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2015 (3) TMI 671 - AT - Income TaxRevision u/s 263 - Disallow claim of brand owner s surplus and payment of ROC fee - Held that - Though there is dispute with reference to quantification of the amount, there is no dispute with reference to basic liability. What assessee was entitled was already determined by way of agreement and any excess collections made by the assessee are to be paid to M/s. Shah Wallace Distilleries Ltd. Therefore, even though there was a dispute between the parties with reference to quantification of the amount, the basic liability is an ascertained liability, as is evident from the subsequent events. The liability in fact, was crystallized at higher amount of ₹ 5.50 crores. Even though assessee has not claimed higher amount at the time of assessment, it could have reduced its taxable income as the A.O. made certain additions to the returned income. Assessee has limited its claim to the amount provided in the books of accounts. We are of the opinion that the amount is ascertained liability and not a contingent liability. Even though the same was reported in the notes to the account as one of the contingent liability and disclosed as a material fact, the amount is not contingent liability and therefore, we are of the opinion that order of Ld. CIT directing the A.O. to disallow is not correct on the facts of the case. Moreover, as seen from the record, the assessment order passed by the A.O. was under the provisions of section 147 in which A.O. has examined the books of accounts and in fact made additions with reference to the merger/conversion of the erstwhile firm into a company as on 01.07.2005. We are of the opinion that A.O. has examined all the issues before completing assessment. Similar claims in the hands of firm were also made. Therefore, opinion of CIT in treating the amount already allowed as contingent liability can certainly be considered as change of opinion. On the principles governing the issue of jurisdiction, we cannot uphold the direction of the Ld. CIT. Therefore, we modify the same and direct A.O. to allow the amount as originally allowed in the assessment order. The order of Ld. CIT is modified to that extent and assessee s grounds are allowed accordingly. - Decided in favour of assessee.
Issues:
1. Disallowance of 'brand owner's surplus' and payment of ROC fee under section 263 of the I.T. Act, 1961. Analysis: The appeal was against the Order of the Ld. CIT-IV, Hyderabad, directing the A.O. to disallow the claim of 'brand owner's surplus' and ROC fee payment. The Assessee accepted the direction regarding the ROC fee but contested the disallowance of the brand owner's surplus. The facts involved an agreement between the Assessee and M/s. Shaw Wallace Distilleries Ltd. for manufacturing IMFL. The brand owner surplus was disputed, leading to arbitration and a subsequent agreed liability of Rs. 5.50 crores. The Ld. CIT initiated proceedings under section 263, considering the liability as a contingent liability, while the Assessee argued it was an ascertained liability based on the agreement. The Ld. CIT directed the A.O. to disallow the amount, considering it a contingent liability. The Assessee contended that the liability was disputed but not contingent, as it was based on the agreement and subsequently quantified. The Tribunal observed that the basic liability was ascertained, as per the agreement, even though there was a dispute over the quantification. Citing legal principles, the Tribunal held that if a business liability arises in an accounting year, deduction should be allowed, even if estimated and discharged later. The Tribunal found that the amount was an ascertained liability, not contingent, and disagreed with the Ld. CIT's direction to disallow it. The Tribunal noted that the A.O. had examined the issues during assessment under section 147, and the Ld. CIT's direction could be seen as a change of opinion. Therefore, the Tribunal modified the Ld. CIT's order and directed the A.O. to allow the amount as originally assessed. The appeal of the Assessee was allowed based on these findings.
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