TMI Blog2017 (2) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... siness expenditure is admissible in the year, it attends finality as enforceable 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 expenditure of ₹ 87.50 in respect of license fee was the business expenditure which had crystallized , accrued and paid during the financial year under consideration and incurred wholly and exclusively for the business of the assessee.- Decided against revenue - ITA No. 585(Asr)/2015 - - - Dated:- 21-12-2016 - Sh. T. S. Kapoor, Accountant Member And Sh. N. K. Choudhry, Judicial Member Appellant by : Sh. Rahul Dhawan, DR Respondent by : Sh. V. Wadhwa, CA 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 grounds of appeal: i) Whether on the facts and circumstances of the case, the Ld. CIT(A) is right in deleting the disallowance of license fees claimed at ₹ 87,50,000/- for the A.Y 2011-12 where the addition made by the then A.O after making detailed enquiry and had catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. On reference to the profit loss account, it was noticed that the assessee had claimed a license fee of ₹ 87,50,000/-. The fact of the case 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, 31st 2006. It was granted a license on 7th July, 1947 under section 21 of the Punjab Excise Act, 1914 to set up a distillery in the name of Khalsa Distillery Company at Khasa. The license was granted, without any provision for renewal of license. The Punjab Distillery Rules, 1932 were amended on 6th September, 1966. The company was asked to apply for renewal of its license 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 applicability of the said amendment on the ground that said amendment was applicable only to new license and should not be made applicable to license granted prior to the said amendment. In view of the disputed liability, the assessee company did not pay the annual renewal fee for the years 1966- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 is general in nature and require no adjudication. (ii) All the grounds of appeal no. 1 to 10 are against the disallowance of expenditure of ₹ 87,50,000/- of license fees. The assessee had claimed an expenditure of ₹ 87,50,000/- on account of license fee. The facts of the case were that M/s Bhagat Industrial Corporation Ltd was running a distillery undertaking name M/s Khalsa distillery Company which was held by the assessee till 31-03-2006. It was granted license on 7th July, 1947 under the Punjab Excise Act, 1914 to set up a distillery in the name of M/s Khalsa Distillery Company at Khalsa. The license was granted without any provision for renewal of license but after the amendment in the Punjab Distillery Rules, 1932 on 1966, the company was asked to apply for renewal of its license year wise from 1966 by the Excise and Taxation Department ( Government of Punjab ) onward, after depositing the license fee as applicable 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 only to new license and should not be made applicable to license granted prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the assessee till the year 2007 was sold subsequently to M/s Bagga Millennium liquor Pvt. Ltd., and that the liquor unit - M/s Khalsa Distillery Company stood merged with M/s Digvijay Chemicals Ltd through demerger as per hon ble 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 incorrect in claiming the expense of a company which was not held by the assessee during the year. Therefore, the AO held that the present holding company of the demerged company (M/s Khaisa Distillery Company) M./s Digvijay Chemical Pvt. Ltd should bear the entire arrears of tax dues of ₹ 1,27,50,000/- instead of placing the liability of ₹ 87,50,000/- out of the said amount upon the assessee for earlier years 1966-67 to 2005-6. The AO observed that even the excise and taxation department had raised the demand of ₹ 1,27,50,000/- which is upto the month of March 2006 upon M/s Khaisa Distillery Company, Proprietor M/s Digvijay Chemicals Pvt Ltd. The assessment order and the written submissions of the appellant are consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities relating to the Distillery business upto 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 assessee company and the transferer company shall be indemnified in respect of any claim thereof. Therefore clearly the liability of the assessee company under the said MOU claimed by the Assessee at ₹ 87.50 lakhs in the year under consideration in respect of the license 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 Khalsa 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 the appointed date of transfer was April 01,2006. The distillery Undertaking was to be demerged from the Assessee Company 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 Hon ble Delhi High Court order dated 17.12.2007 under the scheme of demerger/ amalgamation on records. The scheme of Arrangement/ Demerger of Khalsa Distillery of the appellant Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Company as per the said MOU dated 18-05-2006. The said expense was accordingly recorded by the appellant in its books of accounts and claimed as a deduction on accrual basis by debiting the Profit Loss a/c for the year under consideration. The appellant had relied on the judgments of hon ble courts in the cases of C1T v A Ganpati 53 ITR 114 (SC) and Non Such Tea Estate Ltd v C1T 98 ITR 189 (SC) and the decision of 1TAT Delhi bench D in the case of Income Tax Officer v Infratex Engg Co (1990) 38 TTJ 551 (Delhi) who observed on the aspect 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 liability is allowable in the year of accrual even if it relates to an earlier year. The appellant had further relied upon the decison of hon ble 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 that the liability for business expenditure was admissible in the year it attains finality as enforceable. Therefore in view of the above stated facts circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowings and liabilities (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 the Distillery Undertaking up to the Effective Date whether provided for in the books of accounts or contingent shall be borne by BICL and Transferee Company shall be compensated in respect of the value of the net current assets or liabilities as standing 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, secured or unsecured, whether provided for or not or disclosed in the books of accounts of BICL relating to the Distillery Undertaking from the Effecting Date and, as stipulated in Schedule I hereto shall be deemed to be the debts, liabilities, contingent liabilities, duties and obligations of the Transferee Company undertakes to meet, discharge and satisfy the same. All liabilities relating to the distillery business up to the appointed dated, whether provided for in the books of accounts or contingent shall be borne by BICL and Transferee Company sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010. The assessee had sold its distillery undertaking namely M/s. Khalsa Distillery Unit in the F.Y.2006-07 w.e.f 01.04.2006 to M/s. Bagga Millennium Liquor Pvt. Ltd. of Hyderabad. In the process as submitted by the assessee, the distillery unit came to the ownership of M/s Digvijay Chemical Ltd. through a process of merger order dated 17.12.2007 under a scheme of amalgamation passed by the Hon ble Delhi High Court, therefore, on the issue of taxability of the claim of ₹ 87,50,000/- out of the aggregate dues of ₹ 1,27,50,000/-. The assessee had explained to the AO that the expenditure of ₹ 87,50,000 of the annual renewal license fee pertaining to the years 1966-67 to 2009-10 was incurred by assessee Wholly and Exclusively for the purpose of the distillery business run by it over the years as evident from the assessment records. Although, it was argued by the ld. DR that in 2010, the license fee actually paid by the M/s. Digvijay Chemicals Pvt. Ltd., however, that amount is in the account of petitioner. 8. For the sake of convenience and brevity, we feel it appropriate to take up all the grounds of appeal simultaneously as all are related to the deletion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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