TMI Blog2011 (10) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CIT(A). The First Appellate Authority granted part relief. On the issues where the First Appellate Authority rejected the contentions of the assessee, the assessee is in appeal while on the issues where the First Appellate Authority decided the issues in favour of the assessee, the revenue is in appeal. 3. We have heard the learned counsel for the asesssee Mr. Arvind Sonde and the learned Departmental Representative Mr. Subhacham Ram. 4. We take up the assessee s appeal being ITA No. 5002/M/08: 5. Ground Nos. 1 2 are on the issues as to whether the AO was right in treating the interest income of ₹ 82,97,000/- and dividend income of ₹ 9,47,000/- as income from other sources . 6. We find that these issues are covered against the assessee by the decision Mumbai Bench of the Triubnal in assessee s own case for AY 2003-04 in ITA No. 2653/M/07, order dated 15/12/2010 wherein at page No. 3 4 vide para 2.1.2 of its order, the Tribunal held as follows: - 2.1.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding the nature of dividend and interest income received by the assessee during the year. The divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoy the rental income. The assessee has developed the property and also made provisions for various services as mentioned earlier with a view to commercially exploit the property. The property has been let out with various facilities and amenities for corporate clients such as board room facilities, letters receipt/dispatch facilities, computer with Internet facilities, security arrangements in addition to telephone and electricity and water facilities etc. The income has therefore to be assessed as business income. This view is supported by the judgment of Hon ble Supreme Court in case of S.G. Mercantile Corporation Pvt. Ltd. Vs CIT (83 ITR 700). In the said case one of the object of the assessee in its memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real estate and personal properties and to deal with the same commercially. The assessee had taken one property which was remodeled and repaired so as to make it f it for subletting as shop, stalls and ground space to shopkeepers etc. The issue was whether rental income should be assessed as business income or income from other sources. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s own case for AY 2003-04 (supra) wherein at page No. 11 to 12 vide para 2.3.2 of its order, the Tribunal held as follows: 2.3.2 We have perused the records and considered the matter carefully. The dispute is regarding nature of expenditure on account of payment of ₹ 9 lacs to RPG Academy of Art and Music by the assessee. The case of the assessee is that RPG Academy had organized well attended art exhibitions and the expenditure had been incurred to publicize the business centre and facilities offered to corporate clients and therefore expenditure was for the purpose of business and should be allowed. In our view the case of the assessee cannot be accepted that the payment had been made in connection with publicity of the business centre because the AC has given a clear finding that the business centre was fully occupied and had been sublet to companies on long term basis. This finding has not been controverted before us by producing any material. Therefore once the business centre is fully occupied on long term basis there is no question of making any payment for publicity. Obviously the assessee had made the payment as a donation to RPG Academy of Art Music which could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this aspect will be dealt with while dealing the additional ground later. 19. Respectfully following the decision of the Tribunal in AY 2003- 04(supra), we dismiss Ground No. 7. 20. Ground No. 8 is on the issue of allowability of bad debts written off. 21. The AO had observed that the assessee had debited an amount of ₹ 8,78,000/- under the head bad debts written off . Since no explanation offered by the assessee, the AO disallowed the said claim on the ground that the Assessee has no explanation to offer. On appeal, the first appellate authority had observed that the correct amount is ₹ 8,76,000/- and not ₹ 8,78,000/-. As no further details were furnished by the assessee, the CIT(A) upheld the disallowance. Aggrieved, the assessee is in further before us. 22. The learned counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of TRF Ltd., 323 ITR 397 whereas the learned DR pointed out that the assessee has not proved that the conditions of section 36(2) have been satisfied. 23. After hearing the rival contentions and perusing the record, it is observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation. The AO observed that the loan of 1.80 crore was given between 31/03/2001 to 26/12/2002 when the assessee may not have been aware of the financial status of Spentex . However, when the resolution was passed by the Board on 30/01/2004 the assessee was aware that the said company was suffering heavy losses and had an accumulated loss to the tune of ₹ 25.40 crores. Even then the advance of ₹ 3.85 crores was given to Spentex during the Previous Year relevant to this Assessment Year. An advance of ₹ 1.25 crores was given on 11/09/2003 and 01/10/2003. According to him no prudent businessman would have adventured to give such huge amount of advances to the company from whom the recovery of earlier loans was not remotely possible. The AO further found that the assessee had given inter corporate deposits to the following parties: RPF Life Sciences Ltd. ₹ 50 lacs RPG Cables Ltd. ₹ 50 lacs RPG Paging Ltd. ₹ 15 lacs 27. The AO further found that the assessee had also received rent of 2,25,000/- from M/s Spentex Inds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by calling it a bogus loss and CIT(A) has changed the stand and held it as a benami transaction. In this connection, the learned counsel for the assessee relied on the judgment of the Hon ble Supreme Court in the case of Sree Meenakshi Mills Ltd, 31 ITR 28, for the proposition that the term benami is different from the term sham and to explain the terms Benami and Sham . Referring to the finding that the parties are related, he submitted that under section 40A(2), disallowances can be made only in cases where the transactions between the related parties are not at arm s length. He pointed out that 40A(2) has not been invoked. He submitted that no disallowance can be made on the ground that this is a sham transaction or a bogus transaction and that this a genuine transaction. The learned counsel took us through the Deed of Assignment dated 30th Day of January, 2004 between the assessee company and RPG Cellular Investments Holdings Pvt. Ltd. and submitted that none of the authorities below have examined the facts on merits of the case and hence the issue should be set aside to the file of the AO. He urged that the issue be directed to be examined denovo by the A.O. 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as gone through the orders of the authorities below and the decisions cited. On careful consideration of the facts and circumstances of the case and perusal of the papers on record, we hold as follows: 33. In the Notes forming part of the accounts for the year ended 31st March, 2004, it is disclosed as follows: The company had given inter corporate deposits (Rs. 180.00 lakhs) and other advances (Rs. 385 lakhs during the year) to M/s Spentex Industries Ltd.. In October 2003, the said company was referred to Board for Industrial and Financial Reconstruction under the provisions of section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985. On the basis of valuation of these debts (including interest accrued thereon of ₹ 31.27 lakhs by an independent valuer, the company assigned these debts and interest for a consideration of ₹ 7.50 lakhs. (Emphasis own) 34. The Board Resolution relied upon by the asesssee, reads as follows: Copy of the resolution passed at the meeting of the Board of Directors of the Company held on January 30, 2004. The Chairman informed the Board that the Company has given a loan of ₹ 1.80 crore (Rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes a claim only u/s 28 and section 37(1) of the Act. As submitted by the learned DR, the assessee has not furnished any material or document to demonstrate the purpose for which the loans in question were given. No correspondence, agreement of loan, Board resolution for sanctioning the loan etc. are filed to prove that purpose of advancing the loan was for business. From the Board Resolution passed for assigning the debt, it can be seen that Spentex has reported a net loss of 11.17 crore on 31st March, 2003. While so, the assessee states that from 3rd April 03 to 4th October 03, it has given trade advance of ₹ 3.85 crore to Spentex . Such advancing of money was done knowing fully well that no recovery is possible and the amount has to be written off. Within 3 months of giving the last amount, the entire debt was assigned at a fraction of the value and loss claimed. It is not demonstrated that the advance was made for the purpose of business. From the report of Valuers, M/s Amnol Sekhri Associates, it can be seen that M/s Spentex Industries ltd. is a part of FGP Group. The valuers had observed as follows: 2) In fact the company s networth has turned negative due t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade and was not in the capital field. In the absence of furnishing any such evidence either before the AO or before the CIT(A) or at least before the Tribunal, we have no other alternative but to dismiss the claim of the assessee on the ground that loss in question is in the capital field . Even otherwise, we find that the asesssee has indulged in an unexplainable and abnormal transaction, with a sole intention to claiming loss. When the assessee knows that Spentex has a negative networth as on 3 1/03/2003 and when it knows that Spentex has been referred to BIFR, it is not understood and surprising as to why the assessee chose to give a further amount of ₹ 3.85 crores to the said company. Immediately after completing the task of transferring funds to a sick company, the deposits and loans are assigned. The assigning of the debt is also to a known concern for a fraction of the cost. On this factual matrix, we agree with the findings of the assessing authority as well as CIT(A) that the entire transactions were structured in such a manner so as to generate a non-genuine loss. The legal argument of the assessee that the term sham is different from benami , etc. does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s own case for AY 2003-04, appeal filed by the Revenue, in ITA No. 2457/Mum/2007 order dated 15/12/2010 wherein the at page 25 vide para 3.1.1, the Tribunal held as under: 3.1.1 We have heard both the parties perused the records and considered the matter carefully. The dispute is regarding allowability of expenditure on account of sales tax relating to the sales in the earlier years. The AC had disallowed the claim on the ground that the business of the assessee had closed. CIT(A) has however allowed the claim on the ground that the AC had assessed income on account of sundry creditors relating to earlier year under section 41(1) and therefore the claim was allowable. In our view the claim of the assessee has to be allowed as we have already held that the income from the business centre has to be assessed as business income and thus the business has not closed. Accordingly we confirm the order of CIT(A) allowing the claim. 46. Respectfully following the said order of the Tribunal in AY 2003- 04, this ground of appeal of the revenue is dismissed. 47. Ground No. 2 is directed against the action of the CIT(A) in allowing professional expenses of revenue nature u/s 57(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The dispute is regarding allowability of depreciation of ₹ 3,49,915/- on plant and machinery. We have already held that income from business centre has to be assessed as business income. Therefore depreciation on all the plants and machinery installed in the business centre has to be allowed. We hold accordingly. 55. Respectfully following the said order of the Tribunal in AY 2003- 04, this ground of appeal of the revenue is dismissed. 56. Ground No. 5 is directed against the action of the CIT(A) in allowing expenses of ₹ 3,43,893/- made on an adhoc basis at 10% of business centre income under the head income from other sources . 57. This issue is covered against the revenue by the decision of ITAT, Mumbai in assessee s own case for AY 2003-04 (appeal filed by the Revenue) (supra) wherein at page 20 vide para 3.4.1, the Tribunal held as under: 3.4.1 We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding allowability of administrative expenses to the tune of ₹ 11,70,000/-. The expenses related to travelling, motor vehicle, insurance, telephone, printing and stationery etc. We have already ..... 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