2023 (8) TMI 22 - AT - Income Tax

Tribunal affirms CIT-A on evidence, deletions under sec 68, capital receipts; partially allows Revenue appeal.

I.T.O. Ward-8 (2), Versus Surbhi Milk Foods & Beverages Ltd., Ahmedabad

I.T.O. Ward-8 (2), Versus Surbhi Milk Foods & Beverages Ltd., Ahmedabad - TMI Issues Involved:1. Admissibility of additional evidences under rule 46A.2. Deletion of additions made under section 68 of the Income Tax Act.3. Taxability of compensation received for termination of bottling license under sections 28(iv)/28(va) or section 45.4. Restriction of disallowance of expenses and purchases.5. Deletion of addition on account of late deposits of employee's contribution towards PF fund.Detailed Analysis:1. Admissibility of Additional Evidences under Rule 46A:The Revenue contended that the CIT-A erred in admitting additional evidences filed by the assessee, which were not presented during the assessment proceedings. The assessee argued that due to the closure of business and departure of key staff, it was unable to furnish required details on time. The CIT-A admitted the additional evidences after providing the AO an opportunity to verify them. The Tribunal upheld the CIT-A's decision, citing the Gujarat High Court's judgment in CIT vs. Kamlaben Sureshchandra Bhatti, which allows admitting additional evidences if the AO is given an opportunity to comment on them.2. Deletion of Additions Made under Section 68:The AO added Rs. 82,19,444/- as unexplained cash credits under section 68 due to the absence of necessary details. The CIT-A deleted these additions, noting that the AO had already disallowed 20% of purchases and 30% of expenses on an ad-hoc basis. The CIT-A reasoned that further addition of liabilities arising from these purchases and expenses would result in double addition. The Tribunal upheld the CIT-A's decision, emphasizing that the AO's disallowance on an ad-hoc basis and subsequent addition of liabilities would lead to double taxation, which is not permissible.3. Taxability of Compensation for Termination of Bottling License:The assessee received compensation of Rs. 5 crore and Rs. 1.5 crore for termination of bottling agreements. The AO treated these compensations as revenue receipts taxable under sections 28(iv)/28(va) or section 45. The CIT-A, however, treated them as capital receipts, not chargeable to tax, as they resulted in the cessation of the assessee's business. The Tribunal upheld the CIT-A's decision, referencing the Supreme Court's judgment in Oberoi Hotels Pvt Ltd vs. CIT, which classified compensation for loss of source of income as capital receipts.4. Restriction of Disallowance of Expenses and Purchases:The AO disallowed 30% of expenses and 20% of purchases due to lack of supporting documents. The CIT-A reduced these disallowances to 15% and 10%, respectively, considering the business closure and the reasonableness of the expenses. The Tribunal upheld the CIT-A's decision, noting that ad-hoc disallowances should be based on a scientific basis and the CIT-A's partial relief was reasonable.5. Deletion of Addition on Account of Late Deposits of Employee's Contribution towards PF Fund:The CIT-A deleted the addition of Rs. 27,398/- for late deposits of employee's PF contributions. The Tribunal, however, reversed this decision, following the Gujarat High Court's ruling in CIT vs. GSRTC, which mandates that such contributions must be deposited within the due date to be allowed as deductions.Conclusion:The Tribunal upheld the CIT-A's decisions on the admissibility of additional evidences, deletion of additions under section 68, and classification of compensation as capital receipts. It also agreed with the CIT-A's restriction of disallowances on expenses and purchases. However, it reversed the CIT-A's deletion of the addition for late deposits of employee's PF contributions, aligning with the Gujarat High Court's precedent. The appeal of the Revenue was thus partly allowed.