WATSON PHARMA P. LTD ( SEKHSARIA CHEMICALS LTD ( MERGED), MUMBAI v. JTCIT (OSD) CIR 3(3), MUMBAI

ITA 1989/MUM/2010 | 2005-2006
Pronouncement Date: 23-03-2011 | Result: Allowed

Appeal Details

RSA Number 198919914 RSA 2010
Assessee PAN AAACS9938C
Bench Mumbai
Appeal Number ITA 1989/MUM/2010
Duration Of Justice 1 year(s) 13 day(s)
Appellant WATSON PHARMA P. LTD ( SEKHSARIA CHEMICALS LTD ( MERGED), MUMBAI
Respondent JTCIT (OSD) CIR 3(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 23-03-2011
Date Of Final Hearing 15-03-2011
Next Hearing Date 15-03-2011
Assessment Year 2005-2006
Appeal Filed On 11-03-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI R. V. EASWAR PRESIDENT AND SHRI RAJEN DRA SINGH(AM) ITA NO.1989/M/2010 ASSESSMENT YEAR 2005-06 WATSON PHARMA PRIVATE LIMITED THE JT. CIT CIRCLE- 3(3) MUMBAI 301 CORPORATE ENCLAVE AAYAKAR BHAVAN M.K.MARG B.D.SAWANT MARG MUMBAI 400 020. CHAKKALA ANDHERI (E) MUMBAI 400 099. PAN : AAACS 9938 C APPELLANT RESPONDENT ASSESSEE BY : MR. PARAS SAVLA REVENUE BY : MS. ASHIMA GUPTA O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 18.1.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06 . THE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES OF TWO DIFFERENT GROUNDS . 2. THE FIRST DISPUTE IS REGARDING TAXABILITY OF INC OME OF RS.5 56 074/- EARNED BY THE ASSESSEE DURING THE PRE-OPERATIVE PER IOD. THE ASSESSEE WHO WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF VARIOUS DRUGS WAS CONSTRUCTING A BULK DRUGS PLANT AT AMBERNATH. THE ASSESSEE DURING THE PRE-OPERATIVE PERIOD HAD EARNED INTEREST INCOME OF RS.31 649/- FROM DEPO SITS WITH MSEB AND MIDC; PROFIT OF RS.3 70 074/- ON REDEMPTION OF MUTUAL FUN DS; AND INCOME OF 2 RS.1 86 000/- ON ACCOUNT OF REALIGNMENT OF SCB LOAN . THE TOTAL INCOME EARNED AMOUNTED TO RS.5 87 723/-. THE ASSESSEE SUBMITTED B EFORE CIT(A) THAT THE INCOME EARNED WAS INEXTRICABLY LINKED WITH THE PROC ESS OF SETTING UP OF PLANT AND THEREFORE THE SAME HAD TO BE REDUCED FROM THE C OST OF THE PROJECT FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS BOKARO STEEL LTD. (236 ITR 315). THE AO HOWEVER DID NOT AC CEPT THE CONTENTIONS RAISED AND OBSERVED THAT THE INCOME EARNED WAS NOT AS A RE SULT OF SETTING UP OF THE PLANT. HE THEREFORE FOLLOWING THE JUDGMENT OF HONB LE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS CI T (227 ITR 172) HELD THAT THE INCOME WAS TAXABLE AS BUSINESS INCOME. IN APPEAL CI T(A) OBSERVED THAT THE ASSESSEE WAS REQUIRED TO MAKE DEPOSITS WITH MSEB AN D MIDC FOR TAKING POSSESSION OF THE LAND AND ELECTRICITY CONNECTION F OR THE PLANT UNDER CONSTRUCTION. THEREFORE THE INTEREST EARNED OF RS.3 1 649/- HAD DIRECT NEXUS WITH THE SETTING UP OF THE PLANT AND THE SAME HAD T O BE REDUCED FROM THE COST OF THE PROJECT FOLLOWING THE JUDGMENT OF HONBLE S UPREME COURT IN CASE OF BOKARO STEEL LTD. (SUPRA). CIT(A) HOWEVER OBSERVED THAT THE NOTIONAL INCOME EARNED ON REALIGNMENT OF FOREIGN CURRENCY LOAN WAS SPECULATIVE IN NATURE AND COULD NOT BE SET OFF AGAINST THE COST OF THE PROJEC T. CIT(A) DID NOT PASS ANY ORDER IN RELATION TO THE PROFIT ON REDEMPTION OF MU TUAL FUND. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE FOREIGN CURRENCY LOAN HAD BEEN TAKEN FOR THE PURPOSE OF SET TING UP OF THE PROJECT AND THEREFORE ANY INCOME ON ACCOUNT OF REALIGNMENT OF L OAN WAS ON CAPITAL ACCOUNT. IT WAS ALSO SUBMITTED THAT INVESTMENT IN MUTUAL FUN D HAD BEEN MADE FROM THE FUNDS BORROWED FOR THE PURPOSE OF BUSINESS AND THER EFORE INCOME SHOULD BE SET OFF AGAINST THE COST OF THE PROJECT. THE LEARNED DR ON THE OTHER HAND SUBMITTED 3 THAT THERE WAS NO FINDING THAT BORROWED FUNDS HAD B EEN UTILIZED FOR MAKING INVESTMENT IN MUTUAL FUND OR THAT FOREIGN CURRENCY LOAN HAD BEEN TAKEN FOR THE PURPOSE OF SETTING UP OF THE PROJECT AND THEREFORE ADDITION MADE TO THE INCOME WAS JUSTIFIED. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ASSESSMENT OF I NCOME OF RS.3 70 074/- BEING THE PROFIT ON REDEMPTION OF MUTUAL FUND AND R S.1 86 000/- BEING THE INCOME ON REALIGNMENT OF SCB LOAN EARNED BY THE ASS ESSEE DURING THE PRE- OPERATIVE PERIOD OF THE PLANT. THE HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALIS CHEMICAL & FERTILIZERS LTD. (SUPRA) HAVE HE LD THAT INTEREST INCOME EARNED FROM INVESTMENT OF BORROWED FUNDS DURING THE PRE-COMMENCEMENT PERIOD HAS TO BE TREATED AS INCOME FROM OTHER SOURC ES. THE SAID JUDGMENT WAS SUBSEQUENTLY CONSIDERED BY THE HONBLE SUPREME COUR T IN CASE OF CT VS BOKARO STEEL LTD. (SUPRA) IN WHICH IT WAS HELD THAT IN CAS E ANY INCOME AROSE IN THE PRE- COMMENCEMENT PERIOD FROM UTILIZATION OF ASSETS SUCH AS RENT FROM QUARTERS LET OUT TO CONTRACTORS HIRE CHARGES OF PLANT AND MACHI NERY ETC. THE SAME HAS TO BE TREATED AS CAPITAL RECEIPT TO BE REDUCED FROM THE C OST OF THE PROJECT. AS REGARDS THE INTEREST INCOME EARNED FROM SHORT TERM DEPOSITS HONBLE SUPREME COURT OBSERVED THAT THE ISSUE WAS SETTLED BY THE PREVIOUS JUDGMENT IN CASE OF TUTICORIN ALKALIS AND FERTILIZERS (SUPRA) AS PER WH ICH SUCH INCOME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. A COMBINED RE ADING OF BOTH THE JUDGMENTS SHOWS THAT IN CASE ANY INCOME HAD ARISEN DURING THE PRE- COMMENCEMENT PERIOD FROM INVESTMENT OF BORROWED FUN DS IN ANY SHORT TERM DEPOSITS OR ANY MUTUAL FUNDS THE INCOME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES UNLESS IT WAS SHOWN THAT THOSE DEPOSI TS OR THE MUTUAL FUND UNITS WERE UTILIZED IN THE PROCESS OF SETTING UP OF THE P ROJECT IN WHICH CASE THE 4 RECEIPT HAS TO BE TREATED AS CAPITAL RECEIPT TO BE ADJUSTED AGAINST THE PROJECT COST. THE ISSUE HAS NOT BEEN EXAMINED AND THERE IS NO FINDING BY CIT(A) AS TO THE USER OF MUTUAL FUND UNITS FOR THE SETTING UP OF THE PLANT. AS REGARDS THE INCOME FROM REALIGNMENT OF SCB LOAN IN CASE THE LO AN HAD BEEN TAKEN FOR SETTING UP OF THE PROJECT ANY NOTIONAL GAIN ARISIN G ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATION HAS TO BE TREATED ON CAPITAL ACCOUNT. FULL FACTS IN THIS REGARD ARE HOWEVER NOT AVAILABLE ON RECORD. WE THER EFORE SET ASIDE THE ORDER OF CIT(A) ON BOTH THE POINTS AND RESTORE THE MATTER BA CK TO HIM FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGH T OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES OF RS.17 76 046/-. THESE EXPENSES WERE NOT CLAIMED IN THE RETURN OF INCOME FILED. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS VIDE LETTER DATED 31.3.2007 SUBMITTED THAT THESE EXPENSES RELATING TO THIS YEAR WERE NOT PROVDED IN THE BOOKS OF ACCOUNT AS THESE WERE NOTICED ONLY IN THE NEXT ASSESSMENT YEAR I.E. A.Y.2006-07. ACCORDINGLY THE ASSESSEE CLAIMED DEDUC TION ON ACCOUNT OF SAID EXPENSES DURING THE ASSESSMENT PROCEEDINGS FOR A.Y. 2005-06. THE AO HOWEVER DISALLOWED THE CLAIM AFTER OBSERVING THAT THE ASSES SEE COULD MAKE ANY CLAIM BEFORE THE AO ONLY BY WAY OF FILING A RETURN OF INC OME OR A REVISED RETURN OF INCOME IN VIEW OF THE JUDGMENT OF HONBLE SUPREME C OURT IN CASE OF GOETZ INDIA LTD. VS CIT (284 ITR 323). AO THEREFORE DISAL LOWED THE CLAIM. IN APPEAL THE ASSESSEE SUBMITTED THAT IT COULD NOT REVISE THE RETURN AS THE DIRECTORS WHO WERE NON RESIDENTS WERE NOT AVAILABLE AT THE RELEVA NT POINT OF TIME. IT WAS ALSO POINTED OUT THAT THE LETTER WAS FILED WITHIN THE TI ME ALLOWED TO FILE THE REVISED RETURN OF INCOME. CIT(A) HOWEVER DO NOT ACCEPT THE PLEA AND OBSERVED THAT THE ASSESSEE HAD SUFFICIENT TIME AVAILABLE FOR FILING T HE RETURN WHICH WAS NOT DONE. 5 HE THEREFORE CONFIRMED THE DISALLOWANCE AGGRIEVED B Y WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE AO COULD NOT ALLOW ANY CLAIM OTHER THAN CLAIM MADE BY WAY OF A RETURN OF INCOME OR REVISED RETURN BUT THERE WAS NO BAR ON ALLOWING SUC H CLAIM BY THE APPELLATE AUTHORITIES WHICH HAS BEEN MADE IT CLEAR EVEN IN T HE JUDGMENT IN CASE OF GOETZ INDIA LTD. VS CIT (SUPRA). IT WAS ACCORDINGLY URGED THAT THE CLAIM SHOULD BE ALLOWED. THE LEARNED DR PLACED RELIANCE ON THE ORDE RS OF AUTHORITIES BELOW. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF CLAIM OF EXPEN SES MADE BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS WITHOUT REVISING THE RETURN OF INCOME. THE CLAIM HAS BEEN DISALLOWED FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF GOETZ INDIA LTD. (SUPRA) IN WHICH IT WAS HE LD THAT ANY CLAIM NOT MADE IN THE RETURN CAN BE MADE BEFORE THE AO ONLY BY WAY O F A REVISED RETURN. HOWEVER THE HONBLE SUPREME COURT IN THE SAID CASE HAD ALSO MADE IT CLEAR THAT THE DECISION WAS RESTRICTED TO THE POWER OF AS SESSING AUTHORITY TO ENTERTAIN A CLAIM OTHERWISE THAN BY WAY OF A REVISE D RETURN AND IT DID NOT IMPINGE ON THE POWER OF THE APPELLATE TRIBUNAL UNDE R SECTION 254 OF THE INCOME-TAX ACT. THERE IS NO FINDING OF THE AO THAT THE CLAIM DOES NOT RELATE TO THIS YEAR OR THAT IT IS NOT ALLOWABLE. IN OUR VIEW IF THE CLAIM RELATES TO THIS YEAR AND IS OTHERWISE ALLOWABLE AS REVENUE EXPENDITURE IT SHOULD BE ALLOWED. WE THEREFORE DIRECT THE AO TO CONSIDER THE CLAIM AND P ASS A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNIT Y OF HEARING TO THE ASSESSEE. THE ISSUE IS THUS RESTORED TO THE AO. 6 4. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSE. 5. ORDER WAS PRONOUNCED IN THE OPEN COURT 23.03.201 1. SD/- SD/- ( R. V. EASWAR ) (RAJENDR A SINGH) PRESIDENT ACCOUNTANT MEMBER DATE : 23.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK