M/s. Polymer Alloys, Ahmedabad V. The Income tax Officer,Ward-10(4), Ahmedabad

ITA 2522/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60344 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-04-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 01-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: M K PATEL
• Keywords: Cost of acquisition; Fair market value; Capital receipt; Capital expenditure
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI G.C.GUPTA,V.P. AND T.R. MEENA., AM. ITA NO.2522/AHD/2009 ASST. YEAR: 2005-06 M/S. POLYMER ALLOYS, D-11-12,SILVER ARC FLAT, KAVI NANALAL MARG, ELLISBRIDGE, AHMEDABAD. VS. THE INCOMETAX OFFICER, WARD 10(4), NARAYAN CHAMBERS, NER PATANG HOTEL, ASHRAM ROAD, AHMEDABAD. (APPELLANT) .. (RESPONDENT) ITA NO.2543/AHD/2009 ASST. YEAR: 2005-06 THE INCOMETAX OFFICER, WARD 10(4), NARAYAN CHAMBERS, NER PATANG HOTEL, ASHRAM ROAD, AHMEDABAD. VS. M/S. POLYMER ALLOYS, D-11-12,SILVER ARC FLAT, KAVI NANALAL MARG, ELLISBRIDGE, AHMEDABAD. (APPELLANT) .. (RESPONDENT) BY ASSESSEE :- SHRI M. K. PATEL BY REVENUE :- SHRI P.L. KUREEL, SR.D.R. DATE OF HEARING : 16-4-2012 DATE OF PRONOUNCEMENT : 18-5-2012 O R D E R PER T.R. MEENA, ACCOUNTANT MEMBER . ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 2 THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSES SEE AND THE OTHER FILED BY THE REVENUE AGAINST THE COMMON ORDER PASSE D BY THE LD. CIT (A)-XVI, AHMEDABAD FOR THE ASSESSMENT YEAR 2005-06 DATED 29-6-2009. I.T.A. NO.2522/AHD/2009 . 2. WE FIRST TAKE UP THE APPEAL OF THE ASSESSEE. IN THIS APPEAL THE ASSESSEE HAS TAKEN EFFECTIVELY ONLY ONE GROUND OF A PPEAL WHICH READS AS UNDER:- 1. THAT THE LD. CIT (A)-XVI, AHMEDABAD HAS GRIEVOU SLY ERRED IN LAW AND ON FACTS IN EXCEEDING JURISDICTION, AND MAKING UNWARRANTED, OBSERVATIONS IN PARA 3.4. ON PAGE 19 O F THE ORDER UNDER APPEAL REGARDING APPLICABILITY OF SECTION 51 OF THE I.T. ACT,1961 AND PERTAINING TO A.Y. NOT IN APPEAL BEFO RE LD. CIT (A). 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED ITS RETURN OF INCOME ON 21-6-2005 DECLARING TOTAL LOSS OF RS.61,371/-.THE S AID RETURN WAS PROCESSED U/S. 143(3) OF THE I.T. ACT ON 19-7-2006 AND SUBSEQUENTLY ASSESSMENT WAS REOPENED U/S.147 OF THE ACT AND TH E ASSESSMENT ORDER WAS PASSED VIDE A. OS ORDER DATED 10-12-2007 MAKIN G ADDITION ON ACCOUNT OF LIQUIDATED DAMAGE OF RS.13,48,751/- AND ASSESSED INCOME AT RS.12,87,380/-. THE A.O. ALSO NOTICED THAT THE AS SESSEE HAS ENTERED INTO AGREEMENT TO SALE FOR THE LAND, BUILDING, PLANT AND MACHINERY TO STERLITE INDUSTRIES LTD. HOWEVER, SINCE THE ABOVE COMPANY BA CKED OUT FROM ITS AGREEMENT TO PURCHASE THE ABOVE ASSETS, THE ASSESSE E FILED CIVIL SUIT AGAINST THE COMPANY IN THE CITY CIVIL COURT, AHMEDA BAD FOR LIQUIDATED DAMAGE AND UNFULFILLMENT OF THE CONTRACT. THEREAFTE R, ASSESSEE HAD UNCONDITIONALLY WITHDRAWN THE CIVIL SUIT AND RECEIV ED RS.13,48,751/- AS ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 3 LIQUIDATED DAMAGE. THE A.O. CONSIDERED THE ABOVE A MOUNT OF LIQUIDATED DAMAGE RECEIVED FOR THE WITHDRAWAL OF SUIT AS AN IN COME CHARGEABLE TO TAX UNDER I.T. ACT AND THEREFORE, ISSUED NOTICE U/S . 147 OF THE ACT FOR REOPENING THE ASSESSMENT/ESCAPEMENT OF THE INCOME O N 17-8-2006 WHICH WAS SERVED ON THE ASSESSEE ON 18-8-2006.IN RESPONSE TO THE SAID NOTICE ASSESSEE FURNISHED ORIGINAL RETURN OF INCOME DATED 21-6-2006. BEFORE THE A.O. ASSESSEE RELIED ON THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF PURSHOTTAM POTTERIES PVT. LTD., REPORTED IN 106 ITR 1 AND ON SEVERAL OTHER JUDGMENTS. THE ASSESSEE ALSO SUBMIT TED THAT THE ACTION OF THE REOPENING OF THE ASSESSMENT WAS IN CONTRAVENTIO N TO THE LETTER AND SPIRIT OF THE CBDTS CIRCULAR NO.549 DATED 31-10-19 89. THE A.O. DID NOT FIND THE ASSESSEES CONTENTION ACCEPTABLE AND ADDED THE LIQUIDATED DAMAGE AMOUNTING TO RS.13,48,751/- TO THE TOTAL INC OME OF THE ASSESSEE. THEREAFTER, THE ASSESSEE CARRIED THE MATTER IN APPE AL BEFORE THE CIT (A). 4. THE CIT (A) AFTER CAREFULLY CONSIDERING THE SUBM ISSIONS MADE BY THE A.R. OBSERVED AS UNDER:- 3.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. AND I HAVE ALSO PERUSED THE COPIES OF THE AGREEMENT AND ORDER OF THE CONSENT. THERE IS NO DENIAL THAT THE APPELLANTS HAD ENTERED INTO A SALE AGREEMENT DATED 12-8-1991 TO SELL THE FIXED ASSETS NAMELY LAND, BUILDING, PLANT AND MACHINERY AND ALSO THE TECHNICA L KNOW HOW. IN THE CASE OF PLASTIC COLOR CORPORATION, THE LAND AND BUILDING IS AGREED TO BE SOLD FOR RS.29 LACS, MACHINERY FOR RS. 60 LACS AND TECHNICAL HOW FOR RS. 15 LACS. AS PER THIS AGREEMEN T, THE APPELLANTS WERE SUPPOSED TO PERFORM CERTAIN FUNCTIONS WHICH WE RE DULY DISCHARGED BY THE APPELLANTS AS UNDER:- SR.NO. PARTICULRS. DATE OF COMPLIANCES. 1 WRITTEN PERMISSION OF GIDC & STATE GOVT. OBTAINED. 10-11-91, 22-4-92, 4- 12-91 2 RELEASE FROM BANK OF BARODA OF IMMOVABLE PROPERTY MORTGAGED. 27-12-91 11-12-91 3 INCOME TAX CLEARANCE ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 4 CERTIFICATE U/S. 230A OBTAINED AND CLEARANCE U/S.269(U)(D). 7-1-92 24-10-91 4 NO OBJECTION CERTIFICATE OF DAMAN CO-OP. HSG.SOCIETY. 6-1-92 5 EMPLOYEES DISCHARGE CERTIFICATE ISSUED BY C.A. 16-4-92. 3.2. FURTHER STERLITE INDUSTRIES (INDIA) LTD., DID NOT HONOUR THIS AGREEMENT. A CIVIL SUIT SUIT THEREFORE, WAS FILED B Y THE APPELLANTS AGAINST THE STERLITE INDUSTRIES (INDIA) LTD., ON 26 -6-1992.THIS SUIT WAS PENDING BEFORE THE COURT. MEANWHILE STERLITE IN DUSTRIES (INDIA) LTD., PROPOSE TO MAKE A LUMPSUM PAYMENT FOR BREACH OF CONTRACT BY WAY OF LIQUIDATED DAMAGES ON A COMPROMI SE THROUGH A CONSENT DECREE IN THE CIVIL COURT TO THE APPELLANTS . THE AMOUNT SO RECEIVED ACCORDING TO THE APPELLANT IS CAPITAL RECE IPT SINCE THE AMOUNT IS RECEIVED BY THE APPELLANT IN LIEU OF ITS GIVING UP OF A RIGHT TO SUE WHICH IS THE INTRINSIC VALUE OF THE PE NDING SUIT BEFORE THE CIVIL COURT. THE APPELLANT ALSO RELIED UPON THE DECISIONS OF VARIOUS COURT IN THE CASE OF - 3.3. A SPECIFIC QUERY WAS RAISED REGARDING THE TREA TMENT OF EXPENDITURE INCURRED FOR HONOURING THE CONTRACT OF SALE OF THE FIXED ASSETS BY THE APPELLANTS. THE A.R. BROUGHT TO MY NO TICE THE NOTE FORMING PART OF ACCOUNT. IN PARA 2(A) OF THE NOTE F ORMING PART OF THE ACCOUNTS TO THE BALANCE SHEET OF M/S. PLASTIC COLOUR CORPORATION FOR A.Y. 2005-06, THE FOLLOWING IS MENT IONED:- 2(A) THE FIRM HAD ENTERED INTO A CONTRACT WITH A P ARTY FOR THE SALE OF ITS ASSETS (VIZ LAND, BUILDING AND MACH INERIES). THE PARTY DID NOT HONOUR THE CONTRACT AND FIRM HAD FILED SUIT FOR BREACH OF TRUST AND CONTRACT. DURING THE YEAR A SETTLEMENT HAS BEEN REACHED AND THE FIRM RECEIVED LUMPSUM PAYM ENT OF RS.40,66,102/- TOWARDS BREACH OF TRUST AND CONTRACT BY WAY OF LIQUIDATED DAMAGED ON A COMPROMISE THROUGH A CON SENT DECREE IN THE CIVIL CCOURT. THE EXPENDITURE AMOUNTI NG TO RS.4,16,530/- INCURRED IN THE COURSE OF NEGOTIATION S, CONTRACT SIGNING AND FILING OF SUIT I.E. SHOWN UNDER THE HEA D LOANS AND ADVANCES IN EARLIER YEARS HAS BEEN ADJUSTED AG AINST THE ABOVE REFERRED AMOUNT. 2(B) THE FIRM HAS BEEN LEGALLY ADVISED THAT THE AMO UNT RECEIVED TOWARDS BREACH OF TRUST AND CONTRACT AS LI QUIDATED DAMAGES IS NOT LIABLE TO INCOME TAX AS THE AMOUNT R ECEIVED ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 5 IN LIEU OF ITS GIVING UP A RIGHT TO SUE IS NOT A RE VENUE RECEIPT. THE SAME IS ALSO NO EXIGIBLE TO CAPITAL GAINS SINCE THE AMOUNT IS RECEIVED IN LIEU OF RIGHT TO SUE WHICH IS FOREGONE BY THE FIRM AND THERE IS NO TRANSFER OF THE SAME. 3.4. IN OTHER WORDS, THE EXPENSES INCURRED FOR THE SALE OF THE FIXED ASSETS BY THE APPELLANT ARE NOT SHOWN AS REVE NUE EXPENDITURE BUT AS CAPITAL EXPENDITURE. THE AMOUNTS ARE NO DOUB T RECEIVED AS LIQUIDATED DAMAGED BY THE APPELLANT. IN VIEW OF THE DECISIONS RELIED UPON BY THE APPELLANT, THE SAME ARE HELD AS CAPITAL RECEIPT. BUT THIS AMOUNT PARTAKES THE CHARACTER OF ADVANCES OR OTHER MONEYS WITHIN THE MEANING OF SECTION 51 OF THE I.T. ACT. THE A.O. IS THEREFORE, DIRECTED TO COMPUTE THE COST OF ACQUISITION OF THES E ASSETS AFTER DEDUCTING THE AMOUNTS OF RS.35,29,322/- IN THE CASE OF PLASTIC COLOUR CORPORATION AND RS. 13,48,751/- IN THE CASE OF POLYMER ALLOYS FROM THE COST FOR WHICH THE ASSET WAS ACQUIR ED OR THE WRITTEN DOWN VALUE OR THE FAIR MARKET VALUE, AS THE CASE MA Y BE IN VIEW OF THE SPECIFIC PROVISION OF SECTION 51 OF THE ACT AT THE TIME OF FINAL SALE OF THESE ASSETS. 5. WE HAVE PERUSED THE ASSESSMENT, ORDER OF CIT (A) AND THE SUBMISSIONS OF THE ASSESSEE AND ARGUMENTS OF BOTH T HE SIDES. THE ASSESSEE HAS ALREADY ADMITTED BEFORE THE A.O. AS WELL AS BEF ORE THE CIT (A) THAT THESE RECEIPTS ARE HAVING NATURE OF CAPITAL NATURE, BUT CLAIMED AS EXEMPTED IS NOT ACCEPTABLE AS THIS RECEIPT IS AGAIN ST THE LIQUIDATED DAMAGE AND IN LIEU OF ITS GIVING UP A RIGHT TO SUE. 6. THE ASSESSEES CLAIM THAT THE CIT (A) HAS EXCEE DED JURISDICTION AND MAKING UNWARRANTED OBSERVATION IN PARA 3.4 ON P AGE 19 OF THE ORDER UNDER APPEAL REGARDING APPLICABILITY OF SECTION 51 AND PERTAINING TO ASSESSMENT YEAR NOT IN APPEAL BEFORE THE CIT(A)IS N OT FOUND ACCEPTABLE AS THE CIT(A) HAS WIDE POWER UNDER SECTION 251 OF T HE ACT. IT HAS BEEN SETTLED BY SEVERAL DECISIONS INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF CIT VS MCMILLAN & CO. (195 8) 33 ITR 182 (SC), CIT VS SAPURJEE BALAJI MISTRY (1962) 44 ITR 8 91 (SC), CIT V KANPOOR COAL SYNDICATE (1964) 53 ITR 225 (SC) AND C IT VS HARDUTTROY ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 6 MOTILAL SAMARIYA (RAI BAHADUR) (1967) 661 ITR 443(S C) THAT IN DISPOSING OF AN APPEAL BEFORE HIM THE APPELLATE AUT HORITY CAN TRAVEL OVER THE WHOLE RANGE OF ASSESSMENT ORDER. HE CAN BRING I N FOR ASSESSMENT SOURCES WHICH HAVE BEEN CONSIDERED OR PROCESSED BY THE AO EVEN THOUGH THE OFFICER MIGHT HAVE FAILED TO BRING IN THEM TO T AX. IN OTHER WORDS, THE POWER OF THE APPELLATE AUTHORITY, N DISPOSING OF AN APPEAL ARE VERY WIDE AND PLENARY. IT IS OPEN TO HIM TO CONSIDER EVERY AS PECT OF THE ASSESSMENT ORDER AND GIVE APPROPRIATE RELIEF OR DIRECTIONS. T HE FINDING WAS GIVEN BY THE LD. CIT(A) ON THE GROUND OF THE YEAR UNDER CONS IDERATION. THEREFORE, THE CIT (A) RIGHTLY HELD THAT THE AMOUNT RECEIVED O N ACCOUNT OF LIQUIDATED DAMAGE AT RS.13,48,751/- TO RECOMPUTED THE COST OF ACQUISITION OF THESE ASSETS AFTER DEDUCTING THE AMOUNT OF RS. 13,48,751/ - IN THE CASE OF THE ASSESSEE FROM THE COST FOR WHICH THE ASSETS WERE AC QUIRED OR THE WDV OR FMV AS THE CASE MAY BE IN VIEW OF THE SPECIFIC PRO VISIONS OF SECTION 51 OF THE ACT, AT THE TIME OF FINAL SALE OF THESE ASSE TS. THUS, THE ASSESSEES GROUND OF APPEAL IS DISMISSED. ITA NO. 2543/AHD/2009 - 7. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEA L IN ITS APPEAL:- 1. LD. CIT (A) HAS ERRED IN FACTS AND ON LAW TREAT ING EARNEST MONEY/ LIQUIDATED DAMAGES OF RS.13,48,751/- A CAPIT AL RECEIPT INTEA OF REVENUE RECEIPT. (2) LD. CIT (A) FAILED TO CONSIDER THE FINDINGS OF A.O. THAT THE ASSESSEE HAS NOT REDUCED THE EARNEST MONEY/DEPOSIT FROM THE COST OF ASSETS WHICH WERE SUBSEQUENTLY SOLD, WHILE COMPU TING THE CAPITAL GAIN ON SUCH SALE AS PER SEC.51 OF THE ACT. (3) LD. CIT (A) FAILED ANALYSE ALL THE RELEVANT FAC TS IN DETAIL AND IN PROPER PROSPECTIVE IN DECIDING THE ISSUE INCLUDI NG HIS DIRECTIONS TO APPLY THE PROVISIONS OF SEC.51OF THE I.T. ACT WI THOUT MENTIONING /VERIFYING THE RELEVANT ASSESSMENT YEAR. ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 7 (4) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE L . CIT (A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE ASSESSING OF FICER BE RESTORED TO THE ABOVE EXTENT. 8. BECAUSE THE FACTS OF THE CASE ARE IDENTICAL TO T HAT IN ITA NO.2522/AHD/20098 WE DECIDE THE ISSUE IN THE LIGHT OF THE ABOVE DISCUSSION. 9. THE NATURE OF THESE RECEIPT I.E. AT RS.13,48,751 /- AS REVENUE RECEIPT IS ALSO NOT FOUND ACCEPTABLE AS THESE RECEI PTS WERE IN LIEU OF THE GIVING UP OF THE RIGHT TO SUE AND THESE ASSETS AND HAVING NATURE OF CAPITAL RECEIPT AS RELIED UPON BY THE ASSESSEE. THUS THE RE VENUE APPEAL IS DISMISSED. THE CIT (A) HAD GIVEN DIRECTION AS PER L AW AND WE ARE OF CONSIDERED OPINION THAT THIS AMOUNT IS TO BE REDUCE D FROM THE COST OF ACQUISITION OF THE ASSETS U/S. 51 OF THE I.T. ACT. THUS THE REVENUES GROUNDS OF APPEAL ARE ALSO DISMISSED. 10. IN THE RESULT APPEAL OF THE ASSESSEE AND THE RE VENUE ARE DISMISSED. SD/- SD/- (G. C. GUPTA) (T. R. MEENA) VICE PRESIDENT ACCOUN TANT MEMBER. ORDER PRONOUNCED IN OPEN COURT ON 18/5/12 SD/- S D/- (G. C. GUPTA) (T.R. MEENA) VICE PRESIDENT. ACCOUNTANT MEMBER. AHMEDABAD, PATKI/DEKA ITA NO. 2522 & 2543/2009 ASST. YEAR 2005-06 8 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT (APPEALS)- XVI, AHMEDABAD. 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD .DATE OF DICTATION 16 /4 /2012. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 15 /5/2012 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 15-5-2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 18-5-2012. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 18-5-2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 18 -5-2012 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..