The ITO, Ward-8(2), Ahmedabad V. M/s. Surbhi Milkfood & Beverage Ltd., Ahmedabad

ITA 1223/AHD/2012

AI Insights

The case involves Surbhi Milk Foods & Beverages Ltd., which faced scrutiny under the Income Tax Act, 1961 for the assessment year 2007-2008. The Income Tax Officer (ITO) made several additions to the assessee's income, which were later contested before the CIT-A. The CIT-A admitted additional evidences and deleted several additions made by the ITO, leading to the Revenue's appeal to the Tribunal. The Tribunal's decision focused on the legality of admitting additional evidences and the correctness of deleting additions under section 68, among other issues. The Tribunal found that the CIT-A had acted within the legal framework, particularly in admitting additional evidences after providing the ITO an opportunity to examine them.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134495 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 21-12-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2012
• Other Referred Cases: CIT vs. Kamlaben Sureshchandra Bhatti, Oberoi Hotel Pvt. Ltd. Vs. CIT, Karamchand Thapar & Bros. Pvt. Ltd., Kettlewell Bullen & Co. Ltd. vs. CIT, CIT vs. GSRTC
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital asset; Additional evidence; Wholly owned subsidiary; Capital receipt; TDS
• Section: 68; 28; 144; 43B; 143(3); 142(1); 143(2); 113; 22

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ A” BENCH, AHMEDABAD BEFORE WASEEM AHMED, ACCOUNTANT MEMBER, And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./ITA No. 1223/AHD/2012 िनधा रण वष /Asstt. Year: 2007-2008 I.T.O, Ward-8(2), Ahmedabad. Vs. Surbhi Milk Foods & Beverages Ltd., Aditya Bunglow, Opp. Sal Hospital, Drive-in-Road, Thaltej, Ahmedabad-380054. PAN: AAECS8430R (Applicant) (Respondent) Revenue by : Shri Vijay Kumar Jaiswal, CIT, D.R Assessee by : Shri M.J. Shah, Advocate with Shri Jimy Patel & Rushin Patel, A.Rs, सुनवाई की तारीख/Date of Hearing : 22/12/2022 घोषणा की तारीख /Date of Pronouncement: 07/03/2023 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeal)-XIV, Ahmedabad, dated 30/03/2012 arising in the matter of Assessment Order passed under s. 144 r.w.s 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2007-2008. ITA no.1223/AHD/2012 Asstt. Year 2007-08 2 2. The Revenue has raised following grounds of appeal: 1) The Ld.Commisioner of Income Tax (Appeals)-XlV, Ahmedabad has erred in law admitting additional evidences submitted by the Assessee before him various reliefs to the/Assessee on the basis of such additional. 2) The Ld. Commissioner of Income- (Appeals)-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(iv)/28(va) or alternatively u/s.45 of the Act. 7) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in restricting the disallowance of Rs.4,69,838/- 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^ssessing Officer be restored. ITA no.1223/AHD/2012 Asstt. Year 2007-08 3 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 assessee was a public company and engaged in the business of manufacturing of beverage & Food Products. The assessee in the return of income for the year under consideration declared loss of Rs. 1,26,23,824/- only. The return of the assessee was selected for scrutiny assessment under section 143(2) of the Act vide notice dated 15 th September 2008 and thereafter several notices under section 142(1) of the Act were issued requiring the assessee to file necessary details. The assessee in response to such notices was either absent or sought adjournment without furnishing the required details. The ld. AR of the assessee appeared before the AO as on 18 th November 2009 and discussed the case orally but failed to furnish necessary documentary evidences. Therefore, the AO in absence of necessary documentary evidences framed the assessment under section 144 r.w.s. 143(3) of the Act vide order dated 24 th December 2009 wherein he assessed the income of the assessee at Rs. 9,48,78,035/- only. 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: ITA no.1223/AHD/2012 Asstt. Year 2007-08 4 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. 2002-03. It is also seen that the evidence now being submitted are contemporary in nature. The A. O. has also been given due opportunity. He has examined the evidence and given his comments on the same after verification. 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. Accordingly, there is no contravention to the provisions of rule 46-A of Income Tax Rules. 9. Both, the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. ITA no.1223/AHD/2012 Asstt. Year 2007-08 5 10. We have heard the rival contentions both the parties and perused the materials available on record. The necessary facts of issue on hand have already been elaborately discussed in preceding paragraph, therefore we are not inclined to repeat the same for the sake of brevity and convenience. The only questioned before us is whether the learned CIT(A) committed any error in admitting the additional evidences. In this regard, we note that identical question was before the Hon’ble Gujarat High Court in case of CIT vs. Kamlaben Sureshchandra Bhatti reported in [2014] 44 taxmann.com 459 (Guj.). The Hon’ble bench while dealing with the question held that CIT(A) before admitting the additional evidences awarded an opportunity to the revenue by calling remand report 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 same. Thus, the learned CIT(A) safeguarded the interest of revenue while admitting the additional evidences furnished by the assessee. Therefore, considering the facts in totality and respectfully following the judgment 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. ITA no.1223/AHD/2012 Asstt. Year 2007-08 6 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 credit under section 68 of the Act and added the same the total income of the assessee. 13. The aggrieved assessee preferred an appeal before the learned CIT-A and furnished the additional evidences which were forwarded to the AO for remand report. The AO in the remand report dated 12-03-2012 submitted that the amount of creditor for goods and creditor for the expenses includes opening balance of Rs. 12,012/- and Rs. 85,103/- respectively. The assessee was specifically asked to furnish the confirmation from the creditor for goods and creditor for expenses for remaining amount of Rs. 29,29,600/- and Rs. 16,262 but failed to comply. Therefore, addition to the extent of Rs. 29,29,600/- on account creditor for goods and Rs. 16,262/- on account of creditor for expenses needs to be sustained. ITA no.1223/AHD/2012 Asstt. Year 2007-08 7 13.1 Likewise, the assessee has shown sales tax liability of Rs. 33,88,397/- which was not paid before the due date of filing of return of income. Therefore, the same needs to be added under section 43B of the Act. 13.2 Similarly, the assessee has shown other outstanding liability of Rs. 33,98,647/- out of which the assessee has disallowed an amount of Rs, 16,19,578/- under section 43B of the Act. 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 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 ITA no.1223/AHD/2012 Asstt. Year 2007-08 8 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 year of Rs. 12,012/- and Rs. 85,103/- respectively. Therefore addition to this extent is not sustainable. 14.1 Likewise the AO has made disallowances of 20% of purchases and 30% of overall expenses separately. Therefore, further making separate addition of liabilities payable which are arising from purchases and expenses incurred would lead to double addition which is not sustainable under the provision of the Act. Therefore, addition of remaining amount of creditor for goods, creditor for expenses, salary payable, expenses payable amounting to Rs. Rs. 29,29,600/-, Rs. 16,262/-, Rs. 63,091/- and Rs. 1,30,011/- respectively stand deleted. 14.2 The learned CIT-A further found that sales tax payable for Rs. 33,88,398/- was carried forward from previous years, therefore disallowances of same in the year under consideration is not justified. Likewise, the interest payable account includes an opening balance of Rs. 15,85,867/- and there was suo-moto disallowance of interest expenses in the year under consideration as well as in preceding year being A.Y. 2006-07 by the assessee. Therefore, again making addition of the same is not justified and required to be deleted. 15. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. ITA no.1223/AHD/2012 Asstt. Year 2007-08 9 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 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 ITA no.1223/AHD/2012 Asstt. Year 2007-08 10 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 not controverted by the learned DR at the time of hearing. Therefore, we do not find any reason to interfere in the finding of the learned CIT-A. Accordingly, we uphold the same and direct the AO to delete the addition made by him. Hence the grounds of appeal of the Revenue are hereby dismissed. 18. The next issue raised by the Revenue vide ground No. 6 of its appeal is that the learned CIT-A erred in holding that receipt of Rs. 4,30,84,088/- and 1.5 crore on account of termination of bottling license as capital receipt not taxable under section 28 or under section 45 of the Act. 19. The vital facts are that the assessee has entered into bottling agreement for manufacture and fill, into authorized containers and sell, beverage under certain specified trademark of Canada Dry Cursh and Schweppes with the company namely Cadbury Schweppes Beverage India Pvt Ltd (Cadbury) in the year 1997. By virtue of this agreement, the Cadbury was having the right of getting the manufacturing activity done through the assessee. Such a right was subsequently transferred by Cadbury to M/s Atlantic Industries Inc. in the year 1999. M/s Atlantic Industries Inc. is the wholly owned subsidiary of the Coca-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. ITA no.1223/AHD/2012 Asstt. Year 2007-08 11 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 23 rd 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 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^ ThL sum is IN addition to the Settlement Amount. Upon payment of the abovementioned 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 manner whatsoever; against Cadbury Schweppes Beverages India Private Limited, or against Atlantic Industries industries 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. 4. Adjustments The Balance Settlement Amount agreed to between the Parties is subject to reconciliation in accordance with Annex 5 attached hereto. 5. On Closing Date: (i) The Bottler's Agreement (which has been subsisting virtue of conduct the, parties) shall cease to subsist and any and all accrued rights of Surbhi, whether in law or inequity, to seek remedy, either contractual or otherwise, in any manner whatsoever, against the Company or The Coca-Cola Company, for any demands, differences, losses, liabilities, damages and claims arising under the Bottler's Agreement and related purchase orders shall stand abandoned and waived. Surbhi ITA no.1223/AHD/2012 Asstt. Year 2007-08 12 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. (vi) The 'Company shall sell and 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 assesse 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 in its books of account and return of Income nor shown capital gain u/s.45 of the Act. Therefore, the then AO had correctly made addition of Rs.4,30,84,088/- and Rs.1,50,00,000/- Otherwise also the said receipt from Hindustan Coca-Cola Beverages P Ltd. is assessable u/s.45 or 28(iv) of the Act. Therefore, you are requested to confirm the addition of Rs.4,30,84,088/- and 1,50,00,000/- on this issue. 19.3 The assessee during the remand proceedings, in his rejoinder, has submitted that by virtue of the settlement deed, the source of income of the assessee ceased to exist and business got closed. Therefore, the same should be ITA no.1223/AHD/2012 Asstt. Year 2007-08 13 treated as capital receipt. The provisions of section 28 of the Act, more particularly the clause (va) to section 28 of the Act deals with the compensation to the assessee received on account of loss of business for any particular activity. As such, in the provision of section 28(va) of the Act, there is no whisper of closure of the business. As such, in the circumstances provided under section 28(va) of the Act, the assessee continues with the business activity but in the case on hand the compensation has been received 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 as the appellant has returned all the machineries 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: Where by the cancellation of an agency, the trading structure of the assessee's is impaired or such cancellation results in loss what may be regarded as the source of the assessee's income, the payment made to compensate for the cancellation of the agency agreement is normally a capital receipt. The Hon 1 ble Court had applied the judgment in the case of-Xefiiewel! Buiien and Co. Lie. Vs. OT [53 iTR 261] (SC). In another judgment ITA no.1223/AHD/2012 Asstt. Year 2007-08 14 by the Hcn'ble Supreme Court in the case of Karamchand Thapar & Bros. Pvt. Ltd. [80 ITR 0167], the similar principle was Said down following the judgment in the case of Kettlewell Bullen (Supra). Applying the above ratio to the present facts of the case, it is noted that the appellant had to close its business of bottling, it was the only business that was being carried out. He was not doing any other bottling assignment for any other company and the source of income has ceased to exist. Therefore, in my considered view, the receipt on account of termination of bottling license is in the nature of capital receipt and accordingly, the same cannot be taxed as submitted by the A. O. The A, O. has also 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 sectton 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 have been applicable. In the present case, the payment 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 fo 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 stated that the amount or Rs. 1,50,00,000/- receivable by the appellant company on account of termination of bottling license of Cad bury Shwepoes Beverages India Pvt. Ltd. should also be considered as revenue receipt. The appellant has submitted that the issue of taxability of Rs. 1.5 crores was at all there during the original assessment stage and, therefore, this amounts to taxing a new source. The submission of the appellant is not acceptable as has been discussed by me in para 5.3 [IV)[iii] at page No. 31 while deciding the issue of addition u/s. 40(a)[ia) of the Act, In view of that discussion, the objection of the appellant is not accepted. However, this amount also is for termination of business and sterilization of the source of income. Considering the preceding discussion about the receipt of Rs.5 crores from Coca Cola company, the receipt of this amount is also held to be capital in nature. ITA no.1223/AHD/2012 Asstt. Year 2007-08 15 21. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. 22. The learned DR before us submitted that the compensation was given by the company to the assessee on account of various trade disputes and the bank liability shown by the assessee in its books of accounts. As such the amount of compensation of ₹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 company Amount 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 ITA no.1223/AHD/2012 Asstt. Year 2007-08 16 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 resulting in loss of source of income of the assessee then such receipt shall be capital receipt. The relevant extract of the judgement is reproduced as under: After analysing number of cases, the Supreme Court in the case of Kettlewell Bullen & Co. Ltd. v. CIT [1964] 53 ITR 261 had observed that the following satisfactory measure of consistency in the principle was disclosed : '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 : Whereby the cancellation of an agency, the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipts'. Considering the aforesaid principles laid down, as per article XVIII of the principal agreement, the amount received by the assessee was for the consideration for 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 ₹ 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: ITA no.1223/AHD/2012 Asstt. Year 2007-08 17 On closing Date, CCIL shall 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. This sum is in addition to the Settlement Amount. Upon payment of the above mentioned compensaton, the Schweppes Agreement shall stand terminated and any and all accrued rights of Surbhi, whetehr 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. Even at the time of hearing, the learned DR did not point out any distinguishing features with respect to the compensation of ₹ 1.50 crores received from the company namely Coca-Cola India Pvt Ltd suggesting that the principles laid down by the Hon’ble Supreme Court in the case cited above are not applicable. 25.6 Moving further, it is relevant at this juncture to refer the clause number B to D and F of the main settlement agreement dated 23 rd December 2006 as reproduced below: B. WHEREAS, Surbhi executed a Bottler's Agreement with The Coca-Cola Company, a corporation organized and existing under the laws of the State of Delaware, United States of America dated 24 February,^001_(hereinafter referred to as the "Bottler's Agreement"), pursuant to~wrrich7^nfer a/is, Surbhi was authorized to prepare and package the Beverages (as defined therein) in Authorized Containers (as defined therein) at the said Facility for exclusive sale to the Company. The initial term of the Bottler's agreement expired by efflux of time on 24 March, 2004. However, the expiry notwithstanding the parties thereto continued to act upon the same terms and conditions. C. WHEREAS in connection with the Bottler's Agreement, sales of the beverages were made by Surbhi to the Company on the basis of purchase orders issued from time to time by the Company. ITA no.1223/AHD/2012 Asstt. Year 2007-08 18 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 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 this main settlement agreement. 2. The purchase orders executed by the company in the name of the assessee shall stand abandoned and waived. ITA no.1223/AHD/2012 Asstt. Year 2007-08 19 3. All the capital assets/ OMT assets stated in annexure 2 & 3 and 4 of the main settlement agreement shall be handed over by the assessee to the company. 4. The assessee shall transfer 4 sets of moulds to the company against the consideration. 5. The assessee shall transfer the raw material listed in annexure 3 to the company against the consideration. 6. The assessee waives/ abandons its right to seek any legal remedy against the company or its associates. It was agreed between the parties to avoid expensive and time-consuming legal proceedings. 7. In the event of any breach of any clause of the agreement, the company shall terminate the main settlement agreement and will be entitled to recover from the assessee all the money paid by it in pursuance to the main settlement agreement. 25.9 A conjoint reading of the above clause reveals the fact that the arrangement between the assessee and the company has come to an end which certainly re-presents the loss of source of revenue/ income to the assessee in substance. Merely, the word termination has not been used 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 ITA no.1223/AHD/2012 Asstt. Year 2007-08 20 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 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 next issues raised by the Revenue vide ground Nos. 7 & 8 of its appeal are that the learned CIT-A erred in restricting the disallowances of total expenses to the extent of 15% and purchases to the extent 10% as against the disallowances made by the AO for 30% and 20% respectively. 27. The AO during the assessment proceeding in the absence of necessary details disallowed 30% of overall expenses which comes at Rs. 4,69,838/- and 20% of purchases which comes at Rs. 25,31,640/- only. ITA no.1223/AHD/2012 Asstt. Year 2007-08 21 28. The aggrieved assessee carried the issue before the learned CIT-A, and furnished ledger copy of purchases and ledger copy of all the expenses incurred under different heads and same was forwarded to the AO for remand report. 29. The AO in remand report submitted that the assessee failed to furnish supporting documentary evidences being bills and voucher etc. Hence disallowances made being 30% of expenses and 20% of purchases should be sustained. 30. The assessee in its rejoinder submitted that bills, voucher or other supporting were not submitted due closure of business activity. However, the purchases made throughout the year are duly verifiable from the ledger copy. In the past, no such disallowance of purchase has been made in 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. ITA no.1223/AHD/2012 Asstt. Year 2007-08 22 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 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 Revenue. Hence, the ground of appeal of the Revenue is hereby dismissed. 35. The next issue raised by the Revenue is that the learned CIT-A erred in deleting the addition of Rs. 27,398/- on account of late deposits of employee’s contribution towards PF fund. 36. At the outset, we note the learned AR for the assessee before us conceded that the issue on hand has been covered against the assessee by the order of the Hon’ble Gujarat High Court in case of CIT vs. GSRTC in tax appeal no. 637 of 2013 ITA no.1223/AHD/2012 Asstt. Year 2007-08 23 dated 26.12.2013. Therefore, respectfully following the order of Hon’ble Gujarat (supra), the ground of appeal of the Revenue is hereby allowed. 37. In the result, the appeal of the Revenue is partly allowed. Order pronounced in the Court on 07/03/2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 07/03/2023 Manish