Sh. Hulas Rahul Gupta, New Delhi V. CIT, New Delhi

ITA 1577/DEL/2010

• Counselvise Citation: 157720114 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D N KAR
• Assessee Lawyers: R P MALL; G JAIN
• Keywords: Business income; Salary income; Rule of consistency; Question of law; Cost of acquisition; Assessment record; Capital receipt
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI G.D. AGARWAL, HONBLE VICE-PRESIDENT AN D SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO. 1577/DEL/2010 ASSESSMENT YEAR: 2007-08 HULAS RAHUL GUPTA, VS. COMMISSIONER OF INCOME-TAX , C-12, FRIENDS COLONY, XVI, NEW DELHI. NEW DELHI. (PAN: AAAPG4437F) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI SALIL AG ARWAL & RP MALL, ADV. & SHRI G.JAIN, CA RESPONDENT BY: SHRI DN KAR, CIT( DR) DATE OF HEARING : 05.03.2012 DATE OF PRONOUNCEMENT : 23.03.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED COMMISSIONER DATED 15.03.2010 PASSED FOR ASSESSMENT YEAR 2007-08 UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961. THE GRIEVA NCE OF THE ASSESSEE IS THAT LEARNED COMMISSIONER HAS ERRED IN TAKING COGNI ZANCE UNDER SEC. 263 OF THE ACT AND THEREBY MODIFYING THE ORDER OF ASSESSIN G OFFICER, DIRECTING HIM TO TREAT A SUM OF RS.17,72,17,484 AS A BUSINESS IN COME UNDER SECTION 28(VA) OF THE ACT. HE FURTHER DIRECTED THAT THIS AMOUNT SH OULD BE REDUCED FROM THE FIGURE OF LONG TERM CAPITAL GAIN OFFERED AND ASSESS ED TO TAX EARLIER. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL. HE HAS FILED HIS RETURN OF INCOME ON 31.10.2007 DECLAR ING AN INCOME OF RS.90,59,66,319 WHICH INCLUDES SALARY INCOME OF RS. 127,46,783, SHORT TERM CAPITAL GAIN RS.24,527 AND LONG TERM CAPITAL GAIN R S.85,07,43,805. THE ASSESSEE WAS PROMOTER SHAREHOLDER IN PHOENIX LAMPS LTD. HE ALONG WITH OTHER PROMOTERS/SHAREHOLDERS WAS HOLDING 36.63% OF THE SHARE HOLDING OF M/S. PHOENIX LAMPS LTD. THE BREAK UP OF THE SHARES HELD BY THE ASSESSEE ALONG WITH HIS FAMILY MEMBERS ARE AS UNDER: SR. NO. NAME OF SHAREHOLDERS NO. OF SHARES %AGE 1. BHUSHAN KUMAR GUPTA 11,360 0.05% 2. HULAS RAHUL GUPTA 46,63,618 19.55% 3. PRIYA DESH GUPTA 35,00,000 14.68% 4. ABHA GUPTA 5,60,749 2.35% 87,35,727 36.63% 3. ON 3 RD OF JULY 2007, THE ASSESSEE ALONG WITH OTHER PROMOT ERS ENTERED INTO A TRIPARTITE WARRANT SUBSCRIPTION AND SHARE PU RCHASE AGREEMENT (HEREINAFTER REFERRED TO AS WSSPA) WITH M/S. ARGON INDIA LTD. AND M/S. ARGON SOUTH ASIA LTD. ( ACQUIRERS IN SHORT ). AS PER THIS AGREEMENT, 87,35,727 SHARES HELD BY THE PROMOTERS WERE SOUGHT TO BE SOLD TO THE 3 ACQUIRERS/VENDEE AT A PRICE OF RS.152 PER SHARE. OV ER AND ABOVE THE SALES CONSIDERATION, THE PROMOTERS WERE ALSO TO BE PAID A SUM OF RS.38 PER SHARE AS NON-COMPETE CONSIDERATION (CLAUSE 3.5 AND 13.2 O F WSSPA). THE PROMOTERS WERE SELLING MORE THAN 20% OF THE SHARES HELD BY THEM OF A PUBLIC LIMITED COMPANY LISTED ON STOCK-EXCHANGE, THE ACQUI RERS WERE REQUIRED TO FOLLOW THE SEBI TAKEOVER CODE. THE ACQUIRERS APPROA CHED THE SEBI AND THEY WERE DIRECTED BY THE SEBI TO REVISE OFFERED PR ICE TO THE PUBLIC TO RS.190 PER SHARE. ACCORDING TO THE ASSESSEE, THE SE BI DIRECTED TO PAY ENTIRE AMOUNT OF RS.190 PER SHARE AS SALES CONSIDERATION A GAINST THE ORIGINAL SALES CONSIDERATION OF RS.152 PER SHARE PLUS RS. 38 PER S HARE REPRESENTING AS NON- COMPETE CONSIDERATION. THE WSSPA WAS REVISED ON 28. 12.2006 BY REMOVING ALL EARLIER REFERENCE IN RESPECT OF PAYMEN T OF NON-COMPETE CONSIDERATION AND THIS AMOUNT WAS INCLUDED IN THE F IGURE OF REVISED SALES CONSIDERATION. IN OTHER WORDS, THE AMOUNT OF RS.38 PER SHARE PROVIDED AS NON-COMPETE FEES WAS INCLUDED IN THE SALES CONSIDER ATION OF THE SHARES, MEANING THEREBY, ACCORDING TO THE ASSESSEE, SHARES WERE SOLD @ RS.190 PER SHARE. THE ASSESSEE HAS COMPUTED THE CAPITAL GAIN O N SALE OF SHARES @ 190. LEARNED A.O. HAS ACCEPTED THIS COMPUTATION OF THE A SSESSEE. HE HAS NOT MENTIONED ANYTHING ABOUT THIS IN THE ASSESSMENT ORD ER. HIS ASSESSMENT ORDER 4 THOUGH PASSED UNDER SEC. 143(3) BUT RUNNING INTO 6- 7 LINES ONLY. IT READS AS UNDER: ASSESSMENT ORDER RETURN OF INCOME FILED ON 31.10.2007 DECLARING INCO ME OF RS.905966319. THE CASE WAS SELECTED FOR SCRUTINY. N OTICE U/S. 143(2) OF THE INCOME-TAX ACT, 1961 WAS ISSUED ON 18.09.200 8 AND DULY SERVED UPON THE ASSESSEE. IN RESPONSE TO THE STATUT ORY NOTICES, SH. VIRENDER KUMAR, CA, AR ATTENDED OFFICE FROM TIME TO TIME AND PRODUCED NECESSARY DETAILS/DOCUMENTS WHICH HAVE BEE N PLACED ON RECORD. AFTER DISCUSSION RETURNED INCOME OF THE ASSESSEE IS ACCEPTED. ASSESSED AT RS.905966319. ISSUE NECESSARY FORMS. 4. LEARNED COMMISSIONER ON AN ANALYSIS OF THE RECOR D FORMED AN OPINION THAT ASSESSING OFFICER HAS APPLIED INCORRECT PROVIS IONS OF LAW WHEREBY THE PAYMENT RECEIVED @ RS.38 PER SHARE IN LIEU OF NON- COMPETE CLAUSE HAS BEEN ACCEPTED IN THE COMPUTATION OF LONG TERM CAPITAL GA IN. THIS AMOUNT OUGHT TO HAVE BEEN ASSESSED AS A BUSINESS INCOME UNDER SECTI ON 28(VA) OF THE I.T. ACT. HE ISSUED SHOW-CAUSE NOTICE UNDER SECTION 263 OF THE ACT INVITING ASSESSEES EXPLANATION AS TO WHY THE ASSESSMENT ORD ER BE NOT TREATED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE. THE 5 SHOW-CAUSE NOTICE ISSUED BY THE LEARNED COMMISSIONE R ON 24.2.2010 UNDER SEC. 263 OF THE INCOME-TAX ACT, 1961 READS AS UNDER : SHRI HULAS RAHUL GUPTA C-12, FRIEND COLONY, NEW DELHI. PAN. AAAPG4437F ASSESSMENT YEAR 2007-08 ON AN EXAMINATION OF THE RECORDS IN YOUR CASE FOR A .Y. 2007-08 IT IS OBSERVED THAT YOU HAD SHOWN THE LONG TERM CAPITAL G AIN OF RS.85,07,43,805 FROM THE SALE OF 46,63,618 SHARES @ RS. 190 OF PHONIX LAMPS LTD. AND THESE SHARES WERE PURCHASED/A CQUIRED FROM 27.12.1992 TO 13.3.2003 AND THE TOTAL COST PRICE OF THE SHARES AS SHOWN BY YOURSELF IS RS.3,50,44,015. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS YOUR AR HAD FILED THE COPY OF ESCROW AG REEMENT DATED 3.7.2007, IT APPEARED THAT THE ACQUIRER AND SELLERS HAVE ENTERED INTO A CERTAIN WARRANT SUBSCRIPTION AND SHARE PURCHASE AGR EEMENT OF EVEN DATE FOR, INTER ALIA, THE SALE BY THE SELLERS TO AC QUIRER OF 8735727 EQUITY SHARES OF THE COMPANY FOR A PRICE OF 152 PER EQUITY SHARE (TOTAL OF RS.1327,830,504) AND RS. 38 PER EQUITY SHARE AS NON COMPETE CONSIDERATION (RS.33,19,57,626). FURTHER, IT APPEARS FROM THE ASSESSMENT RECORD YOU HAD SHOWN THE SALE OF PHONIX LAMPS LTD SHARES FOR RS.88,6087,420 @ RS. 152 + 38) PER SHARES. THIS IS NOT ALLOWABLE BECAUSE THE NON COMPE TE CONSIDERATION ON 46,63,618 @ RS.38 SHARES (RS.17,72,17,484) ALWAY S TAXED UNDER SEC. 28(VA) UNDER THE HEAD INCOME FROM BUSINESS. RE SULTING OF THIS 6 MISTAKE THE INCOME WAS NOT PROPERLY ASSESSED BY THE A.O. UNDER THE PROPER HEADS OF INCOME. IN VIEW OF THE CALCULATION ON CAPITAL GAIN AND INCOME FROM BUSINESS AND TAX CALCULATION IS AS UNDE R: (A ) LONG TERM CAPITAL GAIN SHARE OF PHONIC LAMPS LTD. : SALES VALUE OF 46,63,618 SHARES @ 152 =70,88,69,93 6 LESS: EXPENDITURE ON TRANSFER RS.2,99,600 COST OF ACQUISITION RS.3,50,44,0 15 = 3,53,43,615 LONG TERM CAPITAL GAIN =67,35,26,321 TAX ON LONG TERM CAPITAL @ 10% 6,73,52,632/- (B) INCOME FROM BUSINESS NON COMPETE CONSIDERATION RECEIVED ON 46,63,618 SHA RES @ 38/- PER SHARES = RS.17,72,17,484/- TAX ON 17,72,17,484 @ 30% = 12,05,17,874 TOTAL TAX (LTGG + TAX ON BUSINESS INCOME) = 12,05, 17,874 RESULTING OF ABOVE, TAX IS UNDER CHARGED TO THE TUN E OF RS.3,54,43,494/- EXCLUDING SURCHARGE AND EDUCATION TAX (RS.12,05,17,874/- (-) TAX PAID BY THE ASSESSEE ON LONG TERM CAPITAL GAINS IS 8,50,74,380/-) 7 FROM THE ABOVE, IT IS CLEAR THAT THE ORDER DATED 5. 11.2009 PASSED U/S. 143(3) OF THE ACT FOR A.Y. 2007-08 WITHOUT DUE APPL ICATION OF CORRECT PROVISIONS OF THE LAW, IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, YOU ARE GIVEN AN OPPORTUNITY TO REPRES ENT YOUR CASE IN PERSON AND OR THROUGH ON AUTHORIZED REPRESE NTATIVE AS PROVIDED U/S. 263 OF THE INCOME-TAX ACT, 1961. YOUR CASE IS FIXED FOR HEARING ON 3.3.2010 AT 11.30 AM IN MY ROOM NO.412, 4 TH FLOOR, MAYUR BHAWAN, CONNAUGHT PLACE, NEW DELHI. SD/- ( J.B. MOHAPATRA) COMMISSIONER OF INCOME-TAX, DELHI-XVI, NEW DELHI. 5. IN RESPONSE TO THE NOTICE, ASSESSEE RAISED MAINL Y TWO FOLD SUBMISSIONS. IT WAS CONTENDED THAT THE PLAIN READING OF SECTION 28(VA) OF THE ACT SUGGESTS THAT THIS CLAUSE WOULD BE APPLICABLE WHEN AN ASSESS EE AGREES NOT TO CARRY OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS. THE STRES S WAS THAT IF AN ASSESSEE REFRAINED HIMSELF FROM CARRYING OUT ONE OR MORE ACT IVITY IN RELATION TO A BUSINESS, THEN THE AMOUNT RECEIVED IN LIEU OF THAT REFRAINMENT WOULD BE TAXED AS INCOME OF THE ASSESSEE U/S. 28(VA) OF THE ACT. B UT THE PROVISO APPENDED TO THIS CLAUSE SUGGESTS THAT IF ANY SUM RECEIVED OR RE CEIVABLE ON ACCOUNT OF TRANSFER OF RIGHT TO CARRY ON ANY BUSINESS THEN THE SAME WOULD BE CHARGEABLE UNDER THE HEAD CAPITAL GAIN. ACCORDING TO THE ASS ESSEE, THE DISTINCTION BETWEEN BOTH THE SITUATIONS IS THAT WHEN AN AGREEME NT TO REFRAIN FROM DOING 8 AN ACTIVITY IN RESPECT OF ANY BUSINESS THEN IT IS C OVERED UNDER BUSINESS GAIN, BUT IF AN ASSESSEE REFRAIN ITSELF FROM DOING ANY BU SINESS I.E. THE VERY APPARATUS OF THE BUSINESS IS SOLD THEN IT WOULD ATT RACT CAPITAL GAIN. ACCORDING TO THE ASSESSEE, ARTICLE 13 OF THE WSSPA SUGGESTS T HAT ASSESSEE HAS TRANSFERRED THE RIGHT TO CARRY ON THE BUSINESS ONLY . HE HAS NOT RECEIVED ANYTHING FOR REFRAINING HIMSELF FROM DOING ANY ONE OR MORE ACTIVITY IN THE LINE OF THAT BUSINESS. IN OTHER WORDS, THE CASE OF THE ASSESSEE BEFORE THE LEARNED COMMISSIONER WAS THAT WHOLE BUSINESS AS AN EARNING APPARATUS STANDS TRANSFERRED AND NOT SINGLE ACTIVITY OR ACTIV ITIES. THE SECOND FOLD OF THE SUBMISSIONS RAISED BY THE ASSESSEE HAS BEEN TAKEN N OTE BY THE LEARNED CIT(APPEALS) IN SUMMARIZED FORM ON PAGE 5 PARAGRAPH 2.3. IT READS AS UNDER: 1. THERE EXISTS A LEGALLY ENFORCEABLE AND FINAL AG REEMENT BETWEEN THE PARTIES WHICH WAS EXECUTED AND ACTED UPON BY TH E PARTIES, WHICH HAD NOT BEEN DENIED BY EITHER PARTY, AND WHICH WAS CONSIDERED BY THE REGULATORS SUPPORTING PRICE OF RS. 190 PER SHARE. 2. THERE IS NO INTENTION ON THE PART OF THE EITHER PARTY TO FORM THE TRANSACTION IN A MANNER TO REDUCE TAX LIABILITY, HE NCE, WHEN SALE CONSIDERATION FOR SHARES IS APPARENTLY RS. 190, THE RE IS NO NEED TO ASSUME THE SAME TO BE DIFFERENT. IN THE CASE OF AZ ADI BACHAO ANDOLAN, THE SUPREME COURT HAD VERY CLEARLY LAI D DOWN THAT, THE REVENUE SHALL NOT INTERFERE WITH A TRANSACTION MERELY BECAUSE IT HAD BEEN DONE IN A MANNER THAT SAVES TAX. IN PRESENT CA SE, EVEN THAT 9 MANNER HAD BEEN FORCED BY THE LAW ITSELF AND THERE IS NO DOUBT ABOUT THE BONA FIDES OF THE ASSESSEE. 3. THE PRICE OF RS. 190 PER SHARE IS ALSO SUPPORTED BY THE MARKET AT WHICH THE ACQUIRERS HAD BEEN ABLE TO PROCURE AS MUCH AS 20% OF THE COMPANIES SHARE HOLDING FROM GENERAL PUBLIC THR OUGH OPEN OFFER. 4. THE REGULATOR ITSELF HAS DIRECTED THE PRICE TO B E RS. 190 PER SHARE AND IF THE SAME PRICE IS ADOPTED BY THE PARTI ES FOR TAXATION PURPOSES, THERE SHALL NOT BE ANY DOUBT ABOUT THE BO NA FIDE OF THE ASSESSEE. 5. IT CAN BE CLEARLY INFERRED THAT PRICING AT RS. 1 52 PER SHARE WAS NON-COMPLIANCE OF THE TAKE OVER CODE AND HENCE, NON -WORKABLE AS PER AGREEMENT ITSELF. THUS, THE FIRST AGREEMENT VOI DS ITSELF TO THE EXTENT OF NON-COMPLIANCE AND THEIR REMAINS NO SANCT ITY OF THE SALE PRICE OF RS. 152. ONLY THE PRICE OF RS. 190 PER SHA RE IS CONTRACTUAL PRICE AVAILABLE. 6. THE AMENDMENT IN WSSPA SIGNIFY THE ACCEPTANCE OF THE PARTIES, EVEN IF WITH RELUCTANCE, BUT THE TRANSACTI ON THAT HAD BEEN ENTERED AND EXECUTED BETWEEN AGREEING PARTIES HAS T O BE SEEN AS IT IS AND NO INTERFERENCE IS CALLED FOR. IT MAY ALSO BE MENTIONED THAT THE ASSESSEE WAS A SH AREHOLDER OF THE COMPANY AND WAS PAID PRICE FOR TRANSFER OF ITS SHARES AT PAR WITH THE PUBLIC AND ACCORDINGLY TREATED SALE CONSIDERATI ON TOWARDS SALE OF SHARES OF A LISTED COMPANY AND OFFERED CAPITAL GAIN FOR TAX ACCORDINGLY. TO OUR UNDERSTANDING THE SHAREHOLDERS WHO SOLD THEIR SHARES IN PUBLIC OFFER AT THE SAME PRICE I.E. RS. 1 90 PER SHARE HAVE GIVEN THE SAME TREATMENT FOR THE PURPOSE OF TAXATIO N AND THEREFORE, IN THIS CASE CANNOT BE TREATED DIFFERENTLY. 10 6. LEARNED CIT ON AN ANALYSIS OF ALL THESE DETAILS RECORDED A FINDING THAT SEBI HAD NOT ADVISED THE ACQUIRER TO AMEND THE NEGO TIATED PRICES. THE SEBI HAS ONLY ADVISED TO THE ACQUIRER TO REVISE THE OFFE R PRICE BY INCLUDING THE PAYMENT OF NON-COMPETE FEES IN THE NEGOTIATED PRICE , IT WAS MEANT FOR THE PUBLIC. LEARNED CIT HAS NOT RAISED ANY DISPUTE WITH REGARD TO THE PROPOSITION THAT IN THE AMENDED WSSPA, THE CLAUSES REPRESENTING NON-COMPETE CONSIDERATION HAVE BEEN OMITTED. LEARNED CIT OBSERV ED THAT IN THE COMMERCIAL WORLD, THERE IS NO FREE LUNCH. EACH OF T HE ACTIVITIES, PARTIES TO AN AGREEMENT DECIDE UPON AND CHARGE A PRICE. THE PRE-R EVISED WSSPA PROVIDES NON-COMPETE CONSIDERATION IN THE REVISED W SSPA, THE ASSESSEE HAS OMITTED THE EXPRESSION REPRESENTING NON-COMPETE CO NSIDERATION. LEARNED COMMISSIONER THOUGH AGREED THAT IT IS NOT THE CASE OF ANY PARTY THAT AMENDMENT TO WSSPA WAS CONTRIVED. FEW OBSERVATIONS REFERRED BY US ARE WORTH TO NOTE FROM THE ORDER OF THE LEARNED COMMISS IONER. THEY READ AS UNDER: 4.2(C) WHAT THE AMENDMENT TO WSSPA HAS DONE TO THE RECITALS OF THE EARLIER AGREEMENT IS THESE. IT HAS DELETED T HE DEFINITION OF NON- COMPETE CONSIDERATION IN CLAUSE 1.1. IT HAS OMITTE D NON-COMPETE CONSIDERATION IN EACH OF THE CLAUSES IN 4.2, 4.3 A ND 9.1. IN CLAUSE 3.1 OF THE AGREEMENT WHEREAS, IT WAS EARLIER PROVIDED T HAT THE SALE PRICE WOULD BE RS.152 PER SHARE AND THAT THE SELLERS ARE ENTITLED TO RS. 132, 78, 30, 504 IN RESPECT OF 87,35,727 SHARES, THE AME NDMENT WOULD 11 INDICATE THAT THE SHARE PRICE WOULD BE RS. 190 PER SHARE AND THAT THE SELLERS ARE ENTITLED TO RS. 165,97,88,130. THIS PIE CE OF ENGINEERING WAS ACTUATED BY OMITTING IN TO TO CLAUSE 13.2 OF TH E WSSPA (CLAUSE 13.2 OF WSSPA MAKES MENTION OF PAYMENT OF RS.33,19, 57,626 BY WAY OF NON-COMPETE CONSIDERATION). SIMPLY SAID, THE AMENDMENT SALE PRICE IS THE SUM TOTAL OF EARLIER SALE PRICE AND TH E NON-COMPETE CONSIDERATION. X X X X X X 4.2(G). IT IS ACCEPTED THAT THERE IS NO FREE LUNCH IN THE COMMERCIAL WORLD. EACH OF THE ACTIVITIES, PARTIES T O AN AGREEMENT DECIDE UPON AND EXECUTE, HAS A PRICE. THE PRE-REVIS ED WSSPA IN ACCORDANCE WITH THE SEBI TAKE OVER CODE LAID DOWN 2 5% OF THE SHARE PRICE AS NON-COMPETE CONSIDERATION. SEBI HAS NOT DISPUTED EITHER THE RIGHT OF THE SELLERS OF THEIR SHARE OF N ON-COMPETE CONSIDERATION NOR THE QUANTUM PAYABLE TO THEM. BY S UBSUMING THE NON-COMPETE CONSIDERATION IN THE SALE CONSIDERATION AND SIMULTANEOUSLY RETAINING THE CLAUSES OF THE NON-COM PETE CONSIDERATION IN THE REVISED WSSPA, IT CANNOT BE SAID THAT RS.38 PER SHARE DID NOT REPRESENT NON-COMPETE CONSIDERATION AS SELLERS RIG HT AND THE ACQUIRERS LIABILITY AS PER CLAUSE 13.1 OF THE PRE- AMENDED AND POST AMENDED WSSPA X X X X X X 12 4.2(I) IN CIT AS B.M. KHARWAR 72 ITR 603, S C HEL D THAT WHILE THE TAXING AUTHORITIES ARE ENTITLED TO DETERMINE TH E TRUE LEGAL RELATION RESULTING FROM A TRANSACTION TO UNRAVEL THE DEVICE ADOPTED BY A PARTY, THE LEGAL EFFECT OF A TRANSACTION. IF ONE GOES BY T HE RATIO OF LAW IN THE CASE DECIDED UPON (SUPRA), IT IS NOT ANY BODYS CAS E THAT THE AMENDMENT TO WSSPA WAS CONTRIVED. MOREOVER, AMENDME NT TO WSSPA WAS ON VARIOUS OTHER MATTERS, NOT FORMING ANY PART OF THE ISSUE ON HAND. THE CRUX IS WHETHER BY OMITTING THE DEFINITION OF NON- COMPETE CONSIDERATION AND CLUBBING THE AMOUNT OF NO N-COMPETE CONSIDERATION WITH THE SALE CONSIDERATION, THE LEGA L EFFECT AS REGARDS THE TAXABILITY OF THE AMOUNT OF NON-COMPETE CONSIDE RATION COMPRISING IN THE SALE CONSIDERATION COULD BE INTERPRETED IN A NY MANNER, OTHER THAN AGAINST THE INTERPRETATION ADVANCED BY THE ASS ESSEE. FOR THE REASONS GIVEN HERE IN BEFORE AND TAKING SUPPORT OF JIYAJEE REASSESSMENT ORDER COTTON MILLS VS. CIT 34 ITR 888 (S.C), I HOLD THAT NON-COMPETE CONSIDERATION AT RS. 38 PER SHARE IS TAXABLE AS INCOME FROM BUSINESS U/S. 28(VA) OF THE ACT, AND WH ILE BOTH THE WSSPA AND ITS AMENDMENT ARE VALID AND LEGAL, THE IN TERPRETATION ON THE TAXABILITY OF NON-COMPETE CONSIDERATION MADE OU T BY THE ASSESSEE IN THE CONTEXT OF BOTH THE DOCUMENTS IS ILLOGICAL A ND WITHOUT BASIS. 7. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDER OF THE LEARNED COMMISSIONER SUBMITTED THAT THOUGH ASSESSME NT ORDER IS VERY BRIEF, IT NOWHERE DISCUSSED THE TAXABILITY OF LONG TERM CA PITAL GAIN ON TRANSFER OF SHARES, BUT ASSESSEE HAS PRODUCED BOTH THE WSSPA BE FORE THE ASSESSING 13 OFFICER. HIS ACCOUNTS ARE DULY AUDITED. ALL THE REL EVANT DETAILS FOR DETERMINATION OF TRUE INCOME WAS PRODUCED BEFORE TH E ASSESSING OFFICER. LEARNED COMMISSIONER HAS NOT ISSUED SHOW-CAUSE NOTI CE UNDER SEC. 263 ON ACCOUNT OF NO INQUIRY OR INADEQUATE INQUIRY CONDUCT ED BY THE ASSESSING OFFICER. HIS SHOW-CAUSE NOTICE IS BASED ON THE GROU ND THAT ASSESSING OFFICER HAS APPLIED INCORRECT PROVISIONS WHILE DETERMINING THE LONG TERM CAPITAL GAIN ASSESSABLE IN THE HANDS OF THE ASSESSEE. THE LEARNE D COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE SHOW-CAUSE NOTICE AVAILABLE ON PAGES 219 TO 220 OF THE PAPER BOOK (EXTRACTED SUPRA). THE SHOW-CAUSE NOTICE SUGGESTS THAT THE LEARNED COMMISSIONER HAS NO GRIEVANCE ABOUT THE INV ESTIGATION MADE BY THE ASSESSING OFFICER BEFORE ACCEPTING ASSESSEES CLAIM . HIS GRIEVANCE IS THAT ASSESSING OFFICER HAS APPLIED INCORRECT PROVISIONS OF LAW AND, THEREFORE, HIS ORDER IS ERRONEOUS AS MUCH AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUB MITTED THAT THE REVENUE HAS FILED A PAPER BOOK WHEREIN A LETTER DAT ED 12.10.2010 WRITTEN BY THE LEARNED COMMISSIONER IN THE SHAPE OF AN AFFIDAV IT HAS BEEN PLACED ON PAGE 1. THIS SO CALLED AFFIDAVIT IS NOT AN AFFIDAVI T, IT IS NEITHER ON ANY STAMP PAPER NOR SWORN BY THE LEARNED COMMISSIONER. THE RE VENUE CANNOT GO BEYOND THE SCOPE OF SHOW-CAUSE NOTICE ISSUED UNDER SEC. 263 AND THE 14 DISCUSSION MADE IN THE IMPUGNED ORDER. BY SUCH TYPE OF LETTER, LEARNED COMMISSIONER CANNOT IMPROVE THE CASE OF THE REVENUE BEFORE THE ITAT. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE TAKING US TH ROUGH THE ORDER OF THE LEARNED COMMISSIONER POINTED OUT THAT THE FIRST REA SON ASSIGNED BY THE LEARNED COMMISSIONER FOR EXERCISING POWERS UNDER SE C. 263 IS ON THE GROUND THAT ASSESSING OFFICER HAS APPLIED WRONG PRO VISIONS OF LAW, LEARNED COMMISSIONER HAS OBSERVED THAT SEBI HAS NOT ADVISE D THE ACQUIRER TO ASSESS THE NEGOTIATED PRICE BUT IT HAS ONLY RENDERED ADVIS E TO THE ACQUIRER TO REVISE THE OFFER PRICE. LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT LEARNED COMMISSIONER HAS IGNORED THE AMENDED WSSPA WHICH WA S EXECUTED AFTER THE ADVISE OF THE SEBI AND ONCE A FRESH WSSPA HAD B EEN ENTERED BY THE PARTIES WHEREBY SALE CONSIDERATION WAS STATED AT RS .190 PER SHARE, THERE IS NO JUSTIFICATION TO SEGREGATE THE PRICE AND CONCLUDE T HAT CONSIDERATION FOR SHARE WAS 152 RUPEES PER SHARE AND TOWARDS NON-COMPETE CL AUSE IT IS RS.38 PER SHARE. ACCORDING TO THE LEARNED COUNSEL FOR THE ASS ESSEE, LEARNED COMMISSIONER REWROTE THE WSSPA WHICH HE HAS NO JURI SDICTION. THE SECOND REASON ASSIGNED BY THE LEARNED COMMISSIONER IS THAT ASSESSEE HAS ONLY OMITTED CONSIDERATION FOR NON-COMPETE, OTHERWISE, T HE CLAUSE REFRAINING THE ASSESSEE FROM DOING THIS VERY BUSINESS IS VERY MUCH AVAILABLE IN THE AMENDED WSSPA. THUS, THE ASSESSEE OUGHT TO HAVE CHA RGED A PRICE FOR THIS 15 REFRAINMENT. THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT LEARNED COMMISSIONER HAS FAILED TO APPRECIATE THAT UNDER TH E AMENDED WSSPA, THERE WAS NO SEPARATE CONSIDERATION FOR NON-COMPETE FEES. THE SOURCE OF POWERS FOR THE REVENUE TO TAX NON-COMPETE CONSIDERA TION AS A BUSINESS INCOME UNDER SEC. 28(VA) OF THE ACT IS THE WSSPA. T HEY CANNOT ASSUME CERTAIN CLAUSES WHICH HAVE BEEN OBLITERATED BY THE ASSESSEE. LEARNED COMMISSIONER FURTHER OBSERVED THAT OPEN OFFER PRICE TO OTHER SHAREHOLDERS CANNOT BE A VALID BASIS TO SAY THAT ASSESSEE HAS SO LD THE SHARE @ RS. 190 PER SHARE. THE CASE OF THE ASSESSEE IS GOVERNED BY WSSP A AND NOT OPEN OFFER. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THE ASSESSEE IS NOT DISPUTING THAT HIS CASE IS GOVERNED BY WSSPA BUT LE ARNED COMMISSIONER IS ASSUMING EXISTENCE OF CLAUSES WHICH HAVE BEEN OMITT ED BY THE ASSESSEE AND THE ACQUIRER. HE CANNOT BROUGHT THE AMOUNT TO TAX O N THE BASIS OF A CONTRACT WHICH IS NO MORE IN EXISTENCE AND NOT ENFORCEABLE B Y THE PARTIES. 9. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS NEXT FOLD OF SUBMISSIONS POINTED OUT THAT THERE WERE FOUR SHAREHOLDERS. PRIY A DAS GUPTA WAS HOLDING 14.68% OF THE SHARES. THIS PERSON SOLD 35,000 SHARE S AND NO NON-COMPETE FEES WAS PRESUMED IN HER CASE. SIMILAR IS THE SITUA TION WITH REGARD TO OTHER TWO PROMOTERS. THE REVENUE OUGHT TO HAVE ADOPTED A UNIFORM POLICY. FOR THE 16 PRINCIPLE OF CONSISTENCY, HE RELIED UPON THE JUDGME NT OF HON'BLE SUPREME COURT IN THE CASE OF RADHA SOAMI SATSANG VS. CIT RE PORTED IN 193 ITR 321. 10. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT MORE THAN 20% SHARES WERE ACQUIRED BY THE ACQUIRER FROM THE P UBLIC AT A PRICE OF RS.190 PER SHARE. IF THAT BE THE MARKET PRICE OF A SHARE THEN HOW LEARNED COMMISSIONER CAN SAY THAT THE ASSESSEE HAS SOLD THE SHARE FOR A CONSIDERATION OF RS.152 PER SHARE AND CHARGED NON-C OMPETE FEE OF RS.38 PER SHARE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT SECTION 62 OF THE CONTRACT AT SPECIFIES THAT IF THE PARTIES TO A CONTRACT AGREE TO SUBSTITUTE A NEW CONTRACT FOR IT, OR TO RESCIND OR ALTER IT, T HE ORIGINAL CONTRACT NEEDS NOT BE PERFORMED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER AP PRAISED US THE SCOPE OF AND AMBIT OF SECTION 263 IN WHICH SITUATION, THIS S ECTION CAN BE INVOKED. HE EMPHASIZED THAT WHERE TWO VIEW ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN A VIEW WITH WHICH THE LEARNED COMMISSIONER DO ES NOT AGREE, THE SAID ORDER CANNOT BE TREATED AS ERRONEOUS AS WELL AS PRE JUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. FOR BUTTRESSING HIS CONTENTIONS, HE RELIED UPON THE JUDGMENT OF THE 17 HON'BLE SUPREME COURT IN THE CASES OF MALABAR INDUS TRIAL CO. LTD. VS. CIT REPORTED IN 243 ITR 83 AND CIT VS. MAX INDIA REPORT ED IN 295 ITR 282. HE ALSO REFERRED FOLLOWING DECISIONS:- I) 323 ITR 632 (BOM) CIT VS. DESIGN AND AUTOMATION ENG INEERS; II) 294 ITR 121 (CHENNAI) CIT VS. MEPCO IND. LTD.; III) 303 ITR 23 ( P & H) CIT VS. MUNJAL CASTINGS; IV) 321 ITR 92 (BOM.) GRASIM INDUSTRIES LTD. VS. CIT; V) 329 ITR 289 (DEL.) CIT VS. DLF POWER LTD. VI) 325 ITR 343 ( P&H ) CIT VS. TEK CHANDI SAINI VII) 235 CTR 236 (DEL.) CIT VS. HONDA SIEL POWER PRODUCT S LTD. VIII) 227 CTR 133 (DEL.) CIT VS. SUN BEAM AUTO LTD. 12. LEARNED DR ON THE OTHER HAND SUBMITTED THAT BEF ORE ASSESSING OFFICER ASSESSEE HAS NOT FILED COMPLETE DOCUMENTS. HE DEMON STRATED AS TO HOW THE PAGES OF PRE-AMENDED WSSPA WERE MISSING. HE POINTED OUT THAT ASSESSEE FAILED TO SUBMIT 13 PAGES OF WSSPA AND THESE PAGES ARE 5, 8, 14, 16 AND 17 ETC. HE DEMONSTRATED AS TO HOW THESE PAGES ARE NOT FORMING PART OF THE WSSPA. TAKING US THROUGH THE PAPER BOOK OF THE REVE NUE, HE POINTED OUT THAT ON THE BACK SIDE OF PAGE 4 OF WSSPA, THERE IS A PAGE 6 AND 5 IS MISSING. SIMILAR IS THE SITUATION WITH REGARD TO PAGE 7 ON I TS BACK IS PAGE 9 INSTEAD OF PAGE 8. THIS SUGGESTS THE LEVEL OF MIND APPLICATION AT THE END OF THE 18 ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT. NO DISCUSSION IS DISCERNIBLE IN THE ASSESSMENT ORDER. THE CRUCIAL PA GES WHERE THE SCOPE OF NON-COMPETE AGREEMENT WERE MENTIONED ARE PAGES 17 & 13. THESE PAGES WERE MISSING. THUS, ASSESSING OFFICER HAS NOT APPLI ED HIS MIND ON THIS ISSUE. LEARNED DR THEREAFTER APPRAISED US UNDER WHI CH SITUATION SECTION 263 CAN BE INVOKED. LEARNED DR HAS FILED WRITTEN SUBMIS SIONS. THEY READ AS UNDER: 4. IN THIS FACTUAL BACKGROUND, ONE HAS TO SEE WHET HER CITS ACTION U/S 263 IS IN ORDER OR NOT. THERE IS NO DISPUTE WI TH THE PROPOSITION ESPOUSED BY THE LD.AR THAT AN ORDER PASSED BY THE A SSESSING OFFICER CAN BE REVISED U/S 263 IF THE FOLLOWING CONDITIONS ARE SATISFIED:- (A) THERE IS WRONG ASSUMPTION OF FACTS; (B) THERE IS INCORRECT APPLICATION OF LAW; (C) THERE IS LACK OF ENQUIRY WHEN FURTHER ENQUIRY W AS REQUIRED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E; (D) WHERE AN ORDER HAS BEEN PASSED WITHOUT APPLICAT ION OF MIND OR IN A STEREO-TYPED MANNER; (E) WHERE THERE HAS BEEN BREACH OF PRINCIPLES OF NA TURAL JUSTICE. 19 5. APPLYING THE AFORESAID PROPOSITIONS TO THE FACTS OF THIS CASE, IT IS FOUND THAT THE ASSESSING OFFICER HAS NOT CONSIDE RED THE FOLLOWING CRUCIAL FACTS WHILE COMPLETING THE SCRUTINY ASSESS MENT. (I) HE DID NOT EXAMINE THE ORIGINAL WSSPA AND ITS C ONTENTS PROPERLY. HAD HE DONE SO, HE WOULD HAVE FOUND THAT MANY CRUCIAL PAGES IN THE SAID AGREEMENT WERE MISSING AND THAT T HE APPELLANT HAD RECEIVED A SUM OF RS.33,19,57,626/- AS NON-COMPETE CONSIDERATION. (II) HE ALSO DID NOT TAKE INTO CONSIDERATION THE NE WLY INSERTED SECTION 28(VA) (INTRODUCED W.E.F. 01-04-2003) WHICH PROVIDED THAT ANY SUM RECEIVED IN THE NATURE OF NON-COMPETE CONSIDE RATION UNDER AN AGREEMENT IS LIABLE TO BE TAXED AS BUSINESS INCOM E AT THE HIGHER RATE OF 30% AS AGAINST 10% UNDER THE HEAD CAPITAL GAINS . (III) HE ALSO DID NOT TAKE INTO CONSIDERATION THE T RUE IMPORT OF OTHER DOCUMENTS SUBMITTED BY THE APPELLANT BEFORE HIM DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. FOR EXAMPLE, HE DID NOT RE ALIZE THAT SEBIS LETTER DATED 27-12-2006 ( PAGES 61 TO 64 OF THE APPELLANTS PAPER BOOK ) WAS MEANT ONLY FOR THE SMALL AND MARGINAL SHAREHO LDERS WHOSE INTEREST WAS SUPPOSED TO BE PROTECTED UNDER SEBI (S UBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS) REGULATIONS, 199 7 ( PAGES 121 TO 146 OF THE DEPARTMENTAL PAPER BOOK ). ACCORDING TO THE SEBIS TAKEOVER REGULATIONS, 1997, WHENEVER ANY ACQUIRER A CQUIRES MORE THAN 15% IN ANY COMPANY EITHER THROUGH MARKET TRANS ACTIONS OR OFF- MARKET DEALS FROM PROMOTERS, AN OPEN OFFER TO ACQUI RE 20% ADDITIONAL SHARES HAS TO BE MADE TO SMALL SHAREHOLDERS SO AS T O PROTECT THEIR INTEREST. (PLEASE REFER TO COL.2.2.1 OF THE LETTER OF OFFER , PAGE 10 OF APPELLANTS PAPER BOOK). SINCE THE ACQUIRERS IN TH E INSTANT CASE I.E. ARGON INDIA LTD AND ARGON SOUTH ASIA LTD, WERE ACQ UIRING 36.63% 20 OF THE PROMOTERS QUOTA FROM THE APPELLANT, WHO WAS THE MANAGING DIRECTOR OF THE COMPANY AND HIS RELATIVES, THEY WER E REQUIRED TO MAKE A PUBLIC OFFER UNDER SEBIS TAKEOVER REGULATIONS, 1 997. THE SAID REGULATIONS PROVIDED THAT IN CASE THE ACQUIRERS WER E PAYING NON- COMPETE FEE TO THE PROMOTERS AT THE RATE OF 25% OR HIGHER OF THE SALE PRICE, THAN THE OFFER TO PUBLIC SHAREHOLDERS SHOULD BE MADE AT THE RATE INCLUSIVE OF THE NON-COMPETE FEE. (PLEASE REFER T O PAGE 146 OF DEPARTMENTAL PAPER BOOK). THEREFORE, IN THE LIGHT O F SUCH PROVISIONS ONLY, THE SEBI ADVISED THE ACQUIRERS TO INCREASE TH E OFFER PRICE FROM RS.152 TO RS.190 PER SHARE TO THE PUBLIC / MINORITY SHAREHOLDERS AFTER INCLUDING NON-COMPETE FEE OF RS.38/- PER SHARE. BU T ONE SHOULD NOT LOSE SIGHT OF THE FACT THAT THIS REVISION OF OFFER PRICE FROM RS.152/- TO RS.190/- WAS ONLY MEANT FOR PUBLIC SHAREHOLDERS O THER THAN THE PROMOTERS. IT WAS NEVER MEANT TO BE APPLICABLE TO THE PROMOTERS, WHOSE SHARES WERE BEING ACQUIRED UNDER A SEPARATE C ONTRACT /AGREEMENT KNOWN AS WSSPA. THIS IS UNEQUIVOCALLY P ROVIDED IN PAGE 4 OF THE LETTER OF OFFER (SEE PAGE 7 OF THE APPELLANTS PAPER BOOK ), WHEREIN IT IS MENTIONED AS UNDER: OFFER OFFER TO ACQUIRE UPTO 56,03,860 FULLY PAID UP EQUITY SHARES OF THE FACE VALUE OF RS.10/- EACH REPRESENTING 20.00% OF THE VOTING PAID UP EQUITY SHARE CAPITAL (ASSUMING CONVERSION OF 41,70,000 WARRANTS ISSUED TO THE ACQUIRERS INTO 41,70,000 EQUITY SHARES BEFORE THE COMPLETION OF OFFICER FORMALITIES) OFFER PRICE RS.190/- PER FULLY PAID UP EQUITY SHARE 21 PERSONS ELIGIBLE TO PARTICIPATE IN THE OFFER ALL OWNERS (REGISTERED AND UNREGISTERED) OF SHARES OF PHEONIX LAMPS LTD EXCEPT (I) PARTIES TO THE WSSPA I.E. (A) ACQUIRERS AND (B) SELLERS AS DEFINED THEREIN AND (C) PACS SELLERS MR BHUSHAN KUMAR GUPTA, MR HULAS RAHUL GUPTA, MS PRIYA DESH GUPTA AND MS ABHA GUPTA THUS, THERE IS NOT AN IOTA OF DOUBT THAT THE OFFE R PRICE WAS MEANT FOR PUBLIC SHAREHOLDERS & NOT THE PROMOTER SHAREHOLDERS . (IV) SIMILARLY, AS MENTIONED EARLIER, THE SEBIS OR DER DID NOT DIRECT THE ACQUIRER TO MAKE ANY CHANGES TO THE PAYMENTS MA DE TO THE PROMOTERS. SEBIS ORDER DOES NOT QUESTION THE ENTI TLEMENT OF THE PROMOTERS TO NON-COMPETE FEE. SEBIS ORDER DOES NO T SAY THAT THE NON-COMPETE FEE IS NOT PAYABLE TO PROMOTERS. SEBI S ORDER ONLY DIRECTS THE COMPANY TO AMEND THE PAYMENTS TO BE MAD E TO NON- PROMOTERS IN THE OPEN OFFER. THERE IS NO COMPARI SON BETWEEN THE PAYMENT OF RS.190/- TO THE PROMOTER AND RS.190/- TO THE NON- PROMOTERS, SINCE THEY ARE NOT COMPARABLES. PAYMENT TO A NON- PROMOTER SHAREHOLDER IS BY WAY OF SEBIS ORDER. PA YMENT TO THE PROMOTERS IS BY WAY OF WSSPA AND BOTH ORIGINAL AND REVISED WSSPA RETAINED NON-COMPETE CLAUSES. WHILE THE OR IGINAL WSSPA PROVIDED FOR NON COMPETE CONSIDERATION, THE REVIS ED ONE DID NOT PROVIDE FOR ANY CONSIDERATION ONLY TO ESCAPE TAXATI ON OF THAT AMOUNT AS BUSINESS INCOME. NON PROMOTERS ARE NOT SADDLE D WITH NON- 22 COMPETE CLAUSES. PROMOTERS ON THE OTHER HAND ARE T O ABIDE BY THE NON-COMPETE CLAUSES IN THE ORIGINAL AND REVISED WSS PA. ONLY WHEN THEY ABIDE BY THE REVISED WSSPA AND ALSO ABIDE BY T HE NON-COMPETE CLAUSES THEREIN THAT THEY ARE ENTITLED TO PAYMENT O F RS.190/- PER SHARE. (V) THE ASSESSING OFFICER ALSO FAILED TO APPRECIATE THE TRUE IMPORT OF THE REVISED WSSPA AGREEMENT. HE DID NOT TAKE NO TE OF THE VARIOUS CLAUSES OF THE SAID REVISED WSSPA. FOR EXA MPLE, CLAUSE C OF THE SAID DOCUMENT CLEARLY REFERS TO THE FACT THAT S EBIS DIRECTION WAS INTERPRETED BY BOTH THE ACQUIRERS AS WELL AS THE AP PELLANT TO BE APPLICABLE ONLY FOR PUBLIC SHAREHOLDERS AND NOT T O THE PROMOTER SHAREHOLDERS. THE SAID CLAUSE C READS AS UNDER: BY ITS LETTER DATED 27 DECEMBER, 2006 SEBI HAS PRO VIDED ITS COMMENTS ON THE DRAFT LETTER OF OFFER FILED BY THE ACQUIRER WHEREBY SEBI HAS DIRECTED THAT THEREAFTER PRICE PER SHARE PAYABLE TO THE PUBLIC SHAREHOLDERS OF THE COMPANY B E REVISED TO INCLUDE THE NON COMPETE FEE PER SHARE AGREED TO BE PAID TO THE SELLERS AS PART OF THE NEGOTIATED PRICE IN THE ACQUISITION AGREEMENT TO THE SELLERS (EMPHASIS MINE) WHEN THE PARTIES TO THE AGREEMENT THEMSELVES ARE AC KNOWLEDGING THE FACT THAT SEBIS DIRECTIONS WERE ONLY TO REVISE THE OFFER PRICE FOR PUBLIC SHAREHOLDERS , THE SIMULTANEOUS REVISION OF PRICE PAYABLE TO THE PROMOTERS AT RS.190/- PER SHARE FROM RS.152/- PER S HARE, AFTER INCLUDING THE NON-COMPETE FEE EARLIER AGREED TO BE PAID, WHILE AT THE SAME TIME RETAINING THE NON-COMPETE CLAUSES, WAS ON LY A TAX AVOIDANCE DEVICE ADOPTED BY THE ASSESSEE AND HIS F AMILY MEMBERS. 23 (VI) CLAUSE 8 OF THE REVISED WSSPA PROVIDES THAT ONLY TWO LINES ARE TO BE ADDED TO THE CLAUSE 13.1 OF THE ORIGINAL WSSPA, WHICH MENTIONS VARIOUS NON-COMPETE CLAUSES BINDING UPON T HE PROMOTERS INCLUDING THE APPELLANT. THAT GOES TO SHOW THAT AL L THE NON-COMPETE CLAUSES ARE RETAINED IN THE REVISED / AMENDED WSSP A, BUT STRANGELY, NO CONSIDERATION REMAINS PAYABLE FOR IT SINCE THE ONLY PURPOSE OF THE WHOLE REVISED WSSPA WAS TO AVOID / EVADE HIGHER TAX PAYABLE ON THE SAME. (VII) EVEN OTHERWISE, S.10 READ WITH S.25 AND S.27 OF THE INDIAN CONTRACT ACT, 1872 MAKES THE REVISED WSSPA A VOID CONTRACT. NO COURT INCLUDING THIS TRIBUNAL CAN TAKE NOTE OF THE REVISED WSSPA FOR THE FOLLOWING REASONS: SECTION 10 OF THE INDIAN CONTRACT ACT READS AS UNDER: S.10 - WHAT AGREEMENTS ARE CONTRACTS -ALL AGREEMENTS ARE CONTRACTS IF THEY ARE MADE BY THE FREE CONSENT OF PARTIES COMPETENT TO CONTRACT, FOR A LAWFUL CONSIDE RATION AND WITH A LAWFUL OBJECT, AND ARE NOT HEREBY EXPRES SLY DECLARED TO BE VOID. NOTHING HEREIN CONTAINED SHALL EFFECT ANY LAW IN FO RCE IN INDIA AND NOT HEREBY EXPRESSLY REPEALED, BY WHICH A NY CONTRACT IS REQUIRED TO BE MADE IN WRITING OR IN TH E PRESENCE OF WITNESSES, OR ANY LAW RELATING TO THE REGISTRATION OF DOCUMENTS. A PLAIN READING OF THE ABOVE SECTION WOULD SHOW TH AT IN ADDITION TO FREE CONSENT, COMPETENCY TO CONTRACT, LAWFUL OBJECT , ETC., LAWFUL CONSIDERATION IS ONE OF THE PRE-REQUISITE FOR A VA LID CONTRACT. ONLY THE ORIGINAL WSSPA HAD SUCH LAWFUL CONSIDERATION FO R NON-COMPETE 24 PORTION OF THE AGREEMENT. BUT THE REVISED WSSPA DI D NOT PROVIDE FOR ANY SUCH CONSIDERATION ATTRIBUTABLE TO NON-COMPETE PROVISIONS. FURTHER, SECTION 27 OF THE INDIAN CONTRACT ACT, 1872 READS AS UNDER: SECTION 27 - AGREEMENT IN RESTRAINT OF TRADE VOID --EVERY AGREEMENT BY WHICH ANYONE IS RESTRAINED FROM EXERCI SING A LAWFUL PROFESSION, TRADE OR BUSINESS OF ANY KIND, I S TO THAT EXTENT VOID. EXCEPTION 1 SAVING OF AGREEMENT NOT TO CARRY ON BUSINESS OF WHICH GOODWILL IS SOLD ONE WHO SELLS THE GOODWILL OF A BUSINESS MAY AGREE WITH THE BUYER TO REFRAIN FROM C ARRYING ON A SIMILAR BUSINESS, WITHIN SPECIFIED LOCAL LIMITS, SO LONG AS THE BUYER, OR ANY PERSON DERIVING TITLE TO THE GOODWILL FROM HIM, CARRIES ON A LIKE BUSINESS, THEREIN : PROVIDED THAT SUCH LIMITS APPEAR TO THE COURT REASO NABLE, REGARD BEING HAD TO THE NATURE OF THE BUSINESS. SECTION 27 CLEARLY MAKES ALL AGREEMENTS IN RESTRAIN T OF TRADE, VOID. THE APPELLANTS CASE DOES NOT EVEN FALL UNDER EXCEPTION 1 TO SECTION 27 , BECAUSE ONLY WHEN THERE IS A SALE OF GOODWILL A LONGWITH NON- COMPETE AGREEMENT, THEN THE SAME WILL BE LAWFUL & V OID. BUT IN THE PRESENT CASE, THERE IS NO CONSIDERATION ATTRIBUTABL E TO GOODWILL & NON- COMPETE. HENCE, THE REVISED WSSPA IS ENTIRELY SUPE RFLUOUS, INVALID IN THE EYE OF LAW & DOES NOT MAKE ANY COMMERCIAL SE NSE. HENCE, IT SHOULD HAVE BEEN IGNORED BY THE A.O., WHILE PASSING THE ASSESSMENT ORDER. BUT HE HAS FAILED TO DO SO, THEREBY MAKING HIS ORDER ERRONEOUS. MOREOVER, SECTION 25 OF THE CONTRACT ACT READS AS UNDER: SECTION 25 - AGREEMENT WITHOUT CONSIDERATION IS VOID, UNLESS IT IS IN WRITING AND REGISTERED, OR IS A PROMISE TO COMPENSATE 25 FOR SOMETHING DONE -AN AGREEMENT MADE WITHOUT CONSIDERATION IS VOID, UNLESS (1) IT IS EXPRESSED IN WRITING AND REGISTERED UNDER THE LAW FOR THE TIME BEING IN FORCE FOR THE REGISTRATION OF DOC UMENTS, AND IS MADE ON ACCOUNT OF NATURAL LOVE AND AFFECTION BETWE EN PARTIES STANDING IN A NEAR RELATION TO EACH OTHER, OR UNLES S (2) IT IS A PROMISE TO COMPENSATE, WHOLLY OR IN PAR T, A PERSON WHO HAS ALREADY VOLUNTARILY DONE SOMETHING FOR THE PROMISOR, OR SOMETHING WHICH THE PROMISOR WAS LEGALLY COMPELL ABLE TO DO,OR UNLESS (3) IT IS A PROMISE, MADE IN WRITING AND SIGNED BY THE PERSON TO BE CHARGED THEREWITH, OR BY HIS AGENT GENERALLY OR SPECIALLY AUTHORIZED IN THAT BEHALF, TO PAY WHOLLY OR IN PART A DEBT OF WHICH THE CREDITOR MIGHT HAVE ENFORCED PAYMENT BUT FOR THE LAW FOR THE LIMITATION OF SUITS. IN ANY OF THESE CASES, SUCH AN AGREEMENT IS A CONTR ACT. THIS REVISED AGREEMENT IS VOID TO THE EXTENT IT DOE S NOT PROVIDE FOR CONSIDERATION FOR NON-COMPETE CLAUSES & THEREFORE, THE ORIGINAL AGREEMENT WOULD TAKE EFFECT WHICH PROVIDES FOR NON- COMPETE CONSIDERATION @RS.38/- PER SHARE. THUS, VIEWED FRO M ANY ANGLE, THE REVISED WSSPA IS DEVOID OF COMMERCIAL SUBSTANCE A ND INVALID IN THE EYE OF LAW. THE SOLE MOTIVE APPEARS TO BE AVOI DANCE OF LAWFUL TAX DUE TO THE REVENUE. THERE ARE SEVERAL AUTHORITIES IN SUPPORT OF THE PROPOSITION THAT, WHILE CONSTRUING DOCUMENTS THE TA X AUTHORITIES CAN LOOK INTO THE SUBSTANCE OVER FORM. WHEN AN AG REEMENT HAS NO COMMERCIAL SUBSTANCE, EXCEPT TO BE USED AS A SUBTE RFUGE TO PAY TAX AT A LOWER RATE, THE COURT / TRIBUNAL MUST IGNORE I T. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS FOR THIS PROPOSITION: 26 (I) MCDOWELL & CO. V. CTO (1985) 154 ITR 148 (SC) COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIE F THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX B Y RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY TAXES HONESTLY WITHOUT RESORTI NG TO SUBTERFUGES. (II) TWINSTAR HOLDINGS LTD V. ANAND KEDIA, DCIT (2003) 260 ITR 61 (BOM) EVEN IF THE TRANSACTION IS GENUINE, IT COULD BE IGNORED, IF THE OBJECT IS TAX AVOIDANCE, AND THE ME THOD ADOPTED IS A COLOURABLE DEVICE. (III) S. KRISHNASWAMY V. CIT (2003) 261 ITR 263 (MAD) THE FACTS SHOW THAT THE ASSESSEE TOOK A SERIES OF STEPS ALL OF WHICH WERE PRECONCEIVED WITH THE SOLE OBJECTIVE OF EVADING LIABILITY FOR CAPITAL GAINS TA X AND FOR NO OTHER PURPOSE. WHILE THE ASSESSEE NO DOUBT HAD THE FREEDOM OF MANAGING THE AFFAIRS IN A MANNER WHICH WOULD MINIMIZE THEIR LIABILITY FOR TAX, THAT DOES NOT OBLIGATE THE REVENUE FROM EXAMINING THE TRUE CHARACTER OF TRANSACTIONS AND IGNORING WHOLLY ARTIFICIAL STEPS WHICH ARE INTRODUCED SOLELY WITH A VIEW TO EVADE TAX AND FOR NO OTHER PURPOSE. 6. FOR ALL THE AFORESAID NON-CONSIDERATION OF THE R ELEVANT MATERIAL AND NON APPLICATION OF MIND TO THE RELEVANT PROVISI ONS OF SECTION 28(VA) OF THE I.T. ACT, S.10,25 & 27 OF THE INDIAN CONTRACT ACT, 1872 AND FAILURE TO LOOK AT THE TAX-AVOIDANCE SCHEME SOU GHT TO BE ACHIEVED THROUGH A SUPERFLUOUS REVISED WSSPA, WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) OF THE IT ACT, THE CIT HAS RIGHTLY INVOKED THE POWERS AVAILABLE TO HIM U/S 263 OF THE IT ACT. 27 7. DELHI HIGH COURT IN TWO EARLIER JUDGEMENTS REPOR TED IN GEE VEE ENTERPRISES V. ADDL.CIT, (1975) 99 ITR 374 AND DUGGAL AND CO. V. CIT (1996) 220 ITR 456 (DEL) HAVE HELD THAT THE AO IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE C ANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALL FOR FURTHER ENQUIRY. IT IS INCUMBENT ON A.O. TO FURTHE R INVESTIGATE THE FACTS STATED IN THE RETURN, WHAT CIRCUMSTANCES WOUL D MAKE SUCH AN ENQUIRY PRUDENT. THE WORD ERRONEOUS IN S.263 IN CLUDES THE FAILURE TO MAKE SUCH ENQUIRY. 8. THE SAME VIEW HAS NOW BEEN REITERATED BY THE DEL HI HIGH COURT IN A JUDGEMENT RENDERED IN THE CASE OF CIT V. DLF POWER LTD (2012) 17 TAXMANN.COM 269 (DEL) . IN THAT CASE, THE APPELLANT PLEADED THAT THE ASSESSEE HAD SUBMITTED ALL DOCUMEN TS BEFORE THE A.O. THEREFORE, THE CITS REVISION BASED ON THE SAME DOC UMENTS WAS ARGUED TO HAVE BEEN DONE ON A MERE CHANGE OF OPINIO N. NEGATING SUCH CLAIM, THE DELHI HIGH COURT RELIED ON ITS EARL IER JUDGEMENTS IN GEE VEE ENTERPRISES CASE AND DUGGAL & COS CASE (CITED SUPRA) AND HELD THAT THE MERE SUBMISSION OF A LETTER TO THE ASSESSING OF FICER GIVING BIFURCATION DOES NOT NECESSARILY MEAN THAT P ROPER VERIFICATION AND INVESTIGATION WAS DONE AND ACCEPTED. AVERMENTS MADE IN THE LETTER HAVE TO BE VERIFIED AND THEN ACCEPTED OR REJ ECTED. IF THE ASSESSING OFFICER KEEPS A LETTER ON RECORD AND DOES NOT CARRY OUT NECESSARY INVESTIGATIONS WHICH ARE PER SE REQUIRED TO VERIFY CORRECTNESS OF THE AVERMENTS, THERE IS AN ERROR IN THE SENSE THAT HE HAS FAILED TO CARRY OUT THE REQUISITE ENQUIRY WHICH CAN BE RECTIFIED IN A REVISION. A COPY OF THIS JUDGEMENT IS ENCLOSED HEREWITH AS ANNEXURE A. 28 8.1. IN ANOTHER RECENT CASE DECIDED BY DELHI HIGH C OURT IN THE CASE OF CIT V. HARISH J. PUNJABI IN ITA NO.749/2011 DATE OF DECISION 20-01-2012, THE REVISION OF ASSESSMENT ORDER BY CIT HAS BEEN UP HELD, WHERE THE A.O. FAILED TO CONDUCT NECESSARY ENQUIRIE S. THE RELEVANT PORTION OF THE UNREPORTED DECISION OF THE HIGH COUR TS ORDER IS REPRODUCED HEREUNDER: (EXTRACT FROM THE CASE OF CIT V. HARISH J. PUNJABI ITA NO.749/2011 DATE OF DECISION 20-01-2012) 10. IN THE PRESENT CASE, THEREFORE, THERE WAS FAIL URE ON THE PART OF THE ASSESSING OFFICER TO CONDUCT NECESSARY AND REQUIRED ENQUIRIES. THE FINDING OF THE COMMISSIONER IS CLE AR AND LUCID. FAILURE TO CONDUCT THE SAID ENQUIRIES, MAKES THE A SSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST O F THE REVENUE. THE COMMISSIONER RIGHTLY EXERCISED HIS REVISIONAR Y POWER UNDER SECTION 263 OF THE ACT. THE REQUIRED CONDITIO NS FOR EXERCISE OF THE SAID POWER ARE SATISFIED. WE MAY AL SO NOTE THAT THE COMMISSIONER IN HIS NOTICE UNDER SECTION 263 HAD REFERRED TO SIX ISSUES BUT HAD ULTIMATELY EXERCISED POWER UNDER SECTION 263 IN RESPECT OF ONLY ONE ISSUE, I.E., COMMISSION OF RS.3.33 CRORES. 11. IN VIEW OF THE AFORESAID FINDINGS, THE QUESTION OF LAW IS ANSWERED IN NEGATIVE, IN FAVOUR OF THE REVENUE AN D AGAINST THE RESPONDENT ASSESSEE. ACCORDINGLY, THE APPEAL IS A LLOWED. THERE WILL BE NO ORDER AS TO COSTS. 9. MOREOVER, ON MERITS ALSO, THE CIT HAS RIGHTLY AP PLIED SECTION 28(VA) TO BRING THIS NON-COMPETE FEE TO TAX. TH E LAW ON THIS ISSUE IS CLEAR. THE HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEM. P. LTD. V. CIT (2011) 332 ITR 602 (SC) HAS ALREADY HELD AT PARA 7 THAT W.E.F. 01-04-2003, NON-COMPETE FEE HAS BEEN MADE A REVENUE 29 RECEIPT UNDER THE HEAD BUSINESS. RELEVANT PORTIO N OF ITS ORDER IS REPRODUCED HEREUNDER: ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. PAYMENT R ECEIVED AS NON-COMPETITION FEE UNDER A NEGATIVE COVENANT WAS A LWAYS TREATED AS A CAPITAL RECEIPT TILL THE ASSESSMENT YE AR 2003-04. IT IS ONLY VIDE THE FINANCE ACT, 2002 WITH EFFECT FROM APRIL 1, 2003 THAT THE SAID CAPITAL RECEIPT IS NOW MADE TAXA BLE (SEE SECTION 28(VA)). THE FINANCE ACT, 2002 ITSELF INDIC ATES THAT DURING THE RELEVANT ASSESSMENT YEAR COMPENSATION RE CEIVED BY THE ASSESSEE UNDER NON-COMPETITION AGREE-MENT WAS A CAPITAL RECEIPT, NOT TAXABLE UNDER THE 1961 ACT. IT BECAME TAX-ABLE ONLY WITH EFFECT FROM APRIL 1, 2003. IT IS WELL SETTLED THAT A LIABILITY CAN-NOT BE CREATED RETROSPECTIVELY. IN THE PRESENT CASE, COMPENSATION RECEIVED UNDER THE NON-COMPETITION AGR EEMENT BECAME TAXABLE AS A CAPITAL RECEIPT AND NOT AS A RE VENUE RECEIPT BY SPECIFIC LEGISLATIVE MANDATE VIDE SECTIO N 28(VA) AND THAT TOO WITH EFFECT FROM APRIL 1, 2003 10. NOW COMING TO THE VARIOUS OTHER LEGAL CONTENTIO NS RAISED BY THE LD.AR, THE SAME ARE DEALT ONE BY ONE HEREUNDER: (A) THE FIRST OBJECTION RAISED WAS THAT THE ASSESSE E CANNOT BE FAULTED IF THE ASSESSMENT ORDER IS A CRYPTIC ONE AN D THE ISSUE HAD BEEN DECIDED WITHOUT DISCUSSING IT IN DETAIL. THE ASSES SEE DOES NOT HAVE CONTROL OVER THE WAY AN ORDER IS DRAFTED BY THE AO. IN THIS CONNECTION, HE RELIED ON ONE ALLAHABAD HIGH COURT D ECISION AND ALSO THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT V. HONDA SIEL POWER PRODUCTS LTD 235 CTR 336 (DEL) / 330 ITR 547 (DEL). TO COUNTER THE AFORESAID ARGUMENT, I RELY ON THE F OLLOWING JUDGEMENT OF THE DELHI HIGH COURT REPORTED IN THE C ASE OF 30 COMMISSIONER OF INCOME-TAX V TOYOTA MOTOR CORPORATI ON [2008] 306 ITR 49 (DEL) , WHICH HAS NOW BEEN CONFIRMED BY THE SUPREME COURT IN THE CASE OF TOYOTA MOTOR CORPORATION V. COMMISSIONER OF INCOME-TAX(306 ITR 52 (SC)) . IN THAT CASE, THE ASSESSING OFFICER DROPPED THE PENALTY PROCEEDINGS U/S 271C AGAINST TH E ASSESSEE BY A CRYPTIC NOTING THAT AFTER CONSIDERING THE ASSESSEE S REPLY, THE PENALTY PROCEEDINGS ARE DROPPED. THE CIT REVISED THAT ORD ER OF THE A.O., HOLDING THE SAME TO BE ERRONEOUS AND PREJUDICIAL IN THE INTEREST OF REVENUE. ALTHOUGH TRIBUNAL DECIDED THE MATTER IN F AVOUR OF THE ASSESSEE, THE LD. DELHI HIGH COURT REVERSED THE DEC ISION OF THE TRIBUNAL HOLDING AS UNDER: THAT IT WAS NECESSARY FOR THE PARTIES TO KNOW THE REASONS THAT HAD WEIGHED WITH THE ADJUDICATING AUTHORITY IN COMI NG TO A CONCLUSION. THE ORDER PASSED BY THE ASSESSING OFFIC ER SHOULD BE A SELF-CONTAINED ORDER GIVING THE RELEVANT FACTS AND REASONS FOR COMING TO THE CONCLUSION BASED ON THOSE FACTS A ND LAW. THE ORDER PASSED BY THE ASSESSING OFFICER WAS CRYPTIC A ND COULD NOT BE SUSTAINED. THE TRIBUNAL COULD NOT SUBSTITUTE ITS OWN REASONING TO JUSTIFY THE ORDER PASSED BY THE ASSESS ING OFFICER WHEN THE ASSESSING OFFICER HIMSELF DID NOT GIVE ANY REASON IN THE ORDER PASSED BY HIM. THE MATTER WAS REMANDED TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN TERMS OF THE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT. (PAGE 10-12) WHEN THE MATTER WAS CHALLENGED BEFORE SUPREME COURT , THE HONBLE SUPREME COURT IN THE CASE OF TOYOTA MOTOR CORPORATION V. COMMISSIONER OF INCOME-TAX(306 ITR 52 (SC)) HELD AS UNDER: WE ARE NOT INCLINED TO INTERFERE WITH THE IMPUGNED ORDER OF THE HIGH COURT. THE HIGH COURT HAS HELD THAT THE AS SESSING 31 OFFICER HAD DISPOSED OF THE PROCEEDINGS STATING THE PENALTY PROCEEDINGS INITIATED IN THIS CASE UNDER SECTION 27 1C READ WITH SECTION 274 OF THE INCOME-TAX ACT, 1961 ARE HEREBY DROPPED. ACCORDING TO THE HIGH COURT, THERE WAS NO BASIS IND ICATED FOR DROPPING THE PROCEEDINGS. THE TRIBUNAL REFERRED TO CERTAIN ASPECTS AND HELD THAT THE INITIATION OF PROCEEDINGS UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT, THE I. T. ACT) WAS IMPERMISSIBLE WHEN CONSIDERED IN THE BACKGROUND OF THE MATERIALS PURPORTEDLY PLACED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. WHAT THE HIGH COURT HAS DONE IS TO REQUIRE THE ASSESSING OFFICER TO PASS A REASONED ORDER. THE HIGH COURT WAS OF THE VIEW THAT THE TRIBUNAL COULD NOT HAVE SU BSTITUTED ITS OWN REASONINGS WHICH WERE REQUIRED TO BE RECORDED B Y THE ASSESSING OFFICER. ACCORDING TO THE ASSES-SEE, ALL RELEVANT ASPECTS WERE PLACED FOR CONSIDERATION AND IF THE OF FICER DID NOT RECORD REASONS, THE ASSESSEE CANNOT BE FAULTED. WE DO NOT THINK IT NECESSARY TO INTERFERE AT THIS S TAGE. IT GOES WITHOUT SAYING THAT WHEN THE MATTER BE TAKEN UP BY THE ASSESSING OFFICER ON REMAND, IT SHALL BE HIS DUTY T O TAKE INTO ACCOUNT ALL THE RELEVANT ASPECTS INCLUDING THE MATE RIALS, IF ANY, ALREADY PLACED BY THE ASSESSEE, AND PASS A REASONED ORDER. (PARA 4 & 5) IN THE LIGHT OF THE ABOVE DECISIONS, THE CRYPTIC OR DER PASSED BY THE A.O. WITHOUT DUE APPLICATION OF MIND HAS BEEN R IGHTLY REVISED U/S 263 OF THE ACT, SINCE ALL THE INGREDIENTS OF S.263 HAVE BEEN DULY SATISFIED. (B) THE SECOND OBJECTION RAISED BY THE APPELLANT TH AT ALL RELEVANT DOCUMENTS HAD BEEN DULY CALLED FOR BY THE A.O. THE SCRUTINY PROCEEDINGS CONTINUED FOR A SPAN OF MORE THAN ONE Y EAR. EVEN THE BOOKS OF ACCOUNTS WERE TEST CHECKED. HENCE, IT IS EVIDENT THAT THE A.O. CONDUCTED PROPER ENQUIRIES BEFORE FRAMING THE ASSESSMENT. T5 32 THERE IS NO TRUTH IN SUCH AVERMENTS. THE FACT THA T 13 CRUCIAL PAGES OF WSSPA WERE NOT PRODUCED BEFORE THE A.O. AN D THE A.O. DID NOT TAKE NOTE OF SUCH MISSING PAGES, IS ENOUGH INDI CATION THAT HE HAD NOT APPLIED HIS MIND AT ALL TO THE ISSUE IN QUESTIO N. (C) THE NEXT OBJECTION WAS THAT THE CIT COULD NOT H AVE REQUIRED THE A.O. TO RE-EXAMINE THE MATTER. THIS ARGUMENT IS WI THOUT ANY MERIT SINCE THE CIT HAS DECIDED THE WHOLE ISSUE. HE HAS NOT REMANDED THE MATTER BACK TO THE A.O. FOR FRESH ADJUDICATION. EV EN OTHERWISE, THE PLAIN LANGUAGE OF S.263 ALLOWS ENHANCEMENT, ANNULME NT, SETTING ASIDE FOR FRESH ASSESSMENT. (D) THE LD.A.R. HAS RELIED ON PRINCIPLE OF CONSIST ENCY TO, SAY THAT SINCE IN OTHER PROMOTERS CASES, ACTION U/S 263 HAS NOT BEEN TAKEN, NO ACTION SHOULD BE TAKEN IN THIS CASE. IN THIS CO NNECTION, TIME IS STILL AVAILABLE FOR TAKING ACTION U/S 147/148 IN THE CASE OF OTHER PROMOTERS. HENCE, PRINCIPLE OF CONSISTENCY WILL NOT APPLY IN THE INSTANT CASE. SD/- (D.N. KAR) COMMISSIONER OF INCOME TAX (DR),C- BENCH, ITAT, N.DELHI. 13. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. SECTION 263 OF THE INCOME-TAX ACT , 1961, CONTEMPLATES THAT LEARNED COMMISSIONER MAY CALL FOR AND EXAMINE THE R ECORD OF ANY PROCEEDINGS UNDER THIS ACT. ON EXAMINATION OF RECOR D, IF HE CONSIDERS THAT 33 ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER I S ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, MEAN ING THEREBY, THAT ON SUCH EXAMINATION, IF HE FINDS THAT ORDER PASSED BY THE A SSESSING OFFICER IS AN ERRONEOUS ORDER IT CAUSES A PREJUDICE TO THE REVENU E THEN HE WILL GIVE AN OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONDUCT AN INQUIRY WHICH HE DEEMS NECESSARY THEREAFTER HE MAY PASS SUCH ORDERS THEREON AS THE CIRCUMSTANCE OF THE CASE JUSTIFIES INCLUDING AN ORD ER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELING THE ASSESSMENT OR DIRE CTING A FRESH ASSESSMENT. IN THE PRESENT CASE, LEARNED COMMISSIONER ON AN ANA LYSIS OF THE RECORD FOUND THAT THE ASSESSING OFFICER HAS APPLIED INCORR ECT PROVISIONS OF LAW WHILE ASSESSING INCOME OF THE ASSESSEE, THUS, HIS O RDER IS AN ERRONEOUS ORDER WHICH CAUSED PREJUDICE TO THE REVENUE BECAUSE THE I NCOME HAS ESCAPED TAXES. AFTER CONDUCTING THE INQUIRY HE DID NOT REM IT THE ISSUE TO THE ASSESSING OFFICER FOR FRESH INVESTIGATION OR FRESH ASSESSMENT RATHER HE HIMSELF DETERMINED THE INCOME AND DIRECTED THE ASSE SSING OFFICER TO INCLUDE SUCH INCOME IN THE TOTAL INCOME OF THE ASSESSEE. IN THIS WAY, LEARNED COMMISSIONER HAS DECIDED THE ISSUE ON MERIT ALSO. 14. LET US EXAMINE WHETHER FACTS & CIRCUMSTANCES AR E AVAILABLE ON RECORD TO ENABLE THE LEARNED COMMISSIONER TO ASSUME JURISD ICTION UNDER SEC. 263 34 OF THE ACT. THE LEARNED REPRESENTATIVES HAVE REFERR ED A LARGE NUMBER OF DECISIONS IN THEIR ARGUMENTS. IT IS NOT NECESSARY T O RECITE AND RECAPITULATE ALL THOSE DECISIONS BECAUSE THE ITAT IN THE CASE OF MRS . KHATIZA S. OOMERBHOY VS. ITO,MUMBAI, 101 TTJ 1095, HAS ANALYZED IN DETAI L VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AS WELL AS HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GABRIEL I NDIA LTD. REPORTED IN 203 ITR 108 AND HAS PROPOUNDED THE FOLLOWING BROAD ER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263:- THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE A BOVE CASES MAY BE SUMMARIZED BELOW (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE A.O IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BO TH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AN D EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE A,O AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCOR RECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION O F MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE A.O HAS ADOPTED ONE OF TH E COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE A.O HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT B E TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE A.O I S UNSUSTAINABLE UNDER LAW. 35 (VI) IF WHILE MAKING THE ASSESSMENT, THE A.O EXAMI NES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERC ISING HIS POWER UNDER S. 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE A.O. (VII) THE A.O EXERCISES QUASI-JUDICIAL POWER VEST ED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARR IVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SI MPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE A.O HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE A.O ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE A. O CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT M AKE AN ELABORATE DISCUSSION IN THAT REGARD. 15. BEFORE EMBARKING UPON AN INQUIRY ABOUT THE FACTS OF THE PRESENT CASE AND HOW THOSE FACTS HAVE BEEN CONSIDERED BY THE LEA RNED REVENUE AUTHORITIES BELOW, WE DEEM IT APPROPRIATE TO MAKE A REFERENCE TO THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VEE GEE ENTERPRISES REPORTED IN 99 ITR 373 WHEREIN HON'BLE H IGH COURT HAS EXPOUNDED THE APPROACH OF THE ASSESSING OFFICER WHI LE PASSING ASSESSMENT ORDER. THE OBSERVATIONS OF THE HON'BLE HIGH COURT RE AD AS UNDER:- IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRIES BEFORE CANCELING THE ASSESSMENT ORDER OF THE INCOME-TAX OFFICER. THE COMMISSIONER CAN REGARD THE ORDER AS E RRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE THE IN COME-TAX OFFICER 36 SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS O BVIOUS. THE POSITION AND FUNCTION OF THE INCOME-TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COURT. THE STATEMENT MADE IN A PLEA DING PROVED BY THE MINIMUM AMOUNT OF EVIDENCE MAY BE ADOPTED BY A CIVI L COURT IN THE ABSENCE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL . IT SIMPLY GIVES DECISION ON THE BASIS OF THE PLEADING AND EVIDENCE WHICH COMES BEFORE IT. THE INCOME-TAX OFFICER IS NOT ONLY AN AD JUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FA CE OF THE RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE R ETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. IT IS BECAUSE IT IS INCUMBENT ON THE ITO TO FURTHER INVES TIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MADE SUCH AN INQUIRY PRUDENT THAT THE WORD ERRONEOUS IN SECTION 263 IN CLUDES THE FAILURE TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOU S BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT. 16. IN THE LIGHT OF THE ABOVE PROPOSITIONS, LET US EXAMINE THE FACTS OF THE PRESENT CASE. THE FIRST AREA OF DISPUTE BETWEEN THE PARTIES BEFORE US IS WHETHER IMPUGNED ASSESSMENT ORDER WAS PASSED AFTER CONDUCTING PROPER INQUIRY AND ORDER OF THE LEARNED COMMISSIONER IS SU STAINABLE ON THE GROUND THAT NO PROPER INQUIRY WAS CONDUCTED BY THE ASSESSI NG OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING TOO K US THROUGH THE SHOW- 37 CAUSE NOTICE AND POINTED OUT THAT IN THE SHOW-CAUSE NOTICE , LEARNED COMMISSIONER NOWHERE EXPRESSED HIS DESIRE THAT HE I S TAKING ACTION UNDER SEC. 263 FOR WANT OF PROPER INQUIRY AT THE END OF T HE ASSESSING OFFICER. ON THE OTHER HAND, LEARNED DR ON THE BASIS OF THE MATE RIAL SOUGHT TO ARGUE THAT COMPLETE COPY OF WSSPA WAS NOT SUBMITTED BEFORE THE ASSESSING OFFICER AND, THEREFORE, HE HAS NOT CONDUCTED A PROPER INQUI RY. IN OUR OPINION, THE DEPARTMENT CANNOT IMPROVE ITS CASE IN AN APPEAL OF THE ASSESSEE. THE RESPONDENT CAN ONLY SUPPORT THE ORDER OF THE LEARNE D COMMISSIONER ON THE BASIS OF THE DISCUSSION AVAILABLE THEREIN AS WELL A S THE REASONS SHOWN IN THE SHOW-CAUSE NOTICE. WE HAVE ALREADY EXTRACTED THE SH OW-CAUSE NOTICE IN THE FOREGOING PARAGRAPH AND IT IS NOT DISCERNIBLE FROM THE NOTICE THAT LEARNED COMMISSIONER HAS TAKEN COGNIZANCE UNDER SEC. 263 ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT CONDUCTED PROPER INQUIRY. 17. THE NEXT DISPUTE IS WHETHER LEARNED ASSESSING O FFICER HAS APPLIED INCORRECT PROVISIONS OF LAW WHILE DETERMINING THE T AXABLE INCOME OF THE ASSESSEE AND, THEREFORE, HIS ORDER IS AN ERRONEOUS ORDER WHICH HAS CAUSED PREJUDICE TO THE REVENUE AND THE SAME ENABLED THE L EARNED COMMISSIONER TO TAKE COGNIZANCE UNDER SEC. 263 OF THE ACT. IN ORDER TO ASCERTAIN WHETHER ASSESSING OFFICER HAS APPLIED INCORRECT PROVISIONS OF LAW OR NOT. WE ARE 38 REQUIRED TO LOOK INTO THE CLAUSES OF WSSPA. THE CAS E OF THE REVENUE IS THAT ASSESSEE HAS AMENDED THE WSSPA WHEREBY THE PARTIES HAVE AGREED TO DELETE THE CLAUSES REPRESENTING THE CONSIDERATION REQUIRED TO BE PAID BY THE ACQUIRER FOR NON-COMPETE CLAUSES. ADMITTEDLY, THE CLAUSE REP RESENTING CONSIDERATION IN LIEU OF NON-COMPETE AT THE END OF THE PROMOTER H AS BEEN OMITTED FROM THE AMENDED WSSPA. LEARNED DR IN HIS SUBMISSIONS HAS EM PHASIZED THAT SEBI HAS NOT DIRECTED THE ASSESSEE OR THE ACQUIRER TO DELETE THE CLAUSE REPRESENTING CONSIDERATION IN LIEU OF NON-COMPETE. THE SEBI HAS ONLY APPRAISED THE PARTIES TO GIVE AN OPEN OFFER OF RS. 190 PER SHARE TO THE PUBLIC WHICH INCLUDES SALE PRICE OF THE SHARE AS WELL AS P RICE REPRESENTING FOR NON- COMPETE. THE INSTRUCTIONS OF THE SEBI ARE THE GUIDE LINES FOR MAKING AN OFFER PRICE TO THE PUBLIC. ON DUE CONSIDERATION OF THIS C ONTENTION, WE ARE OF THE OPINION THAT IT IS NOT OF MUCH RELEVANCE, BECAUSE A CCORDING TO SECTION 2(H) OF THE INDIAN CONTRACT ACT, 1872, AN AGREEMENT ENFORCE ABLE BY LAW IS A CONTRACT. THE PARTIES ENTERING INTO AN AGREEMENT FO R SALE AND PURCHASE OF SHARE MAY NOT REQUIRE INSTRUCTIONS FROM THE SEBI BU T THEY WERE REQUIRED TO TAKE THE PERMISSION OF SEBI WHILE FIXING THE OFFER PRICE OF SHARE FOR THE PUBLIC. THUS, IT IS JUST A DEVELOPMENT WHICH ENABLE THE VENDOR AND VENDEE TO RENEGOTIATE THE SALES PRICE OF THE SHARES. LEARNED DR THEREAFTER EMPHASIZED UPON SECTIONS 10, 25 AND 27 OF THE INDIAN CONTRACT ACT, IN ORDER TO 39 DEMONSTRATE THAT REVISE WSSPA IS A VOID CONTRACT AN D ITAT NEED NOT TO LOOK TOWARDS THAT CONTRACT. THE STRESS OF THE LEARN ED DRS ARGUMENT IS THAT SECTION 10 PROVIDES MEANING OF A CONTRACT. ACCORDIN G TO THIS SECTION, ALL AGREEMENTS ARE CONTRACT IF THEY ARE MADE BY THE FRE E CONSENT OF THE PARTIES, COMPETENT TO CONTRACT, FOR A LAWFUL CONSIDERATION A ND WITH A LAWFUL OBJECT AND ARE NOT HEREBY EXPRESSLY DECLARED TO BE VOID. A CCORDING TO THE LEARNED DR, FOR ANY CONTRACT, THERE ARE THREE ESSENTIAL CON DITIONS, NAMELY, THE PARTIES TO CONTRACT SHOULD BE COMPETENT FOR CONTRACTING, TH ERE SHOULD BE FREE CONSENT OF THE PARTIES, THERE SHOULD BE A LAWFUL CONSIDERAT ION AND IT SHOULD BE FOR PERFORMANCE OF A LAWFUL OBJECT. ACCORDING TO THE LE ARNED DR, THE MOMENT ASSESSEE OMITTED CLAUSE REPRESENTING NON-COMPETE CO NSIDERATION, THIS CONTRACT BECOMES A VOID CONTRACT. IT WAS ALSO CONTE NDED THAT SEC. 25 OF THE CONTRACT ACT ALSO PROVIDES THAT IF AN AGREEMENT IS ENTERED INTO WITHOUT CONSIDERATION THEN SUCH AN AGREEMENT WOULD BE A VOI D AGREEMENT. ON THE STRENGTH OF SECTION 27, IT WAS CONTENDED BY THE LEA RNED DR THAT IF AN AGREEMENT IS ENTERED INTO BY THE PARTIES BY WHICH A RESTRAIN IS BEING PUT UPON A PARTY FROM EXERCISING LAWFUL PROFESSION, TRADE OR BUSINESS OF ANY KIND THEN THAT CONTRACT WOULD BE A VOID CONTRACT TO THAT EXTE NT. LEARNED DR POINTED OUT THAT IF ALL THESE CLAUSES ARE LOOKED INTO TOGETHER THEN IT WILL CONTEMPLATE THAT IF A NEGATIVE COVENANT IS IMPOSED FOR RESTRAINING A NY PARTY FROM DOING ANY 40 LAWFUL PROFESSION, TRADE OR BUSINESS WITHOUT ANY CO NSIDERATION THEN SUCH CONTRACT WOULD BE A VOID CONTRACT. SIMILARLY, IF NO CONSIDERATION HAS BEEN PAID THEN THE CONTRACT WOULD BE A VOID CONTRACT. ON THE OTHER HAND, CASE OF THE ASSESSEE IS THAT THERE EXISTS A LEGALLY ENFORCE ABLE AND FINAL AGREEMENT BETWEEN THE PARTIES WHICH WAS EXECUTED AND ACTED UP ON BY THE PARTIES. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS SECTION 62 OF THE CONTRACT ACT WHICH CONTEMPLATES IF THE PARTIES TO A CONTRACT AGREE TO SUBSTITUTE A NEW CONTRACT FOR IT, OR TO RECITE OR A LTER IT, THE ORIGINAL CONTRACT NEED NOT BE PERFORMED. 18. ON AN ANALYSIS OF THE DIFFERENT CLAUSES OF PRE- AMENDED AS WELL AS REVISED WSSPA, WE ARE OF THE VIEW THAT PARTIES HAVE AGREED FOR SALE OF SHARES. THEY HAVE FIXED THE SALES CONSIDERATION. IN THE ORIGINAL AGREEMENT, THEY HAVE SEGREGATED THE SALES CONSIDERATION AND AL LOCATED IT FOR DIFFERENT SITUATIONS, HOWEVER, THEY DID NOT ADHERE TO THE CON DITIONS ENUMERATED IN THE AGREEMENT AND RENEGOTIATED THE AGREEMENT ITSELF. IN THE REVISED AGREEMENT, THEY HAVE FIXED THE SALES PRICE FOR SALE OF SHARES AND DID NOT SEGREGATE FOR OTHER ISSUES. THE REVENUE WANTS TO CHALLENGE THE VE RY WISDOM OF THE PARTIES TO ENTER INTO A CONTRACT FOR SALE AND PURCHASE OF T HE SHARES. SECTION 62 OF THE CONTRACT ACT PROVIDES THAT IF THE PARTIES TO A CONT RACT AGREE TO SUBSTITUTE A NEW CONTRACT THEN THEY NEED NOT TO ENFORCE THE ORIG INAL ONE. IN OTHER WORDS, 41 THE ORIGINAL CONTRACT WOULD LAPSE. THE ARGUMENTS RA ISED BY THE LEARNED DR ON THE STRENGTH OF SECTION 10, 25 AND 27 OF THE IND IAN CONTRACT ACT ARE CONCERNED, NONE OF THE CONDITIONS PROVIDED IN THESE SECTIONS ARE ATTRACTED IN THE PRESENT CASE. THE PARTIES ARE COMPETENT TO ENTE R INTO A CONTRACT. THE CONTRACT WAS FOR SALE OF SHARES. THEY HAVE FIXED TH E SALES PRICE AND PAID THE CONSIDERATION. HOW IT CAN BE SAID THAT CONTRACT IS WITHOUT ANY CONSIDERATION. THE DEPARTMENT HAD NOT SAID THAT SHARES WERE SOLD A T A LOWER PRICE THEN THE ONE AVAILABLE IN THE OPEN MARKET. THE SHARES WERE S OLD AT THE PRICE FOR WHICH ACQUIRER HAD ACQUIRED THE SHARES OF MORE THAN 20% F ROM THE PUBLIC IN AN OPEN OFFER. WE FAIL TO UNDERSTAND WHAT IS THE SOURC E OF POWER WITH THE REVENUE TO SAY THAT SHARES WERE SOLD BY CHARGING NO N-COMPETE FEES. REVENUE IS HARPING UPON THE ORIGINAL AGREEMENT BUT THE CLAU SES HAVE ALREADY BEEN RESCINDED AND IT CANNOT ASSUME EXISTENCE OF SUCH CL AUSES. IT IS ALSO TO BE SEEN WHY RS.38, WHY NOT RS.50, RS. 60 OR EVEN RS.100. TH E RIGHTS OF THE PARTIES ARE TO BE DETERMINED ON THE BASIS OF THE AGREEMENT AND THE AGREEMENT DOES NOT STIPULATE CONSIDERATION TOWARDS NON-COMPETE OR FOR ANY OTHER ISSUE. ACCORDING TO THE ASSESSEE, HE HAS SOLD THE SHARES F OR WHICH HE HAS OFFERED CAPITAL GAIN TO TAX. LEARNED DR AT THE TIME OF HEAR ING POINTED OUT THAT IF AN AGREEMENT HAS BEEN ENTERED INTO BY THE PARTIES IN O RDER TO EVADE TAX OR TO PAY TAXES AT LOWER RATE THEN THE ITAT MUST IGNORE IT. I N OUR OPINION, THERE IS NO 42 MATERIAL WITH THE REVENUE TO SAY THAT IT IS A COLOU RABLE DEVICE. THE PARTIES HAVE AGREED FOR THE CONDITIONS WHICH ARE IN ACCORDA NCE WITH LAW. IT IS FOR SALE OF SHARES. WE HAVE ALREADY OBSERVED THAT WHY A LLOCATION OF RS. 38 TOWARDS NON-COMPETE, IT CAN BE ANY AMOUNT IF FROM T HE AGREEMENT IT IS ASCERTAINABLE THAT PARTIES HAVE PAID SOME AMOUNT TO WARDS NON-COMPETE . THE RIGHTS OF THE PARTIES ARE TO BE INFERRED FROM THE C LAUSES OF THE AGREEMENT AND NOT BY PRESUMING EXISTENCE OF CLAUSES IN THE AGREEM ENT ITSELF. WE HAVE DULY CONSIDERED ALL THE CASE LAWS REFERRED BY THE LEARNE D DR IN HIS WRITTEN SUBMISSIONS AS WELL AS REFERRED BY THE ASSESSEES C OUNSEL. THEY ARE DISTINGUISHABLE ON FACTS. THE ASSESSEE HAS SOLD ONL Y 19.55% SHARE OF THE TOTAL HOLDING. PRIYA DAS GUPTA HAS SOLD 14.68% SHAR E AND IN HER CASE DEPARTMENT HAS ACCEPTED THE CAPITAL GAIN BY ADOPTIN G THE PRICE AT RS.190 PER SHARE. THERE IS NO ALLOCATION TOWARDS ALLEGED NON- COMPETE. SIMILARLY, THE OTHER TWO FAMILY MEMBERS HAVE SOLD 0.05% AND 2.35%. THEIR CASES HAVE BEEN ACCEPTED. THUS, EVEN ON PRINCIPLE OF CONSISTEN CY, NO ACTION DESERVES TO BE TAKEN IN THE CASE OF ASSESSEE. SHRI D.N. KAR, L EARNED CIT(DR), PUT HIS CASE ELOQUENTLY. WE APPRECIATE HIS ENDEAVOUR AND AN XIETY TO SAFEGUARD THE INTEREST OF THE REVENUE BUT IT IS DIFFICULT FOR US TO CONCUR WITH HIS VIEW BECAUSE THE LAW DOES NOT PERMIT US TO DO SO. IN VIE W OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT LEARNED ASSESSING OFFICER H AS TAKEN ONE OF THE 43 POSSIBLE VIEWS. HE HAS NOT APPLIED ANY INCORRECT PR OVISIONS OF LAW AND, THEREFORE, THE AMOUNT OF RS.17,72,17,484 CANNOT BE TREATED AS BUSINESS INCOME UNDER SEC. 28(VA) OF THE INCOME-TAX ACT, 196 1 AS RECEIVED FOR NON- COMPETE FEES. ASSESSING OFFICER HAS RIGHTLY TREATED IT AS A PART OF LONG TERM CAPITAL GAIN. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 23.03.2012 SD/- SD/- ( G.D. AGRAWAL ) ( RA JPAL YADAV ) VICE-PRESIDENT J UDICIAL MEMBER DATED: 23/03/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR