DCIT, Kanpur V. M/s. J.K. Synthetics Ltd., Kanpur

ITA 580/LKW/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100354 (ITAT-LUCKNOW)
• Duration Of Justice: 5 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMTI JYOTI VERMA
• Keywords: Capital asset

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.580/LKW/2010 ASSESSMENT YEAR:2007 - 08 DY.C.I.T. - 1, KANPUR. VS. M/S J. K. SYNTHETICS LTD., KAMLA TOWER, KANPUR. PAN:AAACJ4988M (APPELLANT) (RESPONDENT) APPELLANT BY SMTI JYOTI VERMA, D. R. RESPONDENT BY SHRI RAKESH GARG, ADVOCATE DATE OF HEARING 31/07/2015 DATE OF PRONOUNCEMENT 1 1 /09/2015 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) - II, KANPUR DATED 18/06/2010 FOR THE ASSESSMENT YEAR 2007 - 08. 2. GROUND NO. 1 IS AS UNDER: 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN DELETING THE ADDITION OF RS.10,00,00,000/ - ON ACCOUNT OF SUM RECEIVED ON SALE CONSIDERATION OF SIDHI PROJECT EVEN THOUGH THE SUM RECEIVED BY THE ASSESSEE HIT BY THE PROVISIONS OF SECTION 28(VA) OF THE IT, ACT, 1961. 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). LEARNED A.R. OF THE ASSESSEE ALSO SUBMITTED WRITTEN SUBMISSIONS ALONG WITH THE COPY OF MOU DATED 30/03/2006 BETW EEN THE ASSESSEE COMPANY AND M/S JAIPRAKASH ASSOCIATES LTD. IN RESPECT OF RS.10 CRORE 2 RECEIVED BY THE ASSESSEE COMPANY ON SALE OF SIDHI PROJECT TO THEM FOR RS.10 CRORE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LEARNED CIT(A) AS PER PARA 3.4 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 3.4 DECISION I HAVE GONE THROUGH THE MOU, COPY OF WHICH IS AVAILABLE ON THE RECORD. IT IS ADMITTED THA T THE APPELLANT COMPANY HAS RECEIVED A TOTAL CONSIDERATION OF RS.10 CRORES TOWARDS TRANSFER OF CERTAIN ASSETS INCLUDING NON - COMPETE FEE. EVEN THOUGH NO BIFURCATION AS SUCH H AS BEEN MADE IN THE M O U, LOOKING AT THE FACTS OF THE CASE, A REASONABLE APPORTIONMENT OF THE CONSIDERAT I ON RECEIVED CAN BE MADE. IT IS CLEAR FROM THE FACTS NARRATED THAT NO BUSINESS ACTIVITY WITH REGARDS TO MANUFACTURING HAD BEEN UNDERTAKEN BY THE APPELLANT COMPANY. IT IS ALSO SEEN T HAT THE PROJECT HAD BEEN LANGUISHING FOR A NUMBER OF YEARS, WHICH INDICATES THAT THE APPELLANT WAS NOT VERY SERIOUS WITH GOING AHEAD WITH THIS PROJECT. LOOKING AT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, IN MY CONSIDERED VIEW, THE REASONABLE APPORTIONMENT B ETWEEN THE CONSIDERATION PAID/RECEIVED ON ACCOUNT OF ASSETS AND ON ACCO UNT OF NON COMPETE FEE SHOULD BE 70:30. THE AO IS DIRECTED TO COMPUTE CAPITAL GAINS IN ACCORDANCE WITH LAW BY TAKING SALE CONSIDERATION AT RS.7 CRORES. AS REGARDS THE NON - COMPETE FEE, WHICH WOULD BE RS . 3 CRORE, THE SAME IS FULLY TAXABLE UNDER SECTION 28( V)(A) OF THE ACT. 5. WE ALSO FIND THAT AS PER COPY OF MOU FILED BY LEARNED A.R. OF THE ASSESSEE ALONG WITH THE WRITTEN SUBMISSIONS, IT IS SEEN THAT THIS AMOUNT OF RS.10 CRORE WAS RECEIVED BY THE ASSESSEE COMPANY FROM JAIPRAKASH ASSOCIATES LTD. ON ACCOUNT OF TRANSFER OF VARIOUS ASSETS ALONG WITH NON COMPETE FEES ALTHOUGH THE AMOUNT RECEIVED FOR ASSET S AND NON COMPETE FEES IS NOT INDICATED SEPARATELY IN THIS MOU. BUT THIS FACT IS THERE IN THE MOU THAT THE ASSESSEE HAS TO TRANSFER AND HANDOVER ORIGINAL TITL E DEEDS IN RESPECT OF LAND ADMEASURING 34.32 ACRES AND ALSO FOR 10.17 ACRES BEING LAND ALLOTTED BY M.P. AUDYOGIK KENDRA VIKAS NIGAM (REWS) LTD. IN ADDITION TO 3 THIS, THE ASSESSEE HAS ALSO TO RELINQUISH LEASE HOLD RIGHTS OF ENTIRE LAND COVERED UNDER LEASE D EED DATED 11/06/86 WITH M.P. AUDYOGIK KENDRA VIKAS NIGAM (REWS) LTD. THE ASSESSEE IS ALSO REQUIRED TO HANDOVER COPIES OF ALL AVAILABLE DOCUMENTS, DATA, INFORMATION, REPORTS RELATING TO THE LIMESTONE DEPOSITS INCLUDING COPIES OF ALL INVESTIGATIONS AND STUD IES CARRIED OUT FOR PROSPECTING OF THE LIMESTONE DEPOSITS TO THE BUYER. HENCE, IT IS SEEN THAT THIS AMOUNT OF RS.10 CRORE RECEIVED BY THE ASSESSEE AS PER THIS MOU CANNOT BE SAID TO BE ONLY IN RESPECT OF NON COMPETE FEES AS HAS BEEN HELD BY THE ASSESSING O FFICER. THE CIT(A) HAS ESTIMATED THAT OUT OF THIS AMOUNT OF RS.10 CRORE, RS.3 CRORE SHOULD BE CONSIDERED AS RECEIPT OF NON COMPETE FEES AND THE SAME SHOULD BE BROUGHT TO TAX U/S 28(V)(A) OF THE ACT. THIS BIFURCATION OF CIT(A) IN THE RATIO OF 70:30 IS ON THE BASIS THAT NO BUSINESS ACTIVITY WITH REGARD TO MANUFACTURING HAS BEEN UNDERTAKEN BY THE ASSESSEE COMPANY. HE HAS ALSO NOTED THAT THE PROJECT HAD BEEN LANGUISHING FOR A NUMBER OF YEARS, WHICH INDI CATED THAT THE ASSESSEE WAS NOT VERY SERIOUS WITH GOING AHEAD WITH THIS PROJECT. ON THE BASIS OF THESE FACTS, LEARNED CIT(A) WAS OF THE VIEW THAT THE REASONABLE APPORTIONMENT BETWEEN THE CONSIDERATION PAID/RECEIVED ON ACCOUNT OF ASSETS AND ON ACCOUNT OF N ON COMPETE FEE SHOULD BE 70:30. HE HAS ALSO DIRECTED THE ASSESSING OFFICER TO COMPUTE CAPITAL GAIN IN ACCORDANCE WITH LAW BY TAKING SALE CONSIDERATION OF ASSETS AT RS.7 CRORES. IN OUR CONSIDERED OPINION, THIS APPORTIONMENT BY CIT(A) IN THE RATIO OF 70:30 IS REASONABLE IN THE FACTS OF THE PRESENT CASE BECAUSE THIS RECEIPT OF RS.10 CRORE IS MAINLY ON ACCOUNT OF TRANSFER OF LAND OF 34.32 ACRES AND 10.17 ACRE S IN ADDITION TO LEASEHOLD RIGHTS OF LAND AS PER LEASE DEED DATED 11/06/86. THE ASSESSEE WAS ALSO REQ UIRED TO HANDOVER VARIOUS DOCUMENTS, DATA, INFORMATION, REPORTS RELATING TO THE LIMESTONE DEPOSITS INCLUDING COPIES OF ALL INVESTIGATIONS AND STUDIES CARRIED OUT FOR PROSPECTING OF THE LIMESTONE DEPOSITS TO THE BUYER. CONSIDERING ALL THESE FACTS, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A) WITH REGARD TO THIS PROPO R TION AND SINCE VARIOUS ASSETS ARE BEING TRANSFERRED BY THE 4 ASSESSEE COMPANY TO THE BUYER AGAINST THIS RECEIPT OF RS.10 CRORE S IN ADDITION TO NON COMPETE FEES, IT CANNOT BE SAID THAT THE ENTIRE AMOUNT OF RS.10 CRORE WAS RECEIVED BY THE ASSESSEE COMPANY TOWARDS NON COMPETE FEES ONLY AND NO PART OF THIS AMOUNT IS RELATABLE TO TRANSFER OF VARIOUS ASSETS BY THE ASSESSEE COMPANY TO THE BUYER. WE, THEREFORE FIND NO INFIRMITY IN THE ORD ER OF LEARNED CIT(A). THIS GROUND IS REJECTED. 6. GROUND NO. 2 IS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN DELETING THE ADDITION OF RS.16,41,480/ - ON ACCOUNT OF OUT STANDING LIABILITIES OF BROKERS U/S 41(1) OF THE ACT IGNORING THAT THE ASSESSEE FAILED TO FURNISH THE EXISTENCE AND ADDRESS OF THE SAID CREDITORS. 7. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPOR TED THE ORDER OF LEARNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER PARA 6.3 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 6.3 I HAVE GONE THROUGH THE MATERIAL AND RECORDS AND OBSERVE THAT THE APPELLANT COMPANY ON ITS OWN HAD OFFERED RS.7,01,00,419/ - U/S 41(1). WHILE DOING SO THE APPELLANT COMPANY HAS DONE HOME WORK AND WORKED OUT THE AMOUNT AFTER VERIFYING THE DETAILS OF EACH AND EVERY ACCOUNT. THE AS SESSING OFFICER HAS NOT BROUGHT ANY COGENT MATERIAL ON RECORD FROM WHICH IT COULD BE INFERRED THAT THERE WAS CESSATION ON REMISSION OF THE REMAINING LIABILITIES AS STATED IN THE BOOKS OF THE ACCOUNT OF THE ASSESSEE. I, THEREFORE, DELETE THIS ADDITION. 9. WE ALSO FIND THAT AS PER THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD. 236 ITR 518 (SC), EVEN IF THE ASSESSEE HAS UNILATERALLY WRITTEN BACK THE LIABILITY AND TRANSFERRED THE SAME TO PROFIT & LOSS ACCOUNT , SECTION 41(1) CANNOT BE INVOKED. THEREAFTER 5 THERE IS AMENDMENT IN SECTION 41(1) AS PER WHICH IF THE ASSESSEE WRITES BACK THE LIABILITY , IT WILL AMOUNT TO CESSATION OF LIABILITY AND SECTION 41(1) CAN BE INVOKED EVEN IF THE WRITE BACK IS UNILATERAL ACT . IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THIS AMOUNT OF RS.16,41,180/ - HAS BEEN WRITTEN BACK BY THE ASSESSEE AND THE SAME IS NOT APPEARING IN THE LIABILITY SIDE OF THE BALANCE SHEET OF THE ASSESSEE COMPANY. HENCE B Y RESPECTFUL LY FOLLOWING THIS JUDGMENT OF HON'BLE APEX COURT IN CIT VS. SUGAULI SUGAR WORKS (P) LTD. (SUPRA), WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). ACCORDINGLY, THIS GROUND IS REJECTED. 10. GROUND NO. 3 IS AS UNDER: 3. ON THE FACTS & CIRCUMSTANCES OF T HE CASE, THE COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN DELETING THE ADDITION OF RS.37,90,400/ - ON ACCOUNT OF WRITE OFF OF OBSOLETE STOCK WITHOUT APPRECIATING THAT THE ASSESSEE COULD NOT FURNISH ANY CONCRETE EVIDENCE THAT THE SAID STOCK A S ON 01.04.2006 WAS BECOME OBSOLETE WITHIN PERIOD OF 1 YEAR. 11. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER PARA 8.4 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 8.4 DECISION: IN THIS RESPECT, IT IS IMPORTANT TO SEE THAT STOCKS ARE IN THE NATURE OF PETROLEUM PRODUCTS AND WERE ALMOST 10 YEARS OLD. THUS, IT IS BEYOND DOUBT THAT THESE WOULD HAVE LOST ITS PROPERTIES OVER SUCH A LONG PERIOD OF TIME. FURTHER, SOME OF THE STOCKS WERE I N THE FORM OF SLURRY AND CANNOT BE TAKEN OUT OR SOLD. THUS, I AM OF THE VIEW THAT THE APPELLANT COMPANY IS THE BEST JUDGE TO TAKE STOCK OF SUCH SITUATION AND ESTIMATE THE VALUE OF STOCK BASED ON PRESENT QUALITY AND PROPERTIES. THE APPELLANT COMPANY HAS 6 POI NTED OUT THAT OVER THE YEARS, THEY HAVE SOLD VARIOUS STOCKS WHERE BUYER WAS READILY AVAILABLE. THEREFORE, THE APPELLANT COMPANY WAS JUSTIFIED IN WRITING OFF THE VALUE ON THE BASIS OF A REPORT PREPARED BY A TECHNICAL TEAM. THE ADDITIONS OF RS.37,90,400/ - MA DE BY THE A.O. IN THIS REGARD IS, THEREFORE, DELETED. 12.1 FROM THE ABOVE PARA FROM THE ORDER OF LEARNED CIT(A), IT IS SEEN THAT A CLEAR FINDING HAS BEEN GIVEN BY HIM THAT THE STOCKS ARE IN THE NATURE OF P ETROLEUM PRODUCTS AND WERE ALMOST 10 YEARS OLD AND THAT THESE WOULD HAVE LOST THEIR PROPERTIES OVER SUCH A LONG PERIOD OF TIME. THIS IS BY NOW A SETTLED POSITION OF LAW THAT THE VALUE OF CLOSING STOCK SHOULD BE ACCOUNTED FOR ON COST OR MARKET PRICE, WHICHEVER IS LOWER AND IN VIEW OF THIS FACT THAT THE STOCK IS OF PETROLEUM PRODUCTS AND ALMOST 10 YEARS OLD HAVING LOST ITS PROPERTIES DURING THIS LONG PERIOD OF TIME, IT HAS TO BE BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT EVEN AFTER THIS, THIS ST O CK WAS HAVING MARKET VALUE AT THE END OF THE PRESENT Y EAR BUT THE ASSESSING OFFICER HAS NOT DONE SO. THEREFORE, IN OUR CONSIDERED OPINION, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). THIS GROUND IS REJECTED. 13. IN THE RESULT, THE APPE AL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 /09/2015 *C.L. SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR