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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI B.P. JAIN, & SHRI SUDHANSHU SRIVASTAVA
ORDER
PER B.P. JAIN, ACCOUNTANT MEMBER,
This appeal filed by the assessee is directed against the order dated 15.11.2011 passed by the CIT(A)-XXXII, Delhi in appeal No.476/09-10/221-(A)32 for the AY 2007-08 wherein the following grounds of appeal have been taken:
“1. The order of CIT (A) is bad in law and on facts. 2. On the facts and under circumstances of the case, the ld. CIT (A) has erred in taxing the compensation of Rs. 1 crore as revenue receipt ignoring the various judicial pronouncements and submissions of the assessee.
3. On the facts and under the circumstances of the case the ld. CIT (A) has wrongly rejected the additional evidence, in the shape of fard of land and resolution of the company, produced by the assesse as per the provision of rule 46A.
4. The ld. CIT(A) has erred in not appreciating that sufficient cause was there due to which the assesse could not place these evidences before the AO.
5. Ld. CIT(A) has erred in ignoring that the assesse was not the dealer of agricultural land and the object clause of the company also does not authorize the assesse to deal in trading of agricultural land.
6. The order of the ld. CIT(A) is contradictory having regard to the fact that on one hand it has been observed that no agricultural land was there and on the other hand it has been held that necessary approvals vis-à-vis land was obtained by the assesse.
7. The order of CIT (A) is contrary to the facts and evidences produced before him during the course of hearing.
The facts of the case are that assessee Company engaged in the business of real estate. For the year under consideration it has formed a consortium with five other companies whose names are as under. a. M/s A.R.Developer----------(assessee) b. M/s Samurai Entertainment c. M/s Shivgiri Suppliers d. M/s Arens R Infrastructure e. M/s Arens Developers f. M/s Aerens Gold Souk The above consortium entered into an agreement to sell with JMA Buildcon for the purchase of 10 Acre of land in village Bhattian Thesil and District Ludhiana. Somehow the seller failed to arrange the land and the agreement to sell got spoiled and matter was referred to Arbitrator. The Ld Arbitrator vide his order dated 11.08.2008 awarded compensation. The copy of award is there in the PB at page No-58 to 60. The Compensation so awarded has been distributed among the parties of the consortium and assessee has received an amount of Rs 1 Crore. The AO took a view that the amount received by the assessee is a business receipt and hence taxable. The CIT(A) affirmed the view of the AO.
Before us Ld Counsel of the assessee Sh. P. C. Yadav pointed out that in the case of Aerens Developers and Aerens R infrastructure the A Bench of the ITAT vide its order dated 12.08.2016 in and 5058 of 2011 has held that the amount received as a result of arbitration award is a capital receipt and not taxable. The Coordinate Bench while holding so has observed that compensation has been received because the entire business has been collapsed and not merely for the loss of the profit making apparatus, the relevant observation of the Bench are as under:-
“we find that the issue involved in the grounds is as to whether the compensation received by the assessee through award on breach of the contract is a Revenue or capital receipts in the hands of the assessee. It is an established proposition of law that there cannot be a standard test to determine the nature of receipt as to whether it is capital or Revenue in nature. The nature of receipts depend on facts of each case. The claim of the assessee remained that it is capital in nature and the Assessing Officer has held it as revenue in nature. In support of its claim, as discussed above, the assessee contended that the agreement with JMA Buildcom (P) Ltd. to arrange land was entered into normal course of business observed by the Assessing Officer has no relevance as the consortium between some entities as one part and JMA Buildcom (P) Ltd. as other part of the agreement had for the first time joined hands together to carry on business in the state of Punjab. However, before the business of the consortium would have commenced the deal got spoiled and the business was demolished completely even before the setting up of the business. Their contentions remained that the assessee had not entered into agreement to sell with JMA Buildcom in its individual capacity and thus the entire business of the consortium got demolished even prior to the setting up of the new projects. It was submitted that business of the assessee is not to form consortium day in and day out therefore normal course of business proposition by the Assessing Officer does not stand. It was contended that under taxing provisions, every step of a transaction would have to be seen carefully before reaching to any conclusion. Heavy reliance has been placed by the Learned AR on the decision of Pune Bench of the ITAT in the case of Aquapharm Chemical Co. Ltd. vs. JCIT (supra). Having gone through that decision, we find that in that case the assessee company was incorporated in 1974 with its primary object of manufacturing sea water desalting it for the Indian Air Force and Indian Navy. In early 1980, it diversify its operation by entering into the manufacturing of non-toxic, non-pollutant water treatment chemicals. The assessee company entered into an agreement with AIK-Germany, for supply of technical knowhow for manufacture of fire retardant chemicals. The company decided to set up the project at Prangude. As per the agreement with AIK-Germany, the assessee company paid first installment of technical knowhow fees and it received certain technical information and drawing from AIK. Since the information provided by AIK was not sufficient, the assessee could not start its manufacturing activity of fire retardant chemicals. Despite repeated requests by it, AIK refused to divulge any further information and took the stand that it had supplied all the necessary information. The assessee company left with no alternative but to go into arbitration as per technical knowhow agreement and to claim compensation. An award of Rs.4,53,86,124 was awarded during the year to the assessee as compensation for settlement of dispute. The authorities below treated the receipts as Revenue in nature against the claim of the assessee as capital receipts. Before the ITAT, the assessee argued that the previous year relevant to the assessment year under consideration was first year of manufacturing of anti-fire chemicals and compensation received was an award for non-fulfilling of their part of the contract by AIK. It was damaged for non-performance of the contractual obligation by the AIK. It was contended that the authorities below while deciding the issue against the assessee have not appreciated the injury caused to the profit making apparatus and that the knowhow was foundation of the business of the assessee. Appreciating the same, huge compensation was awarded by the arbitrator. The basis of award remained the lost profit due to non-supply of the knowhow and not on loss of profit and that newly installed machinery in absence of supply of knowhow have gone completely wasted. Reliance was placed on several decisions. After dealing with the issue in detail, the ITAT has decided the issue in favour of the assessee. When we examine the facts of the present case in view of the above cited decision of Pune Bench of the ITAT, we find that in the present case before us also the injury was caused to the profit making apparatus as the land which was profit making apparatus for the assessee was not supplied by JMA Buildcom (P) Ltd. as per the agreement entered into between the assessee and associates, and JMA Buildcom (P) Ltd. Appreciating the same, compensation was awarded in the arbitration proceedings initiated against JMA Buildcom.(P) Ltd. In other words, the basis of award remained the lost profit due to non-supply of the land i.e. profit making apparatus and not on loss of profit. We thus find that the only inference can be drawn is that the compensation received by way of reward due to non-supply of land by JMA Buildcom (P) Ltd. under the agreement was capital receipt. We hold as such. The ground No.2 is accordingly allowed. In view of this finding, the remaining grounds 5, 6, 7 and 9 have become academic only and these grounds are accordingly disposed off”
On the other hand, the ld DR vehemently contended that order of coordinate bench is not binding on this bench and argued that compensation received should be taxed.
After hearing both parties, we are of the considered view that the issue of compensation is squarely covered in favour of assessee and against the revenue by the decision of coordinate bench quoted above. It is settled position of law that unless there is some change in facts and law the decision of coordinate bench is binding on the other bench, as judicial proprietary demand the same. The ld DR has failed to point out any change in facts and law. The compensation received by the present assessee has been received in pursuance to same arbitral award in which the other concerns received the compensation, hence the issue is squarely covered and decided accordingly in favour of assessee and against the revenue.
So far as the second issue as emanating from ground Nos. 11 and 12 regarding the addition of Rs 50 Lakhs is concerned, the contention of the ld Counsel of the assessee that proper opportunity has not been granted to the assessee to establish his case. For this contention ld Counsel for the assessee has placed the order sheet entry of the assessment proceedings on record. He pointed out that confirmation from the creditor had been called from on 29.12.2009 and the same was confronted to the assessee on 31.12.2009, the day on which the assessment order has been passed. Therefore, in the interest of justice this issue may be restored to the AO for fresh adjudication. 8
After hearing both sides it is observed that assessee has received an amount of Rs 50 Lakhs, via banking channel, from one M/s Treatwell Investment as advance against the purchase of flats. In order to verify the genuineness of the transaction the AO issued notice under section 133(6) of the Act. M/s Treatwell in compliance to the notice of 133(6) has denied any such advance the reply of Treatwell had been received on 29.12.2009. On 30.12.200, when the AR of the assessee appeared before the Assessing Officer, the AO confronted the same to the AR and immediately passed the order. Before the ld. CIT(A), the ld. AR of the assessee filed fresh confirmation from the creditor wherein it has been confirmed that the said amount was given to the assessee and due to confusion as to the assessment year, wrong confirmation had been given to the AO. Be that as it may be, in the interest of justice, the matter is set aside to the file of the Assessing Officer, who will decide the case de novo, after affording adequate opportunity of being heard to the assessee. In view of our above findings, the issue of taxing the compensation of Rs. 1 crore and the second issue of Rs 50 lakhs have been restored to the AO for fresh adjudication. Thus, grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
The order is pronounced in the open court on 29.11.2017.