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TMI Blog2014 (2) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year, the Appellant had also earned income from processing charges. The learned CIT(A) erred in not following the order passed by the Hon'ble Mumbai ITAT in the appellant's own case for AY 2006-07 where similar issue was decided in favour of the assessee. 2. The learned CIT(A) erred in confirming the action of the DCIT in bringing to tax the interest income of INR 348.98 lacs earned on certain bonds which were business assets of the assessee and as such income from the same was to be treated as taxable under the head Business Income as in earlier years. 3. The learned CIT(A) erred in confirming the action of the DCIT in bringing to tax the job work charges, earned by the appellant, under the head "Income from Other Sources" rather than under "Income from Business or Profession" and in overlooking the fact that the said job work activity forms part of the business of the appellant. 4. The learned CIT(A) further erred in not allowing set off of brought forward business loss / unabsorbed depreciation of earlier year. 5. The CIT(A) also erred in holding that, A. The appellant had not earned any income from manufacturing activity. B. The Goa plant was set up for the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appear to be not genuine business activity, no actual manufacture/production has been carried out and there was no lull in the business. 5. Let us now consider the conduct of the assessee in so far as its business activity till 2008 is concerned. Somewhere in the year 1997, the manufacturing division was hived off and tranferred to a company M/s. Sigma Laboratories Pvt. Ltd. which was promoted by the members of the assessee firm. However, the assessee retained the ownership of the Trademarks of various products from which it earned royalty income as percentage to sales for the use of the trademarks by M/s. Sigma Laboratories Ltd. Thus, royalty income earned became the business income of the assessee. In the year 2004, the assessee sold all the domestic rights of the trademarks to M/s. Maneesh Pharmaceuticals Pvt. Ltd., claiming that it still has the rights to manufacture and exports all or any of the products. From the sale consideration received, the assessee invested Rs. 40 crores on REC bonds to avoid incidence of tax. The assessee claimed that this investment should be treated as business asset as it has been created out of business revenues and therefore interest received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 801 squarely apply on the above stated facts. No doubt, tax planning is legitimate but this conduct of the assessee goes beyond that. The contention of the assessee that it has made trial run in 2008 itself does not hold any water because neither the assessee claimed any depreciation during A.Y. 2008-09 nor the entire expenditure incurred on the installation of plant and machinery were booked during that year. Most of such expenses are found to be incurred after 30th September, 2008. 6.2. So far as the contention of the assessee, there was lull in business. This also cannot be accepted because in 1997, the assessee has closed down its manufacturing division and in 2004 sold its entire rights of trademarks. The only source of income was royalty income. The reason of slow down and lull in the business does not exist in the case of the assessee and that too for so many years when nothing has been brought on record which could suggest that the assessee was genuinely making effort to do the business. The conduct of the assessee of selling the entire business to its sister concern M/s. Sigma Laboratories Ltd., on the very first day of next financial year i.e. 1.4.2009 clearly sugge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed in case of appellant. ii) It is not a case where there was a slowdown in the business. In F.Y.2004-05 appellant earned only "royalty income". In subsequent years i.e. from F.Y.2005-06 till F.Y.2008-09 neither any regular business activity has been carried out by the appellant nor any business income is earned. The reason of slow down or lull in the business does not exist in the case of appellant and in any case such a reason cannot be a valid ground for several years. iii) The total expenses claimed In A.Y.2006 07 were amounting to Rs.12,27,516/-, out of which there were professional charges of Rs.6,00,000/- and interest paid to partners was of Rs.4,56,583/-. Thus only expenses of Rs. 1,70,983/- were related to establishment/office expense. As against this, in A.Y.2009-10 appellant has claimed huge expenses of Rs.3,72,43,855/- under various heads like man power expenses, factory and laboratory expenses, electricity charges, power and fuel, repairs and maintenance etc. Against these expenses, the income shown by the appellant is only processing charges of Rs. 1,24,366/-. iv) Most importantly, the appellant claimed to have sold its entire manufacturing business to one of it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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