TMI Blog2023 (6) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... ecording satisfaction - assessee had suo moto disallowance - HELD THAT:- CIT(A) while deciding the issue has noted that suo moto disallowance made by assessee was not found to be defective by AO and no adequate satisfaction as mandated u/s 14A(2) of the Act was recorded by AO before invoking Rule 8D. Before us, no fallacy in the findings of CIT(A) to the extent of his recording a finding that no proper satisfaction was recorded by AO before invoking Rule 8D has been pointed out by Revenue.Once the procedure prescribed under Section 14A(2) r.w. Rule 8D has not been followed by Revenue then in that case the Revenue cannot proceed to work out the disallowance on ad hoc basis over and above that has been made by assessee. We, therefore, direct the AO to restrict the disallowance u/s 14A as suo-moto made by assessee. Decided against revenue. Compensation received by the assessee - Short Term Capital Gain or income from other sources - HELD THAT:- We find that CIT(A) after placing reliance on the decision of Vodafone [ 2012 (1) TMI 52 - SUPREME COURT] has held that the compensation received by the assessee was not merely for transaction of one or more tangible rights but was recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PER ANIL CHATURVEDI, AM : The above appeals by Revenue are directed against the separate order of the Ld. CIT(A)-XXI 30, New Delhi, dated 15.03.2013 12.10.2017 in Appeal No.191/10-11/1149 and in Appeal No.200/16- 17/2863 relating to the A.Ys. 2008-09 and 2014-15 respectively. The Assessee filed cross objection for the A.Y. 2008-09 in support of the order of the Ld. CIT(A). 2. Brief facts of the case as culled out from the material on record are as under :- 3. Assessee is a company stated to be engaged in the business of manufacturing, trading and Job work of Paints and Allied Products, Printed Tin and Metal Containers Financing etc. Assessee electronically filed its return of income for A.Y. 2008-09 on 30.09.2008 declaring total income at Rs. 10,43,43,498/-. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 31.12.2010 and the total income was determined at Rs. 17,03,20,450/-. 4. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) vide order dated 15.03.2023 in Appeal No.191/10- 11/1149 granted partial relief to the assessee. Aggrieved by the order of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal and has raised the following grounds: 1. On the facts and circumstances of the case, the Ld CIT(A) has erred in restricting the addition of Rs. 1,51,33,937/- to Rs. 33,07,953/- and deleting the balance amount of Rs. 1,18,25,984/- on account of expenditure incurred in relation to income not includible in total income u/s 14A of the Act. 2. On the facts and circumstances of the case, Ld CIT(A) has erred in deleting the addition of Rs. 70,33,825/- on account of disallowance u/s 80IB of the IT Act 1961. 3. That the appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 8. We thus proceed with ITA No.4115/Del/2013 filed by Revenue. 9. Before us, at the outset, both the parties submitted that ground no.3 in ITA No.4115/Del/2013 (A.Y. 2008-09) and Ground No.1 in ITA No.764/Del/2018 (A.Y. 2014-15) are on a common issue namely disallowance u/s 14A of the Act. Similarly, Ground No.5 (A.Y. 2008- 09) Ground No.2 (A.Y. 2014-15) are on disallowance u/s 80IB of the Act. The su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, considered the delayed deposits to be an income u/s 2(24)(x) of the Act and made its addition. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who following the decision of Delhi High Court in the case of AIMIL reported in 321 ITR 508 decided the issue in favour of the assessee. Aggrieved by the order of CIT(A), Revenue is before Tribunal. 16. Before us, at the outset, Learned AR fairly submitted that the issue of delayed PF deposits is now covered against the assessee by the decision of Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. and others vs. CIT others (2022) 448 ITR 518 (SC). He, therefore, submitted that the ground be decided accordingly. 17. Learned DR on the other hand did not controvert the aforesaid submissions made by Learned AR. 18. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to delayed deposit of employee s contribution of PF which was treated as income by AO but deleted by CIT(A) by following the decision of Hon ble Delhi High Court. Before us, Learned AR has fairly submitted that the issue in the present ground is covered ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand submitted that while working out the disallowance u/s 14A of the Act, AO has not recorded any satisfaction or has explained as to how the suo moto disallowance worked out by assessee was insufficient and had proceeded to apply Rule 8D in a mechanical way. He further pointed to the findings of CIT(A), wherein CIT(A) has noted that no adequate satisfaction was recorded by AO before invoking Rule 8D. As far as the action of CIT(A) in making an ad hoc suo moto disallowance of Rs. 20 lac to be disallowed u/s 14A of the Act, he submitted that when once CIT(A) has recorded a finding about non-recording of proper satisfaction by the AO then the CIT(A) should not have proceeded to enhance the disallowance made by assessee. He, thereafter, submitted that identical issue arose in assessee s own case in A.Y. 2014-15 before the Tribunal and the Hon ble Tribunal in ITA No.7604/Del/2017 vide order dated 18.11.2020 had held that no further disallowance over and above that was suo moto made by assessee is called for. He, therefore, submitted that the disallowance u/s 14A be restricted to suo moto disallowance already made by Assessee. 24. We have heard the rival submissions and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptable to AO. AO was of the view that the sum received from PFGM as compensation to the assessee on taking over the terminating the capital assets involved i.e. the company s bundle of rights and obligations under the BCA was by way of guaranteed returns on the investments made and it was taxable as capital gains. He, thereafter, noted that acquisition of capital asset being right to carry in JV Co. has to be computed as per provision of Section 55(2)(a) of the Act. According to AO the cost of acquisition of capital assets being right to carry any business investments and financing was Nil. He, thereafter, considered the amount of Rs. 4,34,31,471/- received by the assessee as Short Term Taxable Capital Gains and made its addition. 27. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) decided the issue in favour of the assessee by observing as under: 8.4 I have carefully considered the impugned assessment order and critically examined appellant s submissions in light of a) share subscription agreement 6/2/2006, b) Business Cooperation Agreement 14/06/2006 and c) other related documents/agreements. On deep consideration of the entire issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taxable under the head capital gains and same cannot be countenanced; There is no cogent material to support remote inferences drawn by AO except figment of imagination. That is, on no basis it can be concluded that assessee was in business of investment and financing and subject compensation is consideration for parting right to carry on said business; On basis of holistic and earnest reading of entire facts in correct perspective, it is manifest that stated compensation is not merely for transfer of one or the more tangible rights but same is received for transfer of bundle of rights as investing partner, and has nothing to do with capital gains being purely capital receipt non chargeable to tax as whole profit making apparatus is impaired as it includes compensation for not to take any legal action against PFGM, compensation for vanish of hopes of appellant to be actual/real investor/partner in proposed insurance business, which business could not take off; That is, it is not allowable to dissect the consolidated bargained price into trenches/pieces and then fix the notional liability under capital gains with artificial reference to section 55(2)(a) (deemed NIL Cost). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly, there is no termination in assessee s investment/financing activities by mere quit from JV Co.. Hence entire edifice of AO s reasoning falls flat. Accordingly, AO s feeble attempt to bring the subject compensation in category of assets described u/s 55(2)(a) for taxation as short term capital gains, is erroneous and cannot be upheld. Appellant has rightly contended that since it is not the business of appellant company to enter into joint venture agreements or rights for trading in the same, since compensation was received prior to commencement of proposed insurance business, since compensation pertains to impairment of profit making apparatus itself, same is non taxable capital receipt; Reliance is rightly placed by assessee on Supreme Court order in case of Saurashtra Cement 325 ITR 422, Delhi ITAT Sak Industries 1 SOT 798, Also it is rightly stated that in absence of cost of said bundle of rights being computable, no capital gains liability can arise in hands of appellant. Reliance is rightly placed on Supreme Court order in D. P. Sandhu Bros.273 ITR Page 1, that where cost is inderminate, capital gains cannot be charged to tax. Delhi High Court latest verdict in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being revenue in nature. 9. In the result we answer the substantial question of law by holding that the amount of Rs. 1,15,70,000/- received by the assessee in terms of the release agreement dated 14.11.1996 represents a capital receipt, not assessable to income tax. The appeal of the assessee is allowed with no order as to costs. In instant case, even the appellant is never engaged till date in insurance business with any other party. Further, genuineness of transaction is beyond shadow of doubt. It is no body s case that subject transaction is sham. Since shares are separately transferred and subject matter of capital gains in subsequent years, no correlation can be established between subject compensation for transfer of bundle of rights and transfer of shares of JV Co.; Since all heads of taxation are mutually exclusive, and since in my opinion subject compensation cannot be taxed under the head capital gains being capital receipt for transfer of bundle of rights with cost indeterminate, same cannot be taxed under the head other sources treating it as return on investment where investment was Rs. 64,00,000 only as explained by Supreme Court in D. P. Sandhu ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amount represents liquidated damages and is, therefore, not taxable being a capita! receipt. The Tribunal looked into the matter and after considering various cases on the subject, it came to the conclusion that the amount received by the Assessee was nothing but liquidated damages in terms of clause 4 of the agreement and was, therefore, in the nature of a capita! receipt. It was found that the vendor (DCM Ltd.) was under an obligation to hand over physical, peaceful and vacant possession of the property to the Assessee but did not do so and because of its failure, it was liable to pay damages to the Assessee. We do not find any error in the view taken by the Tribunal and are of the view that the appeal does not raise any substantial question of law that would warrant our interference under section 260A of the Incometax Act. Ahd ITAT in case of Shri Rama Multi Tech Ltd. vs. ACIT 92 TTJ 568 A.Y. 2000-01. The interest or liquidated damages received by the assessee on account of delay in supplying capita! goods or for delay in executing construction work was a capital receipt. Delhi High Court in case of CIT vs R.D. Ramnath Co. 164 Taxman 317 Capital R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) defines how the cost of acquisition for the proposes of Section 48 49 is to be determined in respect of the following capital assets : (i) Acquisition of a business, or (ii) A trade mark or brand name associated with a business or (iii) A right to manufacture, produce or process any article or a thing or (iv) Right to carry on any business, tenancy rights, stage carriage permits loom works. 31. He submitted that the compensation received by the assessee does not fit or fall into any of the clause of capital assets defined u/s 55(2)(a) of the Act. More so, as the assessee was only investing partner/shareholder of the New Company, the assessee was not to participate in any way in the day to day business and only PNB and Vijaya Bank were engaged in Life Insurance business in India. He submitted that in the absence of regulatory approval, no business activity could take off and therefore the business never came into existence and compensation received by the assessee had no connection with any business that the assessee was either carrying or wanted to carry. He further placed reliance on the decision of Hon ble Delhi High Court in the case of CIT vs. HCL Inforsyste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that assessee had started new unit in Jammu (Sambha) backward district in Jammu Kashmir, during the F.Y. 2003-04, the first trail production was started on 25.02.2005 for manufacturing of Tin containers of different sizes. It was further submitted that in A.Y. 2007-08, the claim of deduction @ 100% u/s 80IB of the Act was allowed by department. The submissions of the assessee was not found acceptable to AO. AO noted that no audit report of Jammu Division was furnished before him, the assessee was holding huge number of shares in Berger Paints Ltd. and therefore there was a direct nexus between the Jammu Division and Berger Paints. He also noted that out of total sale from the Jammu Division, most of the sale was made to Berger Paints only. He also noted that assessee was not earning any income in the Manufacturing of Processing business but on other hand it was claimed deduction u/s 80IB of the Act. He thereafter by invoking the provision of Section 80IB (10) of the Act, concluded that there was close connection between the assessee and Berger Paints Co. to whom most of the sale were made from Jammu Division and assessee was not generating much profits in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd further submitted that assessee has claimed deduction u/s 80IB of the Act in A.Y. 2007-08 and it was allowed in scrutiny assessment. It was further submitted that assessee was maintaining separate books of accounts for Jammu Unit and the same have been audited and only actual profit earned from the Jammu Division had been considered for claiming deduction u/s 80IB of the Act. He further submitted that before CIT(A) additional evidences were filed under Rule 46A and CIT(A) had called for remand report from the AO. CIT(A) after considering the assessee s submissions, remand report and assessee s reply to the remand report had allowed the claim of the assessee. He further submitted that the action for invoking the provision of Section 80IB(10) was not based on record but based on assumption that the manufacturing division of the assessee was not earning profits. He further submitted that AO has not re-determined sales but has re-computed profits of all manufacturing units by allocating all the expenses and depreciation to manufacturing division irrespective of the fact that most of such expenses relate to the other activities of the assessee. He further submitted that if AO wanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B (10) of the Act as the foundational facts were not supplied by the AO and the action of AO was not in accordance of law. He has further given a finding that on verifying the detailed working submitted by assessee, the assessee has demonstrated that the Jammu Unit for which the assessee has claimed deduction was operating at lowest rate of profit and sales made to Berger Paints was at lower price as compared to other unrelated customers. He has further given a finding that the deduction was allowed to the assessee in scrutiny assessment proceedings in earlier years on similar facts. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A) nor has placed any material on record to demonstrate that the observations of CIT(A) while allowing the claim of the assessee is not based on the material on record. Considering the totality of the aforesaid facts, we find no reason to interfere with the order of CIT(A) on this ground and thus the ground of Revenue is dismissed. 39. In the result, appeal of Revenue for A.Y. 2008-09 is partly allowed. 40. As far as appeal of Revenue for A.Y. 2014-15 in ITA No. 764/Del/2018 is concerned, before us, both the parties have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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