Itxa/333/2012 Of Fgp Limited v. Commissioner Of Income Tax - I

kps IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.333 OF 2012 FGP Limited. ..Appellant -Versus-Commissioner of Income Tax-I. ..Respondent ........... Mr.B.V.Jhaveri, for the Appellant.Mr.P.C.Chhotaray, for the Respondent. ........... CORAM: S.C. DHARMADHIKARIAND B.P. COLABAWALLA, JJ. DATE :- 27[th] June, 2014 P.C.: 1This Appeal by the Assessee challenges the order passed by the Income Tax Appellate Tribunal dated 21.10.2011 in Income Tax Appeal No.5002/Mum/2008. The Assessment Year in question is 2004-2005. 2Though the Tribunal's order decides the cross appeals all that we are concerned in the present Appeal is with a question projected by Mr.Jhaveri, learned counsel appearing for the Assessee, as substantial question of law. 3Mr.Jhaveri submits that the Tribunal was not right in law in holding that the loss on assignment of debt is not allowable as “business loss” under Sections 28 and 37(1) of the Income Tax Act, 1961 in the previous year relevant to Assessment Year 2004-2005. 4Mr.Jhaveri submits that there was nothing suspicious about the transaction in question. The Assessee had made Inter Corporate Deposit and advanced the monies to the company/ M/s Spentex Industries Limited. Eventually that company went in losses and a reference was made to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies Special Provisions Act, 1985, that does not mean that the transaction was not genuine. That debt was subsequently assigned to another company considering the fact that the company incurred losses and there was no hope for any recovery. It is in these circumstances and when the transaction was entered into in normal and ordinary course of business that the concurrent orders suffer from clear perversity giving rise to substantial question of law which are formulated at paragraph 15 page 7 of the present paper book. 5On the other hand, Mr.Chhotaray, learned counsel appearing for the Respondent/ Revenue, submits that there is no substance in this Appeal. It does not give rise to any substantial question of law. He invites our attention to pages 19 and 20 of the paper book which contain paragraphs 15.3 to 15.11 of the Assessing Officer's order. He submits that the Assessing Officer has found that the required particulars were lacking. It is inconceivable that a prudent business company like the Appellant would go on lending and advancing sums knowing fully well the precarious financial position of the borrower. Initially the Assessee could not visualize the loss suffered by the borrower. When it found the financial position to be worst it still went on lending further sums. Thereafter, the assignment of debt at a paltry sum was correctly applied as relevant test to deny deduction/ claim. Such finding of fact and which has been upheld throughout does not give rise to any substantial question of law. He, therefore, submits that the Appeal be dismissed. 6With the assistance of the learned counsel appearing for the parties we have perused the orders passed by the Assessing Officer, the Commissioner of Income Tax (Appeals) and the Tribunal on the relevant issue. 7The Appellant approached the Authorities by pointing out that during the year ended on 31.03.2004 relevant to the Assessment Year 2004-2005 the Appellant was carrying on business of running a Business Centre. It filed the return of income for this Assessment Year declaring the loss of Rs.3,97,29,592/-. This return of income was scrutinized and the order was passed on 26.12.2006 whereunder the Assessing Officer held that the loss on assignment of debt amounting to Rs.5,88,77,000/- is not genuine business loss. He, therefore, added back the same to the total income of the Assessee. That is how the income was brought to tax and the liability to pay the same was determined. Commissioner of Income Tax (Appeals) and the Tribunal on the relevant issue. 7The Appellant approached the Authorities by pointing out that during the year ended on 31.03.2004 relevant to the Assessment Year 2004-2005 the Appellant was carrying on business of running a Business Centre. It filed the return of income for this Assessment Year declaring the loss of Rs.3,97,29,592/-. This return of income was scrutinized and the order was passed on 26.12.2006 whereunder the Assessing Officer held that the loss on assignment of debt amounting to Rs.5,88,77,000/- is not genuine business loss. He, therefore, added back the same to the total income of the Assessee. That is how the income was brought to tax and the liability to pay the same was determined. 8Aggrieved by this exercise the matter was carried in Appeal to the Commissioner of Income Tax (Appeals). 9The case of the Assessee before both was that earlier the Assessee was a pioneer in manufacturing the full range of basic fiberglass products. After 1996 due to encouraging demand of fiberglass various companies started fiberglass plants and thus, there was stiff competition which substantially reduced the market share and the demand of products of the Assessee. The operation of the company at its plant at Thane was closed in 1997 and the plant at Hyderabad was eventually sold in July, 1998. There was no manufacturing activity, therefore, the business centre was being operated at Mumbai. 10The Appellant Company had promoter shareholder whose share holding is 37.71%. Rest of shares were held by the financial institutions, banks, insurance companies, mutual funds, UTI, corporate bodies and Indian public. The Appellant had lent and advanced the inter corporate deposits to M/s Spentex Industries Limited with interest at 13% p.a.. The details of sums and interest quantum were provided in paragraph 9 of the memo of appeal. While in the subject Assessment Year there was further advances aggregating to Rs.3.85 crores and that was according to the Assessee lent and advanced in hope that the borrower will turn the corner and will come out of the red and will continue its business of manufacturing yarn which was very promising and in demand. The borrower could not turn the corner, eventually the Board of Directors of the Assessee decided to assign the debt. That it was assigned after valuation report. Hence, the claim was that there was nothing suspicious and lacking in bonafide. 11We do not find that the Authorities in any way failed to appreciate these facts. Mr.Chhotaray has rightly placed reliance on the concurrent findings and particularly those to be found in the Assessing Officer's order. It has been held and concurrently that during the period 31.03.2001 to 26.12.2002 a sum of Rs.1.80 crores was lent and advanced. During the previous year relevant to the Assessment Year under scrutiny further advances of Rs.3.85 crores totaling to Rs.5.65 crores were made. It is very difficult to accept that a company which reported losses for the year ended on 31.03.2003 at Rs.11.17 crores on the turnover of Rs.43.15 crores would be lent and advanced further sums and in this manner. The agreement of assignment of debt to M/s RPG Cellular Investment and Holdings Private Limited was probed further by the Assessing Officer and he found that the companies, namely, RPG Life Sciences Limited, RPG Cables Limited and RPG Paging Limited, to which the Inter Corporate Deposits were advanced had close contacts with the Assignee of debt. The Company M/s Spentex Industries Limited and M/s Spentex Limited are belonging to one group. Possibility of one or more directors of the Assessee Company being closely associated with the RPG Group was not ruled out and that is how the Director of RPG Celluar Investment and Holdings Private Limited was called upon to give explanation. The finding of fact is that the loan of Rs.1.80 crores was given in March, 2001, September, 2001 and December, 2002. The Assessee may as well be not aware of the financial position of M/s Spentex Industires Limited during this period, however, it was fully aware of the financial position when the said company did not or rather failed to pay the interest amount on the loan. In these circumstances further advance to the company was rightly termed as a transaction lacking in bonafide. There is no reasonable explanation coming forward and that is how the claim came to be rejected. This very finding of the Assessing Officer and which has found favour with the Commissioner of Income Tax (Appeals) and he has rightly relied on the same in his order in paragraph 18.5. Further, these findings of the Commissioner of Income Tax (Appeals) and particularly in paragraph 18.05 have been upheld by the Tribunal. We do not find that the Tribunal committed any error while confirming the order impugned before it, rather it rightly analyzed the factual position. Therefore, in turning down the claim and upholding the concurrent findings the Tribunal has assigned cogent and satisfactory reasons in paragraphs 36 to 38 at pages 68 and 69 of the paper book. 12In the light of the above discussion we do not find that any substantial question of law and particularly as projected and framed arises for consideration and determination of this court. The Appeal is devoid of any merit and is dismissed. No costs. (B.P. COLABAWALLA, J.) (S.C. DHARMADHIKARI, J.)