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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI PRADIP KUMAR KEDIA
आदेश /O R D E R PER C.N. PRASAD, J.M.
This appeal is filed by the Assessee against the order of learned CIT(Appeals)-1, New Delhi dated 28.02.2019 for the AY 2015-16. The
Assessee in its appeal raised the following grounds of appeal: “Principle of Mutuality 1. That on the facts and in law, the Learned Commissioner of Income Tax (Appeals) - 01 [‘Ld. CIT(A)’] has grossly erred in relying on the order of the Ld. Assessing Officer (‘AO’) wherein it was held that the Appellant cannot be classified as a mutual concern and consequently its income would not be exempt from tax. 1
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That on the facts and in law, the Ld. C1T(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO had failed to appreciate that there being complete identity between the contributories and the beneficiaries, the ‘principle of mutuality’ was applicable and the receipts of the Appellant could not partake the character of taxable income.
That on the facts and in law, the Ld. C1T(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO concluded that the ‘principle of mutuality’ could not be applied owing to the fact that YRIPL do not benefit from the AMP activities rendered by the Appellant, which finding is contrary to the facts on record.
That on the facts and in law, the Ld. C1T(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO did not recognise that in the current assessment year the increase in the sales and net royalty income of YRIPL bore a direct nexus to the AMP activities carried on by the Appellant, and as such the benefit to YRIPL was clearly established. Every receipt is not income 5. That, without prejudice, on the facts and in law, the Ld. CIT(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO did not appreciate that every receipt in the hands of an Appellant does not partake the character of income. Diversion of Income by Overriding Title 6. That on the facts and in law, Ld. C1T(A) has failed to adjudicate upon ground/issue relating to diversion of income by overriding title. 7. Without prejudice to the above, on the facts and in law, the Ld. CIT(A) failed to appreciate that even assuming that the said AMP contribution partakes the character of income, it is diverted for a specific purpose (AMP activities) by virtue of a pre-existing obligation attached to the source of such contribution itself and hence the contribution was not eligible to tax.
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Other Grounds 8. That, without prejudice, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO did not allow the expenses/to be adjusted against the alleged unrecognized revenue. 9. That on the facts and in law, the Ld. CIT(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO failed to appreciate that provisions made for doubtful debts of Rs.6,63,85,508 by the Appellant is not a charge against its profits as the contributions received by it are not in the form of income but are solely for the purpose of expending them on AMP activities. 10. That on the facts and in law, Ld. C1T(A) has grossly erred in relying on the order of the Ld. AO wherein the Ld. AO failed to appreciate that since the Appellant is functioning as a mutual concern, the provisions of the act with regard to the computation of income under the head Profit and gains from business or profession do not apply to the Appellant. 11. That the Ld. CIT(A) has erred in not appreciating the business model of the Appellant and the terms and conditions of the tripartite agreement. 12. That, without prejudice, on the facts and in law, the Ld. CIT(A) erred in passing the order, upholding the order of the Ld. AO without affording the Appellant proper opportunity of being heard. Therefore, the order passed by the Ld. C1T (A) is in breach of principles of natural justice and hence, the same may be quashed and set aside. 13. That, without prejudice, on the facts and in law, the Ld. C1T(A) has erred in passing the order in undue haste, without considering the submission filed by the Appellant.” 2. The Ld. Counsel for the assessee at the outset submits that
identical issue in the grounds of appeal has been decided by the Tribunal
in assessee’s own case for the assessment years 2001-02 onwards and the
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order of the Tribunal for the immediate preceding year 2014-15 in ITA
No. 2562/Del/2018 dated 31.03.2022 is placed at page 166 of the Paper
Book. Ld. Counsel submits that order of the Tribunal may be followed
for the assessment year under consideration.
Heard rival submissions, perused the orders of the authorities
below and the order of the Tribunal.
On perusal of the order of the Tribunal for the AY 2014-15 in ITA
No. 2562/Del/2018 dated 31.03.2022 we find that identical grounds have
been decided by the Tribunal as under:
“General Ground 1. That on the facts and in law, the impugned order passed by the Ld. Commissioner of Income Tax (Appeals) - 09 (‘Ld. CIT(A) confirming the order of the Assessing Officer ((AO:) and assessing the total income of the Appellant at Rs.1,45,22,980/- as against NIL returned income, is bad in law. Principle of Mutuality 2. That on the facts and in law, the Ld. CIT(A) has grossly erred in holding that the Appellant cannot be classified as a mutual concern and consequently its income would not be exempt from tax. 3. That on the facts and in law, the Ld. CIT(A) has failed to appreciate that there being complete identity between the contributories and the beneficiaries, the ‘principle of mutuality'' was applicable and the receipts of the Appellant could not partake the character of taxable income. 4. That on the facts and in law, the Ld. CIT(A) has erred in concluding that the ‘principle of mutuality’ could not be applied owing to the fact that YR1PL and Pepsi Foods Ltd do not benefit from the AMP activities rendered by the Appellant, which finding is contrary to the facts on record.
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That on the facts and in law, the Ld.ClT(A) has grossly erred in not recognizing that in the current assessment year the increase in the sales and net royalty income of YRIPL bore a direct nexus to the AMP activities carried on by the Appellant, and as such the benefit to YRIPL was clearly established. 6. That on the facts and in law, the Ld. C1T(A) has grossly erred in not appreciating that Pepsi Foods Ltd. also benefited from the exclusive right to sell its products granted as per the terms and conditions of the ‘Pepsi Beverage Supply Agreement’ and as such all conditions relating to the mutuality concept stood satisfied. 7. That on the facts and in law, the Ld. CIT(A) has grossly erred in concluding that the appellant has failed to give the workings of contribution of Pepsi vis-a-vis sale of Pepsi products at restaurant outlets of the franchisee and its parent company i.e. YRIPL. 8. That on the facts and in law, the Ld. C1T(A) has grossly erred in concluding that the appellant has violated the terms and conditions on which the approval was obtained from Secretariat of Industrial Assistance (“SIA”), Ministry of Finance, Government of India, as the appellant has inducted business associates like Pepsi. 9. That on the facts and in law, the Ld. CIT(A) has grossly erred in concluding that the receipts in the hands of the appellant are in the character of income as the same were made to the appellant after deduction of tax at source. Every receipt is not income 10. That, without prejudice, on the facts and in law, the Ld. CIT(A) has erred in not appreciating that every receipt in the hands of an assessee does not partake the character of income.
Diversion of Income by Overriding Title 11. That on the facts and in law, Ld. CIT(A) has failed to adjudicate upon ground/issue relating to diversion of income by overriding title. 12. Without prejudice to the above, on the facts and in law, the Ld. CIT(A) failed to appreciate that even assuming
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that the said AMP contribution partakes the character of income, it is diverted for a specific purpose (AMP activities) by virtue of a pre-existing obligation attached to the source of such contribution itself and hence the contribution was not eligible to tax. Other Grounds 13. That on the facts and in law, the Ld. CIT(A) has failed to appreciate that provisions made for doubtful debts by the appellant is not a charge against its profits as the contributions received by it are not in the form of income but are solely for the purpose of expending them on AMP activities. 14. That on the facts and in law, Ld. CIT(A) has failed to appreciate that since the appellant is functioning as a mutual concern, the provisions of the act with regard to the computation of income under the head Profit and gains from business or profession do not apply to the appellant. 15. That the Ld. CIT(A) has erred in following the order of the Hon’ble Income Tax Appellate Tribunal in Appellant’s own case for AY 2001-02 despite appreciating that there has been change in facts in the current year. 16. That the Ld. CIT(A) has erred in not appreciating the business model of the Appellant and the terms and conditions of the tripartite agreement. “The appellant craves leave to add, amend, alter, or withdraw any of the grounds of appeal before or at the time of hearing of this appeal.” 4. Before us, at the outset, Learned A.R. submitted that though assessee has raised various grounds, but, the grounds of applicability of Doctrine of Mutuality and without prejudice, diversion by overriding title stands rejected in assessee’s own case by the Hon’ble Supreme Court vide order reported in 424 ITR 630 (SC). He, therefore, submitted that the only surviving issue is about the various computational errors in the order of assessment, inter alia are as under: 4.1. Excess of expenditure over income of Rs.20,00,30,211/- is not taxable as Unrecognized Revenue. • It was claimed by the assessee-company that in the years contribution made was in excess of the expenditure, the excess remains coupled with an
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obligation to spend as agreed, and, hence, on accrual basis, the excess is to be allowed as a deduction. However, in the years the contribution falls short of the expenditure (i.e there is a deficit) the A.O. has held that the shortfall or deficit is an additional income/amount due from the contributors. The A.O. has thus taken contradictory stand over the past years. 4.2. The Learned A.R. without prejudice to the above submissions, further submitted that the set-off and carry forward of the business loss (excess of expenditure incurred over contributions received during the relevant year) is to be allowed. 4.3. He drew the attention of the Bench that in the proceedings for earlier assessment years, some of the above computational errors were corrected by the appellate authorities. In support of his contention, the Learned A.R. filed assessment orders for the A.Y. 2008-09 and A.Y. 2009-10 in paper book at pages 158 to 162 and pages 163 to 165 respectively. In both these 3^ears excess of expenditure over income was treated as income on account of unrecognized revenue The CIT(A) has corrected this computational error and has allowed the set-off vide orders for the A.Ys. 2008-09 and 09-10 at pages 143 to 157 of PB.
4.4. The Learned A.R. submitted that Revenue has also accepted the orders of the Ld. CIT(A) and no further ground has been raised by the Revenue in its cross-appeal for the A.Y. 2008- 09 before the Tribunal. The Learned A.R. filed copy of the order at pages 16 to 109 of the PB. 4.5. The Learned A.R. submitted that for the captioned year under consideration, there is no application of mind by either the AO or Ld. CIT(A) on the above computational issues which survive as a fallout of Apex Court decision. Therefore, in order to give effect to the ratio propounded by the Hon'ble Apex Court, he submitted that the matter may be set aside to the file of A.O. for fresh adjudication of issue with respect to computation of total income in accordance with law. He further undertakes that the assessee will cooperate by filing all the details before the A.O. 5. The Ld. D.R. on the other hand, did not controvert the submissions made by Learned A.R.
We have heard the rival submissions and perused the material available on record. Before us, it is the contention of the Learned A.R. that the only surviving issue in the present appeal is about the various computational errors in the order of the assessment which has been accepted by the Ld. CIT(A) in his orders 7
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for the A.Ys. 2008- 09 and 2009-10 as even in the cross-appeal filed by the Revenue for the A.Y, 2008-09, no ground has been raised before the Tribunal on this issue. We, therefore, find merit in the arguments of the Learned A.R. on this issue and in terms of the prayer of the Learned A.R, we set aside the issue to the file of A.O. and direct him to correct the computation errors in the order of assessment in accordance with law, by giving due opportunity of being heard to the assessee. Needless to say that assessee shall cooperate with the A.O. by filing all the requisite details as called for. 7. In the result, appeal of the assessee is allowed for statistical purposes.” 5. Facts being identical, following the order of the Tribunal for the AY
2014-15, we restore the matter to the file of the Assessing Officer to pass
orders in accordance with law keeping in view the directions of the
Tribunal for the immediately preceding assessment year i.e. 2014-15.
In the result, appeal of the assessee is allowed for statistical
purpose.
Order pronounced in the open court on 09/02/2023
Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 09/02/2023 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order
Assistant Registrar, ITAT: Delhi Benches-Delhi