ITO, New Delhi V. M/s. Karmic Business Specialities Pvt. Ltd., New Delhi

ITA 4111/DEL/2010

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3372 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Principle of natural justice; Capital receipt
• Section: 143(3)

Judgement Text

1 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI B. P. JAIN, ACCOUNTANT M EMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 4111/DEL/201 0 ( A.Y 2007-08) ITO WARD 5(2), ROOM NO. 234 B, C. R. BUILDING, I. P. ESTATE, NEW DELHI (APPELLANT) VS KARMIC BUSINESS SPECIALITIES PVT. LTD. 1517, DEVIKA TOWER, NEHRU PLACE, NEW DELHI AADCK6353Q (RESPONDENT) C.O NO. 353/DEL/2010 ( A.Y 2007-08) KARMIC BUSINESS SPECIALITIES PVT. LTD. 1517, DEVIKA TOWER, NEHRU PLACE, NEW DELHI AADCK6353Q (APPLICANT) VS ITO WARD 5(2), ROOM NO. 234 B, C. R. BUILDING, I. P. ESTATE, NEW DELHI (RESPONDENT) APPELLANT/RESPONDENT BY SH. AMIT JAIN, SR DR RESPONDENT/APPLICANT BY NONE ORDER PER SUCHITRA KAMBLE THESE APPEALS AND CROSS OBJECTIONS ARE FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER DATED 14/07/2010 PASSED BY CIT(A)-VIII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 4111/DEL/2010 DATE OF HEARING 31.01.2018 DATE OF PRONOUNCEMENT 21.02.2018 2 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 1. THE ORDER OF THE ID. CIT (APPEALS) IS ERRONEOUS AN D CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS 4, 13, 02,122/- MADE BY THE A.O. BEING THE COMPENSATION RECEIVED BY THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION. 2.1. THE LD. CIT (APPEALS) IGNORED THE FACT THAT TH E ADDITION WAS CORRECTLY MADE BY THE A.O. IN ACCORDANCE WITH THE PROVISIONS OF TH E SECTION 199 OF THE I.T. ACT. AND THE FACT THAT THE TDS HAS BEEN DEDUCTED WH OLE OF THE COMPENSATION IN THE YEAR UNDER REVIEW. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. C.O NO. 353/DEL/2010 1. THAT LEARNED C1T(A) AND AO HAVE ERRED IN LAW AN D ON FACTS BY NOT TREATING COMPENSATION OF R.S. 5,78,22,292/- RECEIVE D BY ASSESSEE AS CAPITAL RECEIPT. 2. THAT THE ORDER PASSED BY LEARNED CIT (A) AND AO ARE AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 3. THAT THE RESPONDENT PRAY FOR LEAVE TO ADD, ALT ER, AMEND OR DELETE THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIM E OF HEARING. 3. SATYAM FOODS SPECIALTIES PVT. LTD (AS THE AS SESSEE COMPANY WAS KNOWN AT THE RELEVANT TIME) HAD COMMERCIAL ARRANGEMENTS W ITH M/S HINDUSTAN COCA COLA BEVERAGES PVT. LTD IN TERMS OF LETTERS OF INTE NT DATED FEBRUARY 02,2002 AND FEBRUARY 22,2002 WHEREBY IT WAS PREPARING AND P ACKAGING KINLEY PACKAGED DRINKING WATER FOR AND ON BEHALF OF M/S HI NDUSTAN COCA COLA BEVERAGES PVT. LTD AND M/S HINDUSTAN COCA COLA BEVE RAGES PVT. LTD WAS DISTRIBUTING SCHWEPPES MANUFACTURED BY THE ASSESSEE COMPANY. THE SAID COMMERCIAL ARRANGEMENTS WERE TERMINATED AND A NEW A RRANGEMENT WAS PUT IN 3 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 PLACE WITH HINDUSTAN COCA COLA BEVERAGES PVT. LTD O N 30-7-2004 WHEREIN THE FOLLOWING STIPULATIONS WERE MADE: - (I) THE HCCBPL WILL OFFER A PRINCIPAL TO PRINCIPAL AGRE EMENT FOR BOTTLING OF THUMS UP AND LIMCA BRAND BEVERAGES IN R ETURNABLE BOTTLES FOR AN INITIAL PERIOD OF 7 YEARS. (II) THE TRANSFER/SALE PRICE WAS TO INCLUDE (A) COST OF RAW MATERIAL, (B) EXCISE DUTY, (C) PACKAGING CHARGES, AND (D) NOTIONA L VALUE OF RAJASTHAN SALES TAX. (III) ALL COST OF CAPITAL OR REVENUE NATURE FOR MAKING/K EEPING PLANT CAPABLE OF PRODUCING BEVERAGES INCLUDING MODIFICATI ON/UP GRADATION TO THE STANDARDS OF THE COCA COLA COMPANY WAS TO BE BORN BY THE APPELLANT COMPANY AND THE PLANT WAS TO BE MADE READ Y TO COMMENCE PRODUCTION BEFORE THE AGREED DATE, NAMELY, 28-02-2006. (IV) IN CASE OF FAILURE TO LIFT SPECIFIED QUANTITY OF B EVERAGES, THE HINDUSTAN COCA COLA BEVERAGES PVT. LTD WAS TO MAKE PAYMENT FOR THE SHORT LIFTING OF GOODS TOGETHER WITH THE NOTION AL VALUE OF RST AND EXCISE DUTY. (V) IN ORDER TO FORMALIZE THE BROAD UNDERSTANDING ARRIV ED AT IN THE COURSE OF SERIES OF DISCUSSIONS AND MEETINGS AND RE DUCING THE SAME IN WRITING AND TO SETTLE ALL THE PENDING CLAIMS IN TERMS OF LETTERS OF INTENT AND BOTTLERS AGREEMENT FOR KINLEY ETC, A ME MORANDUM OF UNDERSTANDING ( HEREINAFTER REFERRED TO AS MOU), WAS EXECUTED ON 30-7-2004. A DETAILED AND SEPARATE DISCUSSION W.R.T . THE SPECIFIC CLAUSES OF THE MOU WILL BE MADE IN THE LATER PART O F THIS ORDER AT APPROPRIATE STAGE. (VI) AS PER THE MOU, IT WAS ALSO CLEARLY STIPULATED THA T TCCC HAS AGREED TO GRANT AN AUTHORIZATION TO ASSESSEE AND EX ECUTE A 4 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 MANUFACTURERS BOTTLING AGREEMENT WITH ALL NECESSARY TERMS AND CONDITIONS FOR 7 YEARS AND THE BOTTLERS AGREEMENT S HALL BE EXECUTED ON OR BEFORE 28-2-2006 AND IN CASE THE PLANT WAS NO T READY TO COMMENCE PRIOR TO 28-2-2006, THE TCCC SHALL BE RELI EVED OF ITS OBLIGATION TO GRANT THE AUTHORIZATION AS CONTEMPLAT ED HEREIN. IT WAS ALSO PROVIDED IN THE MOU THAT TCCC SHALL HAVE THE R IGHT TO DETERMINE WHETHER THE FACILITIES HAD THE SPECIFIED SYSTEMS AND PROCESSES AND WAS IN A POSITION TO PREPARE AND PACK AGE THE BEVERAGES AS PER THE STANDARDS AND SPECIFICATION OF TCCC. IT WAS ALSO PROVIDED THAT IN CASE AFTER ENQUIRY, THE TCCC WAS OF THE OPINION THAT CERTAIN CHANGES AND/ OR MODIFICATIONS WERE REQ UIRED IN THE SYSTEMS OR PROCESSES, IT SHALL BE NOTIFIED/INFORMED TO THE APPELLANT COMPANY, WHICH IN TURN, SHALL ENSURE SUCH CHANGES/M ODIFICATION SO AS TO ENSURE THAT THE PLANT IS READY WITH ALL MODIF ICATIONS FOR COMMENCEMENT BY THE STIPULATED DATE/EXTENDED DATE. (VII) AS THE FACILITIES REQUIRED TO BE CREATED BY THE APP ELLANT COMPANY REQUIRED SUBSTANTIAL INVESTMENT IN TERMS OF CAPITAL AND REVENUE OUTLAY, TO ENSURE/SAFEGUARD ITS INTEREST A MINIMUM GUARANTEED PURCHASE OF BEVERAGES FOR INITIAL PERIOD OF SEVEN Y EARS WAS ALSO STIPULATED AS PER CLAUSE 4 OF THE MOU. ON A PERUSAL OF RECORDS/DOCUMENTS THE ASSESSING OFF ICER OBSERVED THAT THE ASSESSEE COMPANY COULD NOT INSTALL THE BOTTLING PLA NT WITHIN THE ORIGINAL TIME LIMIT AS PER THE SPECIFICATIONS OF THE TCCC AND, TH EREFORE, A REQUEST WAS MADE FOR EXTENSION OF TIME FOR COMPLETING THE SAME BY 31 -3-2006. THE ASSESSEE COMPANY CLAIMS THAT IT HAD INSTALLED THE PLANT ALON G WITH ALL REQUISITE FACILITIES WELL BEFORE THE EXTENDED DATE OF 31-3-2006. HOWEVER , THE HINDUSTAN COCA COLA BEVERAGES PVT. LTD DID NOT APPROVE THE SPECIFI CATIONS AND STANDARDS FOR VARIOUS REASONS AND THE MOU EXECUTED ON 30-7-04 WAS CANCELLED/TERMINATED. BEING AGGRIEVED BY THE UNILATERAL ACT OF HCCBPL, TH E ASSESSEE COMPANY FILED A 5 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 CIVIL SUIT IN THE HIGH COURT OF NEW DELHI BEING CS (OS) NO.771 OF 2006 SEEKING SPECIFIC PERFORMANCE AND PERMANENT INJUNCTION. THE PETITION FILED BY THE ASSESSEE COMPANY WAS TAKEN UP BY THE HONBLE COURT FOR ADMISSION ON 5-04- 2006 AND NOTICES WERE ISSUED TO HINDUSTAN COCA COLA BEVERAGES PVT. LTD RETURNABLE BY 23-5-2006. IT SEEMS THAT REALIZING TH E CONSEQUENCES OF COURT PROCEEDINGS, THE HCCBPL APPROACHED THE ASSESSEE COM PANY FOR OUT OF COURT RESOLUTION OF THE MATTER AND DURING THE PENDENCY OF CIVIL SUIT, A FORMAL SETTLEMENT WAS REACHED BETWEEN THE PARTIES WHEREBY THE HINDUSTAN COCA COLA BEVERAGES PVT. LTD AGREED TO PAY TO THE APPELLANT C OMPANY A TOTAL SUM OF RS 75500000 IN SETTLEMENT OF ALL PENDING DUES, DISPUTE S, LOSSES, CLAIMS, DIFFERENCES AND DAMAGES. OUT OF THE TOTAL PAYMENT O F RS 75500000, A SUM OF RS 17677028 WAS ADJUSTED TOWARDS THE VALUE OF CRATE S WITH GLASS BOTTLES AND SHELLS AND BALANCE OF RS 57822972 WAS TO COMPENSATE THE LOSS OF REVENUE WHICH COMPANY WAS LIKELY TO SUFFER DURING THE PERIO D OF SEVEN YEARS STARTING WITH APRIL-JUNE 2005 TO MARCH-JUNE 2011. IT IS THIS AMOUNT OF RS 57822972 WHICH IS SUBJECT MATTER OF DISPUTE BETWEEN THE ASSE SSEE COMPANY AND THE REVENUE DEPARTMENT. THE RETURN OF INCOME FOR THE AS SESSMENT YEAR UNDER CONSIDERATION WAS FILED BY THE AASSESSEE COMPANY ON 30-10-07 DECLARING TOTAL INCOME AT RS NIL. ASSESSMENT U/S 143(3) OF THE IT A CT, 1961 WAS COMPLETED BY THE AO ON 31-12-09 AND THE TOTAL INCOME WAS ASSESSE D AT RS 15077982. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER EXAMINED THE ISSUE OF TAXABILITY OF COMPENSATION OF RS 75500000 RECEIV ED BY THE ASSESSEE COMPANY FROM M/S HINDUSTAN COCA BEVERAGES PVT. LTD AND AFTER ALLOWING ADJUSTMENT OF 17677028 TOWARDS DEPOSIT AMOUNT, HE B ROUGHT TO TAX THE ENTIRE BALANCE SUM OF RS 57822292 DURING THE YEAR UNDER CO NSIDERATION ONLY. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE A PPEAL OF THE ASSESSEE. 5. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER. NONE APPEARED FOR THE ASSESSEE. 6 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 6. WE HAVE HEARD THE LD. DR AND PERUSED ALL THE REC ORDS AVAILABLE BEFORE US. THE CIT(A) HELD AS UNDER: 6.4 A PERUSAL OF ASSESSMENT ORDER ALSO REVEALS THA T THE LD. AO HAS TREATED THE ENTIRE AMOUNT OF RS.57822972/- AS INCOM E IN TERMS OF PROVISIONS OF SECTION 28(II) OF THE IT ACT. A PERUS AL OF THE SAID SECTION REVEALS THAT IT HAS APPLICATION ONLY IN THE FOLLOWI NG SITUATIONS- (II) ANY COMPENSATION OR OTHER PAYMENT DUE TO OR RE CEIVED BY- (A) ANY PERSON, BY WHATEVER NAME CALLED, MANAGING THE W HOLE OR SUBSTANTIALLY THE WHOLE OF THE AFFAIRS OF AN INDIAN COMPANY, AT OR IN CONNECTION WITH THE TERMINATION OF HIS MANAGEMENT O R THE MODIFICATION OF THE TERMS AND CONDITIONS RELATING THERETO; (B) ANY PERSON, BY WHATEVER NAME CALLED, MANAGING THE W HOLE OR SUBSTANTIALLY THE WHOLE OF THE AFFAIRS IN INDIA OF ANY OTHER COMPANY, AT OR IN CONNECTION WITH THE TERMINATION OF HIS OFFICE OR THE MODIFICATION OF THE TERMS AND CONDITIONS RELATING THERETO; (C) ANY PERSON BY WHATEVER NAME CALLED, HOLDING AN AGEN CY IN INDIA FOR ANY PART OF THE ACTIVITIES RELATING TO THE BUSINESS OF ANY OTHER PERSON,, AT OR IN CONNECTION WITH THE TERMINATION OF THE AGE NCY OR THE MODIFICATION OF THE TERMS AND CONDITIONS RELATING T HERETO; (D) ANY PERSON, FOR OR IN CONNECTION WITH THE VESTING I N THE GOVERNMENT, OR IN ANY CORPORATION OWNED OR CONTROLLED BY THE GO VERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE OF THE MANAGEMENT O F ANY PROPERTY OR BUSINESS; I AM AFRAID, THAT NONE OF THE AFORESAID SITUATIONS EXISTED IN THE CASE ON HAND AND, THEREFORE, APPLICATION OF PROVISIONS OF S ECTION 28(II) OF THE ACT WAS ALSO MISPLACED. 7 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 6.5 IN VIEW OF THE ABOVE FACT SITUATION AND HAVING REGARD TO THE METHOD OF MAINTAINING THE ACCOUNTS BY THE APPELLANT COMPAN Y, RESTRICTIONS/LIMITATIONS IMPOSED ON THE ASSESSEE CO MPANY IN TERMS OF CLAUSES 5,6,7 AND 9 OF THE SETTLEMENT AGREEMENT DAT ED 19-05-2006 AND RELYING UPON THE AFORESAID JUDGMENTS, I HOLD THAT T HE AMOUNT OF RS.16520850 INCLUDING COMPENSATION OF RS.8520850 PE RTAINING TO THE YEAR UNDER CONSIDERATION WAS ONLY TAXABLE IN THE YE AR UNDER CONSIDERATION AND THE BALANCE AMOUNT WAS TO BE TAXED EQUALLY DURI NG THE AYS 2008-09 TO 2012-13. I ALSO HOLD THAT SINCE THE AMOUNT OF RS .8260424 EACH HAS ALREADY BEEN DISCLOSED IN THE ASSESSMENT YEARS 2008 -09 AND 2009-10 AND BALANCE RECEIPTS WILL BE OFFERED AS INCOME IN T HE RESPECTIVE SUBSEQUENT YEARS, BRINGING THE ENTIRE AMOUNT OF RS. 57822927 AGAIN WILL DEFINITELY AMOUNT TO DOUBLE TAXATION OF THE SAME AM OUNT. ACCORDINGLY, THE ADDITION OF RS.41302122 IS BEING DELETED. 7. IN RESULT, APPEAL IS PARTLY ALLOWED. THE CIT(A) HAS GIVEN DETAILED FINDING AND AFTER VER IFYING ALL THE ASPECTS OF THE ISSUE HAS GIVEN A CLEAR FINDING. THERE IS NO NEED T O INTERFERE WITH THE SAME. THEREFORE, THE APPEAL OF THE REVENUE AS WELL AS CRO SS-OBJECTION OF THE ASSESSEE IS DISMISSED HEREWITH. 7. IN RESULT, THE APPEAL OF THE REVENUE AND CROSS O BJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST FEBRUARY, 2018 . SD/- SD/- (B. P. JAIN) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 21/02/2018 8 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 31/01/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 31/01/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 21.02.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 2 .02.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 9 ITA NO. 4111/DEL/2010 & C.O NO. 353/DEL/2010