M/s. ORION INTERNATIONAL SUPPORT SERVICES P. LTD., MUMBAI V. ACIT CIR. - 7(1), MUMBAI

ITA 1383/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48873 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 13-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RK GUPTA
• Assessee Lawyers: SUBHASH S SHETTY
• Keywords: Depreciation; Bonafide belief

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. K.AGARWAL (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.1383/M/2007 ASSESSMENT YEAR 2001-02 M/S. ORION INTERNATIONAL SUPPORT SERVICES THE ACIT 7(1), MUMBAI PVT. LTD., 1 DINKAR, 286-A, BHAGOJI KHEER MARG, MAHIM (W), MUMBAI 400 016. PAN : AAACO 1774 E APPELLANT RESPONDENT ASSESSEE BY : SHRI SUBHASH S.SHETTY REVENUE BY : SHRI R.K. GUPTA ORDER PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 18.10.2006 OF CIT(A) FOR THE ASSESSMENT YEAR 2001-0 2. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS LEVY OF PENALTY U NDER SECTION 271(1)(C). 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WHICH WAS ENGAGED IN THE BUSINESS OF FACILITATING MANAGEMENT OF HOSPITALITY SERVICES HAD INCURRED EXPENDITURE OF RS.1,10,00,000/- TOWARDS NO N COMPETE COMPENSATION AND RS.2,04,710/- TOWARDS MOBILIZATION COST. THE AS SESSEE HAD TREATED THESE EXPENSES AS DEFERRED REVENUE EXPENSES AND CLAIMED 1 /10 TH OF THE SAME IN THE RELEVANT YEAR TOTALING RS.11,20,471/-. THE AO OBSER VED THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE ON ACCOUNT OF PAYMENT TO A NOTHER PERSON FOR NON COMPETE WITH THE ASSESSEE WHICH ACCORDING TO HIM WA S NOT ALLOWED AS REVENUE 2 EXPENDITURE. ACCORDINGLY HE ADDED THE SAME TO THE T OTAL INCOME. THE ASSESSEE HAD ALSO CLAIMED PRELIMINARY EXPENSES OF RS.7,07,91 0/- WHICH INCLUDED A SUM OF RS.4,67,000/- TOWARDS PAYMENT OF STAMP DUTY AND REGISTRATION CHARGES TOWARDS INCREASE IN SHARE CAPITAL. THE ASSESSEE HAD CLAIMED 1/10 TH OF THE SAME AS DEDUCTION UNDER SECTION 35D. THE AO HOWEVER HELD THAT THE ASSESSEE WAS ENTITLED TO EXPENDITURE UP TO 1/5 TH OF THE EXPENDITURE SUBJECT TO MAXIMUM LIMIT OF 5% OF CAPITAL EMPLOYED. HE THEREFORE CALCULATED THE ALLOWABLE AMOUNT AT RS.1250 AND THUS AN ADDITION OF RS.69,541/-. 3. IN APPEAL CIT(A) CONFIRMED BOTH THE ADDITIONS. THE AO HAD ALSO INITIATED PENALTY PROCEEDINGS AND LEVIED PENALTY @ 100% OF TA X SOUGHT TO BE EVADED IN RELATION TO THE ADDITIONS MADE AND THUS LEVIED PENA LTY OF RS.4,70,650/-. IN APPEAL CIT(A) OBSERVED THAT THE ASSESSEE HAD ONLY R AISED SOME LEGAL ISSUES AND NO EXPLANATION HAD BEEN GIVEN FOR MAKING THE CL AIM. HE THEREFORE CONFIRMED THE PENALTY AGGRIEVED BY WHICH THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMIT TED THAT ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF NON COMPETE FEES WAS A HI GHLY DEBATABLE ISSUE AND THERE WERE CONTRARY DECISIONS OF THE TRIBUNAL. THE ISSUE HAD BEEN REFERRED TO THE SPECIAL BENCH IN CASE OF TECUMSEH INDIA VS ACIT WHO RECENTLY DECIDED THAT NON COMPETE FEES WAS NOT ALLOWABLE AS REVENUE EXPEN DITURE AS REPORTED IN (127 ITD 1). THE SPECIAL BENCH ALSO HELD THAT DEPRE CIATION WILL BE ALLOWABLE TO THE ASSESSEE ON ACCOUNT OF SUCH EXPENDITURE. THE AS SESSEE HAD THUS MADE A BONAFIDE CLAIM UNDER THE BONAFIDE BELIEF THAT THE S AME WAS ALLOWABLE WHICH WAS ALSO SUPPORTED BY SOME DECISIONS OF THE TRIBUNA L AND THEREFORE NO PENALTY COULD BE LEVIED IN RELATION TO ADDITION MADE IN THI S REGARD. AS REGARDS THE 3 ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE UNDER SECTION 35D THE LEARNED AR SUBMITTED THAT IT WAS ALSO A BONAFIDE CL AIM AND PENALTY WAS NOT LEVIABLE. THE LEARNED DR PLACED RELIANCE ON THE ORD ER OF AUTHORITIES BELOW. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING LEVY OF PENALTY UNDER SECTION 271(1)(C) ON ACCOUNT OF ADDITIONS MADE DUE TO DISALLOWANCE OF NON COMPETE F EES AND DISALLOWANCE OF CLAIM UNDER SECTION 35D OF THE INCOME-TAX ACT. THES E DISALLOWANCES HAVE BEEN CONFIRMED IN APPEAL AND PENALTY HAS BEEN LEVIED UND ER SECTION 271(1)(C). PENALTY UNDER SECTION 271(1)(C) AS HELD BY THE HON BLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILES & PROCESSORS (306 ITR 277) I S ONLY A CIVIL LIABILITY AND WILLFUL CONCEALMENT IS NOT REQUIRED TO BE PROVED BY THE REVENUE. HOWEVER, EACH AND EVERY ADDITION IN THE ASSESSMENT CANNOT AUTOMAT ICALLY LEAD TO PENALTY. A CASE FOR PENALTY HAS TO BE EVALUATED IN TERMS OF TH E PROVISIONS OF EXPLANATION 1 TO SECTION 271(1)(C) AS PER WHICH IF IN RELATION TO ANY ADDITION MADE IN THE ASSESSMENT, THE ASSESSEE OFFERS AN EXPLANATION WHIC H IT IS NOT ABLE TO SUBSTANTIATE BUT IS ABLE TO PROVE THAT THE EXPLANAT ION IS BONAFIDE AND ALL NECESSARY DETAILS HAVE BEEN GIVEN NO PENALTY CAN BE LEVIED. IN THIS CASE THE EXPLANATION OF THE ASSESSEE IN RELATION TO CLAIM OF DEDUCTION ON ACCOUNT OF NON COMPETE EXPENDITURE IS THAT THE SAME WAS BASED ON B ONAFIDE INTERPRETATION OF THE PROVISIONS OF THE ACT. WE FIND THAT THE PLEA OF THE ASSESSEE IS JUSTIFIED AS THE ISSUE WAS HIGHLY DEBATABLE AND MATTER HAD BEEN REFERRED TO THE SPECIAL BENCH IN CASE OF TECUMSEH INDIA WHICH VERY RECENTLY DECIDED THAT NON COMPETE EXPENDITURE WAS NOT ALLOWABLE AS REVENUE EXPENDITUR E. THE SPECIAL BENCH HAS ALSO HELD THAT DEPRECIATION SHALL BE ALLOWED IN RES PECT OF SUCH EXPENDITURE AFTER CAPITALIZATION. THEREFORE IN OUR VIEW THE PLEA OF T HE ASSESSEE THAT IT WAS A BONAFIDE CLAIM HAS TO BE ACCEPTED AND NO PENALTY SH OULD BE LEVIED IN RESPECT OF 4 ADDITION ON ACCOUNT OF NON COMPETE EXPENDITURE. THE OTHER ADDITION IN RESPECT OF WHICH PENALTY HAS BEEN LEVIED IS ON ACCOUNT OF D ISALLOWANCE OF DEDUCTION OF CLAIM UNDER SECTION 35D OF THE INCOME-TAX ACT. IT H AS BEEN SUBMITTED THAT IT WAS A BONAFIDE CLAIM AND THEREFORE NO PENALTY SHOUL D BE IMPOSED. WE FIND THAT EVEN THE AO DID NOT DISPUTE THE ALLOWABILITY OF CLA IM AND REDUCE ONLY THE QUANTUM OF DEDUCTION. IT IS ONLY A CASE OF DISALLOW ANCE OF CLAIM AND THERE IS NO ALLEGATION OF MISREPRESENTATION/ SUPPRESSION OF FAC TS. CONSIDERING THE SMALLNESS OF AMOUNT AND FACTS OF THE CASE IN OUR VIEW THE EXP LANATION OF THE ASSESSEE HAS TO BE CONSIDERED AS BONAFIDE AND IT WILL NOT BE PRO PER TO LEVY PENALTY IN RESPECT OF SUCH ADDITIONS. IN VIEW OF THE FOREGOING DISCUSS ION WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE PENALTY LEVIED. 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 25.05.2011. ( D. K. AGARWAL ) (RAJENDRA SIN GH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 25.05.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR C BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK 5