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2021 (2) TMI 463 - AT - Income TaxReopening of assessment u/s 147 - AO has made addition towards compensation received for termination of manufacturing agreement u/s.28(va)(a), on the ground that any sum whether received or receivable in cash or kind under agreement for not carrying out any activity in relation to any business shall be chargeable to Income Tax under the head ‘profits and gains of business or profession’ for not sharing any know-how, patent, copyright, trade-mark, license, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services - HELD THAT:- In this case, on perusal of assessment order passed u/s.143(3) of the Act on 15.12.2009, we find that there is no discussion of whatsoever in the assessment order regarding the issue of compensation received for termination of contract. Further, the assessee has also failed to file any evidence to prove that it has furnished necessary details about receipt of compensation to the AO. In absence of any evidence to prove that all materials necessary for completion of assessment were placed before the AO, it cannot be said that the AO has considered the issue and formed an opinion on the issue. Unless, the AO has formed an opinion on the issue on the basis of materials furnished by the assessee, then it cannot be said that the assessment has been reopened on mere change of opinion. There is no merit in the arguments taken by the assessee challenging reopening of assessment. In so far as, various case laws cited by the assessee including the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator India Ltd [2010 (1) TMI 11 - SUPREME COURT] we find that those case laws are not applicable to facts of present case and hence, are not considered. Hence, we reject the ground taken by the assessee challenging reopening of assessment. Addition towards compensation received for termination of manufacturing agreement u/s.28(va)(a) - assessee is not owning any know-how, patent and trade-mark required for manufacturing of goods. Consequently, compensation paid for pre-closure of manufacture agreement cannot be brought to tax u/s.28(va)(a) of the Act, because the same is not in the nature of compensation or any sum paid for not carrying out any activity in relation to any business or not sharing any know-how, patent, copyright, trade-mark, license or any other business or commercial right, which is evident from the fact that even after the termination of agreement with Dr.Reddy’s Laboratories Ltd., the assessee continue to manufacture and distribute pharmaceutical products. Compensation received for pre-closure of contract manufacturing agreement with Dr.Reddy’s Laboratories Ltd., is in the nature of capital receipt paid for loss of profit from business / loss of investment, but not in the nature of any compensation or other sum paid for not using any know-how, patent, copyright, trade-mark, license, etc., which can be brought to tax u/s.28(va)(a) of the Act. The AO as well as the CIT(A) without appreciating the facts, had simply made addition towards compensation received from Dr.Reddy’s Laboratories Ltd., u/s.28(va)(a) of the Act. Hence, we direct the AO to delete addition made towards compensation received for termination of contract manufacturing agreement. Appeal filed by the assessee is allowed.
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