YUM! RESTAURANTS MARKETING PVT. LTD., NEW DELHI V. ITO, WARD- 27(4), NEW DELHI

ITA 3937/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2107 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 16-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Assessee Lawyers: S KRISHNAN
• Keywords: Wholly owned subsidiary; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER AND SH.KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) ITA NO.3937/DEL/2017 ASSESSMENT YEAR: 2006-07 M/S. YUM RESTAURANT MARKETING PRIVATE LIMITED 12 TH , TOWER D, GLOBAL BUSINESS PARK, MG ROAD, GURGAON-122002 PAN NO. AAACY1884D VS ITO WARD 27 (4) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. KRISHNAN, ADVOCATE RESPONDENT BY SHRI PRAKASH DUBEY, SR. DR DATE OF HEARING: 23/06/2021 DATE OF PRONOUNCEMENT: 23/06/2021 ORDER PER N. K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE CIT(A)-15, DELHI DATED 29.03.2017 PERTAINING TO A.Y. 2006-07. 2 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT T HE CIT(A) ERRED IN UPHOLDING THE ORDERS OF THE AO CONFIRMING THE PE NALTY LEVIED U/S. 271 (1) (C) OF THE ACT AMOUNTING TO RS.1038643 4/-. 3. BRIEFLY STATED THAT THE FACTS OF THE CASE ARE TH AT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF YUM RESTAURANTS IND IA PRIVATE LIMITED (YRIPL). YRIPL IS INTERALIA ENGAGED IN THE BUSINESS OF FRANCHISING OF PIZZA HUT, KFC AND TACO BELL R ESTAURANTS IN INDIA. THE ASSESSEE WAS ESTABLISHED WITH THE SOLE OBJECTIVE OF UNDERTAKING ADVERTISING, MEDIA AND PROMOTIONAL ACTI VITIES EXCLUSIVELY FOR YRIPL AND ITS FRANCHISEES/ ASSOCIAT ES AT REGIONAL AND NATIONAL LEVEL. 4. BY VIRTUE OF THE FOREIGN SHAREHOLDING IN YRIPL, REQUISITE APPROVALS WERE REQUIRED TO BE TAKEN FROM THE SECRET ARIAT OF INDUSTRIAL ASSISTANCE, MINISTRY OF FINANCE, GOVERNM ENT OF INDIA. 5. THE SECRETARIAT OF INDUSTRIAL ASSISTANCE GRANTED APPROVAL TO YRIPL ON THE CONDITION THAT THE ACTIVITIES OF ASSES SEE WOULD BE CARRIED OUT ON A NON-PROFIT BASIS AND ON THE PRIN CIPLES OF MUTUALITY. 6. FOR THIS PURPOSE THE ASSESSEE ENTERED INTO A TRI PARTE OPERATING AGREEMENT WITH YRIPL AND EACH OF THE RESP ECTIVE FRANCHISEES OF YRIPL UNDER WHICH IT WAS TO UNDERTAK E AMP ACTIVITIES ON BEHALF OF YRIPL AND ITS FRANCHISEES. 3 7. THE AGREEMENT FURTHER PROVIDED THAT OUT OF THE T OTAL CONTRIBUTIONS RECEIVED BY THE ASSESSEE DURING AN AC COUNTING YEAR, IN THE EVENT OF ANY SURPLUS LEFT OVER THE AMP EXPEN DITURE INCURRED FROM THAT PERIOD, THE SAME SHALL EITHER BE RETAINED BY THE ASSESSEE TO BE EXPENDED IN THE FUTURE PERIODS OR RE FUNDED TO THE FRANCHISEES/ YRIPL PROPORTIONATELY. 8. THE ASSESSEES CLAIM OF FUNCTIONING AS A MUTUAL CONCERN WAS REJECTED BY THE AO WHILE FRAMING THE ASSESSMENT FOR A.Y.2001-02 AND THE EXCESS CONTRIBUTIONS THAT WERE RECEIVED BY THE ASSESSEE WERE TAXED IN HIS HANDS. 9. THE ACTION OF THE AO WAS CONFIRMED BY THE CIT(A) . THE ORDER OF THE CIT(A) WAS UPHELD BY THE TRIBUNAL IN I TA NO.3235/DEL/2005. 10. FOLLOWING THE ORDER PASSED FOR A.Y.2001-02, THE STAND OF THE ASSESSEE WAS REJECTED IN SUBSEQUENT ASSESSMENT YEAR S. 11. FACTS WHICH PROMPTED THE AO TO INITIATE THE PEN ALTY PROCEEDINGS AND SUBSEQUENTLY LEVY PENALTY U/S. 271 (1) (C) OF THE ACT IS THAT THE ASSESSEE IN ITS RETURN OF INCOME DE CLARED NIL INCOME AND CLAIMED CREDIT OF TAXES DEDUCTED AT SOUR CE. 4 12. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND SUBSEQUENTLY AN ASSESSMENT ORDER WAS FRAMED U/S. 14 3(3) OF THE ACT ORDER DATED 11.02.2008. 13. THE AO FOLLOWED THE PAST YEARS ORDERS AND HELD THAT APPELLANT WAS NOT FUNCTIONING AS MUTUAL CONCERN. T HE AO MADE THE ADDITION OF RS. 3.05 CRORES ON ACCOUNT OF EXCES S EXPENDITURE INCURRED OVER CONTRIBUTIONS RECEIVED AS INCOME OF T HE CURRENT YEAR AND FURTHER ADDED RS.258288/- BEING ADDITION ON ACC OUNT OF PROVISION FOR DOUBTFUL DEBTS CREDITED DURING THE YE AR. 14. THE ASSESSMENT WAS ASSAILED BEFORE THE CIT(A) W HO DISMISSED THE APPEAL FOLLOWING THE APPELLATE ORDERS OF EARLIER ASSESSMENT YEARS.. 15. PENALTY PROCEEDINGS WERE INITIATED AND SUBSEQU ENTLY PENALTY WAS LEVIED BY THE AO IT WAS CONFIRMED BY THE CIT(A) . 16. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND HAVE GONE THROUGH THE PAST HISTORY OF THE ASSESSEE. AT THE VERY OUTSET, WE HAVE TO STATE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30.11 .2006 WHEREAS THE ORDER OF THE TRIBUNAL WHICH DISMISSED T HE APPEAL FOR THE BASE A.Y. 2001-02 WAS PASSED SUBSEQUENTLY ON 31 .01.2008. 5 17. AFTER GOING THROUGH THE PAPER BOOK WE FIND THA T THE ASSESSEE HAS MADE EACH AND EVERY DISCLOSURE IN HIS FINANCIAL STATEMENTS. THE ASSESSEE HAS ALSO EXPLAINED ITS REVENUE RECOGNI TION IN THE NOTES TO ACCOUNT. WE ARE OF THE CONSIDERED VIEW TH AT THERE IS NOT EVEN A SINGLE INFORMATION/ DETAIL WHICH WAS NOT FUR NISHED BY THE ASSESSEE IN ITS ACCOUNTS/ SUBMISSIONS/ EXPLANATORY NOTES TO THE ACCOUNTS. THEREFORE, IN OUR CONSIDERED OPINION THE ASSESSEE HAS NEITHER CONCEALED ANY PARTICULARS OF INCOME NOR FIL ED INACCURATE PARTICULARS OF INCOME. OBSERVATIONS OF THE AO THAT THE ASSESSEE HAS NOT ONLY FILED INACCURATE PARTICULARS OF ITS IN COME BUT HAS ALSO CONCEALED TRUE PARTICULARS OF INCOME IS NOT CO RRECT CONSIDERING THE FACTS MENTIONED HERE IN ABOVE. 18. INTERESTINGLY THE ENTIRE ADDITIONS WHICH ARE CO MING FROM EARLIER ASSESSMENT YEARS HAVE STARTED FROM BASE YEA R 2001-02. IN A.Y. 2001-02 ALSO PENALTY WAS LEVIED U/S. 271 (1) ( C) OF THE ACT AND COORDINATE BENCH IN ITA NO.319 AND 320/DEL/2011 VIDE ORDER DATED 28.03.2019 FOR A.Y. 2001-02, 2002-03 HA S DELETED. THE RELEVANT FINDINGS OF THE COORDINATE BENCH READ AS UNDER :- 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ADMITT EDLY ON THE FIRST ISSUE OF TAXABILITY OF EXCESS CONTRIBUTION RECEIVED BY THE ASSESSEE OF RS. 4444002/- WHETHER SAME IS NOT TAXABLE AS INC OME OF THE ASSESSEE ON THE PRINCIPLES OF MUTUALITY HAS REACHED UP TO THE LEVEL OF HONOURABLE SUPREME COURT WHERE SPECIAL LEA VE PETITION OF THE ASSESSEE HAS BEEN ADMITTED. HOWEVER THIS IS A F ACT THAT ALL 6 THE CONCURRENT AUTHORITIES STARTING FROM CIT - A TO THE HONOURABLE HIGH COURT HAS DECIDED THIS ISSUE AGAINST THE ASSES SEE HOLDING THAT PRINCIPLE OF MUTUALITY DOES NOT APPLY ON THE F ACTS OF THE CASE. HOWEVER, REGARDING COMPLETE DISCLOSURE BY ASSESSEE, IT HAS COMPLETELY DISCLOSED THE FACTS IN THE COMPUTATION O F INCOME THAT THE INCOME OF THE ASSESSEE IS COVERED BY THE PRINCI PLE OF MUTUALITY. AT PARA NUMBER, III OF PAGE NUMBER 2 OF THE ASSESSMENT ORDER THE ASSESSEE HAS SPECIFICALLY GIVE N THREE NOTES IN THE COMPUTATION OF TOTAL INCOME. THE NOTE NUMBER 1 SAYS THAT THE COMPANY OPERATES AS A MUTUAL CONCERN ON NO PROF IT BASIS. THE NOTE NUMBER 2 SAYS THAT THAT EXCESS OF CONTRIBUTION RECEIVED IS BEING DISCLOSED AS A CURRENT LIABILITY AS IT WOULD BE EITHER TO BE DISTRIBUTED TO THE INDIVIDUAL CONTRIBUTORS OR TO BE USED FOR FURTHER EXPENDITURE BASED ON CONFIRMATIONS TO THAT EXTENT F ROM THE CONTRIBUTORS. NOTE NUMBER 3 SAYS THAT BASED ON THE JUDICIAL PRECEDENTS, EXCESS RECEIPT OF THE COMPANY DOES NOT FALL WITHIN THE AMBIT OF TAXABLE INCOME U/S 4 OF THE INCOME TAX ACT . ASSESSEE RELIED UPON TWO DECISIONS OF THE HONOURABLE SUPREME COURT. DURING THE COURSE OF ASSESSMENT, PROCEEDINGS ALSO V IDE LETTER DATED 8/9/2003 THE ASSESSEE MADE THE COMPLETE DISCL OSURE EXPLAINING THAT WHY THE ABOVE AMOUNT ASSESSEE CLAIM S TO BE TAINTED WITH MUTUALITY AND THEREFORE IS NOT CHARGEA BLE TO TAX U/S 4 OF THE INCOME TAX ACT. EVIDENCES AND ARGUMENTS PL ACED BEFORE US SHOWS THAT ASSESSEE HAS MADE A CLAIM DISCLOSING THE COMPLETE FACTS ABOUT THE SAME IN ITS RETURN OF INCOME PUTTIN G NOTES IN THE COMPUTATION OF TOTAL INCOME, CORROBORATING IT WITH ITS BALANCE SHEET, SUPPORTING IT WITH JUDICIAL PRECEDENTS OF TH E HONOURABLE SUPREME COURTS. THIS SHOW THAT ASSESSEE HAS COMPLET ELY DISCLOSED THE FACTS ABOUT ITS CLAIM ALONGWITH ALL T HE ARGUMENTS. IT IS ALSO THE FATE OF THE CLAIM OF THE ASSESSEE THAT IT HAS BEEN CONCURRENTLY REJECTED BY ALL THE APPELLATE FORUMS. HOWEVER, MERE 7 REJECTION OF THE CLAIM OF THE ASSESSEE CANNOT BE IN VITED WITH THE PENALTY. FURTHER MORE ON THIS ISSUE OF THE EXCESS C ONTRIBUTION RECEIVED THE LEARNED AO HAS RECORDED HIS SATISFACTI ON THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME IN THE ASSESSMENT ORDER. HOWEVER, AT THE TIME OF LEVY OF T HE PENALTY AS PER PARA NUMBER 1 AT PAGE NUMBER 2 OF THE PENALTY O RDER HE LEVIED PENALTY FOR CONCEALMENT OF INCOME. THIS FACT ITSELF RENDERS THE PENALTY ON THIS ISSUE NOT SUSTAINABLE. THE LEAR NED DR HAS RAISED AN IMPRESSIVE ARGUMENT STATING THAT MERE TEC HNICALITIES CANNOT ROB THE SUBSTANCE OF THE ORDER AND HENCE, CA NNOT VITIATE THE PENALTY ORDER. AS THERE CANNOT BE ANY 2 VIEWS O N THE ABOVE PROPOSITION, BUT WHEN THE ASSESSEE IS ASKED TO JUST IFY HIS STAND WITH RESPECT TO LEVY OF THE PENALTY, IT IS CERTAIN THAT THE LEARNED ASSESSING OFFICER MUST PUT A SPECIFIC CHARGE MAKING IT CLEAR THAT ON WHAT FAULT OF THE ASSESSEE THE PENALTY IS BEING LEVIED. UNLESS THE ASSESSEE IS MADE AWARE OF THE SPECIFIC CHARGE, CHARGING HIM FOR ONE OFFENCE AND PUNISHING HIM BY LEVY OF PENALT Y ON ALTOGETHER ANOTHER OFFENCE CANNOT BE SUSTAINED. IN VIEW OF THI S ASSESSEE, ON THE ADDITION OF RS. 4444002/- OF THE EXCESS CONTRIB UTION RECEIVED BY THE ASSESSEE CLAIMED TO BE NOT TAXABLE UNDER THE INCOME TAX ACT ON PRINCIPLE OF MUTUALITY, THOUGH THE ARGUMENTS OF THE ASSESSEE HAVE FAILED, BUT THE COMPLETE DISCLOSURE H AS BEEN MADE BY THE ASSESSEE, CANNOT BE PENALIZED U/S 271 (1) (C ) OF THE ACT HOLDING ASSESSEE TO HAVE COMMITTED THE DEFAULT OF C ONCEALMENT BUT IN THE SHOW CAUSE NOTICE AND SATISFACTION IS RE CORDED FOR FURNISHING OF INACCURATE PARTICULARS, CANNOT BE SAD DLED WITH THE PENALTY. ACCORDINGLY, WE DELETE THE PENALTY ON THIS ADDITION. 12. THE SECOND ISSUE OF THE PENALTY RELATED TO THE DISALLOWANCE OF CLAIM OF THE ASSESSEE U/S 35D OF THE INCOME TAX ACT. THE FACT ITSELF SHOWS THAT THE ASSESSEE HAS CLAIMED EXPENSES OF INR 454992/- UNDER SECTION 35D AS PRELIMINARY EXPENSES HOWEVER 8 THE CAPITAL EMPLOYED OF THE ASSESSEE IS ONLY INR 10 200/- AND THE CLAIM IS REQUIRED TO BE RESTRICTED ONLY TO THE EXTE NT OF 5% OF THE CAPITAL EMPLOYED FOR AMORTIZATION. THEREFORE THE AO DISALLOWED A SUM OF INR 454482/- AO INITIATED PENALTY FOR FURNIS HING OF INACCURATE PARTICULARS OF INCOME. THE ASSESSEE EXPL AINED AS PER LETTER DATED 8/9/2003 BEFORE THE AO THAT THE TOTAL PRELIMINARY EXPENSES ARE INR 568740/- OUT OF WHICH INR 113748/- BEING 1/5 OF THE TOTAL EXPENSES WERE CHARGED TO THE INCOME AN D EXPENDITURE ACCOUNT FOR THE YEAR ENDED ON 31 ST OF MARCH 2000. THEREAFTER THE BALANCE AMOUNT OF INR 454992/- HAS BEEN CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 ST OF MARCH 2001 IT WAS STATED THAT AS ASSESSEE HAS CLAIMED THAT IT IS A MUTUAL CONCERN OPERATING ON A NO PROFIT BASIS THE ABOVE PR ELIMINARY EXPENSES ARE MERELY FORM PART OF THE EXPENSES CHARG ED TO THE INCOME AND EXPENDITURE ACCOUNT INCURRED BY THE ASSE SSEE IN THE ORDINARY COURSE OF BUSINESS FOR CARRYING OUT THE AC TIVITIES OF THE ASSESSEE AND THEREFORE SUCH PRELIMINARY EXPENSES HA VE BEEN RIGHTLY CLAIMED IN THE IMPUGNED ASSESSMENT YEAR. TH E CLAIM OF THE ASSESSEE WAS REJECTED FOR THE REASON THAT THE ASSES SEE IS NOT A MUTUAL CONCERN. THEREFORE FOR THE REASONS GIVEN BY US IN CANCELLING- THE PENALTY LEVIED ON ADDITION OF RS. 4 444002/- OF THE EXCESS CONTRIBUTION RECEIVED CLAIMED AS A MUTUAL CO NCERN, WE ALSO CANCEL THE PENALTY ON THE DISALLOWANCE OF INR 45448 2/-. 13. ACCORDINGLY PENALTY LEVIED OF INR 1937351 BY TH E ASSESSING OFFICER UNDER SECTION 271 (1) (C) OF THE ACT IS CAN CELLED AND THE ORDERS OF THE LOWER AUTHORITIES ARE REVERSED. ACCOR DINGLY, APPEAL OF THE ASSESSEE IS ALLOWED. 14. NOW WE COME TO THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2002 - 03 WHEREIN THE LEARNED CIT - A HAS CONFIRMED THE LEVY OF PENALTY U/S 271 (1) (C) OF INR 1216703/- ON THE ADD ITION OF INR 3408129/- BEING THE EXCESS CONTRIBUTION RECEIVED CL AIMED BY THE 9 ASSESSEE IS NOT CHARGEABLE TO TAX ON THE PRINCIPLES OF THE MUTUALITY BUT NOT ACCEPTED BY THE LEARNED ASSESSING OFFICER AND HIGHER JUDICIAL FORUM. 15. BOTH THE PARTIES CONFIRMED BEFORE US THAT THE F ACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001 - 02 WHEREIN PENALTY U/S 271 ( 1) (C) WAS LEVIED. BOTH THE PARTIES ALSO CONFIRMED THAT THEIR ARGUMENTS ALSO REMAINED THE SAME. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON EXAMINATION OF THE FACTS IT WAS FOUND THAT THE FACTS OF THE PRESENT CASE ARE ID ENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE FOR ASSESSMENT YE AR 2001 -02 WHEREIN ON IDENTICAL FACTS AND CIRCUMSTANCES PENALT Y WAS LEVIED U/S 271 (1) (C) OF THE INCOME TAX ACT. AS PER THIS ORDER, WE HAVE CANCELLED THE ABOVE PENALTY FOR ASSESSMENT YEAR 200 1 - 02 ON THE SIMILAR ADDITION. THEREFORE, FOR THE SIMILAR REASON S AS GIVEN THEREIN, WE ALSO CANCEL THE PENALTY OF INR 1 216703 /- LEVIED BY THE LEARNED ASSESSING OFFICER U/S 271 (1) (C) OF TH E ACT AND REVERSE THE ORDERS OF THE LOWER, AUTHORITIES. 17. ACCORDINGLY, APPEAL OF THE ASSESSEE FOR ASSESSM ENT YEAR 2002-03 IS ALLOWED. 19. CONSIDERING THE FACTS THAT THE ASSESSEE HAS MAD E PROPER DISCLOSURE AND THERE IS NO CONCEALMENT OF INCOME NO R FILING ANY INACCURATE PARTICULARS DRAWING SUPPORT FROM THE DEC ISION OF HONBLE SUPREME COURT IN RELIANCE PETRO PRODUCTS 32 2 ITR 158 AND RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH (SUPRA) WE DIRECT THE AO TO DELETE THE PENALTY LEVI ED U/S. 271 (1) (C) OF THE ACT. THE APPEAL FILED BY THE ASSESSEE I S ACCORDINGLY ALLOWED. 10 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 21. DECISION ANNOUNCED IN THE OPEN COURT IN THE PR ESENCE OF BOTH THE REPRESENTATIVES ON 23.06.2021. SD/- SD/- (KULDIP SINGH) (N. K. BILL AIYA) JUDICIAL MEMBER A CCOUNTANT MEMBER *NEHA* DATE:- 23.06.2021 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGI STRAR ITAT NEW DELHI DATE OF DICTATION 23.06.2021 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23.06.2021 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 23.06.2021 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS 23.06.2021 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 23.06.2021 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 23.06.2021 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 23.06.2021 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT 11 REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER