The Income Tax Officer, Amritsar. V. M/s Bhagat Industrial Corporation Ltd, Amritsar.

ITA 585/ASR/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3754 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V WADHWACA
• Keywords: Business income; Business expenditure; Scheme of amalgamation; Assessment record
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO.585(ASR)/2015 ASSESSMENT YEAR:2011-12 PAN :AAACB7368P INCOME TAX OFFICER, VS. M/S. BHAGAT INDUSTRIAL WARD 5(1), CORPORATION LIMITED, AMRITSAR. VPO KHASA, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. RAHUL DHAWAN, DR RESPONDENT BY: SH. V. WADHWA,CA DATE OF HEARING: 27/09/2016 DATE OF PRONOUNCEMENT: 21/12/2016 ORDER PER N.K. CHOUDHRY, JM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 26.08.2015 OF THE LD. CIT(A)-2, AMRITSAR, RELATING TO ASSESSMENT YEAR 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL: I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) IS RIGHT IN DELETING THE DISALLOWANCE OF LIC ENSE FEES CLAIMED AT RS. 87,50,000/- FOR THE A.Y 2011-12 WHER E THE ADDITION MADE BY THE THEN A.O AFTER MAKING DETAILED ENQUIRY AND HAD CATEGORICALLY PROVED THE UN-RELATED EXPENSE S. II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) IS RIGHT IN IGNORING THE FACT THAT THE LD. C IT(A) ERRED IN NOT APPRECIATING THE FACT, THAT THE THEN HELD COMPA NY OF THE ASSESSEE- M/S BAGGA MILLENNIUM LIQUOR PVT. LTD WITH WHOM THE ONUS TO BEAR THE LIABILITY LAY IN TERM OF THE S AID MOU BUT WAS MERGED WITH M/S DIGVIJAY CHEMICALS LTD. AND THU S MOU DID NOT SURVIVE, DURING THIS ASSESSMENT YEAR. ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 2 III) WHETHER ON THE FACT AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) IS RIGHT IN IGNORING THE FACT THAT THE EXPEN SES WERE NOT CLAIMED AGAINST THE BUSINESS INCOME OF THE YEAR AS PER THE PROFIT AND LOSS ACCOUNT, IT CAN BE SEEN THAT THERE WAS NO INCOME/RECEIPT OR TURNOVER FROM THE BUSINESS OF THE LIQUOR. HENCE EXPENSES CANNOT BE ALLOWED AGAINST ANY INCOME NOT EARNED DURING THE YEAR. IV) WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) IS RIGHT IN IGNORING THE FACT THAT THE AS PE R PART OF THE MOU ( PARA 1.2(IV)) ON THE ISSUE OF LIABILITIES THA T ALL DEBTS, BORROWING AND LIABILITIES ( INCLUDING CONTINGENT LI ABILITIES), PRESENT OR FUTURE, WHETHER SECURED OR UNSECURED, PE RTAINING TO THE DISTILLERY UNDERTAKING, AS STIPULATED IN SCH EDULE 1 HERETO. ALL LIABILITIES RELATING TO THE DISTILLERY UNDERTAKING UP TO THE EFFECTIVE DATE WHETHER PROVIDED FOR IN THE B OOKS OF ACCOUNTS OF CONTINGENT SHALL BE BORNE BY M/S BHAGAT INDUSTRIAL CORPORATION LTD. AND TRANSFEREE COMPANY SHALL BE INDEMNIFIED IN RESPECT OF ANY CLAIMS RELATING TO TH E PERIOD UP TO THE EFFECTIVE DATE. AND THE TRANSFEREE I COMPANY SHALL BE COMPENSATED IN RESPECT OF THE VALUE OF THE NET CURR ENT ASSETS OR LIABILITIES AND STANDING IN THE BOOKS OF ACCOUNT AS ON THE APPOINTED DATED, HENCE LIABILITY OF PAYMENT OF LICE NSE FEE WAS THAT OF TRANSFEREE COMPANY NOT OF TRANSFEROR COMPAN Y. V) APPLICANT CRAVES LEAVE TO AMEND OR ADD ANY OR MO RE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN DECLARING INCOME OF RS.58,96,450/- WITH DEEMED TOTA L INCOME U/S 115JB OF RS.1,00,99,269/- WAS FILED ON 30.09.2011 AND THE SAME WAS PROCESSED U/S 143(1) OF THE ACT. THE ASSESSEE DERIV ED ONLY BUSINESS INCOME COMPRISING SHARE OF PROFIT FROM THE PARTNERS HIP FIRM M/S. HOTEL MARINA, LONG TERM CAPITAL GAIN FROM SALE OF AGRICUL TURAL LANDS, MUTUAL FUNDS AND EQUITY SHARES AND NO INCOME IS ATTRIBUTED TO LIQUOR BUSINESS. ON REFERENCE TO THE PROFIT & LOSS ACCOUNT, IT WAS N OTICED THAT THE ASSESSEE HAD CLAIMED A LICENSE FEE OF RS.87,50,000/ -. THE FACT OF THE CASE ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 3 IS THAT M/S. BHAGAT INDUSTRIAL CORPORATION LD. WAS RUNNING A DISTILLERY UNDERTAKING NAMED KHALSA DISTILLERY COMPANY, WHICH WAS THE HELD COMPANY OF THE ASSESSEE TILL MARCH, 31 ST 2006. IT WAS GRANTED A LICENSE ON 7 TH JULY, 1947 UNDER SECTION 21 OF THE PUNJAB EXCISE A CT, 1914 TO SET UP A DISTILLERY IN THE NAME OF KHALSA DISTILLERY C OMPANY AT KHASA. THE LICENSE WAS GRANTED, WITHOUT ANY PROVISION FOR RENE WAL OF LICENSE. THE PUNJAB DISTILLERY RULES, 1932 WERE AMENDED ON 6 TH SEPTEMBER, 1966. THE COMPANY WAS ASKED TO APPLY FOR RENEWAL OF ITS L ICENSE YEAR WISE FROM 1966, BY EXCISE AND TAXATION DEPARTMENT (GOVT. OF PUNJAB) ONWARD AFTER DEPOSITING THE LICENSE FEE, AS APPLICABLE FOR THE GRANT OF NEW LICENSE FROM TIME TO TIME. THE COMPANY DISPUTED THE APPLICA BILITY OF THE SAID AMENDMENT ON THE GROUND THAT SAID AMENDMENT WAS A PPLICABLE ONLY TO NEW LICENSE AND SHOULD NOT BE MADE APPLICABLE TO L ICENSE GRANTED PRIOR TO THE SAID AMENDMENT. IN VIEW OF THE DISPUTED LIAB ILITY, THE ASSESSEE COMPANY DID NOT PAY THE ANNUAL RENEWAL FEE FOR THE YEARS 1966-67 ONWARDS TILL THE FINANCIAL YEAR 2010-11. THE MATTER WAS ADJUDICATED AND DEMAND RAISED OF RS.1,27,50,000/- BY EXCISE AND TAX ATION DEPARTMENT DURING THE IMPUGNED ASSESSMENT YEAR. 3. ON THE ISSUE OF TAXABILITY OF THE CLAIM OF RS.87 ,50,000/- OUT OF THE AGGREGATE DUES OF RS.1,27,50,000/- THE ASSESSEE HAS EXPLAINED THE AO THAT THE EXPENDITURE OF RS.87,50,000/- OF ANNUAL RE NEWAL LICENSE FEE PERTAINING TO THE YEARS 1966 TO 2009-10 WAS INCURRE D BY ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DISTILLERY BUSIN ESS RUN BY IT OVER THE ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 4 YEARS AS EVIDENT FROM THE ASSESSMENT RECORDS. HOWEV ER, THE AO DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE FOR THE REAS ON THAT THE ERSTWHILE COMPANY M/S. KHALSA DISTILLERY COMPANY IS NOT OWNE D BY M/S. BAGGA MILLENNIUM WITH WHOM IT HAD THESE TERMS AND CONDITI ONS OF PAYMENT OF CONTINGENT LIABILITY. . THAT THE LIQUOR UNIT M/S. KHALSA DISTILLERY COMPANY STOOD MERGED WITH M/S. DIGVIJAY CHEMICALS L TD., WITH WHOM IT HAD NO SUCH CONDITIONS OF BEARING OF SUCH LIABILITY . AS REGARDS TO THE CLAIM OF EXPENSE OF RS.87,50,000/ -, THE AO NOTED THAT THIS LIABILITY WAS ON ACCOUNT OF THE ARREARS OF EXC ISE DUTY ARISING FOR THE YEAR 1966-67 TO 2005-06. OUT OF THE AGGREGATE DEMAN D OF RS.127,50,000/-, THE AMOUNT WHICH THE ASSESSEE HAD TO BEAR ON BEHALF OF M/S. KHALSA DISTILLERY COMPANY WHICH WAS OWNED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR WAS RS.87,50,00 0/- AND THERE WAS NO CONNECTION/NEXUS WHATSOEVER BETWEEN THE ASSE SSEE AND M/S. KHALSA DISTILLERY COMPANY TO WHOM THE LIABILITY HAS BEEN APPORTIONED. ULTIMATELY, THE AO DISALLOWED THE CLAIM OF THE ASSE SSEE TO THE TUNE OF RS.87,50,000/- HOLDING THAT SUCH EXPENSES CANNOT BE ALLOWED BEING IMPROPER IN NATURE. THE AO FURTHER HELD THAT COMPAN Y OF THE ASSESSEE M/S. KHASA DISTILLEDRY COMPANY WAS NOT SOLD/MERGED WITH M/S. BAGGA MILLENNIUM LIQUOR PVT. LTD. WITH WHOM THE ONUS TO B EAR THE LIABILITY LAY IN TERM OF THE SAID MOU BUT WAS MERGED WITH M/S. DI GVIJAY CHEMICALS LTD. AND THUS MOU DID NOT SURVIVE, DURING THIS ASSE SSMENT YEAR. ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 5 4. AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEFORE THE LD. CIT(A), WHO ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: 6. I HAVE CONSIDERED THE ASSESSMENT ORDER, THE GRO UNDS OF APPEAL AND WRITTEN SUBMISSIONS OF THE APPELLANT AND THE GROUNDS OF APPEAL ARE DISPOSED OFF AS UNDER:- (I) THE GROUND OF APPEAL NO. 1 IS GENERAL IN NATURE AND REQUIRE NO ADJUDICATION. (II) ALL THE GROUNDS OF APPEAL NO. 1 TO 10 ARE AGAI NST THE DISALLOWANCE OF EXPENDITURE OF RS 87,50,000/- OF LI CENSE FEES. THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS 87,50 ,000/- ON ACCOUNT OF LICENSE FEE. THE FACTS OF THE CASE WERE THAT M/S BHAGAT INDUSTRIAL CORPORATION LTD WAS RUNNING A DIS TILLERY UNDERTAKING NAME M/S KHALSA DISTILLERY COMPANY WHIC H WAS HELD BY THE ASSESSEE TILL 31-03-2006. IT WAS GRANTE D LICENSE ON 7 TH JULY, 1947 UNDER THE PUNJAB EXCISE ACT, 1914 TO SE T UP A DISTILLERY IN THE NAME OF M/S KHALSA DISTILLERY COM PANY AT KHALSA. THE LICENSE WAS GRANTED WITHOUT ANY PROVISI ON FOR RENEWAL OF LICENSE BUT AFTER THE AMENDMENT IN THE P UNJAB DISTILLERY RULES, 1932 ON 1966, THE COMPANY WAS ASK ED TO APPLY FOR RENEWAL OF ITS LICENSE YEAR WISE FROM 196 6 BY THE EXCISE AND TAXATION DEPARTMENT ( GOVERNMENT OF PUNJ AB ) ONWARD, AFTER DEPOSITING THE LICENSE FEE AS APPLICA BLE FOR THE GRANT OF NEW LICENSE FROM TIME TO TIME. THE COMPANY DISPUTED THE APPLICABILITY OF THE SAID AMENDMENT ON THE GROUND THAT SAID AMENDMENT WAS APPLICABLE ON LY TO NEW LICENSE AND SHOULD NOT BE MADE APPLICABLE TO LI CENSE GRANTED PRIOR TO THE SAID AMENDMENT. IN VIEW OF THE DISPUTED LIABILITY THE ASSESSEE COMPANY DID NOT PAY THE ANNU AL RENEWAL FEE FOR THE YEARS 1966-67 ONWARDS TILL THE FINANCIA L YEAR 2010- 11. THE MATTER WAS ADJUDICATED AND DEMAND RAISED OF RS 1,27,50,000/- BY EXCISE AND TAXATION DEPARTMENT UPO N M/S KHALSA DISTILLERY UNIT, PROP- M/S DIGVIJAY CHEMICAL S LTD, KHASA DISTRICT, AMRITSAR FOR THE YEARS 1966 TO 2009 -10 VIDE ORDER DATED 12-04-2010 . THE ASSESSEEE HAD SETTLED A DEAL OF SELLING ITS DIS TILLERY UNDERTAKING NAMELY M/S KHASA DISTILLERY UNIT IN TH E FINANCIAL YEAR 2006-07 WITH EFFECT FROM 01-04-2006 TO M/S BAG GA MILLENNIUM LIQUOR (P) LTD OF HYDERABAD. IN THE PROC ESS THE DISTILLERY UNDERTAKING HAD GONE TO THE OWNERSHIP OF M/S DIGVIJAY CHEMICAL LTD. THROUGH A PROCESS OF DEMERGE R WHICH ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 6 TOOK PLACE IN ACCORDANCE WITH THE HIGH COURTS ORDE R DATED 17- 12-2007 UNDER A SCHEME OF AMALGAMATION. ON THE ISSUE OF TAXABILITY OF THE CLAIM OF RS 87,50 ,000/- OUT OL THE AGGREGATE DUES OF RS 1,27,50,000/- THE ASSESSEE HAD EXPLAINED THE AO THAT THE EXPENDITURE OF RS 87,50,0 00/- OF ANNUAL RENEWAL LICENSE FEE PERTAINING TO THE YEARS 1966 TO 2009-10 WAS INCURRED BY ASSESSEE WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF THE DISTILLERY BUSINESS RUN BY I T OVER THE YEARS AS EVIDENT FROM THE ASSESSMENT RECORDS. HOWEVER THE AO DID NOT ACCEPT THIS CONTENTION OF TH E APPELLANT FOR THE REASON THAT THE ERSTWHILE COMPANY M/S KHALS A DISTILLERY COMPANY IS NOT OWNED BY M/S BAGGA MILLEN NIUM WITH WHOM IT HAD THESE TERMS AND CONDITIONS OF PAYM ENT OF CONTINGENT LIABILITY. THAT THE LIQUOR UNIT - M/S KH ALSA DISTILLERY COMPANY STOOD MERGED WITH M/S DIGVIJAY CHEMICALS LT D, WITH WHOM IT HAD NO SUCH CONDITIONS OF BEARING OF SUCH L IABILITY. WITH REGARD TO THE CLAIM OF EXPENSE OF RS 87,50,000 /- THE AO NOTED THAT THIS LIABILITY WAS ON ACCOUNT OF THE ARR EARS OF EXISE DUTY ARISING FOR THE YEAR 1966-67 TO 2005-06. THAT OUT OF THE AGGREGATE DEMAND OF RS 127,50,000/-, THE AMOUNT WHI CH THE ASSESSEE HAD TO BEAR ON BEHALF OF M/S KHALSA DISTIL LERY COMPANY WHICH WAS NOT HELD /OWNED BY THE ASSESSEE D URING THE IMPUGNED ASSESSMENT YEAR WAS RS 87,50,000/-. TH EREFORE THE AO HELD THAT THERE WAS NO CONNECTION/ NEXUS WHA TSOEVER BETWEEN THE ASSESSEE M/S KHAISA DISTILLERY COMPANY TO WHOM THE LIABILITY HAS BEEN APPORTIONED. THE AO HELD THAT AS ON DATE M/S KHALSA DISTILLERY C OMPANY, WHICH WAS HELD BY THE ASSESSEE TILL THE YEAR 2007 W AS SOLD SUBSEQUENTLY TO M/S BAGGA MILLENNIUM LIQUOR PVT. LT D., AND THAT THE LIQUOR UNIT - M/S KHALSA DISTILLERY COMPAN Y STOOD MERGED WITH M/S DIGVIJAY CHEMICALS LTD THROUGH DEME RGER AS PER HONBLE HIGH COURT ORDER DATED 17-12-2007 WITH WHOM THE ASSESSEE HAD NO SUCH CONDITIONS OF BEARING OF SUCH LIABILITY. AS SUCH THE MOU DID NOT SURVIVE DURING THE YEAR UNDER CONSIDERATION AND THEREFORE THE ASSESSEE WAS INCORR ECT IN CLAIMING THE EXPENSE OF A COMPANY WHICH WAS NOT HEL D BY THE ASSESSEE DURING THE YEAR. THEREFORE, THE AO HELD TH AT THE PRESENT HOLDING COMPANY OF THE DEMERGED COMPANY (M/ S KHAISA DISTILLERY COMPANY) M./S DIGVIJAY CHEMICAL P VT. LTD SHOULD BEAR THE ENTIRE ARREARS OF TAX DUES OF RS 1, 27,50,000/- INSTEAD OF PLACING THE LIABILITY OF RS 87,50,000/- OUT OF THE SAID AMOUNT UPON THE ASSESSEE FOR EARLIER YEARS 1966-67 TO 2005- ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 7 06. THE AO OBSERVED THAT EVEN THE EXCISE AND TAXATI ON DEPARTMENT HAD RAISED THE DEMAND OF RS 1,27,50,000/ - WHICH IS UPTO THE MONTH OF MARCH 2006 UPON M/S KHAISA DIS TILLERY COMPANY, PROPRIETOR M/S DIGVIJAY CHEMICALS PVT LTD. THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT ARE CONSIDERED. IN VIEW OF THE ABOVE STAT ED FACTS AND CIRCUMSTANCES OF THE CASE I AM IN AGREEMENT WITH TH E APPELLANT THAT IT WAS INCORRECT FOR THE AO TO HOLD THAT THE AGREEMENT/MEMORANDUM OF UNDERSTANDING DATED 18-05-2 006 DID NOT ULTIMATELY SURVIVE. FURTHER, IT WAS FACTUAL LY INCORRECT TO HOLD THAT THE LIABILITY OF LICENSE FEE OF RS 87.50 LAKHS WAS A CONTINGENT LIABILITY SINCE IT WAS A FINALIZED, ADJU DICATED, QUANTIFIED AND DISCHARGED LIABILITY. THE AO CANNOT IGNORE THE MOU DATED 18-05-2006 BETWEEN THE ASSESSEE COMPANY WITH M/S BAGGA MILLENIUM IOR PRIVATE LTD WHEREBY THE ASS ESSEE HAD SOLD ITS DISTILLERY PER TAKING NAMELY M/S KHASA D ISTILLERY UNIT IN THE FINANCIAL YEAR 2006-07 WITH EFFECT FROM 01-0 4-2006 TO M/S BAGGA MILLENNIUM LIQUOR (P) LTD OF HYDERABAD. I N THE PROCESS THE DISTILLERY UNDERTAKING HAD GONE TO THE OWNERSHIP OF M/S DIGVIJAY CHEMICAL LTD. THROUGH A PROCESS OF DEM ERGER WHICH TOOK PLACE IN ACCORDANCE WITH THE HIGH COURT S ORDER DATED 17-12-2007 UNDER A SCHEME OF AMALGAMATION. THE PARA 1.1 (III) OF THE SAID MOU BETWEEN THE ASSE SSEE COMPANY AND M/S BAGGA MILLENIUM LIQUOR PRIVATE LTD MENTIONS THAT ALL THE DEBTS, LIABILITIES, CONTING ENT LIABILITIES, DUTIES AND OBLIGATIONS, SECURED OR UNSECURED, WHETHER PROV IDED FOR OR NOT OR DISCLOSED IN THE HOOKS OF ACCOUNTS OF BICL RELAT ING TO THE DISTILLERY UNDERTAKING FROM THE EFFECTIVE DATE AND, AS STIPULA TED IN SCHEDULE I HERETO SHALL BE DEEMED TO BE DEBTS, LIABILITIES, CO NTINGENT LIABILITIES, DUTIES AND OBLIGATIONS OF THE TRANSFEREE COMPANY AN D THE TRANSFEREE COMPANY UNDERTAKES TO MEET , DISCHARGE A ND SATISFY THE SAME. ALL LIABILITIES RELATING TO THE DISTILLERY BU SINESS UP TO THE APPOINTED DATE , WHETHER PROVIDED FOR IN THE BOOKS OF ACCOUNTS OR CONTINGENT SHALL BE BORNE BY BICL AND TRANSFEREE CO MPANY AND SHALL BE INDEMNIFIED IN RESPECT OF ANY CLAIMS THERE OF... THE DEFINITION OF THE APPOINTED DATE AND THE EFFECT IVE DATE AS GIVEN IN THE SAID MEMORANDUM OF UNDERSTANDING DATED 18-05- 2006 WERE AS FOLLOWS- (I) 'APPOINTED DALE MEANS APRIL 1, 2006 BEING THE DATE WITH EFFECT FROM WHICH THE DISTILLERY UNDERTAKING WILL B E TRANSFERRED AND VEST WITH THE TRANSFEREE COMPANY. ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 8 (II) EFFECTIVE DATE MEANS 30 DAYS FROM THE DATE ON WHICH CERTIFIED OF THE ORDERS OF THE HIGH COURT SANCTIONI NG THE SCHEME IS WITH THE REGISTRAR OF COMPANIES. THEREFORE IT IS CLEAR FROM THE ABOVE CLAUSE OF MOU THAT ALL THE LIABILITIES RELATING TO THE DISTILLERY BUSINESS UPT O THE APPOINTED DATE I.E 01-04-2006 WHETHER PROVIDED FOR OR NOT IN THE BOOKS OF ACCOUNTS OR CONTINGENT SHALL BE BORNE BY THE ASSESS EE COMPANY AND THE TRANSFERER COMPANY SHALL BE INDEMNIFIED IN RESPECT OF ANY CLAIM THEREOF. THEREFORE CLEARLY THE LIABILITY OF THE ASSESSEE COM PANY UNDER THE SAID MOU CLAIMED BY THE ASSESSEE AT RS 87.50 LA KHS IN THE YEAR UNDER CONSIDERATION IN RESPECT OF THE LICE NSE FEE UPTO THE END OF FY 2005-06 IN RESPECT OF ITS DISTILLERY UNIT NAMED KHALSA DISTILLERY COMPANY CANNOT BE DENIED. THE ASSETS AND PRIVILEGES OF THE UNDERTAKING KHALS A DISTILLERY CO WERE TO BE TRANSFERRED TO M/S BAGGA MILLENNIUM LIQUOR PVT LTD AS PER THE TERMS OF MOU DATED 18-05-2006 AND TH E APPOINTED DATE OF TRANSFER WAS APRIL 01,2006. THE D ISTILLERY UNDERTAKING WAS TO BE DEMERGED FROM THE ASSESSEE CO MPANY INTO A TRANSFEREE COMPANY ( AS DEFINED IN PARA 1 .5 OF THE MOU) AND BE THE ASSETS OF THE TRANSFEREE COMPANY AS ALSO STATED IN THE COPY OF HONBLE DELHI HIGH COURT ORDE R DATED 17.12.2007 UNDER THE SCHEME OF DEMERGER/ AMALGAMATI ON ON RECORDS. THE SCHEME OF ARRANGEMENT/ DEMERGER OF KHALSA DIST ILLERY OF THE APPELLANT COMPANY (TRANSFEROR COMPANY) WITH DIGVI JAY CHEMICALS LTD (TRANSFEREE COMPANY) WAS SANCTIONED BY THE HON BLE DELHI HIGH COURT VIDE ITS ORDER DATED 17-12-2007. THE TOTAL LIABILITY AGAINST KHALSA DISTILLERY COMPA NY, PROP- DIGVIJAY CHEMICALS LTD. KHALSA , DISTRICT AMR ITSAR HAD BEEN - LERMINED IN RESPECT OF IN RESPECT OF THE REN EWAL LICENSE LEE BY THE EXCISE AND TAXATION DEPARTMENT FOR THE Y EARS 1966 TO 2009-10 VIDE ORDER NO. A-2-2010/3906-07 DATED 12-04 -2010 AT RS 1,27,50,000/-.THE SAID LIABILITY HAD CRYSTALL IZED AND WAS PAID, BY M/S KHALSA DISTILLERY CO (FOR DIGVIJAY CHEMICALS LTD) DURING THE YEAR UNDER CONSIDERATION AND WAS TH EREFORE NOT A CONTINGENT LIABILITY. THE SAID LIABILITY OF RS 87,50,000/- WAS UNDENIABL Y A BUSINESS LIABILITY OF THE APPELLANT AS PER THE AFOR ESAID MOU DATED 18-05-2006 WHEREBY THE SAID DISTILLERY UNIT O F THE ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 9 APPELLANT STOOD TRANSFERRED TO M/S BAGGA MILLENIUM W.E.F 01- 04-2006 IN RESPECT OF ITS SAID DISTILLERY UNIT NAME D KHALSA DISTILLERY COMPANY AND THE APPELLANT HAD UNDERTAKEN TO DISCHARGE ALL ITS DEBTS, LIABILITIES AND CONTINGENT LIABILITIES UPTO THE APPOINTED DATE, I.E 01-04-2006 IN RESPECT OF IT S SAID DISTILLERY UNIT NAMED KHALSA DISTILLERY COMPANY, AN D WHICH HAD BEEN DISCHARGED DURING THE ACCOUNTING YEAR UNDE R CONSIDERATION. THE ASSESSEE HAD SUBMITTED THE COPY OF THE LETTER D ATED 08- 11-2010 ISSUED BY THE EXCISE & TAXATION OFFICER (D) , KHALSA DISTILLERY , KHASA, DISTT AMRITSAR TO THE DEPUTY EX CISE & TAXATION COMMISSIONER (D), PUNJAB, PATIALA CONFIRMI NG THE DEPOSIT OF THE ENTIRE LICENSE FEE AMOUNTING TO RS 1 ,27,50,000/- OF D-2, LICENSE FOR THE PERIOD HORN 1966-67 TO 2009 -10 BY THE MANAGEMENT OF M/S KHASA DISTILLERY CO, (A UNIT OF D IGVIJAY CHEMICALS LTD), KHASA, DISTRICT AMRITSAR. THEREFORE , THE PAYMENT OF THE SAID LICENSE FEE IN THE YEAR UNDER CONSIDERA TION TO THE EXCISE DEPARTMENT IS ALSO ESTABLISHED, AND THE AO H AS ALSO NOT DISPUTED THE SAME IN THE ASSESSMENT ORDER. THEREAFTER, THE DEMAND FOR LICENSE FEES OF RS 87.50 LAKHS FOR PERIOD UPTO 31-03-2006 WAS CHARGED BY KHASA DISTILL ERY CO, A OF DIGVIJAY CHEMICALS LTD FROM THE ASSESSEE BY RAIS ING DEBIT ,S OF RS 66,53,000/- AND RS 20,97,000/- ON 31-03-201 1 EACH, I THE NAME OF THE APPELLANT COMPANY TOTALING TO RS 87 ,50,000/- WARDS RENEWAL LICENSE FEES FROM 1966 TO 31-03-2006 DEPOSITED BY THEM BUT WHICH WAS THE LIABILITY OF THE APPELLAN T COMPANY AS PER THE SAID MOU DATED 18-05-2006. THE SAID EXPE NSE WAS ACCORDINGLY RECORDED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS AND CLAIMED AS A DEDUCTION ON ACCRUAL BASIS BY DEBI TING THE PROFIT & LOSS A/C FOR THE YEAR UNDER CONSIDERATION. THE APPELLANT HAD RELIED ON THE JUDGMENTS OF HONBL E COURTS IN THE CASES OF C1T V A GANPATI 53 ITR 114 (SC) AND NO N SUCH TEA ESTATE LTD V C1T 98 ITR 189 (SC) AND THE DECISI ON OF 1TAT DELHI BENCH D IN THE CASE OF INCOME TAX OFFICER V I NFRATEX ENGG CO (1990) 38 TTJ 551 (DELHI) WHO OBSERVED ON THE AS PECT OF INCOME ON RIGHT TO RECEIVE AND ON THE ASPECT OF EXPENDITURE ON LIABILITY TO PAY AS UNDER- EVEN UNDER MERCANTILE SYSTEM OF ACCOUNTING THE LIA BILITY IS ALLOWABLE IN THE YEAR OF ACCRUAL EVEN IF IT RELATES TO AN EARLIER YEAR. ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 10 THE APPELLANT HAD FURTHER RELIED UPON THE DECISON O F HONBLE OF CALCUTTA HIGH COURT IN THE CASE OF BUXA DOOARS TEA CO (INDIA) LTD; CIT (1991) 58 TAXMAN 190/188 ITR 218 AND CIT V ORIENT SUPPLY SYNDICATE (1982) 134 ITR 12, WHO OBSERVED TH AT THE LIABILITY FOR BUSINESS EXPENDITURE WAS ADMISSIBLE I N THE YEAR IT ATTAINS FINALITY AS ENFORCEABLE. THEREFORE IN VIEW OF THE ABOVE STATED FACTS & CIRCU MSTANCES OF THE CASE AND CITED CASE LAWS, IT IS HELD THAT THE S AID EXPENDITURE OF RS.87.5O LACS OF LICENSE FEES WAS TH E BUSINESS EXPENDITURE OF THE APPELLANT COMPANY AND WHICH HAD CRYSTALLIZED/ ACCRUED AND PAID DURING THE FINANCIAL YEAR UNDER CONSIDERATION AND WAS INCURRED WHOLLY AND EXCLUSIV ELY FOR THE BUSINESS OF THE ASSESSEE. ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION, THE L ICENSE LEES OF RS 87.50 LACS WAS FULLY ADMISSIBLE EXPENDITURE OF THE APPELLANT IN THE YEAR UNDER CONSIDERATION, AND HENCE THE DISALLOWANC E O! LICENSE FEES CLAIMED AT RS 87.50 LACS IS DELETED. 7. IN THE RESULT, APPEAL IS ALLOWED. 5. NOW, THE DEPARTMENT IS AGGRIEVED WITH THE ORDER OF THE LD. CIT(A) AND IS IN APPEAL BEFORE US. 6. THE LD. DR PLACED STRONG RELIANCE ON THE ORDER O F THE ASSESSING OFFICER. HE CONTENDED THAT THE LD. CIT(A) WAS NOT J USTIFIED IN DELETING THE DISALLOWANCE OF LICENSE FEES CLAIMED AT RS.87,50,00 0/-, AS THE ADDITION WAS MADE BY THE AO AFTER MAKING DETAILED ENQUIRY A ND HAD CATEGORICALLY PROVED THE UN-RELATED EXPENSES. HE FURTHER SUBMITTE D THAT THE LD. CIT(A) HAS ALSO ERRED IN NOT APPRECIATING THE FACT THAT TH E THEN HELD COMPANY OF THE ASSESSEE M/S. BAGGA MILLENNIUM LIQUOR PVT. LT D. WITH WHOM THE ONUS TO BEAR THE LIABILITY LAY IN TERMS OF THE SAID MOU BUT WAS MERGED WITH M/S. DIGVIJAY CHEMICALS LTD. AND THUS MOU DID NOT SURVIVE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. DR ALSO CONTENDED THAT ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 11 EVEN OTHERWISE MEMORANDUM OF UNDERSTANDING NEVER CA ME IN EXISTENCE AS PER CLAUSE 2.2 OF THE MOU. NONE OF THE CONDITION S HAVE BEEN SATISFIED AND ACCORDING TO CLAUSE.1.5 AND ALSO DRAWN OUR ATTE NTION TO THE DEFINITION OF CLAUSE OF TRANSFEREE COMPANY AS SPECI FIED 1.5 PARA CLAUSE OF THE MOU AND EFFECTIVE DATE AS MENTIONED IN CLAUS E-1.3 OF THE MOU. IT WAS FURTHER ARGUED THAT IN 2010 THE ACTUAL LICENSE FEE AS CLAIMED TO THE TUNE OF RS.87,50,000/- WAS PAID BY DIGVIJAY CHEMICALS LTD. ONLY. THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR ANY DED UCTION QUA LICENSE FEE UNDER CONSIDERATION. 7. ON THE CONTRARY, THE LD. AR DRAWN OUR ATTENTION TO THE FACT THAT THE HONBLE DELHI COURT VIDE ORDER DATED 17 TH DEC.2007 MERGED THE UNIT KHALSA DISTILLARY DIVISION OF THE ASSESSEE COMPANY WITH THE DIGVIJAY CHEMICALS LTD. AND THE TRANSFEREE COMP ANY HAD TAKEN THE RESPONSIBILITY VIDE MOU PARA 1.2(III) ON THE IS SUES OF LIABILITY TO THE EFFECT THAT ALL DEBTS, BORROWINGS AND LIABILITI ES (INCLUDING CONTINGENT LIABILITIES), PRESENT OR FUTURE, WHETHER SECURE AND UNSECURED, PERTAINING TO THE DISTILLERY UNDERTAKING , AS STIPULATED IN SCHEDULE 1 HERETO. ALL LIABILITIES RELATING TO T HE DISTILLERY UNDERTAKING UP TO THE EFFECTIVE DATE WHETHER PROVID ED FOR IN THE BOOKS OF ACCOUNTS OR CONTINGENT SHALL BE BORNE BY B ICL AND TRANSFEREE COMPANY SHALL BE COMPENSATED IN RESPECT OF THE VALUE ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 12 OF THE NET CURRENT ASSETS OR LIABILITIES AS STANDIN G IN THE BOOKS OF ACCOUNTS AS ON THE APPOINTED DATE; FURTHER IN PARA 2.2 (III) IT IS SPECIFIED OF DEBTS , LIABILITIES, CONTINGENT LIABILITIES), DUTIES, AND OBLIGATIONS, S ECURED OR UNSECURED, WHETHER PROVIDED FOR OR NOT OR DISCLOSED IN THE BOOKS OF ACCOUNTS OF BICL RELATING TO THE DISTILLERY UNDERTA KING FROM THE EFFECTING DATE AND, AS STIPULATED IN SCHEDULE I HER ETO SHALL BE DEEMED TO BE THE DEBTS, LIABILITIES, CONTINGENT LIA BILITIES, DUTIES AND OBLIGATIONS OF THE TRANSFEREE COMPANY UNDERTAKES TO MEET, DISCHARGE AND SATISFY THE SAME. ALL LIABILITIES REL ATING TO THE DISTILLERY BUSINESS UP TO THE APPOINTED DATED, WHET HER PROVIDED FOR IN THE BOOKS OF ACCOUNTS OR CONTINGENT SHALL BE BOR NE BY BICL AND TRANSFEREE COMPANY SHALL BE INDEMNIFIED IN RESPECT OF ANY CLAIMS THEREOF. IT IS HEREBY CLARIFIED THAT IT SHALL NOT B E NECESSARY TO OBTAIN THE CONSENT OF ANY THIRD PARTY OR OTHER PERSON WHO IS A PARTY TO ANY CONTRACT OR ARRANGEMENT BY VIRTUE OF WHICH SUCH DEB TS, LIABILITIES, DUTIES AND OBLIGATIONS HAVE ARISEN IN ORDER TO GIVE EFFECT TO THE PROVISIONS OF THIS CLAUSE. FROM THE AFORESAID CLAUSE OF MOU IT IS CLEAR THAT ALL LIABILITIES RELATING TO DISTILLERY BUSINESS UP TO THE APPOINTED DATE SHALL BE BORNE BY BICL. THE ASSESSEE COMPANY AND THE TRANSFE REE COMPANY SHALL BE INDEMNIFY IN RESPECT OF ANY CLAIM RELATING TO THE PERIOD UP TO THE EFFECTIVE DATE IN THE INSTANT CASE. THE EFFE CTIVE DATE ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 13 ACCORDING TO THE CLAUSE 1.3 IS 30 DAYS FROM THE DAT E OF WHICH CERTIFIED COPY OF THE ORDER OF THE HIGH COURT SANCT IONING THE MERGER SCHEME IS FILED WITH THE REGISTRAR OF THE COMPANY. IN FACT, THE HIGH ORDER WAS PASSED ON 17 TH DEC.2007. THUS, IT IS CLEAR EVEN OTHERWISE IN ANY CIRCUMSTANCES THE LIABILITIES UP T O 17 TH DEC. 2007 WAS SUBJECTED TO THE LIABILITY TO THE ASSESSEE COMP ANY ITSELF. AS IN THE INSTANT CASE, THE ASSESSEE COMPANY WAS R UNNING DISTILLERY UNDERTAKING IN THE NAME OF M/S KHLASA DI STILLERY COMPANY WHICH WAS HELD BY THE ASSESSEE TILL 31 ST MARCH, 2006 AS THE COMPANY WAS GRANTED LICENSE ON 7 TH JULY, 1997 U/S 21 OF THE PUNJAB EXCISE ACT, 1914 TO SET UP A DISTILLERY IN T HE NAME OF M/S KHASA DISTILLERY COMPANY AT KHASA. THE LICENSE WA S GRANTED WITHOUT ANY PROVISION FOR ITS RENEWAL BUT AFTER THE AMENDMENT IN THE PUNJAB DISTILLERY RULES 1932 -1996, THE COMPANY WAS ASKED TO APPLY FOR RENEWAL OF ITS LICENSE YEAR WISE FROM 199 6 ONWARD. AFTER DEPOSITING THE LICENSE FEE AS APPLICABLE FOR CURREN T OR NEW LICENSE FROM TIME TO TIME BY THE EXCISE TAXATION DEPARTMENT , GOVT. OF PUNJAB, THE COMPANY DISPUTED THE APPLICABILITY/ SAI D AMENDMENT ON THE GROUND THAT THE SAID AMENDMENT WAS APPLICABL E ONLY TO NEW LICENSE AND SHOULD NOT BE MADE APPLICABLE TO LICENS E GRANTED PRIOR TO THE SAID AMENDMENT AND IN VIEW OF THE DISPUTED LIABILITY, THE ASSESSEE COMPANY DID NOT PAY THE ANNUAL RENEWAL FEE FROM THE YEAR 1966-67 ONWARD TILL THE FINANCIAL YEAR 2010-11 . THE MATTER ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 14 WAS FINALLY ADJUDICATED AND DEMAND OF RS.1,27,50,00 0/- WAS RAISED BY EXCISE TAXATION DEPARTMENT UPON M/S KHALSA DISTI LLERY UNIT, PROP. M/S. DIGVIJAY CHEMICALS LTD., KHASA DISTRICT, AMRITSAR, IN THE YEAR 1996 TO 2009-10 VIDE ORDER DATED 12.04.2010. T HE ASSESSEE HAD SOLD ITS DISTILLERY UNDERTAKING NAMELY M/S. KHA LSA DISTILLERY UNIT IN THE F.Y.2006-07 W.E.F 01.04.2006 TO M/S. BA GGA MILLENNIUM LIQUOR PVT. LTD. OF HYDERABAD. IN THE PROCESS AS SU BMITTED BY THE ASSESSEE, THE DISTILLERY UNIT CAME TO THE OWNERSHIP OF M/S DIGVIJAY CHEMICAL LTD. THROUGH A PROCESS OF MERGER ORDER DAT ED 17.12.2007 UNDER A SCHEME OF AMALGAMATION PASSED BY THE HONBL E DELHI HIGH COURT, THEREFORE, ON THE ISSUE OF TAXABILITY OF THE CLAIM OF RS.87,50,000/- OUT OF THE AGGREGATE DUES OF RS.1,27 ,50,000/-. THE ASSESSEE HAD EXPLAINED TO THE AO THAT THE EXPENDITU RE OF RS.87,50,000 OF THE ANNUAL RENEWAL LICENSE FEE PERT AINING TO THE YEARS 1966-67 TO 2009-10 WAS INCURRED BY ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE DISTILLERY BUSI NESS RUN BY IT OVER THE YEARS AS EVIDENT FROM THE ASSESSMENT RECORDS. A LTHOUGH, IT WAS ARGUED BY THE LD. DR THAT IN 2010, THE LICENSE FEE ACTUALLY PAID BY THE M/S. DIGVIJAY CHEMICALS PVT. LTD., HOWEVER, THA T AMOUNT IS IN THE ACCOUNT OF PETITIONER. 8. FOR THE SAKE OF CONVENIENCE AND BREVITY, WE FEE L IT APPROPRIATE TO TAKE UP ALL THE GROUNDS OF APPEAL SI MULTANEOUSLY AS ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 15 ALL ARE RELATED TO THE DELETION OF THE DISALLOWANCE QUA LICENSE FEE CLAIMED TO THE TUNE OF RS.87,50,000/- FOR THE ASST. YEAR 2011-12. 9. WE HAVE GONE THROUGH WITH THE RELEVANT RECORDS AND RIVAL SUBMISSION OF THE PARTIES. THE LD. DR RIGHTLY CONTE NDED THAT LICENSE FEE WAS ACTUALLY PAID BY THE M/S. DIGVIJAY CHEMICAL S LTD., HOWEVER, THE FACT REMAINS THAT THE LIABILITY IS/WAS SUPPOSED TO BE DISCHARGED BY THE ASSESSEE COMPANY ACCORDING TO MOU. THEREFORE , ON THE AFORESAID ANLIZATION, WE DO NOT FIND ANY HESITATION TO HOLD THAT SAID LIABILITY OF 87,50,000/- WAS THE LIABILITY OF THE A PPELLANT OUT OF TOTAL AMOUNT OF RS.1,27,50,000/- IN PROPORTIONATE FROM 19 66 TO 2006. EVEN OTHERWISE, M/S. DIGVIJAY CHEMICAL LTD. RAISED A DEBT NOTE OF RS.66,53,000/- AND RS.20,97,000/-(TOTAL RS.87,50,00 0/-) TOWARDS RENEWAL AND LICENSE FEE FROM 1966 TO 31 ST MARCH, 2006 DEPOSITED BY THEM . BUT IN FACT, THIS WAS THE LIABILITY OF THE ASSESSEE COMPANY AS PER SAID MOU DATED 18.05.2006. EVEN OTHERWISE THE S AID EXPENSES WERE ACCORDINGLY RECORDED BY THE APPELLANT IN ITS B OOKS OF ACCOUNTS AND CLAIMED AS DEDUCTION ON ACCRUAL BASIS FOR DEBIT ING THE PROFIT AND LOSS ACCOUNT IN THE YEAR UNDER CONSIDERATION. EVEN OTHERWISE, THE LIABILITY FOR BUSINESS EXPENDI TURE IS ADMISSIBLE IN THE YEAR, IT ATTENDS FINALITY AS ENFO RCEABLE AND UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. THE LIABILITY IS LIABLE IN THE YEAR OF ACCRUAL, EVEN IT RELATES TO AN EARLIER YEAR AND SAID ITA NO.585/ASR/2015 ASST. YEAR. 2011-12 16 EXPENDITURE OF RS.87.50 IN RESPECT OF LICENSE FEE W AS THE BUSINESS EXPENDITURE WHICH HAD CRYSTALLIZED , ACCRUED AND PA ID DURING THE FINANCIAL YEAR UNDER CONSIDERATION AND INCURRED WHO LLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. ON THE AFORESAID ANLIZATION CONSIDERATION AND OBSE RVATIONS, WE DO NOT FIND ANY HESITATION TO UPHOLD AND CONFIRM THE ORDER PASSED BY THE LD. CIT(A), HENCE, ALL THE GROUNDS RA ISED BY THE REVENUE STAND DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/12/2016. SD/- SD/- (T.S. KAPOOR) (N.K. CHOUDHRY ) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 21/12/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: 2. THE 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER