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2016 (4) TMI 899 - ITAT MUMBAI

2016 (4) TMI 899 - ITAT MUMBAI - TMI - Taxability of the amount received from Diageo Holdings Netherlands BV pursuant to the Indemnity Agreement - Held that:- Revenue has not disputed or controverted the fact that admittedly the assessee has offered this amount of ₹ 62.50 crores, alongwith additional amounts of reimbursements received for payment of liabilities on account of interest, fine and penalty to tax in the immediately following financial year ending 31/3/2012 relevant to the asses .....

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the said amount of ₹ 62.50 crores is exigible to tax, as declared by the assessee, only in the financial year relevant to assessment year 2012-13 and not in the period relevant to assessment year 2011-12 as held by the authorities below. We, therefore, reverse the impugned order of the CIT(Appeals) - Decided in favour of assessee - ITA No. 5087/MUM/2015 - Dated:- 29-2-2016 - SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER For The Appellant : S/Shri J.D.Mistry/Ma .....

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ssed under section 143(1) of the Income Tax Act, 1961 (in short the Act ) and the case was subsequently taken up for scrutiny. In the course of assessment proceeding, the Assessing Officer ( AO ) noticed that assessee had received ₹ 62.50 crores from Diageo Brands B.V Netherlands which was disclosed by the assessee as reimbursement received with a Note 12 (II)(F) to Schedule-17 of financial statements.. The Assessing Officer observed that the assessee had entered into a Distribution Agreem .....

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reement dated 7/4/2010, whereby the assessee was to receive reimbursement of amounts paid / to be paid to the Customs Dept. The assessee was required to deposit ₹ 62,50,00,000/- as advance towards liability likely to arise under the Customs Act, 1961. As per the DRI s show cause notice dated 30/03/2011, the additional customs duty liability was worked out at ₹ 58,04,28,000/-. 2.2 The assessee preferred an application in this regard before the Customs & Central Excise Settlement C .....

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year under consideration the assessee had received from Diageo Holdings B.V., Netherlands an amount of ₹ 62,50,00,000/- as reimbursement of deposit made to the Customs Dept. In the course of assessment proceedings the Assessing Officer issued a show cause notice to the assessee, as to why this amount of ₹ 62,50,00,000/- received from Diageo Holdings B.V, Netherlands should not be brought to tax in the assessee s hands in this year. The assessee submitted that the customs duty liabili .....

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essee s hands for the reasons that, the liability to Customs Dept. is of the importer and not Diageo Holdings B.V, Netherlands and that it is a trading receipt. The assessment was finally concluded under section 143(3) of the Act vide order dated 28/03/2014, wherein the assessee s income was determined at ₹ 61,79,86,690/- in view of the following additional disallowances:- (i) Payment received from Diageo Holdings B.V, Netherlands - Rs.62,50,00,000/- (ii) Disallowance under section14A - &# .....

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at ₹ 61,79,86,690/- instead of loss of ₹ 71,83,096/- claimed in the return of income. 2. The learned CIT (A) erred in holding that the Indemnity proceeds amounting to ₹ 62,50,00,000/- received towards Custom Duty (disclosed as loans and advances ) is a taxable receipt for the AY 2011-12 instead of AY 2012-13. 3. The learned CIT(A) erred in not appreciating the fact that the appellant has already offered the indemnity proceeds to tax in the assessment year 2012- 13, as the liab .....

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lowing additional grounds of appeal:- 1.0 Re.: Taxability of the amount of ₹ 62.50 crores received from Diageo Holdings Netherlands BV pursuant to the Indemnity Agreement: 1.1 The Assessing Officer has erred in holding that the amount received by the Appellant from Diageo Holdings Netherlands BV pursuant to the Indemnity Agreement dated 07 April 2010 is taxable without appreciating that it is capital receipt which is not chargeable to tax. 1.2 The Appellant submits that considering the fac .....

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grounds of appeal at or before the hearing of the appeal. 3.2.2 Before us, the Ld. Senior Counsel for the assessee submitted that the additional grounds (supra) be admitted for consideration since it raises a purely legal issue and would not require the examination of any new fact other than those already on the record. We have heard the rival contentions of both sides in the matter and carefully considered the issue before us. On an appreciation of the same, we are of the considered opinion tha .....

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which was disclosed as loans and advances in the assessee s books, is a receipt exigible to tax in assessment year 2011-12 instead of assessment year 2012-13,where it was offered for taxation when the liability had crystallized and was accepted as such by the Department. 4.2.1 At the outset, the Ld. Sr. Counsel took us through the facts of the case, on the issue before us. It is submitted that the assessee company, engaged in the business of import and trading of alcoholic beverages till Novemb .....

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went about the re-determination of the assessable value declared by the assessee vis-à-vis the import prices of alcoholic beverages of the Diageo Group imported by duty free shops at duty free areas of the international airports. In the course of DRI s investigations, the assessee deposited the following amounts with the Customs Department:- Date Amount(Rs.) 18/11/2009 7,50,00,000 23/11/2009 25,00,00,000 09/12/2009 25,00,00,000 18/02/2010 2,50,00,000 12/05/2010 2,50,00,000 Total 62,50,00, .....

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se as a consequence of the re-determination of the assessable value. This agreement at clause 10 also provided for the return to Diageo Holdings Netherlands, B.V from the assessee of any amount received back from the authorities concerned. 4.2.3 The Ld. Sr. Counsel submitted that the DRI issued a show cause notice dated 30/03/2011 to the assessee alleging undervaluation of the imported goods and worked out the customs duty liability in this regard at ₹ 58,04,28,400/-. According to the Ld. .....

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nt year 2011-12. 4.2.4 The Ld. Sr. Counsel further submitted that in view of commercial expediency and since it has not been engaged in the import of alcohol beverages from November, 2009, the assessee decided not to agitate the matter further and approached the Customs & Central Excise Settlement Commission in respect of the aforesaid show cause notice issued to it. As on the date of application before Settlement Commission there was no liability on the assessee to pay the customs duty. The .....

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sed a fine of ₹ 80,00,000/- and ₹ 40,00,000/- for redemption of the seized goods at Nheva Shava and Delhi regions respectively and imposed a penalty of ₹ 20,00,000/- on the assessee. 4.2.5 The Ld. Sr. Counsel submitted that in pursuance of the order of the Settlement Commission dated 9/2/2012, the custom duty liability of ₹ 58,04,28,400/- was adjusted against the aforesaid deposit of ₹ 62,50,00,000/- and the balance amount of ₹ 4,45,71,600/- was adjusted again .....

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Commission dated 9/02/2012,when the matter attained finality/liability had crystallized, the total amount of reimbursement received both in assessment year s 2011-12 and 2012-13 was offered to tax in assessment year 2012-13 and has been accepted as such and taxed by the Assessing Officer as the assessee s income for the said year in the order of assessment passed under section 143(3) of the Act dated 23/3/2015 (Assessment order for assessment year 2012-13, placed at pages 56 to 64 of Paper Book) .....

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inkage of any factual event of the case that proved that the said customs liability had crystallized in this year 2011-012. The Ld. Sr.Counsel further contended that on appeal the CIT(Appeals) in a nonspeaking order confirmed the addition of ₹ 62,50,00,000/- without assigning any proper reasons for his action. It was also contended by the Ld. Sr.Counsel that the CIT(Appeals) by wrongly relying on the provisions of section 43B of the Act even rejected the assessee s alternate claim that, if .....

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h the liability to pay the additional customs duty has crystallized. It is submitted that since the facts on record establish that the order of the Settlement Commission was passed on 09/02/2012, it is undisputedly established that the assessee s liability to pay the customs duty crystallized only during the financial year 2011-12, relevant to the assessment year 2012-13, the assessee following accrual system of accounting. Consequently, the reimbursement of the customs duty liability which was .....

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uld bring out the fact that the amount of ₹ 62,50,00,000/- received by the assessee thereunder in the year under consideration is purely an advance in respect of likely additional customs duty payable by the assessee pursuant to the DRI investigations in its case, which liability had not yet crystallized. It was also pointed out that clauses 3 to 10 also clearly demonstrates the fact that the receipt of ₹ 62,50,00,000/- during the year is only an advance against likely customs duty a .....

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2011 was reflected as Customs Duty Advance Payment under the head Short Term Loans & Advances (reference to page 79 of Paper Book- Balance Sheet of year ended 31/03/2012 which also reports the relevant figures for assessment year 2011-12 also). 4.2.8 The Ld. Sr.Counsel contends that the said amount of ₹ 62,50,00,000/- is an amount received in advance to defray a possible liability and, therefore, it cannot be treated as income until the corresponding liability has crystallized. In the .....

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e decision of the Hon ble Delhi High Court in the case of Dalmia Cement(Bharat) Ltd. (2013) 357 ITR 459(Delhi), in which it is contended is an identical case of possible levy of Sales Tax liability , it was held that when the assessee collected refundable security deposit towards possibly levy of Sales Tax on packing charges, on the understanding that it would be remitted to the Government if the pending issue of levy of the tax upheld by the Apex Court, the same could not be held to be trading .....

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d 23/03/2015.(Assessment order placed at pages 59 to 64 of the Paper Book). It is contended that in these circumstances, the action of the Assessing Officer in again taxing the same amount in the year under consideration i.e. assessment year 2011-12 would amount to double taxation of the same amount which is not permissible in law. In support of this proposition reliance was placed on the decision of the Hon ble Apex Court in the case of Laxmipat Singhania (1969) 72 ITR 291, wherein it has been .....

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ursed, in the return of income for assessment year 2012-13, which was admittedly accepted by the Department, the same amount has rightly been brought to tax in the year under consideration. 4.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. The facts of the matter on this issue as emanate from the record are that the company was , inter-alia, engaged in the business of import and trading in alcoholic .....

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DRI had initiated investigations in respect of undervaluation of the assessee s imports before the Customs Dept. for the period November 2004 to November,2009. Pursuant to this, the assessee entered into an Indemnity Agreement dated 7/4/2010 with Diageo Brands BV Netherlands, whereby the assessee was to receive reimbursement of amounts paid/to be paid to the Customs Department and received the said amount of ₹ 62.50 cores as an advance towards liability likely to arise under the Customs Ac .....

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clusive of additional customs duty, interest, fine for redemption of seized goods and penalty payment of which were made on 14/3/2012. In this factual matrix, the assessee offered for tax the entire reimbursement received, inclusive of the amount of ₹ 62.50 crores, in the period relevant to assessment year 2012-13 on the grounds that the additional customs liability led crystallized in this period; which was accepted as such by the Department in asst proceedings for Assessment year 2011-12 .....

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9 Loans and Advances to the Balance Sheet as on 31/3/2011 for assessment year 2011-12, was to be taxed in the same assessment year as held by Revenue or was exigible to tax in assessment year 2012- 13, pursuant to the crystallization of this liability consequent to the order of the Customs & Central Excise Settlement Commission dated 9/2/2012 and its final settlement thereof on 14/03/2012. 4.4.3 From the facts on record, as brought out above, we find that the said amount of ₹ 62.50 cro .....

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0 crores would accrue to the assessee and be exigile to tax in the assessee s hands only in the year in which the liability to pay the additional customs duty crystallized. The facts on record establish that the said liability, interalia, of additional customs duty of ₹ 62.50 crores crystallized, not in Asst.year 2011-12 as held by the authorities below but only during the subsequent financial year relevant to assessment year 2012-13 when the assessee s liability to pay the additional cust .....

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o Brands B.V. Netherlands after finalization of the proceedings of the Customs & Central Excise Settlement Commission. In this factual matrix, we are of the considered opinion that since the additional customs duty liability crystallized pursuant to the order of the Customs & Central Excise Settlement Commission order dated 09/02/2012, which is in the subsequent period relevant to assessment year 2012-13, it is exigible to tax only in that year and not in the period under consideration i .....

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essee has collected refundable security deposit towards possible levy of Sales Tax, on the understanding that it would be remitted to the government if the pending issue of levy of tax was upheld by the Hon ble Apex Court, the same could not be held to be a trading receipt. 4.4.4 From the facts on record we also find that the Ld. Departmental Representative for the Revenue has not disputed or controverted the fact that admittedly the assessee has offered this amount of ₹ 62.50 crores, alon .....

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