to be deleted." 25. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that funds borrowed by assessee from M/s Niya Finstock Pvt. Ltd were used by the assessee for business purposes and interest of Rs. 22,99,322/- was paid by assessee to them and same was offered to tax. We further find that during the year credit balance of M/s Niya Finstock Pvt. Ltd was reduced by sum of Rs. 1,15,42,627/-. Therefore it cannot be said that during the year under appeal funds were borrowed to reduce the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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