DCIT Circle 2 (1), v. Auric Styles Pvt Ltd,

ITA 2895/DEL/2007 | 2003-2004
Pronouncement Date: 28-12-2010 | Result: Dismissed

Appeal Details

RSA Number 289520114 RSA 2007
Assessee PAN AABCA3335L
Bench Delhi
Appeal Number ITA 2895/DEL/2007
Duration Of Justice 3 year(s) 6 month(s) 21 day(s)
Appellant DCIT Circle 2 (1),
Respondent Auric Styles Pvt Ltd,
Appeal Type Income Tax Appeal
Pronouncement Date 28-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 28-12-2010
Date Of Final Hearing 02-12-2010
Next Hearing Date 02-12-2010
Assessment Year 2003-2004
Appeal Filed On 07-06-2007
Judgment Text
ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 2895/DEL/2007 (A.Y. 2003-04) DCIT- CIRCLE 2(1) VS. M/S AURIC STYLES P VT. LTD. ROOM NO. 390 A-146 NEW FRIENDS COLONY 3 RD FLOOR C.R. BUILDING NEW DELHI NEW DELHI (PAN: AABCA3335L) AND C.O. NO. 313/DEL/2007 (IN ITA NO. 2895/DEL/2007) (A.Y. 2003-04) M/S AURIC STYLES PVT. LTD. VS. DCIT- CIRCLE 2(1) A-146 NEW FRIENDS COLONY ROOM NO. 390 NEW DELHI 3 RD FLOOR C.R. BUILDING (PAN: AABCA3335L) NEW DELHI [APPELLANTS] (RESPONDENTS) ASSESSEE BY : SH. SHAILENDER K. BAJAJ CA DEPARTMENT BY : MRS. PRATIMA KAUSHIK SR. D.R. ORDER PER SHAMIM YAHYA AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION B Y THE ASSESSEE EMANATE OUT OF ORDER OF THE LD. CIT(A) DATED 28.3.2 007 AND PERTAIN TO ASSESSMENT YEAR 2003-04. ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 2 REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE OF ALLEGED CAPITAL LOSS OF ` 33 77 971/- ARISING TO THE ASSESSEE COMPANY FROM ALLEGED TERMINATION OF LEASE WITH ITS SUBSIDIARY COMPANY TO ` 13.67 LAKHS WHEN THE SAID DISALLOWANCE HAD RIGHTLY BEEN MADE. 3. IN THIS CASE ASSESSING OFFICER NOTED THAT ASSESS EE HAD ENTERED IN A PROFIT AND LOSS ACCOUNT BAD DEBTS/ ADVANCES WRI TTEN OFF FOR ` 35 81 672/-. OUT OF THE ABOVE ` 33 77 971/- WAS DUE FROM M/S GOLDEN WEAVES PVT. LTD. A SUBSIDIARY COMPANY OF THE ASSESSEE. ON ENQUIRY IN THIS REGARD IT WAS EXPLAINED THAT AN AMO UNT OF ` 33 77 971/- DUE FROM M/S GOLDEN WEAVES PVT LTD. REPRESENTED AN AMO UNT NOT RECEIVED ON TERMINATION OF LEASE AS MENTIONED IN NOT E 5 OF SCHEDULE 23 OF THE BALANCE SHEET. THE RELEVANT NOTE READS AS UNDER:- 5. THE COMPANY HAD ENTERED INTO A LEASE AGREEMENT DATED JANUARY 17 1995 WITH GOLDEN WEAVE PRIVATE LIMITED FOR LEASE OF ENTIRE PREMISES FOR A PERIOD OF FIVE YEARS AT A MONTHLY RENT OF ` 20 000/-. THE LEASE AGREEMENT INTER ALIA PROVIDED THAT THE COMPANY SHALL CARRY OUT SUBSTANTIAL RESTRUCTURING / RENOVATIONS T O THE LEASED PREMISES AT ITS OWN COST PURSUANT TO WHICH T HE COMPANY INCURRED A SUM OF ` 10 737 868/- WHICH WAS CAPITALIZED UNDER THE HEAD BUILDING. IN TERMS OF CLAUSE 3 OF THE LEASE AGREEMENT UPON TERMINATION OF THE LEASE AGREEMENT THE STRUCTURE STANDING IN THE BOOKS OF THE COMPANY WOULD AUTOMATICALLY GET TRANSFERRED TO GOLDEN WEAVE PRIVATE LIMITED OR TO ANY ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 3 OF ITS NOMINEES AT THE AUDITED WRITTEN DOWN VALUE DETERMINED AS PER INCOME TAX RULES. THE COMPANY HAD PLACED A SECURITY DEPOSIT OF ` 720 000 AT THE T IME OF EXECUTION OF THE LEASE. THE COMPANY UPON TERMINATION OF THE LEASE ON AUGUST 01 2002 RECEIVE D A SUM OF ` 50 000/- (RUPEES FIFTY LAKHS ONLY) IN SETTLEMENT OF TOTAL DUES OUTSTANDING OF ` 8 377 971 /- INCLUDING SECURITY DEPOSIT OF ` 720 000/-. THE DIFFERENTIAL AMOUNT OF ` 3 377 971/- HAS BEEN WRITTE N OFF IN THE BOOKS OF ACCOUNT AS THE SAME IS CONSIDER NO LONGER RECOVERABLE. 3.1 ASSESSING OFFICER WAS NOT SATISFIED WITH THE A BOVE EXPLANATION. IN RESPONSE ASSESSEE INSTEAD OF EXPLAINING THE ABOV E AMOUNT AS BUSINESS EXPENSES CHANGED ITS STAND ALL TOGETHER AN D CLAIMED IT WAS CAPITAL LOSS. HOWEVER IT CLAIMED THAT LOSS SHOUL D BE SET OFF LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSED DURING THE RELEVANT PREVIOUS YEAR. AS PER THE EXPLANATION FILED IT WAS SUBMIT TED THAT THE BUILDING SUPER STRUCTURE WAS A INSEPARABLE ASSETS HAVING A WRITTEN DOWN VALUE OF ` 63 67 637/- WERE SHOWN AS TRANSFERRED IN THE BOOKS ON 2.8.2002 AND IT SALE VALUE CAME TO ` 29 89 666.26. ASSESSE E ALSO EXPLAINED THAT THE SALE WAS DONE BY THE ASSESSEE TO ITS SUBSI DIARY M/S GOLDEN WEAVES PRIVATE LIMITED ON THE BASIS OF AGREEMENT DAT ED 18.1.2000. IT WAS FURTHER CONTENDED THAT AFTER TRANSFER THE BUILDING BLOCK SEIZED TO EXIST AND THIS RESULTED IN A SHORT TERM CAPITAL LOSS OF ` 33 70 970.74 WHICH WAS ELIGIBLE FOR SET OFF AGAINST LONG TERM CA PITAL GAIN OF ` 82 59 084/- RESULTING ON SALE OF SHARES OF THE SUBS IDIARY. ASSESSING OFFICER DID D NOT ACCEPT THESE SUBMISSION. HE HEL D THEM TO BE ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 4 AFTERTHOUGHT. HE ALSO FOUND THAT AGREEMENTS IN THIS REGARD WAS BE A COLORABLE DEVICE AND REJECTED THE CLAIM OF THE ASSES SEE. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES O F THIS MATTER. IT IS CLEAR THAT THE APPELLANT HAD AN AGREE MENT WITH ITS SUBSIDIARY M/S GOLDEN WEAVES WHICH IS TWO FOLD IN NATURE. ONE THAT THE SUBSIDIARY WOULD OCCUPY THE PREMISES OF THE APPELLANT ALONG WITH THE FURNITURE AND FITT INGS FOR A PERIOD OF 5 YEARS AT A FIXED MONTHLY RENT. TWO AFTER THE EXPIRY OF 5 YEARS THE FIXED ASSET IN THE PREMISES WOULD BE TRANSFERRED TO THE SUBSIDIARY AT THE WRITTEN DOWN V ALUE AS PER INCOME TAX ACT AT THAT POINT OF TIME. IT FINAL LY TRANSPIRED THAT ON THE EXPIRY OF THE CONTRACT THE APPELLANT COULD NOT RECOVER THE FULL AMOUNT DUE FROM THE SUBSID IARY. THEREFORE IT ENTERED INTO SETTLEMENT WITH THE SUBSI DIARY BY VIRTUE OF WHICH IT RECEIVED ` 50 00 000/- IN THE SE TTLEMENT OF THE OUTSTANDING DUES AS WELL AS THE SALE CONSIDER ATION OF THE FIXED ASSETS IN THE RENTED PREMISES. AS PER TH E TERMS OF THE SETTLEMENT AGREEMENT DATED 2.8.2002 IT WAS AGRE ED THAT OUT OF ` 50 00 000/- ` 29 89 666/- WOULD BE TO WARDS VALUE OF FIXED ASSETS WHOSE WDV FOR THE BOOKS OF TH E APPELLANT WAS ` 63 67 637/-. THE BALANCE OF ` 20 10 333/- OUT OF ` 50 LAKHS WOULD BE TOWARDS OUTSTANDING LIA BILITY. THE ASSESSING OFFICER DISMISSED THE ENTIRE SETTLEME NT SCHEME AS SELF SERVING IN NATURE AND THEREFORE DID NOT ALLOW THE CAPITAL LOSS OF ` 33 77970/- AS CLAIMED BY THE ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 5 APPELLANT. THE ASSESSING OFFICER ALSO SAID THAT THE CLAIM OF THE APPELLANT AS SHORT TERM CAPITAL LOSS WAS AN AFT ERTHOUGHT SINCE AS PER THE BOOKS OF ACCOUNT NO SUCH CLAIM HA S BEEN RAISED. ON ONE ASPECT I AM COMPLETELY INCLINED TO AGREE WIT H THE APPELLANT THAT THE ENTRIES IN THE BOOKS OF ACC OUNT ARE NOT LAST AND FINAL WORD AND CORRECT TAXABILITY OF THE TRANSACTION UNDER THE INCOME TAX ACT HAS TO BE CONS IDERED. WE HAVE TO LOOK AT THE ACTUAL NATURE OF THE TRANSAC TION RATHER THAN THE MANNER IN WHICH THE ASSESSEE HAS PO STED IT IN ITS BOOKS OF ACCOUNT. AT THE SAME TIME IT CANNOT BE IGNORED THAT THE SETTLEMENT BETWEEN THE APPELLANT A ND ITS SUBSIDIARY IS A MATTER OF IN-HOUSE PLANNING AND THE REFORE THE DIVISION OF ` 50 00 000/- RECEIVED BETWEEN THE OUTSTANDING LIABILITY AND SALE CONSIDERATION OF ITS ASSETS CANNOT BE CONSIDER AS SACROSANCT. IN THIS SITUATIO N IT IS FAIR TO APPROPRIATE THE MAXIMUM AMOUNT BEING ` 50.00 LAKHS IN THIS CASE TOWARDS THE SALE PROCEEDS OF THE FIXED A SSETS WDV OF WHICH IS ` 63 67 637/-. THE DIFFERENCE OF ABOUT ` 13.67 LAKHS OUT TO BE TREATED AS A SHORT TERM LOS S ON THIS TRANSACTION. ACCORDINGLY THERE WOULD BE NO RECEIP T TOWARDS OUTSTANDING DUES AS RECEIVABLE BY THE APPELLANT IN ITS BOOKS ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 6 AND THE SAME WOULD LAPSE BEING CAPITAL IN NATURE. THUS THIS GROUND OF APPELLANT IS PARTLY ALLOWED IN FAVOU R OF THE APPELLANT TO THE EXTENT THAT ITS CLAIM FOR SHORT TER M CAPITAL LOSS CONSIDERED ACCEPTABLE ALTHOUGH THE QUANTUM HA S BEEN VARIED. THE ASSESSING OFFICER IS DIRECTED GIVE E FFECT TO THIS ORDER IN ACCORDANCE WITH THE DISCUSSION ABOVE. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE SUBMISSIONS MADE AND THE PRECEDENTS RELIED UPON. WE FIND THAT ASSESSEE IN ORIGINAL HAD CLAIMED BAD DEBT WRITTEN OFF AMOUNTING TO ` 3277971/-. THIS WAS THE DIFFERENCE BETWEEN WDV OF AMOUNT INCURRE D BY THE ASSESSEE UPON THE BUILDING STRUCTURE AND THE SECURI TY DEPOSIT AGAINST A SUM OF ` 50 LAKHS RECEIVED FOR IT. SUBSEQUENTLY ASSESSEE CHANGED ITS CLAIM AND CLAIMED THAT THE RECEIPT OF ` 50 LAKH S COMPRISED OF SUM OF 2989666/- TOWARDS VALUE OF FIXED ASSETS WHOSE WDV WA S 6367637/- AND THE BALANCE ` 20 10 333/- WAS TOWARDS OUTSTANDI NG LIABILITY. IN SUPPORT OF THIS CLAIM OF THE ASSESSEES SHARE PURCH ASE AGREEMENT DAT6ED 2.8.2002 IS BEING REFERRED AND RELIED BY THE ASSESSEE. WE FIND THAT ASSESSEE HAS SOLD 9448 EQUITY SHARES OF GOLDE N WEAVES PVT. LTD. IT IS ALSO THE CLAIM OF THE ASSESSEE THAT APART FRO M BUILDING WHICH WENT TO THE TRANSFEREE THE LIABILITY OF THE SUBSIDIARY C OMPANY AMOUNTING TO ` ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 7 20 10 323/- AND SHOULD BE ADJUSTED FROM ` 50 LACS R ECEIVED IN THIS REGARD. UPON CAREFUL CONSIDERATION WE DO NOT FIND ANY COGENCY IN THIS CHANGING STANCE OF THE ASSESSEE. WE FIND THAT IT I S UNDISPUTED THAT THE WDV OF THE IMPUGNED ASSET WAS ` 6367637/- AGAINST WHI CH ASSESSEE RECEIVED AMOUNT OF ` 50 LAKHS. THUS IT IS CLEAR T HAT THE DIFFERENCE OF ` 13.67 LAKHS IS A SHORT TERM LOSS ON THESE TRANSACTI ONS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS PASSED A REASONABLE AND ELABORATE ORDER WHICH DOES NOT NEED ANY INTE RFERENCE ON OUR PART. ACCORDINGLY WE UPHOLD THE SAME. 6.1 IN THE RESULT THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ASSESSEES CROSS OBJECTION ASSESSEES CROSS OBJECTION ASSESSEES CROSS OBJECTION ASSESSEES CROSS OBJECTION 7. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED GR OUND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FA CTS AND IN LAW IN REDUCING THE SHORT TERM CAPITAL LOSS TO ` 13.67 LAK HS INSTEAD OF AT THE ACTUAL LOSS SUFFERED OF ` 33 77 970/-. 8. WE HAVE ALREADY DEALT WITH THE ISSUE IN THE REV ENUES APPEAL ABOVE AND THERE IS NO INFIRMITY OR ILLEGALITY IN TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). HENCE THE CR OSS OBJECTION FILED BY THE ASSESSEE ALSO STANDS DISMISSED. ITA NO. 2895/DEL/07 & CO NO. 313/DEL/07 A.Y. 2003-04 8 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE A ND CROSS OBJECTION FILED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/12/201 0. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/12/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES