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Assistant Commissioner of Income Tax, Company Circle-II (3) , Chennai Versus M/s. ISC Investments & Finance P. Ltd.

2016 (1) TMI 634 - ITAT CHENNAI

Loss set off against the interest income - continuity of business activity after sale of business - whether entire undertaking is not sold as stock-lock barrel and there is no slump sale? - Held that:- As the assessee has not transferred the entire undertakings but only portion of it was transferred by way of business transfer agreement and the assessee has carried on the business of job work of outsourcing of ATMs business in the financial years 2005-06 and 2006-07 and earned income of ₹ .....

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come Tax (Appeals) that during the financial year 2007-08 relevant to the assessment year under consideration, the assessee utilizing the said employees, manpower and infrastructural facilities carried out a new contract work for M/s. Cash Link Global Systems (P)Ltd. and earned business income of ₹ 7,00,000/-, therefore he concluded that assessee in fact carried on the business even after the business transfer agreement in the year 2005. On going through the above order of the Commissioner .....

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r. A.V.Sreekanth, JCIT For The Respondent : Mr. T.Banusekar, C.A. ORDER Per Challa Nagendra Prasad, JM: This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-II, Chennai dated 30.01.2014 for the assessment year 2008-09. 2. The Revenue has raised the following grounds of appeal:- 2. The CIT(A) erred in allowing the assessee's appeal by holding that the assessee has derived business income and has incurred administrative expenses. 2.1 The Id.CIT(A) f .....

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come from business. 2.2 The Id. CIT(A) failed to appreciate that the assessee has sold its business of outsourcing ATMs lock, stock and barrel by way of slump sale in the year 2005-06. 2.3 The Id. CIT(A) ought to have seen that the offering of 'business income' of ₹ 7 lakhs against which expenditure of ₹ 2,93,09,185/- has been claimed is only to avoid payment of tax on its income from Other Sources (Interest income) of ₹ 2,56,64,169/-. 2.4 The Id. CIT(A) failed to note .....

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e Id. CIT(A) failed to appreciate that when the expenses claimed were not related to the business that was in existence, the claim of such expenses has to be disallowed as has been rightly done by the Assessing Officer. 2.7 The Id CIT(A) failed to appreciate that while claiming such huge expenses in the absence of any live business activity, the assessee failed to prove beyond doubt the need for such expenses with regard to operation and administrative expenses before the Assessing Officer. 3. B .....

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s loss of 2,86,09,185/- apart from showing 7,00,000/- as income during this assessment year. The Assessing Officer was of the view that the assessee has transferred its business in the financial year 2004-05 to eFunds International P.Ltd. through business transfer agreement and by virtue of this agreement, the assessee sold its business in the year 2005 and assessee was barred from entering into same line of business for three years. In the absence of any business activity during the year, the e .....

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ore the Commissioner of Income Tax (Appeals) that business currently being carried on by the assessee was on Sun-Oasis platform and this business had been sold on slump sale basis while retaining the Tandem- Base 24 platform related business with the assessee. Thus, it was contended that assessee has not sold its entire undertaking so as to say that it is a slump sale. It was further contended before the Commissioner of Income Tax (Appeals) that even as per agreement, it is not restricted to car .....

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08 relevant to assessment year 2008-09, it had carried on job work for its sister concerns and earned income of 7,00,000/-. Therefore, it does not mean that assessee has not carried on any business at all during the assessment year 2008-09. Considering the submissions of the assessee and the contentions raised by the Assessing Officer in the assessment order, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee in setting off the income against business loss holding that as .....

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year 2004-05 as slump sale, in the absence of any business activity, the loss cannot be set off against the interest income the Assessing Officer has rightly assessed the interest under the head income from other sources. He vehemently supports the order of the Assessing Officer. 5. Counsel for the assessee referring to page 18 of the paper book i.e. business transfer agreement submits that the agreement was entered into on 31st March, 2005 by the assessee company and M/s. eFunds International .....

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same M/s. eFunds International P.Ltd. during the financial years 2005-06 & 2006-07 and earned revenue of about 12.81 crores, even though the assessee entered into business transfer agreement in the financial year 2004-05 itself. He submits that this clearly shows that assessee has not sold its entire undertaking so as to treat it as a slump sale. Referring to the agreement, he further submits that assessee is not prevented from doing various businesses referred to in the agreement which are .....

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onitoring and content management except that these services may not be solicited for A TMs contracted with 1SC prior to Closing, or for those ATMs added on to those existing contracts post-Closing or from a customer of lSC as of Closing, without consent of Purchaser; (C) maintenance services for POS terminals and related hardware and software; (D) sale and support of 'plastic cards (but not including their production and issuance under outsourcing arrangements as performed in the Business); .....

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rights of first refusal for Second Line Maintenance (SLM) for ATMs implemented or under contract for future implementation on an outsourcing basis under ISC contracts with customers as of the Go sing Date, and for A TMs supplied by ISC or its Affiliates in the future to Purchaser or any other Affiliate of the Purchaser in India in the event of such entity seeking to engage a third party service provider for such service. 'Purchaser shall also offer to ISC or its Affiliates the rights of firs .....

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n to the deployment of ATMs, Cash Dispensers, Self-Service Terminals, pas terminals or other electronic transaction devices, and for the production and supply of plastic cards as may .be required by ISC or its Affiliates. (vi) The Parties agree that these rights of first refusal for both Parties as mentioned in this Agreement are intended to enhance opportunities for mutual benefit by enabling them to work together and are subject to each party meeting the requirements of functionality, adherenc .....

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Heard both sides. Perused orders of lower authorities. The Assessing Officer while completing the assessment did not allow business loss against interest income stating that assessee did not carry on any business during this assessment year under consideration and the assessee sold its business in the year 2004-05 to M/s. eFunds International P.Ltd. The Assessing Officer also ignored income of 7,00,000/- shown by the assessee for the job work done by the assessee for M/s. Cash Link Global Syste .....

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e very same M/s. eFunds International P.Ltd. by retaining portion of fixed assets and employees. Therefore, Commissioner of Income Tax (Appeals) elaborately considered the submissions of the assessee and the contentions of the Assessing Officer and concluded that the assessee carried on the business during the assessment year under consideration and therefore loss has to be allowed observing as under:- I have considered the assessee's submissions as well as the assessment order carefully. Th .....

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self in the following two years i.e. in F.Y. 2005-06 and 2006-07. This clearly shows that the assessee was carrying on the business activities even after the transfer of its "outsourcing of ATMs business" to M/s. eFunds International P Ltd, in the form of sub-contracts from M/s. eFunds International P Ltd. Further as could be seen from the assessee's P&L accounts and the balance sheets of the F.Ys. 2005-06, 2006-07 and 2007-08, the assessee has not transferred the entire income .....

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FY 2004-05, its sub-contracts (job work) income in FYs 2005-06 & 2006-07, other business incomes, interest income etc, the employee cost, administration costs, depreciation etc, of the FYs. 2004-05, 2005-06, 2006-07 and 2007-08 are as under:- Perusal of the above data clearly shows that even after the transfer of "outsourcing of ATMs business" to M/s. eFunds International P Ltd in 2005, the assessee retained a portion of the employees' and infrastructure (fixed assets like com .....

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Y s 2005-06 & 2006-07, by way of job-work to M/s. eFunds International P Ltd, that too in the same line of business of "outsourcing of ATMs business". The incomes generated by the said job-works during these financial years are ₹ 5,84,55,191/- and ₹ 6,97,22,8501-, respectively, which is about 1/4th to 1/5th of the regular business prevailing in F.Y.2004-05. Thus the assessee company was carrying on the business during the financial years and also offered the same under .....

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the following year (i.e. after the transfer of "outsourcing of ATMs business") employee cost was ₹ 59.22 lakhs, which is about 42% of the previous year's employee cost. In other words, the assessee retained more than 40% of the employees/manpower even after the transfer of the business. With these employees/ manpower, the assessee company carried out the job-work to the transferee company M/s. eFunds International P Ltd in the following two financial years. Though the employ .....

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certain infrastructure like computers, electrical equipment, premises, furniture etc with which it was carrying on the job- work business to M / s. eFunds International P Ltd, during the financial years 2005-06 and 2006-07, in the field of "outsourcing of ATMs business". These infrastructural facilities are remaining intact in the financial year 2007-08 as well. These facts are clearly available from the depreciation schedules of the balance sheets enclosed along with the returns of i .....

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d the same was also included in the P&L account and offered to tax in the present A.Y.2008-09. The Assessing Officer acknowledged the said contact receipts by allowing the credit for TDS, but surprisingly ignored the said income while computing the income under the head 'income from business'. Further, as held by several courts, earning of income is not the criteria to prove that the business is in existence. What is required to be seen is the existence of income earning apparatus (l .....

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uring the year, the Assessing Officer is not justified in coming to the conclusion that the assessee did not carry out any business activities during the year. On the other hand, the above facts clearly proves that the assessee's business activities are in existence and also earned a business income of ₹ 7,00,000/- during financial year relevant to the A.Y.2008-09, Hence the assessee has the right to claim all the expenses under the head 'income from business' and the resulting .....

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