Daniel Measurement Solutions Pvt.Ltd., Baroda V. The Dy.CIT.,Circle-1(1), Baroda

ITA 2716/AHD/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8107 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 03-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Capital receipt
• Section: 143(3)

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NOS. 2716/AHD/2011 & 2331/AHD/2014 ( ASSESSMENT YEAR : 2008-09) M/S. DANIEL MEASUREMENT SOLUTIONS PVT. LTD., 299/300, GIDC ESTATE, MAKARPURA, VADODARA 390010 & M/S. DANIEL MEASUREMENT SOLUTIONS PVT. LTD., 3 RD FLOOR, SYNERGY SQUARE, KRISHNA INDUSTRIAL ESTATE, GORWA, VADODARA - 390016 / VS. DCIT , CIR-1(1), AAYAKAR BHAVAN, RACE COURSE, VADODARA - 390007 ./ ./ PAN/GIR NO. : AACCD5920F ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M. K. PATEL, A.R. / RESPONDENT BY : SHRI SAURABH SINGH, SR.D.R. DATE OF HEARING 14/06/2018 !'# / DATE OF PRONOUNCEMENT 20/06/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST RESPECTIVE QUANTUM AND PENALTY ORD ERS OF THE CIT(A)- I, BARODA (CIT(A) IN SHORT), DATED 04.08.2011 AND 15.05.2014 ARISING ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 2 IN RESPECTIVE ASSESSMENT ORDER DATED 29.12.2010 AND THE PENALTY ORDER DATED 01.03.2013 PASSED BY THE ASSESSING OFFICER (A O) UNDER SECTIONS 143(3) AND 271(1)(C) OF THE INCOME TAX ACT, 1961; ( THE ACT) CONCERNING ASSESSMENT YEAR 2008-09. 2. SINCE, THE PENALTY HAS BEEN IMPOSED ON THE BASIS OF THE QUANTUM PROCEEDINGS, THE APPEALS ARISING IN THE QUANTUM PRO CEEDINGS AS WELL AS IN THE PENALTY PROCEEDINGS HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 3. WE SHALL FIRST TAKE THE APPEAL OF THE ASSESSEE I N QUANTUM PROCEEDINGS IN ITA NO. 2716/AHD/2011 FOR ADJUDICATI ON PURPOSES. 4. AS PER THE GROUND OF APPEAL, THE ASSESSEE, IN ES SENCE, HAS CHALLENGED THE ACTION OF THE REVENUE IN SUBJECTING THE RECEIPT OF RS.88,07,635/- TO TAXATION RECEIVED IN LIEU OF BOOK S VALUE OF CERTAIN ASSETS TRANSFERABLE TO THE ASSESSEE OWING TO THE PR OCESS OF DEMERGER. IN SHORT, WHEREAS THE ASSESSEE HAS TREATED THE AFOR ESAID AMOUNT RECEIVED IN LIEU OF ASSETS TO BE TRANSFERRED TO ASS ESSEE AS A RESULT OF DEMERGER AS CAPITAL RECEIPT, THE REVENUE HAS TREATE D THE AFORESAID AMOUNTS AS REVENUE RECEIPT AND BROUGHT THE SAME TO BE CHARGEABLE INCOME OF THE ASSESSEE. 5. BRIEFLY STATED, THE ASSESSEE, A COMPANY, IS ENGA GED IN THE BUSINESS OF DESIGN AND MARKETING OF GAS AND LIQUID MEASUREMENT AND ANALYTIC PRODUCTS ETC. THE RETURN FILED BY THE ASS ESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF THE ASSES SMENT PROCEEDINGS, ON VERIFICATION OF ACCOUNTS, IT WAS FOUND BY THE AO THAT IN THE DEMERGER SCHEME, THE ASSESSEE COMPANY WAS ENTITLED TO RECEIVE CERTAIN ASSETS, WHICH WAS NOT ACTUALLY RECEIVED BY THE COMP ANY. THESE ASSETS WERE NOT EVENTUALLY TRANSFERRED TO THE ASSESSEE COM PANY AS ORIGINALLY ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 3 AGREED. IN CONSIDERATION FOR THE SAID NON TRANSFER OF ASSETS, THE ASSESSEE WAS COMPENSATED WITH RS.1,00,71,502/- BEIN G THE BOOK VALUE OF THESE ASSETS. 5.1 ON INQUIRY ABOUT THE NATURE OF RECEIPT FROM THE ASSESSEE, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT IN ACC ORDANCE WITH THE DEMERGER SCHEME, M/S. ADVANCED SYSTEK PRIVATE LIMIT ED (AST) WAS TO TRANSFER NET ASSETS (BOOK VALUE OF ASSETS) AND BOOK VALUE OF LIABILITIES WAS WORTH RS.11,20,08,960/-. AS PER THE DEMERGER S CHEME, THE ASSETS AND LIABILITIES WERE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AT BOOK VALUE. THE SHARES OF ASSESSEE COMPANY WERE ISSUED IN CONSIDERATION OF THE DEMERGER. IT WAS SUBMITTED BY THE ASSESSEE THAT THE RESULTING COMPANY (AST) PAID AN AMOUNT OF RS.1,00,71,502/- TO THE ASSESSEE IN LIEU OF ASSETS AS AGREED TO BE TRANSFERRED BUT NOT TRANSFERRED. THE SAID AMOUNT WAS PAID TO THE ASSESSEE IN KEEPING WITH THE PROCESS OF DEMERGER. THE WORKING OF THE AFORESAID AMOUNT WAS PLACED BEFORE THE AO AS UNDER: PARTICULARS AMOUNT (RS.) CAR 13,15,351/- STOCK NOT TRANSFERRED 26,54,931/- MODVAT CREDIT 39,54,554/- SECURITY DEPOSIT 4,04,812/- ADVANCES TO EMPLOYEES 3,08,744/- PRE-PAID EXPENSES 1,89,243/- PROVISION FOR LD 2,90,335/- PROVISION FOR LEAVE ENCASHMENT 5,73,532/- GRATUITY PROVISION 4,00,000/- TOTAL 1,00,71,502/- 5.2 THE ASSESSEE, IN ESSENCE, SUBMITTED BEFORE THE AO THAT THE AFORESAID AMOUNT OF RS.1,00,71,502/- WAS RECEIVED B Y IT IN LIEU OF ASSETS AND LIABILITIES RETAINED BY THE AST AS LISTE D ABOVE. IT WAS CLAIMED BY THE ASSESSEE THAT THE AMOUNT RECEIVED BY IT IS NOTHING BUT CHANGE IN FORM OF ASSETS. IT WAS CLAIMED THAT THE DEMERGED ASSETS AND ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 4 LIABILITIES OF DEMERGED UNIT (METERED UNDERTAKING) ARE NOT REVENUE IN NATURE AND THUS OUTSIDE THE PURVIEW OF BUSINESS INC OME. 5.3 THE AO, HOWEVER, DID NOT FIND SUBSTANCE IN THE CLAIM OF THE ASSESSEE. IT WAS OBSERVED BY THE AO THAT AS A RESU LT OF DEMERGER, THE ASSESSEE COMPANY GOT SOME ASSETS WHICH SHOULD HAVE BEEN ENTERED IN THE BOOKS OF THE ASSESSEE. THE ASSESSEE COMPANY DI D NOT BOOK THE ASSET IN THE BALANCE SHEET AND THEREFORE, IT IS A D IRECT SALE WITHOUT TAKING THE ASSETS IN THE BLOCK AND HENCE, IT IS THE BUSINESS INCOME OF THE COMPANY. THE AO CONCLUDED THAT COMPENSATION RE CEIVED IS NOTHING BUT SALE CONSIDERATION AND ACCORDINGLY, BUS INESS INCOME OF THE ASSESSEE. THE AO ACCORDINGLY ADDED THE AFORESAID A MOUNT OF RS.1,00,71,502/- TO THE TOTAL INCOME OF THE ASSESSE E. 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 7. BEFORE THE CIT(A), THE ASSESSEE REITERATED THAT IT HAS COME INTO EXISTENCE UPON A SCHEME OF DEMERGER APPROVED BY THE HONBLE GUJARAT HIGH COURT. AS PER THE SCHEME OF DEMERGER, ALL THE ASSETS AND LIABILITIES PERTAINING TO METERING DIVISION OF AST WERE TO BE TRANSFERRED TO THE ASSESSEE COMPANY BUT WHILE CARRY ING OUT ACTUAL PROCESS OF TRANSFER OF THE ASSETS AND LIABILITIES, CERTAIN ASSETS OF THAT COMPANY WERE NOT TRANSFERRED. SIMILARLY, CERTAIN L IABILITIES, WHICH WERE TO BE DISCHARGED BY AST, WERE TRANSFERRED TO T HE ASSESSEE COMPANY INSTEAD. THE AGGREGATE AMOUNT OF SUCH ASSE TS AND LIABILITIES STANDS AT RS.1,00,71,502/-. THE ASSESSEE COMPANY H AS RECEIVED THE AFORESAID SUM BEING THE VALUE OF THE ASSETS NOW TRA NSFERRED AND THE EXCESS LIABILITIES TRANSFERRED. IT WAS CLAIMED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE RECEIPT IS OF CAPITAL NATURE IN THE HANDS OF THE ASSESSEE COMPANY. THE CIT(A), HOWEVER, OBSERVED TH AT CONSIDERATION RECEIVED IN LIEU OF NON-TRANSFER OF ASSETS IN THE F ORM OF STOCK IN TRADE, ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 5 MODVAT CREDIT ETC. ARE IN THE NATURE OF REVENUE REC EIPTS AND WOULD CONSTITUTE ASSESSEES INCOME IN ENTIRETY. ACCORDIN GLY, ADDITION OF RS. 88,07,635/- TOWARDS AMOUNT RECEIVED FOR NON-TRANSFE R OF ASSETS WAS CONFIRMED. HOWEVER, THE CIT(A) FOUND MERIT IN THE PLEA OF THE ASSESSEE TO THE EXTENT OF RS.12,63,867/- BEING CONS IDERATION TOWARD TRANSFER OF LIABILITIES AS RECEIPT WOULD NOT RESULT IN ANY INCOME IN THE HANDS OF THE COMPANY. THE CIT(A) ACCORDINGLY GRANT ED PARTIAL RELIEF TO THE ASSESSEE. 8. AGGRIEVED BY THE ADDITION OF RS.88,07,635/- AS C ONFIRMED BY THE CIT(A), THE ASSESSEE PREFERRED APPEAL BEFORE THE TR IBUNAL. 9. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT T HE CONTROVERSY REVOLVES AROUND THE DETERMINATION OF NATURE OF RECE IPTS FOR NON- TRANSFER OF ASSETS AGREED TO BE TRANSFERRED BY AST AS A RESULT OF DEMERGER. THE LEARNED AR REITERATED THE SUBMISSION S MADE BEFORE THE CIT(A) AND POINTED OUT THAT OUT OF TOTAL ASSETS AND LIABILITIES TO BE ACQUIRED PURSUANT TO THE SCHEME OF DEMERGER (AGAINS T WHICH THE ASSESSEE HAS ISSUED FULLY PAID EQUITY SHARES TO THE SHAREHOLDER OF AST), THE ASSESSEE HAS NOT RECEIVED CERTAIN ASSETS, FOR WHICH, IT RECEIVED THE CONSIDERATION DETERMINED AT BOOK VALUE . THE AMOUNT SO RECEIVED IS, THUS, A CAPITAL RECEIPT. WHEN POINTED OUT TO THE AR FOR THE ASSESSEE BY THE BENCH THAT MOST OF THE ASSETS ARE REVENUE IN CHARACTER, THE LEARNED AR SUBMITTED THAT AS REGARD INVENTORY OF RS.26,54,931/- NOT TRANSFERRED BY THE PROMOTER COMP ANY AST, THE ASSESSEE HAS ACCOUNTED FOR THE SAME AS PER SCHEDULE 17 UNDER THE HEAD COST OF SALES. AS REGARDS CONSIDERATION RECEIVED TOWARDS NON TRANSFER OF CAR AMOUNTING TO RS.13,15,351/-, THE LE ARNED AR SUBMITTED THAT IT IS CLEARLY IN THE NATURE OF FIXED ASSETS, S ALE OF WHICH WILL GIVE RISE TO CAPITAL RECEIPT. THE LEARNED AR ACCORDINGL Y SUBMITTED THAT THE REVENUE AUTHORITIES HAVE NOT APPRECIATED THE FACTS IN PERSPECTIVE. ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 6 10. THE LEARNED DR, IN DEFENSE, RELIED UPON THE ORD ER OF THE CIT(A). 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS R EFERRED IN THE COURSE OF HEARING AS PER RULE 18(6) OF THE ITAT RUL ES, 1963. THE CONTROVERSY ESSENTIALLY INVOLVES WITH RESPECT TO TH E NATURE OF RECEIPT BY THE ASSESSEE (FORMED AS A RESULT OF DEMERGER) FR OM THE PARENT COMPANY FOR NON TRANSFER OF ASSETS. FROM A BARE GL ANCE OF THE ITEMS NOT TRANSFERRED (WHICH GAVE RISE TO THE RECEIPT OF CONSIDERATION IN LIEU THEREOF), WE OBSERVE THAT ALL THE ITEMS ARE OF REVE NUE NATURE EXCEPT RECEIPT AGAINST THE BOOK VALUE OF CAR. AS REGARDS CLAIM OF THE ASSESSEE THAT A STOCK NOT TRANSFERRED BY THE PARENT COMPANY FORMS PART OF THE COST OF SALES, WE FIND THE ARGUMENT TO BE FALLACIOU S. THE SCHEDULE 17 REFERRED TO IN THIS REGARD IN FACTS SHOWS THAT STOC K NOT TRANSFERRED HAS BEEN EXCLUDED FROM THE INVENTORY. THE RECEIPTS HAR DLY ARE AGAINST THE CAPITAL ITEMS EXCEPT FOR CAR, AS NOTED ABOVE. WE T HUS DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) IN THIS REG ARD EXCEPT TO THE EXTENT OF RS.13,15,351/- RECEIVED IN CONNECTION WIT H NON-TRANSFER OF CAR TO THE ASSESSEE COMPANY. CONSEQUENTLY, THE ASS ESSEE GETS PART RELIEF TO THE EXTENT OF RS.13,15,351/- OUT OF RELIE F CLAIMED OF RS.88,07,635/-. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2716/AHD/2011 IS PARTLY ALLOWED. 13. WE SHALL NOW TURN TO THE PENALTY APPEAL IN ITA NO. 2331/AHD/2014. 14. THE ASSESSEE HAS SIMULTANEOUSLY CHALLENGED THE ACTION OF THE CIT(A) FOR ENDORSING PENALTY OF RS.30 LAKHS AS LEVI ED BY THE AO ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 7 UNDER S. 271(1)(C) OF THE ACT ON THE ADDITIONS OF R S.88,07,635/- MADE TOWARDS THE ALLEGED REVENUE RECEIPTS AS PER FACTUAL DETAILS NOTED IN QUANTUM APPEAL (SUPRA). 15. DEFENDING THE ACTION OF THE ASSESSEE, THE LEARN ED AR FOR THE ASSESSEE SUBMITTED THAT WITHOUT PREJUDICE TO THE CH ALLENGE OF QUANTUM ADDITIONS, ALL THE RELEVANT FACTS CONCERNING THE IS SUE WITH FULL PARTICULARS WERE DISCLOSED IN THE FINANCIAL STATEME NT BY WAY OF NOTE AS WELL AS IN THE COURSE OF ASSESSMENT PROCEEDINGS. NO INACCURACY WITH REGARD TO FURNISHING OF PARTICULARS HAS BEEN A LLEGED NOR COULD HAVE BEEN. IT WAS FURTHER CONTENDED THAT ISSUE IS HIGHLY DEBATABLE AS IT CONCERNS NATURE OF RECEIPT OF CONSIDERATION AS T O WHETHER IT IS CAPITAL IN NATURE (NOT LIABLE FOR TAX) OR REVENUE WHICH IS SUSCEPTIBLE TO TAX. THE LEARNED AR SUBMITTED THAT THE PENALTY UNDER S. 271(1)(C) OF THE ACT CANNOT BE IMPOSED IN SUCH CIRCUMSTANCES, NOTWIT HSTANDING THE OUTCOME IN THE QUANTUM PROCEEDINGS. THE LEARNED AR RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE RELIA NCE PETROPRODUCTS 322 ITR 158 (SC) WHERE THE MEANING OF FURNISHING O F INACCURATE PARTICULARS OF INCOME HAS BEEN EXPLAINED. THE LEA RNED AR ALSO RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURTS D ECISION IN CASE OF SARABHAI CHEMICAL (P) LTD. [2002] 257 ITR 355 (GUJ. ) AND SUBMITTED THAT THE ACTION OF THE ASSESSEE IS IN THE REALM OF BONAFIDE AND THEREFORE, PROVISIONS OF SECTION 271(1)(C) OF THE A CT ARE NOT ATTRACTED. 16. THE LEARNED DR RELIED UPON THE RESPECTIVE ORDER S OF THE AO AND CIT(A) CONCERNING PENALTY IMPOSED. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE PENALTY HAS BEEN IMPOSED BY THE REVENUE ON NON CONSIDERATIO N OF CERTAIN RECEIPTS BY THE ASSESSEE AS REVENUE ITEM. WE FIND IN THIS REGARD THAT ONE OF THE ITEMS CONSIDERED TO BE REVENUE BY THE AO IS FOUND TO BE ITA NO. 2716/AHD/11 & 2331/AHD/14 [M/S. DANIEL MEAS UREMENT SOLUTIONS P. LTD. VS. DCIT] A.Y. 2008-09 - 8 CAPITAL IN NATURE. WE ALSO FIND THAT THE ASSESSEE HAS REASONABLY DISCLOSED THE PARTICULARS OF ALL HIS ACTION IN THE RETURN AS WELL AS IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE NATURE O F RECEIPT IS IN DEBATE. THE ACTION OF THE ASSESSEE IS NOT TOTALLY FREE TO DEBATE WHEN TESTED ON THE TOUCHSTONE OF PENALTY PROCEEDINGS OF STRINGENT NATURE. WE THUS FIND MERIT IN THE PLEA OF THE ASSESSEE THAT THE ACTION OF THE ASSESSEE IS NOT BEREFT OF BONAFIDES. HENCE, WE ARE OF THE VIEW THAT THE IMPOSITION OF PENALTY IN THESE FACTS IS NOT WARRANT ED. 18. IN THE RESULT, THE PENALTY APPEAL OF THE ASSESS EE IN ITA NO. 2331/AHD/2014 IS ALLOWED. 19. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE IN ITA NO.2716/AHD/2011 IS PARTLY ALLOWED WHEREAS IN ITA N O. 2331/AHD/2014 IS ALLOWED. SD/- SD/- (MADHUMITA ROY) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 20/06/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 20/06/20 18