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TMI Blog2023 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... provided the AO an opportunity to verify the same. Thus, the learned CIT(A) safeguarded the interest of revenue while admitting the additional evidences furnished by the assessee. Addition u/s 68 - AO has treated the current liabilities shown by the assessee as unexplained cash credit - CIT(A) deleted the addition - HELD THAT:- 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. AO has also disallowed the liabilities appearing as on the balance sheet date which was arising out of the expenses incurred by the assessee in the year under consideration which were also subject to disallowance on adhoc basis. Thus, if any other disallowance is made on account of the liabilities arising out of such expenses, would lead to the double addition which is not desirable under the provisions of law. Likewise, CIT-A found that the assessee has already made the suo-moto disallowance of the sales tax liability and likewise some of the sales tax liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO has to see the claim of the assessee based on the circumstantial evidence, history of the case, comparable cases so as to find out whether the claim of the assessee is genuine or excessive before making any disallowance. But we find that the AO has not done such exercise but made the ad-hoc disallowance in the absence of supporting documents. In our considered view, such ad-hoc disallowance is not permitted under the provisions of law unless it is based on scientific basis. Yet, the claim of the assessee cannot be allowed in to-to in the absence of documentary evidence. We find that the ld. CIT- A has upheld the order of the AO in part after giving partial relief to the assessee based on reasoning as discussed above which has not been controverted by the ld. DR of the Revenue. Hence, the ground of appeal of the Revenue is hereby dismissed. Late deposits of employee s contribution towards PF fund - HELD THAT:- As assessee before us conceded that the issue on hand has been covered against the assessee by the order of GSRTC [ 2014 (1) TMI 502 - GUJARAT HIGH COURT] - Therefore, respectfully following the order of Hon ble Gujarat (supra), the ground of appeal of the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- made by the Assessing Officer @ 30% of total expenses ( Vehicle, Travelling, conveyance, printing Stationary, Postages telephone, Godown expenses, Misc. expenses) to 15%. 8) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in restricting the disallowance of Rs. 25,31,640/- made of 20% of total purchases of raw material to 10%. 9) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made on account of disallowance of employees to PF at Rs. 27,398/-. 10) On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 11) It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of they assessing Officer be restored. 3. The first issue raised by the Revenue is that the learned CIT-A erred in accepting the additional evidences filed by the assessee in contravention to the provisions specified under rule 46A of the Income Tax Rules. 4. The facts in brief are that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Considering these facts and circumstances and the fact that the evidence now being submitted by the appellant is admitted. 7. Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us. 8. The learned DR before us contended that the assessee was afforded enough opportunities during the assessment proceedings to furnish the necessary details. But the assessee failed to do so. Therefore, the case of the assessee does not fall in any of the of the provisions of rule 46A of income tax rule and therefore, the learned CIT-A erred in admitting the additional evidences filed by the assessee. 8.1 On the other hand, the learned AR before us filed a paper book running from pages 1 to 113 along with the ground wise chart containing the contentions raised by the assessee. It was contended by the learned AR that there was the closure of the business of the assessee and the concern staff also left the organization. For that reason, the assessee was unable to furnish the necessary details during the assessment proceedings. Furthermore, the AO was given opportunity by the learned CIT-A before the admission of the additional evidences filed by the assessee. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Gujarat High in case of CIT vs. Kamlaben Sureshchandra Bhatti (supra), we do not find any infirmity in the action of the learned CIT(A). Hence, the ground of appeal of the revenue is hereby dismissed. 11. The next issue raised by the Revenue in ground Nos. 2 to 5 of its appeal is that the learned CIT-A erred in deleting the addition made by the AO for Rs. 82,19,444/- under section 68 of the Act. 12. The AO during the assessment proceedings in the absence of necessary details treated the liability shown by the assessee as its income which included the following amounts: 1. Creditor for goods Rs. 29,41,612/- 2. Creditor for expenses Rs. 1,01,365/- 3. Sales tax payable Rs. 33,88,398/- 4. Other liabilities Rs. 17,79,069/- (i) Interest Rs. 15,85,867/- (ii) Salary Rs. 63,091/- (iii) Expenses Rs. 1,30,111/- 12.1 Thus, the above amount of Rs. 82,19,444/- was treated as unexplained cash c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its claim furnished ledger copy and copy of return of income. 13.5 With regard to other liabilities, the assessee submitted that other liabilities of Rs. 33,98,647.00 includes outstanding interest payable to financial institutions for Rs. 32,05,445/- out of which an amount of Rs. 16,19,578/- pertains to the year under consideration and the same has been suo-moto disallowed. Similarly, the remaining amount of outstanding interest pertains to preceding AY 2006-07 where an amount of Rs. 29,85,292.00 was disallowed under section 43B of the Act. Therefore, no disallowance of remaining interest liability should be made in the year under consideration. Likewise, other liabilities also includes outstanding salary and expenses payable of Rs. 63,091/- and Rs. 1,30,011/- which were already disallowed by the AO on ad-hoc basis i.e. 30% of the overall expenses under the head salary and other expenses. Therefore, no disallowance on account of salary payable and expense payable should be made. 14. The learned CIT-A after considering the facts in totality found that the AO in remand report himself admitted the creditor for goods and expenses includes balance carry forwarded from previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the liabilities appearing as on the balance sheet date which was arising out of the expenses incurred by the assessee in the year under consideration which were also subject to disallowance on adhoc basis. Thus, if any other disallowance is made on account of the liabilities arising out of such expenses, would lead to the double addition which is not desirable under the provisions of law. 17.1 Likewise, the learned CIT-A found that the assessee has already made the suo-moto disallowance of the sales tax liability and likewise some of the sales tax liability was pertaining to the earlier year which can t be subject matter of disallowance in the under consideration. 17.2 Similarly, there was interest liability pertaining to the year under consideration amounting to 16,19,578/- which was disallowed in the year under consideration under the provisions of section 43B of the Act and some of the liability of Rs. 15,85,867/- representing the outstanding interest was pertaining to the earlier year which cannot be made subject to disallowance in the year under consideration under the provisions of section 43B of the Act. The learned CIT-A has given very detailed finding which was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on behalf of Surbhi to ICICI Bank (which reduced payment shall hereinafter be referred to as the Balance Settlement Amount ) by way of cheque/demand draft, subject to further adjustments as set out in Clause 4, as settlement of all demands, differences, claims and counterclaims inter se the Parties in relation to the commercial understanding of the Parties under the Bottler's Agreement and related purchase orders. The Patties agree that this date shall be referred to as the Closing Date 2. Surbhi and the Company represent and warrant that they have presently or shall obtain by Closing Date all necessary corporate approvals, resolutions and authorizations necessary to consummate the settlement contemplated in this Agreement. 3. On Closing Date, CCIL shad pay on or before 28 th December 2006 a sum of Rs. 1,50,00,000 to Surbhi as compensation for termination of the Schweppes Agreement. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transfer the assets listed in Annex 4 to Surbhi at their .written down value as reflected In the reconciliation Annex 5. 19.2 The assessee upon receiving the compensation as discussed above has accounted for as capital receipt not chargeable to tax whereas the AO was of the view that the compensation received by the assessee relates to the business and therefore the same should be treated as revenue receipt chargeable to tax. The relevant observation of the AO reads as under: On further verification of settlement agreement, its Annexures and its terms conditions it is seen that the assessee has surrendered its Bottling rights to Coca-Cola and assessee had sold raw material and machinery of Rs. 48,81,476/- and Rs. 20,34, 436/- respectively to Coca Cola for which assessee had received Rs. 5,00,00,000/- and Rs. 1,50,00,000/- from Hindustan Coca-Cola Beverage Pvt Ltd. It is also seen from the return of income that Hindustan Coca-cola Beverage Pvt. Ltd. has deducted TDS on Rs. 5,00,00,000/- and assessee has also claimed TDS on the above receipt. The assessee has neither shown receipt of (Rs. 5,00,00,000/- (-) Rs. 69,15,912/-)= Rs. 4,30,84,088 and Rs. 1,50,00,000/- as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries and other assets which were given by the Coca Cola company to the appellant. The agreement also lays down various terms and conditions for disposing off the stock and other related assets. The Hon'ble Supreme Court in the ', case of Oberoi Hotel Pvt. Ltd. Vs. CIT [236ITR 903] has laid down the following important guidelines to decide whether the amount received for closure of business would be capital or revenue. The Hon'ble Court has held that what is received for loss of capital is a capital receipt and what is received as profit in a trading transaction is a taxable income but the difficulty arises in ascertaining whether what is received in a given case is compensation for loss of a source of income, or profit in a trading transaction. Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated} the receipt is revenue: Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent has been received towards sterilization of the source of income and, therefore, the provisions of section 28(va) would not be applicable. The A. O. has also mentioned that the receipt should be taxed under section 45 as capital gains. It is noted that there is no transfer of capital asset in the present case which is a pre-requisite for application or provisions of section 45. Therefore, the amount received can also not be taxed as capital gain. Another aspect that has also been pointed out by the A. O. that Coca Cola company has deducted IDS on the payment and, therefore, it should be treated as revenue receipt. The claim of the A. O. is without any basis. Merely the fact that the IDS has been deducted on a certain sum will not decide the nature of the sum received. To decide whether it is a capital or revenue receipt, other factors are of be taken into account. It appear that the Coca Cola company has deducted the IDS as it was being paid to the contractor and it has been done to avoid any inconvenience on the TDS front. In view of the above discussion, it is held that the receipts of Rs. 4,30,84,0887- are in a nature of capital receipts. The A.O. has also stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of compensation 1. Hindustan Coca-Cola Beverage Pvt Ltd Rs. 5 Crore 2. Coca-Cola India Pvt Ltd Rs. 1.5 Crore 25.1 The assessee out of the compensation received of ₹ 5 crores has offered a sum of Rs. 69,15,912.00 to tax in the income tax return and the balance amount of Rs. 4.30,84,088.00 was treated as capital receipt not chargeable to tax. Likewise, the amount of compensation of ₹ 1.50 crores received from Coca-Cola India Pvt Ltd was treated as capital receipt not chargeable to tax. 25.2 However, the revenue was of the view that the impugned compensation was to be taxed either under clause (va) to section 28 of the Act or under section 45 of the Act. Thus, the amount of compensation of Rs. 4,30,84,088/- and 1.50 crores was added to the total income of the assessee. 25.3 Before we deal with the issue raised before us, we are inclined to refer the judgement of Hon ble Supreme Court in the case of Oberoi Hotels Pvt Ltd vs. CIT, reported in [1999] 236 ITR 903 (SC) wherein it was observed that amount received in pursuance to an agreement resultin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law or in equity, to seek remedy, either contractual or otherwise, in any manner whatsoever, against Cadbury Schweppes Beverages India Private Limited, or against Atlantic Industries Inc., for any demands, differences, losses, liabilities, damages and claims arising under the Schweppes Agreement shall stand abandoned and waived. Further, Surbhi shall not raise any claims, demands, differences, disputes or liabilities against Cadbury Schweppes Beverages India Private Limited or against Atlantic Industries Inc. under any other communication, letter or understanding. 25.5 On perusal of the above clause, it is evident that such compensation of ₹ 1.50 was awarded to the assessee for termination of the contract. Thus, it becomes evident that the source of income to the assessee as a result of termination of the agreement has come to an end. Accordingly, we find that the principles laid down by the Hon ble Supreme Court in the case cited above are directly applicable as far as the compensation of ₹ 1.50 crores received from the company namely Coca-Cola India Pvt Limited is concern. Therefore, such compensation is to be treated as capital receipt not chargeable to tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Based on the above clause, what is transpired is this that there were certain trade disputes arose between the assessee and the company namely Hindustan Coca-Cola Beverage Pvt Ltd and in order to settle those disputes the amount of compensation was received for Rs. 4,30,88,084/- only. Thus, it was alleged by the Revenue that the impugned amount does not represent the compensation as a result of termination of the contract and thus the principles laid down by the Hon ble Supreme Court in the case of Oberoi Hotels Pvt Ltd (supra) cited above are not applicable. Therefore, the same should be made subject to tax either under the provisions of section 45 or 28(va) of the Act. Thus the issue arises before us so as to find out whether the amount of Rs. 4,30,84,888/- represents the compensation for the termination of the contract. 25.8 At this juncture, it is important to note that the main settlement agreement has to be read as a whole and in substance. For this purpose, we are inclined to make reference to various clause of the main settlement agreement and note certain facts as detailed: 1. All the disputes between the assessee and the company shall come to an end by virtue of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main settlement agreement for the reason that the original contract entered between the assessee and the company was ended by efflux of time but still the same was continued. Thus, it appears that though the agreement has come to an end but it was subsisting as on the date of main settlement agreement on account of the conduct of the assessee and the company. In other words, once the agreement has already been terminated but subsisting because of the conduct of the parties, maybe for this reason the word cease to subsist was used in the agreement. But we have to see the substance of the main settlement agreement instead of making reference to the relevant clause. It is beyond doubt that the source of income of the assessee as a result of main settlement agreement has come to end which can be verified from the financial statements filed by the assessee for the year ending 31 st March 2009 and 2010, placed on record. Thus, in view of the above, we are not convinced with the finding of the AO. Accordingly, we uphold the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the Revenue is hereby dismissed. 26. The nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mittedly, the business of the assessee was closed down. Once the business is closed, it is obvious that the employees of the assessee must have left. But it does not mean that the onus of assessee has also come to the end for furnishing the details in support of its claim. Undeniably, the onus lies upon the assessee justify its claim based on the documents. In the event the assessee fails to justify, the AO has to see the claim of the assessee based on the circumstantial evidence, history of the case, comparable cases so as to find out whether the claim of the assessee is genuine or excessive before making any disallowance. But we find that the AO has not done such exercise but made the ad-hoc disallowance in the absence of supporting documents. In our considered view, such ad-hoc disallowance is not permitted under the provisions of law unless it is based on scientific basis. Yet, the claim of the assessee cannot be allowed in to-to in the absence of documentary evidence. However, we find that the ld. CIT- A has upheld the order of the AO in part after giving partial relief to the assessee based on reasoning as discussed above which has not been controverted by the ld. DR of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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