DCIT 14(2), MUMBAI v. HINDUSTAN ESSENTIAL OIL CO., MUMBAI

ITA 2266/MUM/2013 | 2009-2010
Pronouncement Date: 25-11-2014 | Result: Dismissed

Appeal Details

RSA Number 226619914 RSA 2013
Assessee PAN AAAFH2700G
Bench Mumbai
Appeal Number ITA 2266/MUM/2013
Duration Of Justice 1 year(s) 8 month(s) 4 day(s)
Appellant DCIT 14(2), MUMBAI
Respondent HINDUSTAN ESSENTIAL OIL CO., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 25-11-2014
Date Of Final Hearing 13-10-2014
Next Hearing Date 13-10-2014
Assessment Year 2009-2010
Appeal Filed On 21-03-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNALH BENCH MUMB AI BEFORE SHRI JOGINDER SINGH JM AND SHRI D. KARUNAKARA RAO AM ITA NOS.873/MUM/2013 ASSESSMENT YEARS-2009-10 M/S. HINDUSTAN ESSENTIAL OIL COMPANY R. NO.6 2 ND FLOOR ANAND BHANVA 17 BABU GENU ROAD MUMBAI-400002 / VS. THE DEPUTY COMMISSIONER OF INCOME TAX-14(2) ROOM NO.302 3 RD FLOOR EARNEST HOUSE NARIMAN POINT MUMBAI-400021 ! ./ PAN :AAAFH2700G ( '#!$ / APPELLANT ) .. ( / REVENUE ) ITA NOS.2266/MUM/2013 ASSESSMENT YEARS-2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX-14(2) ROOM NO.302 3 RD FLOOR EARNEST HOUSE NARIMAN POINT MUMBAI-400021 / VS. M/S. HINDUSTAN ESSENTIAL OIL COMPANY R. NO.6 2 ND FLOOR ANAND BHANVA 17 BABU GENU ROAD MUMBAI-400002 ! ./ PAN :AAAFH2700G ( / REVENUE ) .. ( '#!$ / APPELLANT ) '#!$% & / ASSESSEE BY: SHRI NARESH JAIN % & / REVENUE BY : SHRI JEETENDRA KUMA R - DR ' () % * + / DATE OF HEARING 19/11/2014 - % * + / DATE OF PRONOUNCEMENT : 25/11/2014 2 M/S HINDUSTAN ESSENTIAL COMPANY / / O R D E R PER JOGINDER SINGH JM: THESE ARE CROSS APPEALS BY THE ASSESSEE (ITA NO.873/MUM/2013) AS WELL AS BY THE REVENUE (ITA NO.2266/MUM/2013). BOTH ARE AGGRIEVED BY THE IMPUG NED ORDER DATED 03/12/2012 OF THE LD. FIRST APPELLATE AUTHORIT Y MUMBAI. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS FOLLOWS:- I. THE LD. CIT(A) HAS ERRED IN LAW AS WELL ON THE FACT I N ALLOWING DEDUCTION U/S.10B AND HELD THAT THE BUSINESS ACTIVITY C ARRIED OUT BY THE ASSESSEE IS MANUFACTURING ACTIVITY WITH OUT CONSIDERING THE APPLICABILITY OF SECTION 10B(7) R.W. S.80IA(10). II. WITHOUT PREJUDICE TO THE ABOVE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO CONSIDERING THE FACT THA T WHETHER MANUFACTURING EXPENSES OF JUST 0.45% OF THE SALES WHEREIN THE ASSESSEE UNABLE TO SHOW HOW THE RAW MATERIAL AND FIN ISHED PRODUCT VALUATION TOOK PLACE ALSO FAILED TO PRODUCE THE BASIC REQUIREMENT OF PRODUCTION OF GOODS. III. FOR THESE ANY OTHER REASONS THAT MAY BE URGED AT TH E TIME OF HEARING IT IS REQUESTED THAT THE ORDER OF THE CIT(A ) BE QUASHED AND THAT OF THE A.O. BE RESTORED. 2.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN DIRECTING T HE ASSESSING OFFICER TO RESTRICT THE CLAIM U/S 10B TO 19.06% OF SALES (EXCLUDING FOREIGN EXCHANGE GAIN) AGAINST RS.2 32 48 056/- AS CLAIMED BY YOUR APPELLANT ON THE PROFIT OF NILAKOTTAI UNIT (A 100% EOU) 3 M/S HINDUSTAN ESSENTIAL COMPANY ALTHOUGH NO DEFECT WAS POINTED OUT IN THE AUDITED A CCOUNTS BY ANY OF THE LOWER AUTHORITIES. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN GIVING OBSE RVATION REGARDING COMPUTATION OF CAPITAL GAINS IN THE HANDS OF THE SUCCESSOR COMPANY IN THE SUBSEQUENT YEAR EVEN THOUGH IT HAS NO JURISDICTION GO GIVE ANY OBSERVATION FOR THE YEAR AND THE ASSESS EE NOT IN APPEAL 2.2. FIRST WE SHALL TAKE UP THE APPEAL OF THE REVENUE W HEREIN THE FIRST GROUND PERTAINS TO ALLOWING DEDUCTION U/S 10B OF THE INCOME-TAX ACT 1961 (HEREINAFTER THE ACT) HOLDING THAT THE BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE IS A MANUFACTURING ACTIVITY WITHOUT CONSIDERING THE APPLICABILITY OF SECTION 10B(7) R.W.S. 80IA(10) OF THE ACT. THE LD. DR SHREE JEETE NDRA KUMAR ADVANCED HIS ARGUMENTS WHICH IS IDENTICAL TO THE GR OUND RAISED BY SUBMITTING THAT MIXING OF PERFUMERY COMPOUNDS AT BEST CAN BE SAID TO BE A PROCESSING ACTIVITY AND CANNOT BE SAID TO BE MANUFACTURING THUS THE ASSESSMENT ORDER WAS SUPPO RTED. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SH REE NARESH JAIN DEFENDED THE CONCLUSION DRAWN BY THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT THE ISSUE I S SETTLED BY THE DECISION OF THE TRIBUNAL AS WELL AS FROM THE HO NBLE JURISDICTIONAL HIGH COURT AS IN THE PRECEDING YEAR THE CLAIMED EXEMPTION/DEDUCTION WAS ALLOWED IN FAVOUR OF THE AS SESSEE. 2.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF A RE THAT THE ASSESSEE IS IN THE BUSINESS OF PRODUCTION OF PERFUM ERIES COMPOUNDS. AS PER THE REVENUE THE ASSESSEE IS MER ELY MIXING 4 M/S HINDUSTAN ESSENTIAL COMPANY CERTAIN COMPOUNDS; THEREFORE THERE IS NO MANUFACTU RING AS SUCH. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THERE WAS NO SIGNIFICANT SPENDING AS COMPARED TO SALES AS THE TO TAL MANUFACTURING EXPENSES WERE TO THE TUNE OF RS.2 66 913/- (RS.55 270/- ON GAS FOR GC. MAS RS.54 664 ON POWER AND FUEL RS.4 788/- ON GAS AND UTILITIES AND RS.1 52 191/- O N ELECTRICITY) AGAINST THE SALE OF RS.5 83 65 060/-. IT WAS FURTH ER NOTICED THAT THE RATIO OF MANUFACTURING EXPENSES IN COMPARISON T O SALE IS MERELY 0.45% THUS MERELY MIXING IS NOT MANUFACTURIN G. ON APPEAL THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) FOLLOWING THE DECISION OF THE TRIBUNAL/HONBLE HIGH COURT DEC IDED IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. WE ARE OF THE VIEW THAT THE W ORD INDUSTRY HAS A WIDE IMPORT WHERE THERE IS A SYSTEMATIC ACTI VITY ORGANIZED BY COOPERATION BETWEEN EMPLOYER AND EMPLOYEE (THE D IRECT AND SUBSTANTIAL ELEMENT IS COMMERCIAL) FOR THE PRODUCT ION AND/OR DISTRIBUTION OF GOODS AND SERVICES CALCULATED TO SA TISFY HUMAN WANT AND WISHES (NOT SPIRITUAL OR RELIGIOUS BUT INC LUSIVE OF MATERIAL THINGS OR SERVICES GEARED TO CELESTIAL BLI SS) PRIMA FACIE THERE IS AN INDUSTRY IN THAT ENTERPRISE. THE TRU E FOCUS IS FUNCTIONAL AND THE DECISIVE TEST THE NATURE OF ACTI VITY. ADMITTEDLY MANUFACTURING AND PROCESSING ARE NOT CLEARLY DEMARC ATED FIELDS. THE TEST OF MANUFACTURING LIES IN THE ANSWER TO THE QUESTION WHETHER WHAT IS PROCESSED OR PRODUCED AS THE END PR ODUCT IS COMMERCIALLY KNOWN DIFFERENTLY FROM THE RAW MATERIA L OUT OF WHICH THE END PRODUCT IS PRODUCED. IN THE CASE OF THE ASSESSEE 5 M/S HINDUSTAN ESSENTIAL COMPANY VARIOUS ITEMS ARE MIXED IN A SPECIFIED QUANTITY WIT H THE HELP OF MAN POWER AND MACHINE AND THE END PRODUCT IS COMMER CIALLY KNOWN DIFFERENTLY THEREFORE IT CAN BE SAID THAT T HE ASSESSEE IS MANUFACTURING UNIT. WITHOUT ADVERTING FURTHER SINC E THE HONBLE HIGH COURT HAS ALREADY UPHELD THE ORDER OF THE TRIB UNAL HOLDING THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE AMOUN TS TO MANUFACTURING FOR ASSESSMENT YEAR 2002-03 AND NO CO NTRARY DECISION WAS BROUGHT TO OUR NOTICE BY THE REVENUE THEREFORE RESPECTFULLY FOLLOWING THE DECISION FROM THE HONBL E JURISDICTIONAL HIGH COURT THAT TOO IN THE CASE OF ASSESSEE (ITA N O. 348/2011) ORDER DATED 13/01/2012 WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) CONSEQUENTLY THIS GROUND OF THE REVENUE IS WITHOUT ANY MERIT THEREFORE DISMISSED. 2.4. WITHOUT PREJUDICE TO THE ABOVE GROUND THE REVENUE HAS ALSO CONTENDED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DID NOT CONSIDER THE FACT THAT WHETHER MANUFACTURIN G EXPENSES OF JUST 0.45% OF THE SALES WHEREIN THE ASSESSEE WAS U NABLE TO SHOW HOW THE RAW MATERIALS FINISHED PRODUCTS VALUATION T OOK PLACE AND FURTHER FAILED TO PRODUCE THE BASIC REQUIREMENT OF PRODUCTION OF GOODS. THE LD. DR DEFENDED THE CONCLUSION DRAWN IN THE ASSESSMENT ORDER WHEREAS THE LD. COUNSEL FOR THE AS SESSEE DEFENDED THE IMPUGNED ORDER. 2.4.1. CONSIDERING THE TOTALITY OF FACTS WE FIND THAT THE OBSERVATION MADE IN THE ASSESSMENT ORDER IS THAT IN COMPARISON 6 M/S HINDUSTAN ESSENTIAL COMPANY TO SALES OF RS.5 83 65 060/- THE TOTAL MANUFACTURIN G EXPENSES ARE MERELY RS.2 66 913/- WHICH IS ONLY 0.45% OF THE SALES EXPENSES. POSSIBLY THE ASSESSEE IS MIXING THE PER FUMERY COMPOUNDS IN A SPECIFIED REQUIRED RATIO WITH THE HE LP OF MAN POWER AND MACHINE THEREFORE IT IS ALWAYS NOT NECE SSARY THAT MANUFACTURING CAN BE SAID TO BE COMPLETE ONLY WHEN THERE IS COMPARATIVELY HIGH MANUFACTURING EXPENSES. IT IS L IKE BLENDING OF COMPOUNDS. IF THERE ARE LESS EXPENSES NATURALLY THE PROFIT RATIO WILL INCREASE CAUSING MORE REVENUE TO THE D EPARTMENT THEREFORE THE REVENUE SHOULD NOT FEEL AGGRIEVED UN LESS AND UNTIL ANY POSITIVE MATERIAL IS BROUGHT ON RECORD. THEREFO RE WE FIND NO MERIT IN THIS PRESUMPTION ALSO RESULTANTLY THIS G ROUND IS ALSO DISMISSED. THE APPEAL OF THE REVENUE IS DISMISSED. 3. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE. PRACTICALLY THIS GROUND IS BORNE OUT OF THE DIRECT ION BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTING TH E CLAIM TO 19.06% OF SALES U/S 10B EXCLUDING FOREIGN EXCHANG E GAIN ON THE PROFIT OF NILAKOTTAI UNIT (A 100% EOU) MORE SPECIF ICALLY WHEN NO DEFECT WAS POINTED OUT IN THE AUDITED ACCOUNTS BY T HE AUTHORITIES. 3.1. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE CASE OF SISTER CONCERN CANNOT BE COMPARED AS PURCHASES FROM SALES TO RELATED PARTIES ARE NEGLIGIBLE AND THERE IS NO FIND ING BY THE 7 M/S HINDUSTAN ESSENTIAL COMPANY ASSESSING OFFICER THAT THERE WAS EXCESS PROFIT THAN ORDINARY PROFIT DUE TO CLOSE CONNECTION BETWEEN THE ASSESSEE AND OT HER PERSON OR OTHERWISE. IT WAS CONTENDED THAT IN THE CASE OF SISTER CONCERN I.E. M/S PRAGATI AROMA OIL DISTILLER PVT. LTD. DEA LING IN SAME BUSINESS DERIVED TAXABLE PROFITS AND DID NOT CLAIM ANY EXEMPTION. IT WAS POINTED OUT THAT THE SISTER CONC ERN EARNED APPROXIMATELY NET PROFIT AT 20% BUT HAS NO FOREIGN EXCHANGE GAIN. RELIANCE WAS PLACED UPON THE DECISION IN ITO VS GILVERT ISPAT (ITA NO.345/CHD/2011). PLEA WAS ALSO RAISED THAT PURCHASES/SALES FROM THE RELATED PARTIES IS COMPARA TIVELY NEGLIGIBLE. ON THE OTHER HAND THE LD. DR STRONGLY DEFENDED THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY SUBMITTING THAT THE LD. FIRST APPELLAT E AUTHORITY WHILE COMING TO A PARTICULAR CONCLUSION SOUGHT REMA ND REPORT FROM THE ASSESSING OFFICER AND COUNTER REPLY FROM T HE ASSESSEE. 3.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS AGGR IEVED BY ADOPTION OF PROFIT EARNED BY THE SISTER CONCERN ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT EXAMINED ANY COM PARABLE CASE FOR ARRIVING AT A REASONABLE PROFIT. KEEPING IN VI EW THE TOTALITY OF FACTS AVAILABLE ON RECORD WE FIND THAT IN THE CASE OF SISTER CONCERN IN THE INSTANT YEAR NET PROFIT WAS EARNED/D ISCLOSED @ 19.03% WHICH IS HAVING THE SAME MANAGEMENT AND ALS O HAVING SAME ACTIVITY WHEREAS THE NET PROFIT DISCLOSED BY THE ASSESSEE AT 38.86% AND IF THE FOREIGN EXCHANGE GAIN IS EXCLUDED THEN THE NET 8 M/S HINDUSTAN ESSENTIAL COMPANY PROFIT COMES TO 25.09%. THE TOTALITY OF FACTS CLEA RLY INDICATES THAT THE ASSESSEE HAS DISCLOSED MORE PROFIT THAN TH E ORDINARY PROFIT WHICH MIGHT BE EXPECTED TO AROSE IN SUCH BUS INESS MORE SPECIFICALLY WHEN THE SISTER CONCERN M/S PRAGATI AR OMA OIL DISTILLERS PVT. LTD. IS DEALING IN THE SAME BUSINES S ITSELF SHOWS THE PROFIT @ 19.03% ALSO HAVING SIMILAR MANAGEMENT AND IS NOT CLAIMING ANY EXEMPTION. SO FAR AS THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER DID NOT EXAMINE ANY COMPARABLE CASE TO ARRIVE AT A REASONAB LE PROFIT IS CONCERNED WE NOTE THAT ON ASKING OF THE ASSESSING OFFICER ITSELF THE ASSESSEE FURNISHED THE GP/NP OF THE SISTER CONC ERN OF THE LAST THREE YEARS AND FOUND THAT IN THE INSTANT YEAR THE NET PROFIT EARNED BY THE SISTER CONCERN ITSELF WAS 19.03% THE REFORE THE CONTENTION OF THE ASSESSEE THE NO COMPARABLE CASE W AS EXAMINED IS HAVING NO MERIT AND MORE SPECIFIC WHEN THE MANAG EMENT WAS THE SAME OR WITH MINOR CHANGES IF ANY. SO FAR AS THE BENEFIT OF FOREIGN EXCHANGE FLUCTUATION GAIN IS CONCERNED THAT HAS ALREADY BEEN CONSIDERED BY THE LD. FIRST APPELLATE AUTHORIT Y THE ASSESSEE HAS BROUGHT ON RECORD ANY EVIDENCE THAT THE ASSESSE E FIRM EARNED/DERIVED EXCEPTIONAL PROFIT THAN SISTER CONCE RN WHICH IS HAVING DOMESTIC SALES THUS THE COMPARISON WAS RIG HTLY MADE BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITH T HE SISTER CONCERN. THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ALREADY DIRECTED THE ASSESSING OFFICER TO EXCLUDE T HE FOREIGN EXCHANGE FLUCTUATION GAIN IF ANY EARNED BY THE AS SESSEE THUS WE CONCUR WITH THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX 9 M/S HINDUSTAN ESSENTIAL COMPANY (APPEALS). IT IS WORTH MENTIONING THAT THE ASSESSE E IS SUPPORTING THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TA X (APPEALS) ITSELF WHERE THE BENEFIT WAS EXTENDED TO THE ASSES SEE AND IN THE SAME BREATH OPPOSING THE CONCLUSION ON THE TAXABILI TY OF PROFIT MORE SPECIFICALLY IN THE CASE OF SISTER CONCERN IN IDENTICAL MARKET CONDITIONS/MANAGEMENT THE NET PROFIT WAS DISCLOSED AT 19.03%. THUS IT CAN BE SAFELY CONCLUDED THAT THE ASSESSEE DISCLOSED MORE PROFIT WITH DIFFERENT INTENTION WHICH CAN BE EXPE CTED FROM A SIMILAR LINE OF BUSINESS WITHOUT BRINGING ANY COGEN T MATERIAL ON RECORD. THUS WE FIND NO INFIRMITY IN THE CONCLUSI ON OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 3.3. THROUGH GROUND NO.2 THE ASSESSEE IS ALSO AGGRIEVED BY THE OBSERVATION MADE REGARDING COMPUTATION OF CAPITAL G AINS IN THE HAND OF SUCCESSOR COMPANY IN SUBSEQUENT YEAR. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD NO JURISDICTION TO MAKE SUCH TYPE OF OBSERVATION WHEN SUCH APPEAL WAS NOT BEFORE HIM FOR ADJUDICATION. ON THE OTHER HAND THE LD. DR DEFEND ED THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 3.4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION WE ARE REPRODUCING HEREUNDER THE CONCLUDING PORTION OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). I HAVE CAREFULLY CONSIDERED THE FACTS STATED IN THE ASSESSMENT ORDER AND WRITTEN SUBMISSIONS AS WELL AS ORAL 10 M/S HINDUSTAN ESSENTIAL COMPANY ARGUMENTS OF THE LD. AR . IT IS UNDISPUTED THAT ASSESSEE'S FIRM WAS CONVERTED AS COMPANY UNDER THE NAME M/S PPP LTD AND WITHIN SHORT PERIOD THE SAID M/S PPP LTD WAS MERGED WITH THE EXISTING COMPANY M/S PAODP LTD. HERE THE CASE IS NOT OF MERE BONA-FIDE CONVERSION OF A FIRM IN PART-IX COMPA NY BECAUSE RESULTANT COMPANY IS FURTHER MERGED WITH AN OTHER COMPANY. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LD. AR ARE NOT APPLICABLE FOR THE REASON THAT SEC. 4 7(X III) WAS INTRODUCED WITH EFFECT FROM 1.4.99 AND ALSO IT IS NOT THE CASE OF MERE BONA-FIDE CONVERSION OF THE FIRM I NTO PART-IX COMPANY. THERE IS FURTHER MERGER WITHIN SHORT PERIOD. THE ASS ESSEE HAD ADMITTED THAT ALL THE ASSETS WERE TRANSFERRED AT BOOK VALUE. IT MEANS THAT THERE WAS A TRANSFER OF ASSET WITH TH E COUNTER COMPANY. IT IS ALSO TRUE THAT COMPUTATION OF CAPIT AL GAIN BY THE AO IS ON HYPOTHETICAL AND NOTIONAL BASIS. THE ASSESSMENT ORDER DID NOT DIVULGE THAT ANY OF DOCUMENTS WHICH RESULTED IN CONVERSION TO COMPANY A ND FURTHER MERGER WITH OTHER COMPANY WERE EXAMINED AND ARRIVED AT PROPER CONCLUSION. NEITHER ANY LEGAL BAS IS NOR ANY REALISTIC FACT HAD BEEN DISCUSSED TO ARRIVE AT CONCLUSION OF SHORT TERM CAPITAL GAIN. IT IS ALSO U NDISPUTED THAT THERE IS NO DISSOLUTION OF THE FIRM AS ENVISAG ED IN SEC. 45 (4) OF THE ACT. SIMILARLY IT IS EVIDENT THAT THE RE IS A VIOLATION OF PROVISO TO SEC. 47 (XIII) OF THE ACT. THE AO HAD APPLIED SEC. 47(XIII) OF THE ACT. SINCE THERE IS VI OLATION OF CONDITIONS LAID DOWN IN SECTION 47(XIII) OF THE ACT NECESSARY CONSEQUENCES SHALL FOLLOW AS PER LEGAL 11 M/S HINDUSTAN ESSENTIAL COMPANY PROVISIONS AND NOT AS PER AO'S VIEWS. THE NECESSARY CONSEQUENCES FOR VIOLATION OF SEC. 47(XIII) ARE LAI D DOWN IN SEE 47 A(3) OF THE ACT ACCORDING TO WHICH SUCCESSOR COMPANY WOULD BE RESPONSIBLE TO PAY TAX ON SUCH CAP ITAL GAIN AND THAT TOO IN THE YEAR IN WHICH VIOLATION HA D TAKEN PLACE. FOR EASE OF REFERENCE SEC. 47A(3) IS REPRODUCED AS UNDER:- SECTION 47A(3) OF THE ACT ' WHERE ANY OF THE CONDITIONS LAID DOWN IN THE PROV ISO TO CLAUSE (XIII) OR THE PROVISO TO CLAUSE (XIV) OF SECTION 47 ARE NOT COMPLIED WITH THE AMOUNT OF PROFITS OR GAINS A RISING FROM THE TRANSFER OF SUCH CAPITAL ASSET OR INTANGIB LE ASSET NOT CHARGED UNDER SECTION 45 BY VIRTUE OF CONDITIONS LAID DOWN IN THE PROVISO TO CLAUSE (XIII) OR THE PROVISO OF CLAUSE (XIV) OF SECTION 47 SHALL BE DEEMED TO BE THE PROFITS AND GAINS CHARGEABLE TO TAX OF THE SUCCESSOR COMPANY FOR THE PREVIOUS YEAR IN WHICH THE REQUIREMENTS OF THE PROVISO TO CLAUSE (XIII) OR THE PROVISO TO CLAUSE (XIV) AS THE CASE MAY BE ARE NO T COMPLIED WITH. IN VIEW OF SUCH APPARENT PROVISIONS OF THE STATUTE THE CAPITAL GAIN IF ANY SHALL BE LE TO BE ASSESSED IN THE HANDS OF SUCCESSOR COMPANY IN THE PREVIOUS YEAR IN WHICH VIOLATION HAD TAKEN PLACE. IN OTHER WORDS THE SUCC ESSOR COMPANY IS LIABLE FOR CAPITAL GAIN IF ANY AND NOT THE ASSESSEE. EVEN OTHERWISE THE COMPUTATIONS MADE BY T HE AO IN RESPECT OF ESTIMATED SALE CONSIDERATION COST OF ACQUISITION AND TENURE OF HOLDING OF ASSETS SO AS T O 12 M/S HINDUSTAN ESSENTIAL COMPANY CONSTITUTE AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN ARE NO HYPOTHETICAL BASIS ONLY. THE AO HAD NO T SPECIFIED THE LEGAL BASIS FOR TAKING ESTIMATED SALE CONSIDERAT I O N EST IM ATED C OS T OF AC QU ISIT I O N A ND A L SO HOLDING PERI O D . IN R ESU L T THE E S TIMATED S H O R T TERM C API TA L GAI N A S COMP U TED B Y TH E AO IN I NSTANT YEAR I N T H E CASE OF IN S TA N T ASSESSEE IS NOT LIABLE TO BE ASSESSE D LEGALLY AS WELL AS FA C T U ALLY. HOWEVER THE A O IS FREE T O AS S ESS THE CAPITAL GAIN U/S 47 A(3) R.W . S. 47 (XVII) OF THE ACT IN RE L EVANT YEAR I N TH E C A SE OF IMMEDIATE SUCCESSOR COMPANY OR EFFEC T IVE SUCCESSOR COMPANY AS PER L A W TAKING IN TO CONSIDERATION S TATUT O RY PROVI S I O NS IN V OG UE AND M AK I NG NECESSARY INQUIRY IF NEEDED. IN TERMS OF DI SC USSION HEREINAB O VE THE ASSESS E E I S E NT I TLE D F O R RE L IE F TO THA T EXTENT . 5 . IN RESU LT FOR STAT I STICA L PURPOSE APPEAL FILED BY THE APPELLANT - IS TREATED AS PARTLY ALLOWED. 3.5. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER CO NCLUSION DRAWN IN THE IMPUGNED ORDER MATERIAL AVAILABLE ON RECORD AND THE ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSELS ARE KEPT IN JUXTAPOSITION AND ANALYZED WE NOTE THAT DURING AS SESSMENT PROCEEDINGS IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE FIRM MERGED WITH M/S PRAGAT PERFUMES PVT L TD. ( HEREIN AFTER REFERRED AS M/S PPP LTD.) ON 24/03/2009 AND T HEN WITHIN A WEEK THE SAID M/S PPP LTD. MERGED WITH THE EXISTIN G COMPANY M/S PRAGATI AROMA OIL DISTILLERS PVT LTD. THE LD. ASSESSING OFFICER IN VIEW OF PROVISO (D) TO SECTION 47(XIII) OPINED THAT THE SHARE HOLDING OF THE PARTNER OF THE FIRM SHOULD BE ABOVE 50% OF 13 M/S HINDUSTAN ESSENTIAL COMPANY THE VOTING POWER AND THAT SHARE HOLDING REMAINED UN CHANGED FOR FIVE YEARS. AS PER THE ASSESSING OFFICER THE CONDI TION OF MERGER WERE VIOLATED AS THE CONDUCT OF THE ASSESSEE WAS SU CH THAT IT DELIBERATELY TOOK TWO STEP APPROACH BY TRANSFERRING THE INTANGIBLE ASSETS AND FIXED ASSETS OF TAMILNADU UNIT TO M/S PR AGATI AROMA OIL DISTILLERS PVT. LTD. VIA FIRST SHOWING IN MERGE R WITH M/S PPP LTD. BECAUSE DIRECT CONVERSION WOULD HAVE CLEARLY F ALLEN FOUL OF LETTER OF THE LAW. RESULTANTLY THERE WAS VIOLATIO N OF THE ACT. SINCE THERE WAS NO APPARENT SALE CONSIDERATION RE CEIVED BY THE ASSESSEE HE TAKING INTO INFLATION IN PRICE ESTIMAT ED COST OF ACQUISITION AS APPEARED IN THE BALANCE SHEET MEANIN G THEREBY HE TOOK NOTIONAL/FICTIONAL SALE CONSIDERATION. FURTHE R HE DEDUCTED DEPRECIATED VALUE OF FIX ASSETS FROM ESTIMATED NOTI ONAL SALE CONSIDERATION AND ARRIVED AT THE CAPITAL GAIN OF RS .1 39 03 284/- WHICH HE TERMED AS SHORT TERM CAPITAL GAIN. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND T HAT THE LD. ASSESSING OFFICER IGNORED THE FACT THAT THERE WAS N O SALE OF ASSET WITHIN THE MEANING OF SECTION 45 AND NO SUCH SALE C ONSIDERATION WAS RECEIVED AS HAS BEEN ESTIMATED. IN SUCH A SITU ATION WE DEEM APPROPRIATE TO REPRODUCE SECTION 47A(3) OF THE ACT. ' WHERE ANY OF THE CONDITIONS LAID DOWN IN THE PROV ISO TO CLAUSE (XIII) OR THE PROVISO TO CLAUSE (XIV) OF SECTION 47 ARE NOT COMPLIED WITH THE AMOUNT OF PROFITS OR GAINS A RISING FROM THE TRANSFER OF SUCH CAPITAL ASSET OR INTANGIB LE ASSET NOT CHARGED UNDER SECTION 45 BY VIRTUE OF CONDITIONS LAID 14 M/S HINDUSTAN ESSENTIAL COMPANY DOWN IN THE PROVISO TO CLAUSE (XIII) OR THE PROVISO OF CLAUSE (XIV) OF SECTION 47 SHALL BE DEEMED TO BE THE PROFITS AND GAINS CHARGEABLE TO TAX OF THE SUCCESSOR COMPANY FOR THE PREVIOUS YEAR IN WHICH THE REQUIREMENTS OF THE PROVISO TO CLAUSE (XIII) OR THE PROVISO TO CLAUSE (XIV) AS THE CASE MAY BE ARE NO T COMPLIED WITH. 3.6. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN VI EW OF THE APPARENT PROVISION OF THE STATUTE HELD THAT THE CAP ITAL GAIN IF ANY SHALL BE LIABLE TO BE ASSESSED IN THE HAND OF THE SUCCESSOR COMPANY IN THE PERVIOUS YEAR IN WHICH VIOLATION TO OK PLACE MEANING THEREBY THE SUCCESSOR COMPANY SHALL BE LIAB LE FOR CAPITAL GAIN IF ANY AS PER LAW TAKING INTO STATU TORY PROVISION AFTER MAKING NECESSARY ENQUIRY IF NEEDED AND NOT THE ASSESSEE. SINCE THE ASSESSEE WAS NOT HELD LIABLE THEREFORE HOW THE ASSESSEE IS AGGRIEVED IS NOT KNOWN. AT THE SAME TI ME THERE IS A CLEAR DIRECTION TO THE ASSESSING OFFICER THAT HE CA N ONLY PROCEED IF HE DEEM FIT AND THAT TO WITHIN THE FOUR CORNERS OF LAW THEREFORE WE FIND NO INFIRMITY IN THE CONCLUSION O F THE LD. COMMISSIONER OF INCOME TAX (APPEALS). SO FAR AS T HE CONTENTION OF THE ASSESSEE THAT SUCH ISSUE WAS NOT PENDING ADJ UDICATION BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WE NOTE THAT SUCH ARGUMENT HAS BEEN MENTIONED EVEN IN THE STATEM ENT OF FACT ATTACHED WITH FORM NO. 35 AND THE ISSUE RAISED BEFO RE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THEREFORE FR OM THIS ANGLE 15 M/S HINDUSTAN ESSENTIAL COMPANY ALSO WE FIND NO MERIT IN THE ARGUMENT OF THE ASSESS EE. THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS AFFIRMED. 3.7. THE APPEAL OF THE ASSESSEE IS ALSO HAVING NO MERIT THEREFORE DISMISSED. FINALLY THE APPEALS OF THE REVENUE AS WELL AS OF T HE ASSESSEE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER 2014. SD/- SD/- D.KARUNAKARA RAO JOGINDER SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER ' 0) MUMBAI; 1 ( DATED.- 25/11/2014 F{X~{T? P.S/. ( . . !' #'$ / COPY OF THE ORDER FORWARDED TO : 1. '#!$ / THE APPELLANT 2. 23!$ / THE RESPONDENT. 3. ' 4* ( '# ) / THE CIT(A)- CONCERNED MUMBAI 4. ' 4* / CIT CONCERNED MUMBAI 5. 56 2*(7 '#+ '7 ' 0) / DR ITAT MUMBAI E BENCH 6. 8 9) / GUARD FILE. % / BY ORDER 35#* 2* //TRUE COPY// & / %' ( (DY./ASSTT. REGISTRAR) ' 0) / ITAT MUMBAI.