TMI Blog2014 (7) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... s and surplus" and at the opening of the year it is at ₹ 23.67 crores and at the year ending it is at ₹ 43.37 crores and the aggregate amount of equity and reserves at the year ending is ₹ 51.63 crores - The sale value of the products exclusively manufactured by M/s. Nitya Laboratories Ltd. for the assessee-company constitutes 38% of the total sales of the assessee company - for the sake of commercial expediency and out of business prudence the assessee has advanced these amounts to M/s. Nitya Laboratories Ltd. - Decided in favour of Assessee. - ITA No.1016/Hyd/2012 - - - Dated:- 27-6-2014 - B Ramakotaiah And Asha Vijayaraghavan, JJ. For the Appellant : Sri C P Ramaswami For the Respondent : Sri Solgy Jose T Kottaram ORDER:- PER : Asha Vijayaraghavan This appeal by the assessee is directed against the order of CIT(A)-II, Hyderabad dated 3.2.2012. 2. Facts of the case are that the assessee is engaged in production of bulk drugs and API and filed its return of income for A.Y. 2008-09 on 30.9.2008 admitting an income of ₹ 26,39,95,940. The return was processed u/s. 143(1) on 16.2.2010. The AO made certain disallowances of which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited is not only restricted to customer-supplier relation and it is beyond. The assessee company is a widely held public limited and is a major shareholder in Nitya Laboratories Limited having an equity investment of ₹ 2,69,21,100/- out of the total equity of ₹ 6,79,80,740/- Nitya Laboratories Limited. The company Nitya Laboratories Limited got amalgamated with the assessee company with effect from 01-04-2009 under the scheme of amalgamation duly approved by the Hon'ble High Court of Andhra Pradesh vide order dated 21-12-2010. 6. The AR submitted that the Assessing Officer is not correct in saying that the working capital loans obtained by the assessee have been utilized for making advances to Nitya Laboratories Limited since the loan amounts were utilized for specified purposes as per the arrangement with lending banks and institutions. The assessee is having accumulated profits in 'reserves and surplus' and the aggregate of such profits as at the opening of the year was ₹ 23.67 crores and as the year end was ₹ 43.37 crores and the aggregate amount of equity and reserves at the year end is ₹ 51.63 crores. As mentioned earlier, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders. From 2005, the assessee-company M/s. Anu's Laboratories Ltd. had carried out part of the manufacturing operations on job work basis with M/s. Nitya Laboratories Ltd. 9. The learned counsel for the assessee stressed on the fact that M/s. Nitya Laboratories Ltd. had been carrying on job works exclusively for the assesseecompany. In this process the assessee has to take care of various requirements including payment to creditors, clearing institutional loans and making investment in capital expenditure according to production requirement. Hence these requirements are met by the assessee apart from conversion charges. The learned counsel for the assessee submitted that unless the requirement of M/s. Nitya Laboratories Ltd., are met by the assessee, heavy losses would be incurred by M/s. Nitya Laboratories Ltd., which would have resulted in closing down of M/s. Nitya Laboratories Ltd., and it is not possible for the assessee to create such huge production facility. Hence the assessee took a prudent commercial decision to make advances to M/s. Nitya Laboratories Ltd. 10. The learned counsel for the assessee also submitted that the assessee has a major shareholding in M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel pointed out that all bills have been adjusted against job work charges and have been enclosed from pages 27 to 92 of the Paper Book. The working capital facility and capital equipment addition for the sake of assessee's manufacturing requirement had been taken care of by the assessee itself by advancing these loans. It was a well thought out decision that but for the advances given by the assessee, M/s. Nitya Laboratories Ltd. would be in a position to close its operations and cannot take care of payments to outside parties being banks and financial institutions. Further the assessee company is a widely held public limited company and major shareholders in M/s. Nitya Laboratories Ltd. adding equity investment of ₹ 2,69,21,100 out of the total equity of ₹ 6,79,80,740 of M/s. Nitya Laboratories Ltd. We find that the company M/s. Nitya Laboratories Ltd. got amalgamated with the assessee-company w.e.f. 1.4.2009 and the scheme of amalgamation has been approved by the Hon ble High Court of Andhra Pradesh. 13. In the case of M/s. SA Builders Ltd. vs. CIT Anr. (288 ITR 1) the Hon ble Supreme Court of India held as follows: In order to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res which consists of goods manufactured by the assessee-company and sales of ₹ 120.47 crores and goods manufactured by M/s. Nitya Laboratories Ltd. on job work basis, which in turn sold by the assessee at ₹ 46.87 crores. We also note that the assessee is having accumulated profits in reserves and surplus and at the opening of the year it is at ₹ 23.67 crores and at the year ending it is at ₹ 43.37 crores and the aggregate amount of equity and reserves at the year ending is ₹ 51.63 crores. The sale value of the products exclusively manufactured by M/s. Nitya Laboratories Ltd. for the assessee-company constitutes 38% of the total sales of the assesseecompany. Hence we are of the opinion that for the sake of commercial expediency and out of business prudence the assessee has advanced these amounts to M/s. Nitya Laboratories Ltd. The assessee's appeal is allowed. 15. Following the ratio of Hon ble Supreme Court's decision in the case of SA Builders Ltd. (supra), we have to answer the query whether the amounts were advanced by the assessee as a measure of commercial expediency in affirmative. 16. In the result, appeal of the assessee is all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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