TMI Blog2019 (9) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue are treated as partly allowed for both assessment years 2004-05 and 2005-06. Disallowing amount recovered in respect of bad debts written off in the books of amalgamating companies as an exempt income in its hands - HELD THAT:- After the amalgamation, the amalgamated company i.e., the assessee company, has all the rights the amalgamating companies had in their business which were transferred to it and also it owes all the liabilities the amalgamating companies owe and transferred to it. In exercise of such rights only, the assessee company recovered sum during the assessment years 2004-05 2005-06 respectively, from the bad-debts written off by the erstwhile amalgamating companies and therefore such recoveries are nothing but the business receipts of the amalgamated company i.e., the assessee and hence they are assessable in it its hands. This decision is also in accordance with the decision of CIT v. T. Veerabadra Rao [ 1985 (7) TMI 2 - SUPREME COURT] relied on by the Ld.CIT(A), supra. Disallowance of the business origination costs actually incurred by the assessee during the assessment year 2005- 06 - HELD THAT:- As per the decision normally revenue expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for tax purpose, the assessee treated them as part of cost/consideration as the case may be, based on the decision of Supreme Court in Vijaya Bank's case [ 1990 (9) TMI 5 - SUPREME COURT] rendered u/s 18 of the Act which is no more in the statute from 01.4.1989 and hence it is clear that the Ld.CIT(A) has not appreciated the facts and circumstances of this issue properly. The courts have held that if the securities are regularly purchased and sold they could be stock in trade in such case the income or loss could be revenue in nature etc. In the facts and circumstances, these issue requires readjudication afresh and hence we deem it fit to remit the issues back to the AO for a fresh examination for the assessment years 2004-05 2005-06 - I.T.A. No. 72/CHNY/2015, I.T.A. No. 73/CHNY/2015, I.T.A. No s. 285 & 286/CHNY/2015 - - - Dated:- 4-9-2019 - Shri N.R.S. Ganesan, Judicial Member And Shri S. Jayaraman, Accountant Member For the Assessee : Shri R. Vijayaraghavan, Advocate For the Revenue : Shri Sridhar Dora, JCIT ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER: The assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2573.83 Offered to tax in the Memo of income and also taxed on protective basis in the regular assessment by the AO. 2.1 However, while making the assessments for the assessment years 2004-05 and 2005-06, the A O concluded that the entire hire purchase transactions are loan and the interest rate implicit in the transaction i.e., Internal Rate of Return (IRR) method adopted in the books determines the real income and assessed accordingly. Aggrieved, the assessee filed appeals before the CIT(A) and the Ld. CIT(A) found that in the assessee's own case for AY. 2001-02, in the similar issue, the Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 decided the issue in favour of the revenue, therefore, following it he dismissed the appeals against which the assessee filed these appeals. 3. Before us, the Ld.AR relied on the decision of the jurisdictional Hon ble High Court of Madras in its own case viz M/s. Sundaram Finance Limited vs. ACIT in Tax Case Appeal No.158 of 2009, dated 05.03.2019. 4. We heard the rival submissions. In the above case, i.e., in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these years. Since, for the previous assessment years, this Court has already approved such bifurcation of income and has held that interest income (Finance charges) on consistently adopted basis of E.M.I. would be taxable in the hands of the Assessee, the mere change of Accounting method in its Book of Accounts on the basis of S.O.D. does not alter the position in the tax in the hands of the assessee. Therefore, the Judgement of Andhra Pradesh High Court in the case of Sri Chakra Financial Services Ltd. Vs. Commissioner of Income Tax [(2013) 350 ITR 398] is distinguishable. 7. On the other hand, since in the case of Ashok Leyland Finance Ltd., (supra) the Coordinate Bench of this Court has upheld the taxability with regard to interest income on EMI method, which has been consistently followed, there is no reason to take a different view in the matter for the present Assessment years, in this case. 8. Accordingly, the present Appeal of Assessee is allowed and the questions of law are answered in favour of the Assessee and as against the Revenue. No order as to costs. Therefore, following the above decision, we direct the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouble taxation of the amount in the respective assessment years. The Ld.CIT(A) found that in assessee's own case for AY. 2001-02, in the similar issue, the Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 upheld the order of the Commissioner of Income-tax (Appeals) on this issue and hence decided against the assessee. Therefore, respectfully following that decision, the Ld.CIT(A) dismissed the assessee s appeals against which the assessee filed these appeals. 5.2. Before us, the ld AR submitted that the ld Commissioner of Income tax (Appeals) erred in not reducing the provision for non-performing assets at ₹ 72,49,109/- and ₹ 16,44,58,656/- from the taxable income which was reversed during the assessment years 2004-05 and 2005-06, respectively, consistent with the stand taken in the assessments. 5.3 We heard the rival submissions. Since the assessee s claim require verification, we deem it fit to restore this matter back to the AO for a fresh examination and due decision after affording adequate opportunity to the assessee. Thus, the assessee s appeal grounds on this issue are trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that any income not being specifically exempt under the Act is taxable as income from other source. Accordingly, he brought to tax the bad debts recovered at ₹ 2,33,79,628 and ₹ 3,80,40,407/- in the assessment years 2004-05 and 2005-06, respectively. On appeals before the CIT(A), the assessee contended that for the applicability of sec.41 (4), the identity of the assessee should be maintained to tax the recovery of bad debts. In the assessee's case, the amalgamating companies who actually wrote off the bad debts were no more in existence and hence the recovery of bad debts by the assessee would not be chargeable to tax as upheld by the Madras High Court in the case of CIT Vs. P.K.Kaimal (123 ITR 755). It is further stated that the successor of the business is defined in Explanation 2 to Section 41 (1) which includes amalgamated company and no corresponding definition has been found under Section 41 (4). In the case of amalgamation, the identity of the amalgamating company is completely lost and the name of the company is struck down from the Registrar of Companies. Hence, the reasoning given by the assessing officer in distinguishing P.K.Kaimal's case tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nisations or businesses into one. In view of the above meanings, in the case of dissolution an entity which was in existence disappears from the scene subsequent to merger. Whereas in the case of amalgamation or merger it is the case of two entities coming together to form a larger new entity which means to say that both are in co-existence. Therefore, the decision relied on by the appellant is of no much help as the facts of dissolution are distinguishable from that of amalgamation or merger. In this context the observation of the AO as under is proper: Thus in the case of amalgamation of companies, it can be said that the amalgamating company 'exists' within the amalgamated company without having a separate identity. The identity of that company is not completely lost. (b) In the case of amalgamation, the amalgamating company has joined the amalgamated company ie., the appellant company along with its assets and liabilities which means to say it has joined the new company along with its bad debts also which were written off on the date of merger. When the amalgamated company owns up the assets and liabilities of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76(3A) quoted supra which states that if there is any discontinuance of business by any person any sum received after such discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt as if such sum would have been included in the total income of that person who carried on the business had such sum been received before such discontinuance. This analogy drawn by the AO also goes in support of AO's stand. (d) The observation made by the AO that the appellant company would have taken efforts, used its man power, time, energy etc for the recovery of such bad debts is well taken. Even though the details of the gap between the date of merger and the date of recovery is not available to assess the extent of efforts made, the appellant might have made a continuous effort over a period of time to recover such bad debts pertaining to its erstwhile subsidiary companies. In the process the appellant might have incurred some expenditure and debited the same in its P L a/c. Any income generated by incurring business expenditure, therefore, can certainly be categorised as business income. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any recovered ₹ 2,33,79,628 and ₹ 3,80,40,407/- during the assessment years 2004-05 2005-06 respectively, from the bad-debts written off by the erstwhile amalgamating companies and therefore such recoveries are nothing but the business receipts of the amalgamated company i.e., the assessee and hence they are assessable in it its hands. This decision is also in accordance with the decision of the Hon ble Supreme Court in the case of CIT v. T. Veerabadra Rao (1985) 22 Taxman 45 (SC), relied on by the Ld.CIT(A), supra,. Therefore, we do not find any infirmity in the orders of the Ld.CIT(A) on this issue and hence dismiss the corresponding grounds of the assessee for the assessment years 2004-05 and 2005-06, respectively. 7. The next issue is the additional grounds of appeal filed on the disallowance of the business origination costs of ₹ 9,70,67,626/- actually incurred by the assessee during the assessment year 2005- 06 . The Ld.AR submitted that for the assessment year 2005-06, the assessee has filed an appeal before the ITAT bearing number ITA 73/CHNY/2015 dated 12.01.2015 against the orders of Commissioner of Income Tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for procurement of business. This amount represented upfront expenditure incurred in the course of business. In the books of account, the business origination cost was apportioned over the tenure of the contracts in order to determine the financial performance and pricing of each contract. Accordingly, ₹ 4,35,19,418/- was charged to P L a/c for this year and the balance of ₹ 9,70,67,626/- was carried over to the balance-sheet for amortization in the subsequent years. However, while filing the return of income, the assessee claimed the balance of ₹ 9,70,67,626/- also on the ground that it is a revenue expenditure instead of spreading over the amount to the period of contract. The AO by relying on the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd [1997] [225 ITR 802] and also by stating that the assessee itself apportioned over the tenure of the contracts in order to determine the financial performance and pricing of each contract and that if the entire amount of commission paid to market agents is claimed this year it will be a distorted picture of income, allowed only the amount debited to P L a/c of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 14-11-2003. Same day dividend of ₹ 76,16,755/- was declared by mutual fund as this was the record date for declaration of dividend. This amount of dividend was received by company on 13-11-2003. These units of mutual fund were sold on 13-2-2004 for ₹ 93,90,866/- and loan of ₹ 1,50,00,000/- was repaid to HDFC Bank and a capital loss of ₹ 86,09,134/- has been claimed by the company and the amount of dividend received has been claimed as non taxable. 8.1.1 The AO in view of the intent and language of s.94(7) , reduced the capital loss to the tune of ₹ 76,16,755/-, being the amount of dividend receipt, from short term capital loss and held that the eligible capital loss is only ₹ 9,92,379/- and accordingly, the AO made a disallowance of capital loss of ₹ 76,16,755/-. On appeal, the Ld.CIT(A) held that the disallowance of capital lost to the extent of dividends earned is not called for the following reasons: Firstly, the period of holding was more than three months, therefore, s.94(7) will not apply. Secondly, the assessee's case pertains to AY.04-05 due to which the amended provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out a bonus scheme itself is against the objective of the above scheme. He came to the conclusion that the entire scheme of giving bonus to the big investors is a colourable device as the appellant company is holding 100% shares and therefore the benefit derived by investment at this scheme for five days and claiming loss of capital loss of ₹ 74,94,659 is disallowed. Accordingly, the AO relying on the decision in the case of McDowell And Co.Ltd v. Commercial Tax Office, 154 ITR 148 SC, disallowed the amount claimed as short term capital loss. On appeal, the Ld.CIT(A) held, inter alia, that the argument of the appellant is that the entire transaction of purchase and sale of the shares and declaration of dividends by Sundaram Mutual Fund is regulated by SEBI and schemes are launched only after getting approval from them. Therefore, the question of influencing Sundaram Mutual Fund by the appellant company does not arise. The Id.AR has further submitted that when compared to the corpus of Sundaram Bond Saver Institutional Plan - Bonus option, which is at ₹ 221.16 crores the investment made by the appellant in the scheme is only ₹ 1.50 crores contributing only 0.67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the rival submissions and gone through relevant material. In the light of the Special Bench decision of the Tribunal in its order dt. 15th July, 2005 reported as Walfort Share Stock Brokers Ltd. vs. ITO Anr. (2005) 96 TTJ (Mumbai)(SB) 673, which has been affirmed by the Bombay High Court vide its judgment dt. 8th Aug., 2008 reported in Commissioner Of Income-Tax. vs Walfort Share And Stock Brokers (P) Limited, 310 ITR 421 and the Hon ble Apex court s decision In Commissioner Of Income-Tax. vs Walfort Share And Stock Brokers (P) Limited. 326 ITR 1(SC), we find that on the facts and circumstances, supra, the reasonings of the Ld.CIT(A) on both issues, supra, do not require any interference and hence dismiss the corresponding grounds of the revenue on both issues. 9. The next issue pertains to disallowance of broken period interest on purchase/sale of securities for the assessment years 2004-05 2005-06 in ITA Nos.285 286 /Chny/2015 for AYs 2004- 05 2005-06 : 9.1 In the assessment order for the assessment year 2004-05 it is stated as under: Assessee company is in the business of regular sale and purchase of Government s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Vijaya Bank's case (187 ITR 541) d. Circular No.610 dt.31.7.91 issued by the CBDT clearly clarifies that the broken period interest cannot be taxed under business income by upholding the above Supreme Court decision. 9.3 The Ld.CIT(A) found that in appellant's own case for AY. 2001-02, in the similar issue, the Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 remitted the issue back to the file of CIT(A) by holding as under: 5.4 In both the cases, the Hon'ble High courts have held that since the investments were in the character of stock-in-trade, broken period interest will be revenue in nature. Since the present issue has not been examined from this point of view, we remit the issue to the file of Commissioner of Income-tax (Appeals) to consider the issue and give a finding accordingly. The assessee should be given adequate opportunity of being heard. 11.2.1 It is understood from the above decision of the IT AT, Chennai that if the investments are taken as stock-in-trade then broken period interest will become revenue in nature. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case may be, based on the decision of Supreme Court in Vijaya Bank's case 187 ITR 547 rendered u/s 18 of the Act which is no more in the statute from 01.4.1989 and hence it is clear that the Ld.CIT(A) has not appreciated the facts and circumstances of this issue properly. The courts have held that if the securities are regularly purchased and sold they could be stock in trade in such case the income or loss could be revenue in nature etc .The Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 has also pointed out them, supra. In the facts and circumstances, these issue requires readjudication afresh and hence we deem it fit to remit the issues back to the AO for a fresh examination for the assessment years 2004-05 2005-06. The assessee shall place all the material on which it relies in support of its contentions and comply with the requirements of the AO in accordance with law. The AO is also is at liberty to conduct appropriate enquiry as deemed fit, however, the AO after affording due opportunity to the assessee decide these issues in accordance with law for the assessment years 2004-05 2005-06. The corresponding grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the ITAT, Chennai, the ld CIT(A allowed the claim of the assessee. Aggrieved, the revenue filed this appeal with following grounds : 3. The ld. CIT(A) erred in deleting the disallowance of entire bad ₹ 12,82,23,000/- made by the Assessing Officer. 3.1 The ld. CIT(A) relied upon the decision of the ITAT in assessee's own case for A.Y. 2001-02 in ITA. No. 1161/Mds/2010 dated 13.11.2010. The above decision of the ITAT was not accepted by the department and appeal to the High Court has been filed. 3.2 The Id. CIT(A) failed to appreciate that the disallowance was made by the Assessing Officer considering the business activity of the assessee i.e. higher purchase and mortgage loan and on relying upon the decision of the Hon'ble Madras High Court in the case of South Indian Surgical Corporation Ltd. ( 287 ITR 62) and Hon'ble Gujarat High Court in the case of Dhal Enterprises and Engineers Ltd. (207 CTR 729). 10.3 We heard the rival submissions. On the similar issue in the assessee's own case for A.Y 01-02, this Tribunal in ITA No.1161/Mds/2010 dated 13.11.2010 allowed the claim made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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