MOHANLAL A. PILLAI, MUMBAI v. ITO 10(3)-2, MUMBAI

ITA 741/MUM/2010 | 2000-2001
Pronouncement Date: 07-01-2011 | Result: Allowed

Appeal Details

RSA Number 74119914 RSA 2010
Bench Mumbai
Appeal Number ITA 741/MUM/2010
Duration Of Justice 11 month(s) 5 day(s)
Appellant MOHANLAL A. PILLAI, MUMBAI
Respondent ITO 10(3)-2, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 07-01-2011
Date Of Final Hearing 30-12-2010
Next Hearing Date 30-12-2010
Assessment Year 2000-2001
Appeal Filed On 01-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND SHRI R.S.PADVEKAR JUDICIAL MEMBER S.NO. I.T.A.NO. A.Y APPELLANT RESPONDENT 1 676-M-07 2000- 2001 MR. MOHANLAL PILLAI 2/37 NEW SHASTRI NAGAR MULUND (W) MUMBAI 400080 PAN:AAEOO 7689 L INCOME TAX OFFICER WARD 23(2)(4) MUMBAI. 2 740-M-10 1999- 2000 MR. MOHANLAL PILLAI MUMBAI. ITO WARD 23(2)(4) MUMBAI 3 741-M-10 2000- 2001 MR. MOHANLAL PILLAI MUMBAI. ITO WARD 23(2)(4) MUMBAI APPELLANT BY: SHRI VISWAS V. MEHENDALE. RESPONDENT BY: SHRI HARI GOVIND SINGH. --------- O R D E R PER T.R.SOOD AM: THE APPEALS OF THE ASSESSEE ARE CONSOLIDATED AND H EARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.676/M/07 A.Y 2000-01 : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED OUT OF WHICH GROUND NO.4 WAS NOT PRESSED AND THEREFORE SAME IS DISMISSED AS NOT PRESSED. I N ADDITION TO THE NORMAL GROUNDS AN ADDITIONAL GROUND HAS ALSO BEEN RAISED WHICH IS AS UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT[APPEALS] ERRED IN CONFIRMING THE ADDITION OF ` `` ` .93 500/- IN RESPECT OF SALES TO GREAT EASTERN SHIPPING COMPANY LTD. 3. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT T HERE WAS A CHANGE IN THE CHARTERED ACCOUNTANT AND THEREFORE WHEN THE APPEAL WAS FILED BEFORE THE CIT[A] ALL THE RELEVANT PAPERS WERE NOT AVAILABLE 2 AND THEREFORE THIS ISSUE COULD NOT BE RAISED BEFO RE THE CIT[A]. LATER ON THE ISSUE COULD NOT BE RAISED EVEN BEFORE THE TR IBUNAL BECAUSE PAPERS WERE NOT AVAILABLE. WHEN ALL PAPERS BECAME A VAILABLE THIS GROUND HAS NOW BEEN FILED AND HE MADE A PRAYER THAT THIS GROUND MAY BE ADMITTED. 4. ON THE OTHER HAND LD. DR SUBMITTED THAT THIS IS PURELY A FACTUAL GROUND AND DOES NOT RAISE ANY LEGAL ISSUE. THE ASSE SSEE HAS CHOSEN NOT TO FILE APPEAL ON THIS ISSUE EARLIER WHEN ORIGI NAL APPEAL WAS FILED AND THEREFORE ASSESSEE CANNOT BE ALLOWED TO RAISE THIS GROUND NOW AS ADDITIONAL GROUND. IN ANY CASE NO EVIDENCE REGARDI NG CHANGE OF CHARTERED ACCOUNTANT OR NON-AVAILABILITY OF PAPERS HAS BEEN FILED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. DR. THE ADDITIO NAL GROUND RELATES TO ONE OF THE ADDITIONS AND IF THE SAME WAS NOT RAISED IN THE APPEAL BEFORE THE CIT[A] OR EVEN IN THE ORIGINAL APPEAL FI LED BEFORE THE TRIBUNAL THEN THE ONLY PRESUMPTION WOULD BE THAT A SSESSEE HAS ACCEPTED THAT PARTICULAR ADDITION. IN ANY CASE THE RE IS NOTHING ON RECORD TO SHOW THAT THERE WAS A CHANGE IN THE CHART ERED ACCOUNTANT OR THAT ALL PAPERS WERE NOT AVAILABLE. IN THIS BACKGRO UND WE DECLINE TO ADMIT THIS ADDITIONAL GROUND AND ACCORDINGLY THE SA ME IS DISMISSED. 6. THE OTHER GROUNDS RAISED ARE AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT[APPEALS] ERRED IN CONFIRMING THE ADDITI ON OF ` `` ` .6 66 643/- TREATED BY THE ASSESSING OFFICER AS DE EMED DIVIDEND U/S.2(22)(E) OF THE I.T.ACT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT[APPEALS] ERRED IN CONFIRMING THE DISALL OWANCE OF BAD DEBTS OF ` `` ` .29 28 311/- WRITTEN OFF DURING THE YEAR FROM THE FOLLOWING PARTIES. 3 M/S MERCATOR LINES LTD. ` `` ` . 8 92 965/- M/S UNITED SHIPPERS ` `` ` .12 80 311/- M/S AFCONS ` `` ` . 7 55 035/- ` `` ` .29 28 311/- ====== ====== ====== ====== 3. THAT ON THE LEARNED CIT[A] XXIII ERRED IN CONFIRMIN G SHOULD HAVE APPRECIATED THE FACT THAT THE DEBTS OUTSTANDIN G WERE OLD AND NOT RECOVERABLE AND WERE HENCE WRITTEN OFF IN T HE BOOKS OF ACCOUNTS. 7. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS TAKEN LOANS FROM M/S. MECH MARINE ENGINEERS (P) LTD. AMOUNTING TO ` `` ` .25 10 155/-. IT WAS FURTHER NOTICED THAT ASSESSEE WAS HOLDING 50 % OF THE SHARES OF THAT COMPANY AND OTHER 50% WAS HELD BY HIS WIFE MRS . RETHI MOHANLAL PILLAI. THEREFORE AO CONCLUDED THAT M/S. MECH MARI NE ENGINEERS (P) LTD. WAS A COMPANY IN WHICH PUBLIC WAS NOT HAVING A NY SUBSTANTIAL INTEREST AND ACCORDINGLY HE INVOKED THE PROVISION S OF SECTION 2(22)(E) AND SUBJECTED TO TAX A SUM OF ` `` ` .6 66 643/- AS DEEMED DIVIDEND BECAUSE ACCUMULATED PROFITS OF M/S. MECH MARINE ENG INEERS (P) LTD. WERE ONLY OF ` `` ` .6 66 643/-. 8. ON APPEAL ACTION OF THE AO HAS BEEN CONFIRMED B Y THE LD. CIT[A]. 9. BEFORE US LD. COUNSEL OF THE ASSESSEE MADE TWO FOLD SUBMISSIONS. HE EXPLAINED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHIP BUILDING AND REPAIRS AS A PROPRIETARY CONCE RN. LATER ON ASSESSEE WAS ADVISED TO START A COMPANY BECAUSE ASS ESSEE WAS REQUIRED TO DEAL WITH THE CORPORATE SECTOR AND ACC ORDINGLY A PRIVATE LIMITED COMPANY WAS FLOATED IN THE NAME OF M/S. MEC H MARINE ENGINEERS (P) LTD. ALONG WITH HIS WIFE HOLDING 50% OF THE SHARE CAPITAL. 4 THE ASSESSEE CARRIED ON THE EXISTING BUSINESS BUT THE NEW ORDERS WERE EFFECTED ONLY BY THE COMPANY AND THEREFORE ASSESS EE SLOWELY SOLD ITS PROPRIETARY BUSINESS ASSETS TO THE PRIVATE LIMITED COMPANY. THEN HE REFERRED TO PAGES 23 TO 25 OF THE PAPER BOOK WHICH IS A COPY OF THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. MECH M ARINE ENGINEERS (P) LTD. AND POINTED OUT THAT AS ON 1 ST APRIL 1999 THERE WAS A DEBIT BALANCE OF ` `` ` .28 24 700/-. AFTER THAT ASSESSEE ON 1 ST APRIL 1999 ITSELF SOLD VARIOUS ASSETS LIKE COMPUTER MACHINERY VEHI CLE CRANE ETC. TO THE PRIVATE LIMITED COMPANY WORTH ` `` ` .13 92 378/- AGAINST WHICH ASSESSEE STARTED RECEIVING VARIOUS PAYMENTS AND DUR ING THE YEAR ASSESSEE ALSO TRANSFERRED CERTAIN AMOUNTS TO THE CO MPANY AND CERTAIN OTHER TRADING TRANSACTIONS. HE FURTHER POINTED OUT THAT CLOSING BALANCE IN THE ACCOUNT WAS ONLY ` `` ` .25 10 155/-. THEREFORE DURING THE YEAR NO FRESH LOAN HAS BEEN RAISED AND IN FACT ALL THE TR ANSACTIONS ARE TRADING TRANSACTIONS ONLY AND THE SAME CANNOT BE CONSTRUED AS LOANS. THEREFORE SECTION 2(22)(E) IS NOT APPLICABLE. HE A LSO READ THE PROVISION AND POINTED OUT THAT SECTION STARTS WITH THE WORD ANY PAYMENT BY A COMPANY WHICH WOULD MEAN PAYMENT DURING THE YEAR AND NOT THE OPENING BALANCE. 10. HE ALSO REFERRED TO PAGE 88 OF THE PAPER BOOK A ND POINTED OUT THAT AT THE END OF THE YEAR THERE WERE RESERVES OF ` `` ` .6 66 643/- WHEREAS RESERVE IN THE PREVIOUS YEAR WAS ` `` ` .2 15 470/- WHICH HAS ALREADY BEEN CHARGED AS DEEMED DIVIDEND IN THE PREV IOUS YEAR AND THEREFORE EVEN IF SECTION 2(22)(E) WAS TO BE INVOK ED THEN THIS AMOUNT WAS REQUIRED TO BE REDUCED FROM THE ACCUMULATED PRO FITS AND IN THIS 5 REGARD HE RELIED ON THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF CIT VS. G. NARASIMHAN (DECD.) AND ORS. 236 ITR 327. 11. ON THE OTHER HAND LD. DR SUBMITTED THAT PROVIS IONS OF SECTION 2(22)(E) CLEARLY PROVIDES THAT ONCE ANY LOAN WAS GI VEN TOWARDS SUBSTANTIAL SHARE HOLDINGS THEN SUCH AMOUNT HAS TO BE CHARGED AS DEEMED DIVIDEND. HE SUBMITTED THAT SUPPLY OF MACHIN ERY ETC. HAS TO BE FIRST ADJUSTED AGAINST THE OUTSTANDING LOAN AND THEREFORE WHENEVER FRESH MONEY HAS BEEN RECEIVED IT HAS TO BE CONSTRU ED AS LOAN AND IN THIS REGARD HE RELIED ON THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF MISS P.SARADA VS. CIT 94 TAXMAN 11. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. FROM A PERUSAL OF THE ACCOUNTS IT IS CLEAR THAT OPENING BA LANCE OF LOAN WAS OF `. 28 24 700/- AND ON 1 ST APRIL 1999 ITSELF ASSESSEE HAS SOLD VARIOUS ASSETS COMPRISING OF COMPUTER MACHINERY ETC. AMOUNTING TO ` `` ` .13 92 378/-. THE ASSESSEE HAS ALSO TRANSFERRED CER TAIN AMOUNTS AND OTHER TRADING TRANSACTIONS ON VARIOUS DATES. IN TUR N ASSESSEE HAD ALSO RECEIVED CERTAIN AMOUNTS AND THE NET CLOSING BALANC E IN THE ACCOUNT IS ` `` ` .25 10 155/- WHICH MEANS ORIGINAL LOANS HAS BEEN R EDUCED. ALL THE TRANSACTIONS DURING THE YEAR SEEM TO BE ONLY TRADIN G TRANSACTIONS. IT SEEMS THAT ACCOUNT OF TRADING TRANSACTIONS HAVE BEE N MIXED UP WITH THE LOAN ACCOUNT AND THAT IS WHY THE WHOLE PROBLEM HAS AROSE. IT IS SETTLED LAW THAT PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE FOR TRADING TRANSACTIONS AND THE NET BALANCE OF THE TRA NSACTION IS THAT IT HAS RATHER REDUCED THE LOAN. IN THE CASE OF MISS P. SARADA VS. CIT 6 [SUPRA] THE ASSESSEE HAD MADE WITHDRAWALS BETWEEN 3-7-1972 TO 22- 3-1973 AND ONLY ON THE LAST DAY OF THE ACCOUNTING Y EAR ADJUSTMENTS WERE MADE. THEREFORE THE HON'BLE SUPREME COURT HAS HELD THAT PROVISIONS WOULD COME INTO PLAY AT THE FIRST TRANSA CTION. WHEREAS IN THE CASE BEFORE US ON 1 ST APRIL 1999 ITSELF ASSESSEE HAS SOLD VARIOUS ASSETS TO M/S. MECH MARINE ENGINEERS (P) LTD. AND THEREFORE ON THAT DATE THERE WAS A DEBIT BALANCE AGAINST THE COMPANY IN THE BOOKS OF THE ASSESSEE AND THERE WOULD BE CORRESPONDING CREDI T BALANCE IN THE BOOKS OF THE COMPANY IN THE NAME OF THE ASSESSEE ON ACCOUNT OF SUCH TRADING TRANSACTIONS. ONLY AFTER THESE TRANSACTIONS THE ASSESSEE COMPANY HAS MADE CERTAIN PAYMENTS BUT IN TURN ASSES SEE HAS ALSO TRANSFERRED CERTAIN MONEY THROUGH OTHER TRANSACTION S AND THE NET RESULT OF THE ACCOUNT IS THAT THE OUTSTANDING LOAN AT THE BEGINNING OF THE YEAR WHICH WAS AT ` `` ` .28 24 700/- GOT REDUCED TO ` `` ` .25 10 155/-. THEREFORE IT IS CLEAR THAT ALL THE TRANSACTIONS AR E MAINLY TRADING TRANSACTIONS AND IN OUR VIEW PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE EVEN IF THE MONEY IS RECEIVED AGAINST TH E SALE OF ASSETS OR FROM OTHER TRADING TRANSACTIONS. ACCORDINGLY WE SE T ASIDE THE ORDER OF THE LD. CIT[A] AND DELETE THE ADDITION ON ACCOUNT O F DEEMED DIVIDEND. 13. GROUND NOS.2 & 3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE HAD MADE A CLAIM OF BAD DEBTS AMOUNTING TO ` `` ` .29 28 311/-. HE FURTHER FOUND THAT THE AMOUNTS WERE WRITTEN OFF AT THE END OF THE YEAR. FROM THE DETAILS FILED FOR SUCH AMOUNTS IT WA S NOTICED THAT IN THREE CASES THE AMOUNTS SHOWN BY THE ASSESSEE DID N OT TALLY WITH THE 7 AMOUNTS WHICH UPON ENQUIRY WERE FOUND TO BE LESS BY THE CUSTOMERS OF THE ASSESSEE. AO NOTED THE DISCREPANCIES IN THE FOLLOWING THREE ACCOUNTS: A) AFCONS RS.7 55 035/-. THERE IS A BALANCE OUTSTANDING OF RS.7 55 035/- SIN CE 1997. BUT SO FAR NO PAYMENT HAS COME. THE PARTY IS DISPUTING THE BILL RAISED BY MY CLIENT. AFTER DOING ALL EFFORTS THE PARTY IS NOT ACCEPTING THE CLAIM. CORRESPONDENCE IN THIS REGARD IS ENCLOSED. NO PAYME NT IS EXPECTED NOW AND THEREFORE THE AMOUNT IS WRITTEN OFF. B) MERCATOR LINES LTD. 8 92 965/-. MY CLIENT HAD RAISED A BILL OF ` `` ` .25 80 000/- IN MARCH 99 AND THE PARTY HAS MADE PAYMENT IN VARIOUS STAGES TOTAL AMO UNTS TO ` `` ` .16 87 035/- AS FULL AND FINAL SETTLEMENT. THEREFOR E THE BALANCE OF ` `` ` .8 92 965/- IS WRITTEN OFF AS BAD DEBTS A COPY OF L EDGER ACCOUNT OF MERATOR LINES LTD. IS ENCLOSED. C) UNITED SHIPPERS LTD. RS. .. . 12 80 311/-. MY CLIENT HAD RAISED TWO BILLS IN THE FINANCIAL YEA R 1998-99 AGGREGATING RS.1 02 67 000/-. THE BALANCE OUTSTANDI NG AS ON 31-03- 1999 WAS RS.17 21 430/- OUT OF BALANCE MY CLIENT HA S RECEIVED RS.4 41 119/- IN FINANCIAL YEAR 1999-2000 AS FINAL SETTLEMENT. THEREFORE AN AMOUNT OF RS.12 80 311/- IS WRITTEN OF F AS BAD DEBTS. A LEDGER ACCOUNT COPY OF UNITED SHIPPERS LTD. IS ENCL OSED. HE FURTHER NOTICED THAT ASSESSEE HAS SOLD ITS BUSIN ESS TO M/S. MECH MARINE ENGINEERS (P) LTD. AND THROUGH AN AGREEMENT THE BUSINESS OF THE ASSESSEE WAS TAKEN OVER BY M/S. MECH MARINE ENG INEERS (P) LTD. AND THEREFORE DURING THE YEAR ASSESSEE HAD NO BUS INESS AND EVEN ON THAT ACCOUNT THE ASSESSEES CLAIM FOR BAD DEBTS COU LD NOT BE ALLOWED. 14. ON APPEAL THE ACTION OF THE AO WAS CONFIRMED B Y THE LD. CIT[A]. 15. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT AS EXPLAINED EARLIER ASSESSEE HAD FLOATED A COMPANY AN D WAS IN THE PROCESS OF TRANSFERRING HIS PROPRIETARY BUSINESS TO THE PRIVATE LIMITED 8 COMPANY. THIS WAS BEING DONE ON PIECEMEAL BASIS AND ALL NEW ORDERS WERE BEING TAKEN BY THE COMPANY AND DURING THAT PRO CESS EVEN CERTAIN ASSETS ETC. WERE ALSO SOLD TO THE COMPANY. BUT THE EXISTING BUSINESS WAS BEING CONTINUED IN THE PROPRIETARY CONCERN. THE N HE REFERRED TO PAGE 18 OF THE PAPER BOOK WHICH IS A SUMMARY OF THE TRANSACTIONS OF PROPRIETARY CONCERN AND POINTED OUT THAT DURING THE YEAR THERE WAS A TURNOVER OF ` `` ` .18 79 500/- ON WHICH AFTER CLAIMING THE BAD DEBT T HERE WAS A LOSS OF ` `` ` .21 23 077/-. HE SUBMITTED THAT ASSESSEE HAD FILED RETURN IN WHICH INCOME FROM SALARY FROM THE COMPANY WAS DECLARED ALONG WITH THE INCOME FROM HOUSE PROPERTY AS WELL A S LOSS OF THE PROPRIETARY CONCERN AND AO HAS ALSO ACCEPTED THE SA ME. THEREFORE IT CANNOT BE SAID THAT THE PROPRIETARY BUSINESS WAS CL OSED. 16. AS FAR AS THE DISCREPANCIES NOTICED BY THE AO A RE CONCERNED HE ARGUED THAT THESE DIFFERENCES WERE BECAUSE THE CUST OMERS HAD NOT ACCEPTED CERTAIN BILLS AND HAD ALSO RAISED OTHER DI SPUTES. BECAUSE OF THESE DIFFERENCES ETC. ONLY THE AMOUNTS HAD TO BE WRITTEN OFF. HE SUBMITTED THAT AFTER THE AMENDMENT TO SECTION 36 W. E.F. 1-4-1989 IT IS NO MORE A REQUIREMENT OF THE LAW THAT TO PROVE THAT THE DEBT HAS ACTUALLY BECOME BAD AND IT IS SUFFICIENT IF THE DEB T IS WRITTEN OFF. IN THIS REGARD HE RELIED ON THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF CIT VS. TRF LTD. (323 ITR 395). 17. ON THE OTHER HAND LD. DR REFERRED TO THE ASSE SSMENT ORDER AND POINTED OUT THAT AS PER DEED OF AGREEMENT WITH M/S. MECH MARINE ENGINEERS (P) LTD. THE COMPANY WAS TO TAKE OVER TH E BUSINESS OF THE PROPRIETARY CONCERN AND WAS ALSO TO ACQUIRE ALL THE ASSETS. THEREFORE 9 THE BUSINESS OF PROPRIETARY CONCERN WAS TAKEN OVER BY THE COMPANY AND THE PROPRIETARY CONCERN WAS NOT HAVING ANY BUSI NESS AT ALL. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. THE DEED OF AGREEMENT QUOTED BY THE ASSESSING OFFICER READS AS UNDER: THIS DEED OF AGREEMENT MADE ON AND BETWEEN THE COMP ANY M/S. MECH MARINE ENGINEERS PVT. LTD. [HEREINAFTER REFERR ED TO AS THE PARTY OF THE FIRST PART] A COMPANY REGISTERED UNDER THE COMPANIE S ACT 1956 HAVING ITS REGISTERED OFFICE AT 2)/37 NEO SHASTRI NAGAR MULU ND COLONY MULUND (W) MUMBAI 82 AND M/S. MECH MARINE ENGINEERS (PROP.A MO HANLAL) HEREINAFTER REFERRED TO AS THE PARTY OF SECOND PART AS ON 01-4- 99 TO GIVE AFFECT TO THE FOLLOWING TAKEOVER AT THE TERMS AND CONDITIONS MENT IONED IN THE DEED. BOTH THE PARTIES ARE FULLY AWARE OF THE TRANSACTION AND ITS EFFECT AND THE AGREEMENT WILL BE TAKING EFFECT AFTER BOTH THE PARTIES HAVE U NDERSTOOD ALL ITS EFFECT OF TRANSACTIONS. NOW THIS AGREEMENT WITNESSETH THE FOLLOWING TERMS A ND CONDITIONS- 1) THAT THE ASSETS OF M/S. MECH MARINE ENGINEERS [P ROP.A.MOHANLAL] A CONCERN ENGAGED IN THE SAME LINE OF BUSINESS OF LAB OUR FABRICATION WORK AND MANUFACTURING OF DREDGER AS THE COMPANY IT SEEMS P REUDENT BY THE COMPANY TO TAKEOVER THE FOLLOWING ASSETS OF M/S. MECH MARIN E ENGINEERS AT THE VALUE STATED AGAINST THE SAME. SR.NO. PARTICULARS AMOUNT 1) AIR CONDITIONER 18306/- 2) AUTO VEHICLE 22019/- 3) COMPUTER 59748/- 4) CRANE 505771/- 5) MOTOR CAR 537229/- 6) PLANT & MACHINERY 249305/- ------------ TOTAL 13923 78 ======== 2) THE CONSIDERATION OF RS.1392378/- TO BE SETTLED BY CREDITING THE ACCOUNT OF M/S. MECH MARINE ENGINEERS [PROP. A.MOHA NLAL] IN THE BOOKS OF THE COMPANY. 3) THE COMPANY M/S. MECH MARINE ENGINEERS PVT. LTD. IS BEING VESTED WITH ALL THE RIGHT AND ALSO THE DUTIES AND OBLIGATI ONS CONNECTED WITH THE TAKEOVER OF THE ASSETS AS THE OWNER OF THE PROPERTI ES AND M/S. MECH 10 MARINE ENGINEERS (PROP. A. MOHANLAL) WILL AFTER THE TAKEOVER WILL NOT HAVE ANY RIGHTS THEREIN AND WILL NOT BE RESPONSIBLE FOR ANY OBLIGATION OR DUTY WHATSOEVER. 19. THE ABOVE TERMS CLEARLY SHOW THAT THE COMPANY H AD MAINLY ACQUIRED THE BUSINESS AND THAT TOO BY ACQUIRING CER TAIN ASSETS BUT THE EXISTING BUSINESS WAS BEING CARRIED ON BY THE ASSES SEE ITSELF BECAUSE THERE IS NO REFERENCE TO TAKING OVER THE EXISTING B USINESS. FURTHER THERE WAS A TURNOVER OF ` `` ` .18 79 500/- IN THE PROPRIETARY BUSINESS AND AFTER CLAIMING BAD DEBTS THE ASSESSEE HAD DECLARED LOSS OF ` `` ` .21 23 077 AND THE RETURN WAS FILED ACCORDINGLY. THE AO HAS AL SO CONSIDERED THESE AMOUNTS WHICH BECOMES CLEAR FROM COMPUTATION OF THE INCOME AT PAGE 14 OF THE ASSESSMENT ORDER WHICH IS AS UNDER: SUBJECT TO THE ABOVE THE TOTAL INCOME OF THE ASSES SEE IS COMPUTED AS UNDER: INCOME FROM SALARY RS.65 000/- AS PER STATEMENT INCOME FROM HOUSE PROPERTY (-) RS.75 000 (AS PER STATEMENT) INCOME FROM BUSINESS NET LOSS AS PER PROFIT AND LOSS ACCOUNT (-) 2123077 ADD: ON A/C. OF BAD DEBTS 2928311/- DEEMED DIVIDEND 666643/- CESSATION OF LIABILITY U/S.41 [AS DISCUSSED 299495/- SALE TO GESCO 93500/- 3987949 ADD: DISALLOWANCES I) TRANSPORTING CHARGES 17400 II) PURCHASE OF RAW MATERIALS 25000 III) ADVERTISEMENT 500 IV) CRANE HIRE CHARGES 13500 V) REPAIRS AND SERVICE CHARGES 3500 59900 RS.19 24 772 INCOME DECLARED U/S.133A [AS PER RETURN FILED] R S.14 00 000 INTEREST FROM R.F. M/S OCEANIC MARINE SHIPPERS RS. 4 50 000 11 TOTAL INCOME RS.37 64 772/- ROUNDED OFF TO RS.37 64 770/- ============ FROM THE ABOVE IT BECOMES CLEAR THAT NET LOSS DECLA RED IN THE PROPRIETARY CONCERN HAS BEEN CONSIDERED BY THE AO WHICH MEANS THAT THE AO HIMSELF HAS RECOGNISED THE EXISTENCE OF THE PROPRIETARY BUSINESS. 20. COMING TO THE SECOND ASPECT OF THE DISPUTE THAT THE RE WERE CERTAIN DISCREPANCIES WE ARE OF THE VIEW THAT THER E WOULD DEFINITELY BE SOME DIFFERENCES BECAUSE OTHER PARTIES MIGHT NOT HA VE GIVEN FULL CREDIT TO THE PRICE MADE BY THE PROPRIETARY BUSINESS OF TH E ASSESSEE AND THAT IS WHY ASSESSEE WAS FORCED TO WRITE OFF THE SAME. I N ANY CASE THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TRF LT D. [SUPRA] HAS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME TAX ACT 1961 WITH EFFECT FROM APRIL 1 1989 IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE: IT IS ENOUGH IF THE BAD D EBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE SUPREME COURT ACCORDINGLY REMANDED THE MATTER T O THE ASSESSING OFFICER TO EXAMINE SOLELY TO THE EXTENT OF WRITE OFF WHET HER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. THEREFORE IN OUR VIEW THE CLAIM OF BAD DEBT IS IN ORDER AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT[ A] AND DIRECT THE AO TO ASSESS THE CLAIM OF THE BAD DEBTS. 21. IN THE RESULT ASSESSEES APPEAL IN I.T.A.NO.67 6/M/10 IS PARTLY ALLOWED. 12 22. I.T.A.NO.740/M/10 A.Y 1999-2000 : IN THIS APPEAL ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT[A] FOR CONF IRMING THE LEVY OF PENALTY U/S.271[1][C]. 23. AFTER HEARING BOTH THE PARTIES WE FIND THAT PE NALTY HAS BEEN LEVIED ON THE ADDITION OF ` `` ` .2 15 470/- WHICH WAS MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND AND THAT THE ADDITION WA S CONFIRMED BY THE LD. CIT[A] AND THE ASSESSEE HAS NOT FILED ANY A PPEAL AGAINST THIS ADDITION. THE PENALTY WAS LEVIED BY THE AO BECAUSE THERE WAS NO RESPONSE FROM THE ASSESSEES SIDE. THE ACTION OF TH E AO WAS CONFIRMED BY THE LD. CIT[A]. 24. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT AS EXPLAINED EARLIER THERE WAS A CHANGE IN THE CHARTE RED ACCOUNTANT AND THAT IS WHY PROPER RESPONSE COULD NOT BE GIVEN BEFO RE THE AO. FURTHER ASSESSEE WAS AN ENGINEER BY QUALIFICATION AND DID N OT UNDERSTOOD COMPLEXITY OF THE INCOME TAX MATTERS. AS ADVISED BY THE CHARTERED ACCOUNTANT ASSESSEE FLOATED A COMPANY AND A NEW BUS INESS WAS TO BE CARRIED ON BY THE COMPANY. HOWEVER SOME FUNDS WERE REQUIRED FOR SUCCESSFUL COMPLETION OF THE EXISTING BUSINESS FOR WHICH AMOUNTS WERE WITHDRAWN AND IN FACT THE AMOUNTS WERE RAISED FOR BUSINESS PURPOSES ONLY AND THEREFORE LENIENT VIEW MAY BE TAKEN. 25. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED TH E ORDERS OF THE CIT[A] AND THE AO. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. IT SEEMS THAT ASSESSEE WAS COAXED TO START A NEW COMPANY WIT HOUT UNDERSTANDING THE IMPLICATIONS OF THE LAW. THE ASSE SSEE WAS CARRYING 13 ON THE BUSINESS AS A PROPRIETARY CONCERN AND NEW CO NTRACTS WERE BEING TAKEN BY THE COMPANY. THEREFORE ASSESSEE MIGHT HAV E WITHDRAWN THE AMOUNTS WITHOUT UNDERSTANDING THE IMPLICATIONS. SIN CE THE MONEY HAS BEEN USED FOR THE PURPOSE OF BUSINESS WHICH WAS CON FUSED BY THE ASSESSEE TO BE ONE AND THEREFORE WE ARE OF THE VI EW THAT A LENIENT VIEW CAN BE TAKEN IN THIS MATTER AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE PENALTY. 27. IN THE RESULT APPEAL IN I.T.A.NO.740/M/10 FOR A.Y 1999-2000 IS ALLOWED. 28. I.T.A.NO.741/M/10 - A.Y 2000-01 : THROUGH THIS APPEAL ALSO ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) FOR CONFIRMING THE PENALTY U/S.271[1][C]. 29. THE PENALTY HAS BEEN LEVIED ON THE FOLLOWING AD DITION: BAD DEBTS ` `` ` .29 28 311/- DEEMED DIVIDEND ` `` ` . 6 66 643/- CESSATION OF LIABILITY ` `` ` . 2 99 495/- UNDISCLOSED SALES TO GESCO ` `` ` . 93 500/- 30. AS FAR AS FIRST TWO ADDITIONS I.E. BAD DEBTS AN D DEEMED DIVIDEND ARE CONCERNED WE HAVE ALREADY DELETED THESE ADDITI ONS WHILE ADJUDICATING THE ASSESSEES APPEAL ON QUANTUM IN I. T.A.NO.676/M/07 FOR A.Y 2000-01 AND THEREFORE PENALTY WOULD NOT S URVIVE IN RESPECT OF THESE TWO ITEMS. THE OTHER TWO ITEMS ON WHICH PENAL TY HAS BEEN LEVIED ARE ON ACCOUNT OF CESSATION OF LIABILITY AMOUNTING TO ` `` ` .2 99 495/- AND UNDISCLOSED SOURCE FROM GESCO AMOUNTING TO ` `` ` .93 500/-. 31. BOTH THE PARTIES WERE HEARD. 14 32. AS FAR AS CESSATION OF LIABILITY IS CONCERNED IT SEEMS ASSESSEE HAD AGREED BEFORE THE AO THAT THESE LIABILITIES WER E NOT EXISTING. HOWEVER THE LD.COUNSEL OF THE ASSESSEE HAD POINTED OUT THAT ACCOUNTS OF THESE PARTIES WERE NOT WRITTEN OFF AND ON BOOKS THE LIABILITY WAS EXISTING AND ASSESSEE HAD BEEN WRONGLY ADVISED TO S URRENDER THESE ITEMS. ONCE THE ACCOUNTS WERE NOT WRITTEN OFF PERH APS THE ADDITION ITSELF COULD NOT HAVE BEEN MADE BUT SINCE ASSESSEE HAD CONCEDED THAT IS WHY ADDITION HAS BEEN MADE. IN OUR VIEW THIS IS NOT A FIT CASE FOR LEVY OF PENALTY. 33. AS FAR AS SECOND ITEM IN RESPECT OF UNDISCLOSED SOURCE FROM GESCO IS CONCERNED AO HAD NOTICED FROM THE TDS CER TIFICATES THAT CERTAIN SALES HAD BEEN MADE TO GESCO AND CREDIT FOR TDS WAS ALSO CLAIMED. BUT ASSESSEE IT SEEMS AGREED THAT THESE SA LES WERE NOT DECLARED. AGAIN LD.COUNSEL OF THE ASSESSEE POINTED OUT THAT BECAUSE OF CHANGE OF CHARTERED ACCOUNTANT ASSESSEE COULD N OT POINT OUT THE CLEAR FACTS BEFORE THE AO. HE REFERRED TO PAGES 46 TO 50 OF THE PAPER BOOK WHICH IS A COPY OF LETTER AND COPIES OF ACCOU NTS OF CUSTOMERS AND POINTED OUT THAT IN THIS LETTER DATED 27 TH APRIL 2003 ITSELF THE AMOUNT OF SALES OF RS.93 500/- WAS INCLUDED IN THE TOTAL TURNOVER. THERE WAS A SEARCH IN THE CASE OF THE ASSESSEE AND CERTAIN STATEMENTS WERE RECORDED AND THIS REPLY WAS GIVEN EXPLAINING T HE TOTAL TURNOVER. THE AMOUNT WAS WRONGLY TYPED AT ` `` ` .93 000/- FROM GESCO INSTEAD OF ` `` ` .93 500/-. IN FACT THE COPY OF ACCOUNTS ENCLOSED A T PAGE 49 OF THE PAPER BOOK CLEARLY SHOWS THAT SALES OF ` `` ` .93 500/- ITSELF WAS DEBITED TO M/S GESCO ON 25-8-1999. WE ARE SATISFIED THAT THE S ALE IN FACT WAS 15 INCLUDED IN THE TURNOVER BUT BECAUSE OF LACK OF PAP ERS ASSESSEE WAS FORCED TO SURRENDER THIS ITEM ALSO AND ACCORDINGLY THIS IS NOT A FIT CASE FOR LEVY OF PENALTY. THEREFORE WE SET ASIDE THE OR DER OF THE LD. CIT(A) AND DELETE THE PENALTY. 34. IN THE RESULT APPEAL IN I.T.A.NO.741/M/10 FOR A.Y 2000-01 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF JANUARY 2011. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 7 TH JANUARY 2011. P/-*