TaxTMI 
TaxTMI 
2017 (2) TMI 792
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....vt. Ltd with whom the onus to bear the liability lay in term of the said MOU but was merged with M/s Digvijay Chemicals Ltd. and thus MOU did not survive, during this Assessment year. iii) Whether on the fact and circumstances of the case the Ld. CIT(A) is right in ignoring the fact that the expenses were not claimed against the business income of the year as per the profit and loss account, it can be seen that there was no income/receipt or turnover from the business of the Liquor. Hence expenses cannot be allowed against any income not earned during the year. iv) Whether on the fact and circumstances of the case the Ld. CIT(A) is right in ignoring the fact that the as per part of the MOU ( para 1.2(iv)) on the issue of liabilities that "All debts, borrowing and liabilities ( including contingent liabilities), present or future, whether secured or unsecured, pertaining to the Distillery Undertaking, as stipulated in Schedule 1 hereto. All liabilities relating to the Distillery Undertaking up to the Effective Date whether provided for in the books of accounts of contingent shall be borne by M/s Bhagat industrial Corporation Ltd. and Transferee Company shall be ind....
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....s. 1,27,50,000/- the assessee has explained the AO that the expenditure of Rs. 87,50,000/- of annual renewal license fee pertaining to the years 1966 to 2009-10 was incurred by assessee wholly and exclusively for the purpose of distillery business run by it over the years as evident from the assessment records. However, the AO did not accept this contention of the assessee for the reason that the erstwhile company M/s. Khalsa Distillery Company is not owned by M/s. Bagga Millennium with whom it had these terms and conditions of payment of contingent liability. . That the liquor unit - M/s. Khalsa Distillery Company stood merged with M/s. Digvijay Chemicals Ltd., with whom it had no such conditions of bearing of such liability. As regards to the claim of expense of Rs. 87,50,000/-, the AO noted that this liability was on account of the arrears of Excise duty arising for the year 1966-67 to 2005-06. Out of the aggregate demand of Rs. 127,50,000/-, the amount which the assessee had to bear on behalf of M/s. Khalsa Distillery Company which was owned by the assessee during the impugned assessment year was Rs. 87,50,000/- and there was no connection/nexus whatsoever between the assess....
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....y Unit, Prop- M/s Digvijay Chemicals Ltd, Khasa District, Amritsar for the years 1966 to 2009-10 vide order dated 12-04-2010 . The assesseee had settled a deal of selling its distillery undertaking namely M/s Khasa Distillery Unit in the financial year 2006-07 with effect from 01-04-2006 to M/s Bagga Millennium Liquor (P) Ltd of Hyderabad. In the process the distillery undertaking had gone to the ownership of M/s Digvijay Chemical Ltd. through a process of demerger which took place in accordance with the high court's order dated 17- 12-2007 under a scheme of amalgamation. On the issue of taxability of the claim of Rs. 87,50,000/- out ol the aggregate dues of Rs. 1,27,50,000/- the assessee had explained the AO that the expenditure of Rs. 87,50,000/- of annual renewal license fee pertaining to the years 1966 to 2009-10 was incurred by assessee "wholly and exclusively" for the purpose of the distillery business run by it over the years as evident from the assessment records. However the AO did not accept this contention of the appellant for the reason that the erstwhile company M/s Khalsa Distillery Company is not owned by M/s Bagga Millennium with whom it h....
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.... of Rs. 87.50 lakhs was a contingent liability since it was a finalized, adjudicated, quantified and discharged liability. The AO cannot ignore the MOU dated 18-05-2006 between the assessee company with M/s Bagga Millenium ior Private Ltd whereby the assessee had sold its distillery * Per taking namely M/s Khasa Distillery Unit in the financial year 2006-07 with effect from 01-04-2006 to M/s Bagga Millennium Liquor (P) Ltd of Hyderabad. In the process the distillery undertaking had gone to the ownership of M/s Digvijay Chemical Ltd. through a process of demerger which took place in accordance with the high court's order dated 17-12-2007 under a scheme of amalgamation. The para 1.1 (iii) of the said MOU between the assessee company and M/s Bagga Millenium Liquor Private Ltd mentions that " all the debts, liabilities, contingent liabilities, duties and obligations, secured or unsecured, whether provided for or not or disclosed in the hooks of accounts of BICL relating to the Distillery Undertaking from the Effective date and, as stipulated in Schedule I hereto shall be deemed to be debts, liabilities, contingent liabilities, duties and obligations of the Transferee Company a....
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....ermined in respect of in respect of the renewal license lee by the excise and Taxation Department for the years 1966 to 2009-10 vide order No. A-2-2010/3906-07 dated 12-04-2010 at Rs. 1,27,50,000/-.The said liability had crystallized and was paid, by M/s Khalsa Distillery Co (for Digvijay Chemicals Ltd) during the year under consideration and was therefore not a contingent liability. The said liability of Rs. 87,50,000/- was undeniably a business liability of the appellant as per the aforesaid MOU dated 18-05-2006 whereby the said Distillery Unit of the Appellant stood transferred to M/s Bagga Millenium w.e.f 01- 04-2006 in respect of its said distillery unit named Khalsa Distillery Company and the appellant had undertaken to discharge all its debts, liabilities and contingent liabilities upto the appointed date, i.e 01-04-2006 in respect of its said distillery unit named Khalsa Distillery Company, and which had been discharged during the accounting year under consideration. The assessee had submitted the copy of the letter dated 08- 11-2010 issued by the Excise & Taxation Officer (D), Khalsa Distillery , Khasa, Distt Amritsar to the Deputy Excise & Taxation Commi....
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....y "for the business of the assessee. Accordingly, in view of the above discussion, the license lees of Rs. 87.50 lacs was fully admissible expenditure of the appellant in the year under consideration, and hence the disallowance o! license fees claimed at Rs. 87.50 lacs is deleted. 7. In the result, appeal is allowed." 5. Now, the Department is aggrieved with the order of the ld. CIT(A) and is in appeal before us. 6. The ld. DR placed strong reliance on the order of the Assessing Officer. He contended that the ld. CIT(A) was not justified in deleting the disallowance of license fees claimed at Rs. 87,50,000/-, as the addition was made by the AO after making detailed enquiry and had categorically proved the un-related expenses. He further submitted that the ld. CIT(A) has also erred in not appreciating the fact that the then held company of the assessee - M/s. Bagga Millennium Liquor Pvt. Ltd. with whom the onus to bear the liability lay in terms of the said MOU but was merged with M/s. Digvijay Chemicals Ltd. and thus MOU did not survive during the assessment year under consideration. The ld. DR also contended that even otherwise Memorandum of Understanding n....
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.... give effect to the provisions of this Clause. From the aforesaid clause of MOU it is clear that all liabilities relating to Distillery business up to the appointed date shall be borne by BICL. The assessee company and the Transferee Company shall be indemnify in respect of any claim relating to the period up to the effective date in the instant case. The effective date according to the Clause 1.3 is 30 days from the date of which certified copy of the order of the High Court sanctioning the merger scheme is filed with the Registrar of the Company. In fact, the High Order was passed on 17th Dec.2007. Thus, it is clear even otherwise in any circumstances the liabilities up to 17th Dec. 2007 was subjected to the liability to the assessee company itself. As in the instant case, the assessee company was running distillery undertaking in the name of M/s Khlasa Distillery Company which was held by the assessee till 31st March, 2006 as the company was granted license on 7th July, 1997 u/s 21 of the Punjab Excise Act, 1914 to set up a Distillery in the name of M/s "Khasa Distillery Company" at Khasa. The license was granted without any provision for its renewal but after the amendmen....