TaxTMI 
TaxTMI 
2023 (8) TMI 22
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 29,41,612/- made u/s. 68 of the Act being unproved creditors for goods. 3) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 1,10,365/- made u/s. 68 of the Act being unproved creditors for expenses. 4) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made u/s. 68 of the Act at Rs. 33,88,398/-. 5) (a) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made u/s. 68 of the Act at Rs. 15,85,867/-. (b) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made u/s. 68 of the Act at Rs. 63,091/- being salary payable and Rs. 1,30,111/- being expenses payable. 6) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and or. facts in holding that the receipt of Rs. 4,30,34,088/- and of Rs. 1,50,00,000/- being the amounts for termination^ bottling licence is not taxable u/s. 28(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly. 5. The aggrieved assessee carried the matter before the learned CIT-A, and submitted that its business was closed and the employee who was looking after the accounting and other related works also left. Therefore, the details were not timely arranged at the time of assessment. Accordingly, the assessee prayed the learned CIT-A to accept the additional evidences as per the rule 46A of the IT Rules. The AO in the remand report objected to accept the additional documents by contending that the assessee was not prevented by the genuine/ sufficient reason as provided under rule 46A of the Income Tax Rule. 6. However, the learned CIT-A admitted the additional evidences furnished by the assessee by holding as under: I have carefully considered the details filed by the appellant, the report of the A.O and the counter comments filed by the appellant. Certain evidences were not produced by the appellant before the A.O. as the operations of the company were closed and there was a difficulty in locating the records. It is also pointed out by the appellant that on similar ground Hon'ble ITAT has admitted the additional evidence in the case of the appellant for A. Y. 2002....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on such additional evidences. Therefore, in such circumstances it cannot be said that the learned CIT(A) committed any error. The relevant observation of the Hon'ble bench is extracted as under: 4. In our view, CIT [A] committed no error nor the admission of additional evidence can be stated to be in breach of the requirement of Rule 46A of the Rules. Particularly when the interest of the Revenue was safeguarded by calling for the remand report and permitting the Assessing Officer to comment on such additional evidence, we see no reason to interfere. 10.1 Coming to the case on hand, the assessee before the learned CIT(A) submitted that at the time of the assessment proceeding, its business was closed and the person who was looking after the accounting and taxation related work also had left. Therefore, the assessee was facing difficulties in locating the necessary details required by the AO. Accordingly, the same were not produced before the AO during the assessment proceedings. The learned CIT(A) in view of the above explanation furnished by the assessee accepted the additional evidences and before acting on such documents provided the AO an opportunity to verify the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. However, the assessee did not make any submission for remaining amount of Rs. 17,79,069/- only. Hence, the same needs to be disallowed under section 43B of the Act. 13.3 The assessee in its rejoinder to the remand report submitted that creditor for goods and creditor for expenses are arising out of purchases made and various expenses incurred. Before the AO, the ledger copy showing full details of purchases and expenses were furnished. The AO did not point out any adversity in the purchases made and expenses incurred. But the AO made disallowances of 20% and 30% of overall purchases and expenses incurred for the reason that the business got closed and physical evidences along with bills & voucher were not available on records. Therefore, once the purchases and expenses has been partly disallowed on adhoc basis no addition of the liability arising out of such expenses again can be made under the provisions of section 68 of the Act. 13.4 With regard to the sales tax liability of Rs. 33,88,398/-, the assessee submitted that the impugned sales tax liability pertains to AY 2006-07 where it has suo-moto made disallowance under section 43B of the Act. The assessee in support of i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the order of the learned CIT-A, the Revenue is in appeal before us. 16. Both, the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 17. We have heard the rival contentions of both the parties and perused the material available on records. The facts of the case have already been discussed in the preceding paragraph which are not in dispute. Therefore, for the sake of brevity and convenience, we are not inclined to repeat the same. In the present case, the AO has treated the current liabilities shown by the assessee as unexplained cash credit under the provisions of section 68 of the Act. The learned CIT-A after considering the remand report and the submission of the assessee has deleted all the items of the addition made by the AO under the head liabilities as discussed above. The learned CIT-A has given very reasoned findings which were not controverted by the learned DR at the time of hearing. It was pointed out by the learned CIT-A that there were various expenses incurred by the assessee during the year under consideration which were subject to disallowance on adhoc basis. Likewise, the AO has also disallowed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-Cola Company USA. Subsequently, the Coca-Cola company USA has also entered into exclusive agreement with the assessee in the year 2001. In other words, the assessee was exclusively carrying the activity to prepare and package the beverage in authorized container for exclusive sale to M/s Hindustan Coca-Cola Beverage Pvt Ltd. However, there were two different agreements between the assessee and Coca-Cola USA and assessee and Cadbury which were made for certain period of time but subject to the extension as per their mutual understanding. 19.1 However, on a later date, the disputes arose between the assessee and Hindustan Coca-Cola Beverage Pvt Ltd. in relation to purchase order issued. Therefore, it was finally decided to terminate all the agreements with the assessee with mutual understanding vide main settlement agreement dated 23rd December 2006. Under the settlement deed, it was mutually agreed upon certain terms and conditions as detailed under: 1. The Company shall on or before 28^th December, 2006 pay Surbhi Rs. 5,00,00,000/- (Rupees Five crores only) (hereinafter referred to as the "Settlement Amount") as reduced by the Bank Payment which has been paid for and o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hi shall have no right hereafter to seek reliance on any grounds of conduct of parties subsequent to March 24. 2004. (ii) Surbhi shall surrender its rights under the Schweppes Agreement and the Schweppes Agreement shall stand terminated. (iii) Surbhi shall return to the Company the capital assets, listed in Annex 2, which it has taken on a loan from the Company. These assets have been checked by the Company and have been found in same condition in which they were provided to Surbhi. The Company has no claim in respect of the condition of the said assets. (iv) Surbhi shall transfer title to OMT Assets, listed in Annex 3, by way of delivery of possession to the Company at nil cash consideration since the OMT Assets were paid for by tl'.e Company and further shall sell 4 sets of moulds as listed in the said Annex 3 for the consideration stated thereunder which consideration has been taken into account while arriving at the Balance Settlement Amount in accordance with Annex 5. (v) Surbhi shall sell the raw material listed in Annex 3 for the consideration which has been taken into account in terms of the reconciliation annex being Annex 5. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for sterilization of source of profit resulting into closure of business, therefore it has to be treated as capital receipt. 19.4 It was also contended by the assessee that there was no transfer of any capital asset or business in its case. Therefore, the question of attracting the provision of section 45 of the Act does not arise. 20. The learned CIT-A after considering the submission of the assessee, assessment order and the remand report of the AO has concluded that the compensation received by the assessee represents the capital receipt not chargeable to tax. The relevant finding of the learned CIT-A reads as under: After Consideration of the Settlement agreement, report of the A.O and the submission made by the appellant, it is noted that the agreement is for complete closure of business. The application was acting as a licensed bottler for Hindustan Coca Cola company and by virtue of the agreement, the appellant has ceased to become the licensee and has to close down its business completely as if was the only business which was being carried out by the appellant. Various conditions of the closure agreement also clearly show that it is a closure of \ business....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso mentioned that the amount should be taxed u/s. 28(iv). A perusal of the section show that it mentions of taxing of any benefit or perquisite whether convertible into money or not arising from business or exercise of profession. The receipt cannot be taxed under-this clause as the business of the appellant has closed down and, the perquisite or benefit not arising out from business or exercise of profession as there is no continuing business. Further, the A. O. has also pointed out vide his letter dated 29/03/2012 that the amount may be considered under the provisions of section 28fva). A perusal of section 228[va) show that it mentions of any sum whether received of receivable for not carrying out any activity in relation to any business or not sharing any know-how patent etc. A careful perusal of the facts show that the section is also not applicable as in the present case, the business has closed down, whereas the provision mentions of the compensation for ript carrying our any activity in relation to any business. Had the appellant been continuing with the business and had to close one of the several activities being carried out, the provisions of this clause would ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e disputes and the bank liability shown by the assessee in its books of accounts. As such the amount of compensation of Rs.5 crore does not represent the payment made to the assessee as a result of closure of the business but it was given to settle the trade disputes. Thus, the same cannot be treated as capital receipt as not chargeable to tax. The learned DR in support of his contention has also referred the copy of the main settlement agreement. 23. On the contrary, the learned AR before us submitted that the assessee has received the compensation on sterilization of source of income. Therefore, the same cannot be treated as revenue receipt, chargeable to tax. The learned AR to buttress his arguments has also filed the financial details of the company that the business of the assessee has closed down. 24. Both, the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 25. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has received compensation from the parties as detailed below: S. No. Name of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... giving up his right to purchase and/or to operate the property or for getting it on lease before it was transferred or let out to other persons. It was not for settlement of rights under trading contract, but the injury was inflicted on the capital asset of the assessee and giving up the contractual right on the basis of principal agreement had resulted in loss of source of the assessee's income. Therefore, the amount received was a capital receipt. 25.4 Now coming to the issue on hand. As regards the compensation received by the assessee for Rs. 1.50 crores, we have referred the main settlement agreement dated -23^rd December 2006, placed on pages 15 to 22 of the paper book, and find the relevant clause is reproduced as under: On closing Date, CCIL shall pay on or before 28th December 2006 a sum of Rs. 1,50,00,000 to Surbhi as compensation for termination of the Schweppes Agreement. This sum is in addition to the Settlement Amount. Upon payment of the above mentioned compensation, the Schweppes Agreement shall stand terminated and any and all accrued rights of Surbhi, whether in law or in equity, to seek remedy, either contractual or otherwise, in any man....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Company on the basis of purchase orders issued from time to time by the Company. D. "WHEREAS certain claims, counter-claims and disputes arose between Surbhi and the Company in relation to the purchase orders issued pursuant to the Bottler's Agreement. These disputes are presently pending resolution. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX F. WHEREAS Surbhi has availed of a loan facility from ICICI Bank Limited (hereinafter the "Bank") for Rs. 1,98,00,000 comprising of a term loan and a cash credit facility "(collectively referred to as the "Loan"), The Company acted as a 'sponsored corporate' of Surbhi and in relation thereof opened an escrow account with the Bank (A/c No.010205000174) in which conversion fees were to be deposited. In relation to this arrangement, certain disputes arose between the Company and Surbhi, on the one hand, and the Bank, on the other hand. These disputes have been settled under the Bank Settlement Agreement of even date entered into by and amongst the Bank, the Company/ and Surbhi, attached hereto as Annex 1. 25.7 Based on the above clause, what is transpired is this that there were certai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in the settlement agreement does not imply that the compensation was not paid against the termination of the contract. As such in substance, the assessee was working exclusively for the Coca-Cola group and once the compensation received by it in pursuance to the main settlement agreement certainly represents the compensation for the loss of revenue to the assessee. 25.10 Admittedly, the company has deducted the TDS on the payment made by it to the assessee under the relevant provisions of the Act. The company has done so for the reason that it has to claim the amount of compensation paid by it to the assessee as revenue expenditure. Furthermore, the character of the amount representing the compensation will not change merely on the reasoning that party has deducted the TDS on the payment made to the assessee. What is the substance in the present case is this that there was loss of source of income to the assessee on account of the main settlement agreement as discussed above. 25.11 At this juncture, it is important to note that the word 'cease to subsist' has been used in the main settlement agreement. Perhaps, these words have been used in the main settlement agreement for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its case. Similarly, expenses incurred were duly recorded and verifiable from ledger. Therefore, no disallowance should be made. However, any disallowance, if Revenue wishes to make then a token disallowance of 5% of purchases and 10% of expenses should be sustained. 31. The learned CIT-A after considering the facts in totality restricted the disallowances of purchases to the extent of 10% by holding that no such disallowance has been made in past in case of the assessee. Further, all the payment for purchases were made through banking channel. Likewise, the learned CIT-A restricted the disallowance of expenses to the extent of 15% by observing that the books of account of the assessee have been audited by independent auditor and expenses claimed are reasonable considering the nature of business of the assessee. 32. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. 33. Both, the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 34. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the business of the assessee ....