M/s Jaypee fertilizers & Industries Ltd.,, Noida v. ITO, Noida

ITA 5175/DEL/2016 | 2012-2013
Pronouncement Date: 13-11-2019 | Result: Allowed

Appeal Details

RSA Number 517520114 RSA 2016
Assessee PAN DELOF2016A
Bench Delhi
Appeal Number ITA 5175/DEL/2016
Duration Of Justice 3 year(s) 1 month(s) 13 day(s)
Appellant M/s Jaypee fertilizers & Industries Ltd.,, Noida
Respondent ITO, Noida
Appeal Type Income Tax Appeal
Pronouncement Date 13-11-2019
Appeal Filed By Assessee
Tags 5175
Order Result Allowed
Bench Allotted D
Tribunal Order Date 13-11-2019
Assessment Year 2012-2013
Appeal Filed On 30-09-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI PRASHANT MAHARISHI ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY JUDICIAL MEMBER I.T.A. NO.5175/DEL OF 2016 ASSESSMENT YEAR: 2012-13 M/S JAYPEE FERTILIZERS INDS. P.LTD. VS INCOME-TAX OFFICER SECTOR- 128 GAUTAM BUDH NAGAR CIRCLE -1 NOIDA. NOIDA. PAN: AACCJ3804A (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI V.K. GARG ADVOCATE DEPARTMENT BY: MS NAINA SOIN KAPIL SR.DR DATE OF HEARING: 20.08.2019 DATE OF PRONOUNCEMENT: 13.11.2019 ORDER PER NARASIMHA K. CHARY JM THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER DATED 22.06.2016 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)- 1 NEW DELHI (CIT(A)) FOR THE ASSTT. YEAR 2012-13 . 2. BRIEF FACTS OF THE CASE OR THAT JAYPEE FERTILISE RS AND INDUSTRIES LTD (THE ASSESSEE) WAS INCORPORATED TO CARRY ON THE B USINESS OF FERTILISERS AND UREA AND ALL CLASSES AND KINDS OF CHEMICALS INC LUDING PETROCHEMICALS AND PLASTICS. FOR THEASSESSMENT YEAR 2012-13 THEY HAVE FILED RETURN OF INCOME ON 29/9/2012 DECLARING A TAXABLE INCOME OF R S.1 14 90 960/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LEARNE D ASSESSING OFFICER FOUND THAT THE BUSINESS OF THE ASSESSEE WAS NOT COM MENCED DURING THE 2 YEAR AND TREATED THE DECLARED INCOME OF THE ASSESSE E AS OTHER INCOME AND DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE ON THAT GROUND. 3. ASSESSEES APPEAL WAS DISMISSED BY THE LD. CIT(A ) ON THE GROUND THAT IN VIEW OF THE DECISION OF THE HONBLE APEX CO URT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LIMITED VS. CIT (1997) 141 CTR SC 387 THE INTEREST DERIVED BY THE ASSESSEE FROM T HE INVESTMENTS IN THE SIMILAR BUSINESS BEFORE THE COMMENCEMENT OF THE BU SINESS SHOULD BE TREATED TO HAVE BEEN EARNED FROM OTHER SOURCES. EXP ENSES WERE ALSO DISALLOWED HOLDING THAT THE EXPENDITURE WAS IN RESP ECT OF PREFERENCE SHARES OF THE ASSESSEE COMPANY AND THEREFORE IT IS CAPITAL IN NATURE. 4. ASSESSEE IS THEREFORE BEFORE US IN THIS APPEAL SUBMITTING THAT THE ASSESSEE HAD COMMENCED ITS BUSINESS BY MAKING USE T HE STRATEGIC INVESTMENTS IN COMPANIES IN FURTHERANCE OF ITS MAIN OBJECT OF CARRYING ON THE BUSINESS OF MANUFACTURE OF A FERTILISER DIRECTL Y OR BY MAKING INVESTMENTS IN OTHER COMPANIES HAVING SIMILAR OBJEC T AND THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT COMMENCED THE BUSINESS DURING THE YEAR. RELIANCE IS PLACED ON THE DECISION REPORT ED IN CAREFOUR WC AND SC INDIA PRIVATE LIMITED VS. DCIT 368 ITR 692 (DEL) WHEREIN IT WAS HELD THAT MERE SETUP OF BUSINESS IS ENOUGH FOR ALLOWANCE OF EXPENSES AND IS NOT NECESSARY THAT THE BUSINESS SHOULD HAVE BEEN CO MMENCED. IT IS FURTHER SUBMITTED BY THE LD. AR THAT THE LD. CIT(A) SHOULD HAVE CONSIDERED THE ALTERNATIVE PLEA OF THE ASSESSEE UND ER SECTION 35 D OF THE INCOME TAX ACT 1961 (FOR SHORT THE ACT) IN RESPE CT OF RS.4 79 80 500/- BEING THE AMOUNT OF UPFRONT FEE PAID TO BANK AGAINS T PREFERENCE SHARE CAPITAL PUT OPTION RIGHTS AND SECTION 251(1) (A) OF THE ACT DOES NOT COME IN THE WAY OF THE CIT TO CONSIDER THE ADDITIONAL GR OUND. 3 5. LD. DR PLACED RELIANCE ON THE ORDERS OF THE AUTH ORITIES BELOW AND STATED THAT THE MAIN OBJECTIVE OF THE ASSESSEE COMP ANY IS BUSINESS OF MANUFACTURE AND TRADE OF FERTILISERS AND UREA THE INVESTMENT ACTIVITY PLEADED BY THE ASSESSEE IS A STRANGER TO THIS ACTIV ITY WHICH AMOUNTS TO FINANCE ACTIVITY WHICH DOES NOT FORM PART OF THE MA NUFACTURE AND THE TRADING ACTIVITY. THEY FURTHER SUBMITTED THAT EVEN OTHERWISE ALSO THE COMPANY IN WHICH THE ASSESSEE MADE INVESTMENTS NAM ELY DUNCAN INDUSTRIES HAD NOT COMMENCED THE BUSINESS AND THE REFORE IT CANNOT BE SAID THAT THE ASSESSEE HAD ACTUALLY COMMENCED THE B USINESS. 6. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. ASSESSEE HAD PRODUCED THE COPY OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION AND ALSO THE CERTIFICATE OF INCORPORATION ISSUED ON 3/6/2010. THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE VIDE MAIN OBJECTS TO BE PURSUED BY T HE COMPANY ON ITS INCORPORATION CLEARLY READ THAT TO CARRY ON TH E BUSINESS DIRECTLY OR BY MAKING INVESTMENT IN OTHER COMPANIES HAVING S IMILAR OBJECTS INCLUDING THAT OF MANUFACTURERS FABRICATORS PROCE SSORS PRODUCERS GROWERS IMPORTERS EXPORTERS YEARS SELLERS DIST RIBUTORS DEALERS AGENTS MERCHANTS AND CONCESSIONARIES REFINERS AND PREPARE RS OF ALL CLASSES AND KINDS OF FERTILISERS AND UREA AND ALL CLASSES AND K INDS OF CHEMICALS INCLUDING PETROCHEMICALS AND PLASTICS AND INDUSTRIA L AND OTHER PREPARATIONS RISING FROM ARE REQUIRED IN THE MANUFA CTURE OF ANY KIND OF TREASURES AND CHEMICALS AND TO CARRY ON ANY OPERATI ONS OR PROCESSES OF MIXING GRANULATING DIFFERENT THE CHEMICALS OR FERTI LISERS. 7. INSOFAR AS THE CLAIM OF THE ASSESSEE THAT THEY H AVE INVESTED A SUM OF RS.460.21 CRORES IN DUNCAN INDUSTRIES LTD KANPU R IS CONCERNED THERE 4 DOES NOT APPEAR TO BE ANY DISPUTE FROM THE REVENUE. ON THE OTHER HAND IT IS THE OBSERVATION OF THE LEARNED ASSESSING OFFI CER THAT FOR THE REVIVAL OF SICK FERTILISER MANUFACTURING UNIT OF DUNCANS IN DUSTRIES LTD AT KANPUR THE BOARD OF DIRECTORS IN THE MEETING HELD ON 5 TH JUNE 2010 DECIDED TO MAKE INVESTMENT IN THE SHARE CAPITAL OF JAYPEEUTTAR BHARAT VIKAS PRIVATE LIMITED WHICH WAS TREATED AS LONG-TERM INVESTMENT I N THE COMPANY TO THE TUNE OF RS.460.21 CRORES. IT IS FURTHER NOTED B Y THE ASSESSING OFFICER THAT FROM THE ANNEXURE TOAUDITORS REPORT IT WAS FO UND THAT THE BIFR VIDE ORDER DATED 16/01/2012 HAD APPROVED THE SCHEME IN WHICH THE ASSESSEE COMPANY HAD ENTERED INTO AN ARRANGEMENT ON RENOVATION AND UP-GRADATION OF EXISTING ASSETS OF FERTILISERS UNIT OF DUNCAN INDUSTRIES LTD. TO KANPUR FERTILISER AND CEMENTS LIMITED FOR THE SA ME FUNDS IN THE FORM OF INVESTMENT IN SHARES CAPITAL HAVE BEEN GIVEN TO JAYPEE UTTAR BHARAT LTD WHICH IN TURN HAD INVESTED THE FUNDS IN KANPUR FERTILISERS LIMITED. 8. THE ENTIRE CASE OF THE REVENUE REVOLVES AROUND T HE OBSERVATIONS OF THE ASSESSING OFFICER THAT THE FINANCE ACTIVITY OF MAKING INVESTMENT IN SIMILAR BUSINESS DOES NOT FIT IN THE BUSINESS OF TH E ASSESSEE OF MANUFACTURE AND TRADE OF FERTILISERS AND UREA. WE A RE AT A LOSS TO UNDERSTAND WHEREFROM THIS INFORMATION IS GATHERED B Y THE LEARNED ASSESSING OFFICER. THE REVENUE CANNOT PREVENT THE A SSESSEE FROM PURSUING THE BUSINESSES OF THE CHOICES AS INCORPORA TED IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION. THERE CANNO T BE ANYSTIPULATIONTHAT THE ASSESSEE CANNOT DO BUSINESS BOTH IN MANUFACTURE AND THE TRADE OF A FERTILISERS AND UREA AND AT THE SAME TIME DOING THE BUSINESS OF FINANCE ACTIVITY. 5 9. BE THAT AS IT MAY AS RIGHTLY ARGUED BY THE ASSE SSEE BEFORE THE LD. CIT(A) AS WELL AS BEFORE US THAT A COMPANY ENGAGED IN FINANCIAL ACTIVITY CAN INVEST ITS FUND IN ANY TYPE OF COMPANY TO EARN INTEREST WHEREAS IT IS NOT SO IN THE CASE OF THE ASSESSEE. IN CASE OF ASSE SSEE IT IS CLEARLY STIPULATED THAT THE INVESTMENT IS STRICTLY CONFINED IN OTHER COMPANIES HAVING SIMILAR OBJECT INCLUDING THAT OF MANUFACTURE RS FABRICATORS SO ON AND SO FORTH. IT IS NOT THE CASE OF THE REVENUE THA T THE BUSINESS OF DUNCAN INDUSTRIES LTD DOES NOT FIT IN THE DESCRIPTI ON GIVEN IN THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPO RATION IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE. FURTHER IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT T HE INVESTMENT TOOK PLACE IN ANTICIPATION OF ITS ENTRANCE BY THE MAJOR TO A NEW GROUP COMPANY BY THE NAME OF KANPUR FERTILISERS AND CEMEN T LIMITED (KFCL) AND THE ASSESSEE WAS THE PROPOSED STRATEGIC INVESTO R IN THE SAID REHABILITATION SCHEME. IN THE ABSENCE OF ANY REBUTT AL ON THIS ASPECT WE DO NOT ENTERTAIN ANY DOUBT THAT THE DUNCAN INDUSTRI ES LTD WAS PURSUING SIMILAR OBJECTS AS THOSE OF THE ASSESSEE AND FITS I NTO THE DESCRIPTION GIVEN BY THE ASSESSEE IN THE MEMORANDUM OF ASSOCIATION VI DE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION AND BY MAKING SUCH INVESTMENT THE ASSESSEE COULD BE SAID TO HAVE COMME NCED THE BUSINESS. 10. IN CAREFOUR WC&C INDIA PRIVATE LIMITED VS. DEPU TY COMMISSIONER OF INCOME-TAX ITA NO.42/2014 (ORDER DATED 22 ND SEPTEMBER 2014) HONBLE JURISDICTIONAL HIGH COURT HELD THAT MERELY BECAUSE ACTUAL SALES AND PURCHASE OF PRODUCTS DID NOT HAPPEN DURING THE SUBJECT FINANCIAL YEAR WHICH IS NOT A NECESSARY CONDITION/ACTIVITY I N ORDER TO HOLD A 6 BUSINESS WAS SET UP IT CANNOT BE SAID THAT BUSINES S WAS NOT SETUP. IT IS FURTHER HELD THAT - FOR COMMENCEMENT OF A BUSINESS THERE MUST BE IN P LACE SOME INCOME GENERATING ASSET OR INCOME EARNING STRUCTURE. IN SE VERAL CASES THERE IS A GAP OR AN INTERVAL BETWEEN SETTING UP AND COMMENCEM ENT. WHEN THE BUSINESS IS SET UP IS A MIXED QUESTION OF LAW AND FACT AND DEPENDS UPON THE LINE NATURE AND CHARACTER OF THE BUSINESS/PROF ESSIONAL ACTIVITY. FOR EXAMPLE FOR MANUFACTURING BUSINESS PURCHASE OF NE W MATERIAL OR ELECTRICITY CONNECTION MAY BE RELEVANT POINT TO DET ERMINE SETTING UP BUT IN CASE OF A PROPERTY DEALER THE MOMENT HE PUTS U P A CHAIR AND TABLE OR STARTS TALKING HIS BUSINESS IS SET UP. .. IT IS A WELL SETTLED POSITION OF LAW THAT BUSINE SS IS NOTHING MORE THAN A CONTINUOUS COURSE OF ACTIVITIES AND FOR COMMENCEMEN T OF BUSINESS ALL THE ACTIVITIES WHICH GO TO MAKE UP THE BUSINESS NEE D NOT BE STARTED SIMULTANEOUSLY. AS SOON AS THE ACTIVITY WHICH IS TH E ESSENTIAL ACTIVITY IN THE COURSE OF CARRYING ON THE BUSINESS IS STARTED THE BUSINESS MUST BE SAID TO HAVE COMMENCED. 11. ASSESSMENT ORDER CLEARLY READS THAT THE INVESTM ENTS EMANATED FROM THE ORDER OF BIFR WHICH WAS PASSED FOR THE RE VIVAL OF DUNCAN INDUSTRIES LTD. IT IS NOT AS THOUGH THE DUNCAN INDU STRIES LTD. IS A NEW CONCERN WHICH HAS YET TO COMMENCE BUSINESS. IT IS C OVERED BY THE ORDER OF BIFR FOR THE REVIVAL OF ITS BUSINESS. BIFR APPRO VED THE SCHEME IN WHICH THE ASSESSEE COMPANY HAD ENTERED INTO AN ARRANGEMEN T ON RENOVATION AND UP-GRADATIONS OF EXISTING ASSETS OF A FERTILISE R UNIT OF DUNCAN INDUSTRIES LTD. TO KANPUR FERTILISER AND CEMENTS LT D. FOR THE SAME FUNDS IN THE FORM OF INVESTMENT IN SHARES CAPITAL WERE GI VEN TO JAYPEE UTTAR BHARAT LTD. IN THE CIRCUMSTANCES IT CANNOT BE SAID THAT THE DUNCAN INDUSTRIES LTD HAD NOT STARTED THE WORK TILL THE EN D OF THE YEAR. IT WAS A SICK INDUSTRY FOR THE REVIVAL OF WHICH THE BIFR APP ROVED THE SCHEME PROPOSED BY THE ASSESSEE. 7 12. VIEWING FROM ANY ANGLE WE FIND IT DIFFICULT TO AGREE WITH THE AUTHORITIES BELOW THAT THE ASSESSEE DID NOT SET UP BUSINESS IN THE RELEVANT ASSESSMENT YEAR AND THEREFORE THE INCOME EARNED BY THE ASSESSEE ON THE INVESTMENT HAS TO BE TREATED AS INC OME FROM OTHER SOURCES. WE THEREFORE DIRECT THE ASSESSING OFFICE R TO TREAT THE INCOME FROM INTEREST AS OTHER INCOME AND COMPLETE THE ASS ESSMENT. IN VIEW OF THIS FINDING THE ALTERNATIVE CLAIM OF THE ASSESSEE UNDER SECTION 35D OF THE ACT BECOMES ACADEMIC. 13. APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER 2019. SD/- SD/- (PRASHANT MAHARISHI) (K.NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: 13 TH NOVEMBER 2019. VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 DRAFT DICTATED ON 7.11.2019 DRAFT PLACED BEFORE AUTHOR 8.11.2019 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.