TaxTMI 
TaxTMI 
2021 (7) TMI 885
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.... of appeal. The assessee filed a rejoinder to the written reply of the Revenue on the same date i.e. 11/06/2021. The case was accordingly posted for hearing to decide the preliminary issue of the maintainability of the appeal and the grounds taken by the Revenue. 3.1. To address this preliminary issue, it would be first relevant to discuss the background facts of the case and the appellate orders in the first round of appellate proceedings, particularly the order passed by this Tribunal dated 16/11/2018. The author of this order was also the author and part of the Bench which passed the aforesaid order dated 16/11/2018. This discussion is necessitated due to the peculiar facts involved in the case and because both the parties have heavily quoted and relied on the earlier appellate orders, particularly the order dated 16/11/2018 in support of their contentions. The said order dated 16/11/2018 cannot however be read in isolation and the reasoning and conclusions drawn therein have to be understood in the context of the background facts and the arguments then placed before the Bench. 4. Facts in brief:- The assessee, a firm and Gillette USA were promoters of a company called ....
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....FS") for 8.77% (7.87% by Poddar Group and 0.90% by the P&G) of the paid-up share capital held by them. The OFS would to the general public and through the stock exchange. This would reduce the shareholding of Poddar Group in the Company to 4.99%. ii. The SHA would be terminated and consequently the Articles of Association ("the Articles") of the Company would be suitably amended, thereby the Poddar Group being classified as public shareholders. iii. The assessee would be entitled to receive a severance compensation of Rs. 200 crores which would be paid by P&G Netherlands. This amount is over and above the amounts received by the shareholders for the sale of shares. In order to give effect to the terms of proposal accepted by SEBI, the Assessee entered into Severance Agreement dated 3 Is' October, 2013 and Termination Agreement dated 11th November, 2013 (Pg. 59-63 of Annexure to AO's order). The assessee claimed the receipt of such compensation of Rs. 200 crores from P&G Netherlands to be in the nature of capital receipt not exigible to tax. Assessment Order dated 30/12/2016 5. In the course of assessment, the assessee was required to subm....
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....it was diversion of income to assessee by other Group Members. TO that extent the income becomes taxable us 56(2)(vii) as money received without consideration where rights of all members of the shareholders get terminated but Compensation is received only by the individual representing the Group. However the entire compensation is not to be taxed under section 56 and the shareholders who are individuals and relatives of the assessee to that extent will not be taxable in the hands of the assessee under Section 56. Thus the total compensation is apportioned in ratio of the shares held by all members of the assessee group as below: Who held by % transfer Amount Whether Taxable Assessee 0.69 Rs. 10,72,26,107/- No Not taxable as per the above discussion Family Members of Assessee 0.97 Rs. 15,07,38,150/- No Not taxable as per the above discussion and exempt as received from relatives Group Entities of Assessee 11.21 Rs. 174.20.35.742/- Taxable under Section 56 Total 12.87 Rs. 200,00,00,000/- Further, it can be clearly seen that the aforementioned compensation was devised to be paid to the Assessee ....
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....om the record, that the case of the assessee fell under first situation and that only the compensation received by him by way of gift from group entities was taxable u/s. 56(2)(vii) of the Act in terms of his discussions set out Para 42 & 43 of the order. The relevant extracts from Para 123 & 124 of the order are as follows: "123. Tax Treatment-The taxability of assessee's income on account of receipts of payment of Rs. 200 crs, which has already been mentioned in Para 71, earlier, is being once again underscored at the cost of repetition from which it is clear having regard to the facts of the case discussed in detail not that such taxability may involve two situations which are given below: 1. The entire compensation is not receivable by the Assessee and there has been an gift or dividend from the Assessee's group companies and family members to the assessee. 2. Or the entire amount is belonging to the Assessee and hence there was substantial management rights being enjoyed by the Assessee. Both the situations have been discussed between Para 70 and Para 71 (treating said payment to be taxable as income from other sources) and between P....
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....rder of Ld. CIT(A), the assessee filed an appeal before this Tribunal. The grounds of appeal raised among others, challenged the addition made u/s. 56(2)(vii) of the Act. The ld. senior counsel, Shri J.D. Mistry, who appeared on behalf of the assessee, submitted that the case of the AO was under the first situation i.e. Section 56(2)(vii) of the Act, wherein he held that out of the total sum of Rs. 200 crores, the compensation to the extent of Rs. 174,20,35,742/- was taxable by way of income and that the balance sum of Rs. 25,79,64,257/- [10,72,26,107 + 15,07,38,150] was not taxable. He further stated that although the AO had discussed the possibility of taxation under Section 28(iia) & Section 45 but since the second situation was never concluded nor was these sections ultimately invoked, these sections cannot now be agitated by the Revenue before the Tribunal. It was therefore the assessee's case that the Tribunal cannot go beyond the issue of examining applicability of Section 56(2)(vii) of the Act. At that stage, the Bench required the ld. senior counsel Shri Girish Dave, to clarify as to whether he would support the order of the AO i.e. taxing sum of Rs. 174,20,35,742/- u/....
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....l, adjudicate the matter de-novo, in accordance with law, uninfluenced by the observations and statements made by us in this order." 7.2. Therefore, on a holistic reading of the order, it is apparent that the original case (first situation) of the AO u/s. 56(2)(vii) of the Act, had been conceded by the Revenue and not pressed before this Tribunal. The addition under this Section 56(2)(vii) of the Act, does not survive. Therefore, the limited issue set aside to the ld. CIT(A) de novo was to examine whether the second situation existed and consequentially, whether the receipt could be taxed either u/s. 28(iia) or Section 45 of the Act. To examine this factual aspect, the ld. CIT(A) was entitled to call for remand report from the AO. Second Round CIT(A) Order dated 31/01/2019 8. In the second round of the appellate proceedings, the ld. CIT(A) sought for a remand report from the AO vide letter dated 10/12/2018 on the issue of taxability under Section 28 and Section 45 of the Act. In response, the AO submitted his remand report vide letter dated 31/01/2019. In the said remand report, the AO initially simply reproduced the Note dated 30/08/2018 of the ld. senior counsel, Shri Gi....
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....addition to documents already submitted in assessment proceedings which form part of Annexure to the assessment order. Apart from these, the assessee could file a copy of letter dated September 30, 2017 from GIllete India Ltd. which is attached with the letter dated 25.01.2019. The assessee furnished with its letter dtd. 29-01-2019 copy of email correspondence as stated earlier. These correspondences do not throw any light as to why the entire compensation of Rs. 200 crores was paid to the assessee only. Further, assessee has not produced any document of negotiations within members of the Poddar Group although the transaction involved relinquishment of huge interest of the group concerns in holding their shares in the company. It is mentioned at the cost of repetition that detailed discussions in this manner has been made in the assessment order and necessary documentation has been made available in the annexure to the assessment order which may kindly be perused while considering the case de-novo. Your kind attention is invited to Page 117 of the Annexure to the assessment order, being copy of letter dated 08.11.2016 from Gillete India Ltd. In the last Para of the letter,....
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....of the same is as under: "The ld. Special Counsel submitted that he would not be pressing the argument that, the amount in question can be brought to tax u/s. 56(2) of the Act. As per Mr. Girish Dave, the amount cannot be brought to tax u/s. 56(2)(vii) of the Act as done by the AO. He submitted that his arguments in this case would be that the receipt in question is taxable u/s. 28(ii)(a) of the Act and also on the ground that, the receipt in question is taxable as capital gains u/s. 45 of Act in view of Section 55(2)(a) of the Act. To a specific query from the Bench, the ld. Special Counsel for the revenue Shri Girish Dave submitted that he is not putting forth any other argument in support of the conclusions of the AO, for bringing the receipt in question to tax, except that the receipt in question is income u/s. 28(ii)(a) of the Act and that the amount in question is also alternatively and without prejudice to the above contention that the amount is taxable u/s. 28(ii)(a) of the Act is also taxable as capital gains in u/s. 45 of the Act r.w. section 55(2)(a) of the Act. Thus in view of the above submission of Sri Girish Dave the ld. Special counsel for the reve....
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....ght to tax, either u/s. 28(ii)(a) of the Act or u/s. 45 r.w.s. 55(2)(a) of the Act. No addition was made to returned income under these sections nor was a demand raised by the department. He argues that no addition to the returned income survives for adjudication by the Tribunal. He reiterated that the ground on which the addition was made was u/s. 56(2)(vii) of the Act and the computation of income and the corresponding demand u/s. 156 of the Act was raised, stood nullified by the order of the Tribunal dt. 16/11/2018, resulting in the returned income as the assessed income. 9.2. He submitted that, the ITAT has set aside the issue to the file of the ld. CIT(A) for fresh adjudication with a limited scope of examining whether Section 28(ii)(a) and/or Section 45 of the Act can be considered as grounds for addition of the severance compensation. It was contended that in set aside proceedings the authorities below are bound to decide the issue as per directions contained in the order of the ITAT and that it is not open for the authorities to conduct fresh enquiry and that no other question can be considered nor can the scope of proceedings be enlarged. For this proposition, reliance ....
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....to re-agitate the very same substantive ground of addition i.e., 56(2)(vii) of the Act, which the department had voluntarily and consciously withdrawn, which is not permissible. 9.4. Thereafter, the ld. Counsel for the assessee relied upon certain case-law on the principles of 'doctrine of waiver'. The ld. Counsel for the assessee summarised his arguments by submitting that the present departmental appeal and Form 36 are not maintainable since no addition has been made by the Assessing Officer or for the matter deleted by the ld. CIT(A) which causes a grievance to the assessee for filing this appeal. He prayed that this Bench of the ITAT should dismiss this appeal as not maintainable as the entire appeal as infructuous, bereft of jurisdiction and thus, bad in law. 10. Shri Vijay Shankar, ld. CIT D/R, vehemently opposed the submissions made by the assessee. The ld. D/R filed a 15 page written submissions prepared and signed by the ld. Pr. CIT-2, Kolkata, wherein it was submitted that this revenue appeal is maintainable for various reasons and grounds before the ITAT. The ld. D/R argued that an appeal is a statutory right given under the Act and this cannot be denied to....
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....account the facts and the provisions of the Act. 10.3. The ld. CIT D/R submitted that, the department has never waived its right to contest the taxability of the compensation u/s. 56(2)(vii) of the Act. He submits that the averments of the special counsel before the Tribunal were his personal/private views and not the views of the Department. He further argues that there was no direction given by the department to the Special counsel, not to press this argument of taxability of the receipt u/s. 56(2)(vii) of the Act and consequently this submission of the special counsel is of no consequence. He further submitted that as the proceedings were remanded back to the ld. CIT(A) de novo all the arguments taken by the Assessing Officer in the original assessment order and the remand report survived without prejudice to one another. He vehemently contended that, the ld. CIT(A) was wrongly influenced by the statements of the Tribunal that a special counsel has not pressed the arguments u/s. 56(2)(vii) of the Act and he has erroneously held that the department has conceded the ground of taxability under Section 56(2)(vii) of the Act. 10.4. The ld. CIT D/R further submitted that the pow....
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.... D/R reiterated his submissions that when the Tribunal has set aside the matter to the file of the ld. CIT(A) for de novo consideration, the concession of the Special counsel on the applicability of Section 56(2)(vii) also goes and the ld. CIT(A) is duty bound to examine the issue of taxability u/s. 56(2)(vii) on merits, which he did. He referred to Section 251 of the Act and argued that the ld. CIT(A) has vast powers to consider any issue and grounds which were not raised before him and also to enhance the assessment. He submitted the reason of taxability u/s. 56 of the Act, was set out in the assessment order and when the remand report of the Assessing Officer is read along with the assessment order, it is clear that the addition made u/s. 56(2)(vii) of the Act is not squashed or set aside by the ITAT. He repeated that, the department has never waived its right to appeal or contest on the issue of the receipt becoming taxable under Section 56(2)(vii) of the Act. He again referred to the order of the Tribunal's order dt. 16/11/2018 in the first round of appellate proceedings and the case-law relied upon therein and extensively quoting there from and submitted that the appeal i....
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.... reprobate by choosing to agree consciously that Section 56(2)(vii) of the Act, is not applicable to the case and accepting the order of the ITAT on the issue at the first instance and later trying to reverse its stand by invoking this section once again. He submitted that, the ITAT had set aside the two alternative protective grounds i.e., Section 28(ii)(a) and Section 45 of the Act for fresh adjudication by the ld. CIT(A). He submitted that even in the assessment proceedings the Assessing Officer chose not to compute income either u/s. 28(ii)(a) or u/s. 45 of the Act nor raised a tax demand. He submitted that when the Assessing Officer does not make an addition/disallowance to the returned income, the revenue cannot file an appeal before the ITAT. He refuted the arguments of the ld. CIT D/R that this set aside was de novo and hence all aspect can be taken up in the second round of appellate proceedings before the ITAT. He also quoted exclusively from the order of the Tribunal dt. 16/11/2018 in the first round of proceedings and submitted that this is a limited remand. He reiterated that there is no assessment order computing income on this receipt either u/s. 28(ii)(a) or u/s. 45....
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.... "6. In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC) this Court has held that under s. 33(4) of the IT Act, 1922 [equivalent to s. 254(1) of the 1961 Act]. The Tribunal was not authorized to take back the benefit granted to the assessee by the AO. The Tribunal has no power to enhance the assessment. Applying the ratio of the said judgment to the present case, we are of the view that in this case, the AO had granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal." 5. The decision in the case of MCORP Global (P) Ltd., was followed by the Division Bench of the High Court of Gujarat in Fidelity Shares & Securities Ltd. v. Dy. CIT [2017] 82 taxmann.com 108/390 ITR 267, wherein it was held that the Tribunal has no power under the Income Tax Act to enhance the assessment in appeal in view of the statutory provisions. Further it was held that the benefit, which was sought to be taken away by the Department, was....
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....ew of the AO. The scope of arguments has to be confined to supporting or defending the impugned assessment order and the DR cannot set up an altogether different case than what was made out by the AO, as it would mean that the DR was stepping into the shoes of the CIT exercising jurisdiction under Section 263 of the Act. The arguments which the Revenue can put forth before us is indeed unlimited but the same has to be within the boundary limits marked by the AO. Useful reference in this regard may be made to the following observations made by the Special Bench of this Tribunal in the case of Asstt. CIT v. Prakash L. Shah [2008] 115 ITD 167 (Mum.), wherein it was held as under: "12. The contention raised by the ld. DR that such foreign exchange difference be treated as 'Income from other sources' and, hence, no deduction be allowed is sans merits for more than one reason. Firstly, the Assessing Officer has not disturbed the nature of foreign exchange gain as part of 'export turnover' as claimed by the assessee. He has nowhere held that it be treated as 'Income from other sources' on that 90 per cent of the same warrants deduction from the profits of ....
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....e CIT u/s. 263 to the Departmental Representative, which is not permitted by the statute. Let us take another situation. Suppose a particular deduction is permissible on the cumulative satisfaction of three conditions. The AO examines the case and finds the very first condition as lacking. Without examining the fulfillment or otherwise of the other two conditions, he rejects the claim. In that case if such first requirement is subsequently found to be fulfilled in the appellate proceedings, the Departmental Representative can very well point out to the tribunal that the other two conditions were also not fulfilled. By so contending the DR cannot be said to set up a new case. Rather it would amount to supporting the view point of the Assessing Officer on the question of deduction. But in no circumstance the Departmental Representative can be allowed to take a stand contrary to the one taken by the AO/TPO. 43. The Special Bench of the Tribunal in Mahindra & Mahindra Ltd. v. Dy. CIT [2009] 122 TTJ (Mum.) (SB) 577/30 SOT 374/[2010] 122 ITD 216 (Mum.) has laid down the proposition to the effect that the Departmental Representative has no jurisdiction to go beyond the order pass....
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....tharamamma vs. CIT reported in 1965 AIR 1905, held as follows:- "In so observing, the High Court, in our judgment, has committed an error of law. By sections 3 and 4 the Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. The appellant admitted that she had received jewellery and diverse sums of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing provision : it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the department to establish that these receipts were chargeable to tax" 13.1. If the Revenue is of the view that any item of receipt is ....
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.... they diverted their income to the assessee that was taxed by the AO as monies received without consideration u/s. 56(2)(vii) in the hands of the assessee. It is therefore abundantly clear that the AO had not taxed the assessee's own share in compensation and all the respective shares of his relatives which were received by him. Applying the ratio decidendi laid down in the decisions of the Hon'ble Apex Court in the cases of Mcorp Global (P.) Ltd. v. CIT (supra) and Hukumchand Mills Ltd. v. CIT (supra), such benefit granted by the AO to the assessee in the assessment order cannot be taken back by this Tribunal, more particularly in this second round of proceedings. 13.3. As we had discussed earlier, the AO in his assessment order had clearly stated that in an alternate factual scenario wherein he set out possible situations wherein such compensation may be taxed as 'Business Income' u/s. 28(iia) of the Act or 'Capital Gain' u/s. 45 of the Act. This second situation however could have been invoked only if the said situation was found to hold true i.e. the entire amount belonged to the assessee and there were substantial management rights being enjoyed by t....
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.... for that matter in the remand report furnished before the ld. CIT(A) in the second round. A third innings cannot be granted to the revenue. 14. We now consider the specific revised grounds of appeal raised by the Revenue which read as under: (i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that the amount of compensation of Rs. 200 crores received by the assessee is not taxable under the Income Tax Act. (ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that the amount of compensation received by the assessee is not chargeable to tax at all as income from business under Section 282(ii)(a). (iii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that the amount of compensation received by the assessee is not chargeable to tax at all as income from capital gains under Section 45 read with Section 55(2) of the Act. (iv) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) wrongly assumed the receipt to be in the nature of "Severance Compensation" as it was not re....
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....os. (ii) to (vii) taken by the Revenue without prejudice to one another seems to be an attempt to make fishing and roving explorations to bring to tax the compensation under several Sections of the Act. Having had two opportunities i.e., of the first & second round of proceedings, the AO/Revenue is still not clear as to under which specific Section does it seek to tax the compensation received by the assessee. The Revenue has raised several sections to tax such compensation inter alia including such provisions which was never the case of the AO as well. It appears that the Revenue wants an academic debate before this Tribunal and explore the possibility of taxing the compensation under each of the five specified heads of income. As held in Para 11.2 to 11.4, the Revenue cannot travel beyond the case of the AO. He is required to restrict himself to the averments made by the AO and support or strengthen it, but nothing beyond. 15.1. From a reading of the order of this Tribunal dated 16/11/2018 in the first round, it is clear that the Revenue had conceded the taxability of compensation u/s. 56(2)(vii) of the Act. The case of the Revenue was limited to two possible scenarios which w....
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....sue had become final. Estoppel indeed applies on these facts. For the reasons aforesaid, we agree with the contention of the ld. AR of the assessee that ground (ii) taken by the Revenue seeking to tax the compensation u/s. 56(2)(vii) is unsustainable in law and hence is not being entertained. 16. Now coming to ground No. (iii) & (iv) of the appeal, at the cost of repetition, it is imperative to again mention that the taxability of compensation u/s. 28(iia) or 45 of the Act were the possible scenarios highlighted by the AO in the original assessment order but he never acted upon the same as he ultimately assessed sum of Rs. 174.20 crores u/s. 56(2)(vii) of the Act. It was only before this Tribunal in the first round that the Revenue conceded taxability u/s. 56(2)(vii) and contended that they had a case under the two possible scenarios highlighted by the AO u/s. 28(iia)/45 of the Act. Acceding to the request of the Revenue and to protect the interests of Revenue, this Tribunal set aside the examination of the facts of the assessee's case under these two sections to the file of CIT(A) for fresh adjudication. As noted earlier, the ld. CIT(A) had called for a remand report from A....
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.... held earlier, this Tribunal does not have the power to deal with an issue raised by the Revenue, which was never the case of the AO in the assessment order or in the remand-report as discussed (supra). 16.2. Useful reference in this regard may be made to the decision of a Division Bench of the Bombay High Court in the case of CIT Vs. Kanga & Co. [IT Appeal No. 2277 of 2013 dated 1-2-2016] wherein the Court observed that, it was unable to understand how an additional question of law could arise from the impugned order of the Income Tax Appellate Tribunal, when no foundation had been laid for the same before the authorities or the said Tribunal. The Bench further observed that there are questions of fact which ought to be raised before the authorities and in the absence thereof, the additional question of law sought to be raised by the Revenue could not be considered. In the facts of the present case also, the Revenue has clearly failed to lay down whether the second situation did exist on facts so as to test the provisions of Section 28 or Section 45 of the Act. Instead the Revenue's case before the ld. CIT(A) continued to be the same as the original assessment order i.e. th....
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.... and therefore taxable in light of the decision of Hon'ble Supreme Court in the case of Motilal Chhadami Lai Jain vs. CIT reported in '1991 SCR(2) 237. As already held earlier, the Revenue had conceded the first situation i.e. taxability of compensation u/s. 56(2)(vii) of the Act before us in the first round of appeal and therefore it would now operate as estoppel against the Revenue to again agitate the same which was categorically given up in the first round of appeal proceedings. Hence this ground is also found to be not maintainable. 19. In view of the above discussions, it may now be summed up that, the addition made in the original assessment order u/s. 56(2)(vii) ceased to exist consequent to the order passed by this Tribunal in the first round on 16/11/2018. Hence, there was no surviving addition in existence to the returned income of the assessee. No further appeal was preferred by the Revenue on this aspect and therefore this particular issue had crystallised and attained finality. Further even before the ld. CIT(A) in the second round, it was never the case of the AO that the second situation prevailed or that addition was required to be made under Section 28(....