Deputy Commissioner of Income-tax, V. Atlas Copco (India) Ltd., Pune

ITA 2286/PUN/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9520 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-10-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 24-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R MURLIDHAR
• Keywords: Capital asset; Rectification of order; Share purchase agreement; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 2286 /P U N/201 4 / ASSESSMENT YEAR : 20 0 5 - 06 DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE ....... / APPELLANT / V/S. ATLAS COPCO (INDIA) LTD., MUMBAI PUNE ROAD, DAPODI, PUNE - 411012 PAN : AAACA4074D / RESPONDENT ASSESSEE BY : S HRI R. MURLIDHAR REVENUE BY : SHRI RAJEEV KUMAR / DATE OF HEARING : 1 3 - 10 - 2017 / DATE OF PRONOUNCEMENT : 10 - 01 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - V, PUNE DATED 25 - 09 - 2014 FOR THE ASSESSMENT YEAR 2005 - 06 PASSED U/S. 154 O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 2 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTUR E AND SALE OF AIR AND GAS COMPRESSORS, MANUFACTURE OF MINING EQUIPMENT S AND INDUSTRIAL TOOLS. THE ASSESSEE ENTERED INTO AGREEMENT DATED 21 - 04 - 2002 TO S ELL ITS SHARES IN REVATHI EQUIPMENT LIMITED (IN S HORT REVATHI ) TO UTKAL INVESTMENTS LTD. (IN SHORT UTKAL ). THE CONSIDERATION RECEIVED BY THE ASSESSEE FROM SALE OF SHARES OF REVATHI TO UTKAL WAS OFFERED TO TAX IN RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003 - 04 AS CAPITAL GAINS. SUBSEQUENT, TO THE E XECUTION OF SHARE PURCHASE AGREEMENT, THE ASSESSEE ENTERED INTO N ON - SOLICITATION AGREEMENT AND N ON - COMPETE A GREEMENT , BOTH DATED 05 - 08 - 2002 WITH REVATHI. IN LIEU OF ACCEPTING RESTRICTIVE COVENANTS, THE ASSESSEE RECEIVED CONSIDERATION OF RS.7.5 CRORES AN D RS.2.5 CRORES, RESPECTIVELY FROM REVATHI. THE AGGREGATE CONSIDERATION OF RS.10 CRORES RECEIVED BY ASSESSEE ON EXECUTION OF NON - SOLICITATION AND NON - COMPETE AGREEMENTS WAS OFFERED TO TAX BY THE ASSESSEE IN THE ASSESSMENT YEAR 2003 - 04. SUBSEQUENTLY, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ATLAS COPCO AB (PARENT COMPANY OF THE ASSESSEE) AND INGERSOLL RAND COMPANY, USA TO ACQUIRE DRILLING RIGS BUSINESS OF INGERSOLL RAND INDIA LTD. NEWLY ACQUIRED BUSINESS OF ASSESSEE INCLUDED MANUFACTURE AND SALE OF S PECIFIED P RODUCTS LISTED IN NON - COMPETE AGREEMENT ENTERED INTO BY ASSESSEE WITH REVATHI. REVATHI OBJECTED TO THE ASSESSEE ACQUIRING DRILLING RIGS BUSINESS OF INGERSOLL RAND INDIA LTD. IN BREACH OF THE NON - SOLICITATION AND NON - COMPETE AGREEMENTS DATED 05 - 0 8 - 2002. REVATHI INVOKED ARBITRATION CLAUSE OF THE AFORESAID AGREEMENTS AND ALSO OBTAINED AD - INTERIM INJUNCTION FROM THE HONBLE BOMBAY HIGH COURT AGAINST ASSESSEE FOR ACQUIRING DRILLING RIGS BUSINESS OF INGERSOLL RAND INDIA LTD. THEREAFTER, THE ASSESSEE NEGOTIATED WITH REVATHI AND ENTERED INTO A DEED OF SETTLEMENT DATED 23 - 06 - 2004 ACCORDING TO WHICH THE ASSESSEE PAID RS.15 CRORES AS COMPENSATION TO REVATHI. IN LIEU THEREOF REVATHI AGREED TO 3 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 TERMINATE NON - SOLICITATION AND NON - COMPETE AGREEMENTS AND ALSO A GREED TO WITHDRAW ARBITRATION PETITION FILED BEFORE THE HONBLE BOMBAY HIGH COURT. 2.1 UNDER THE SHARE PURCHASE AGREEMENT DATED 21 - 04 - 2002 ENTERED INTO WITH UTKAL, AS PER ARTICLE 9, THE ASSESSEE WAS UNDER OBLIGATION TO INDEMNIFY UTKAL AND REVATHI FROM ANY LOSSES WHICH MIGHT OCCUR AS A RESULT OF BREACH OF ANY OF THE CONDITIONS CONTAINED IN NON - COMPETE AND NON - SOLICITATION AGREEMENTS. IN VIEW OF THE BREACH OF TERMS OF THE SAID AGREEMENT S , UTKAL CONTEMPLATED LEGAL ACTION AGAINST THE ASSESSEE. IN ORDER TO SE TTLE THE DISPUTE AND TO RUN THE BUSINESS IN A MORE PROFITABLE MANNER AND WITHOUT ANY STRINGS, THE ASSESSEE AGREED TO SETTLE THE DISPUTE WITH UTKAL AND AGREED TO PAY RS.7.50 CRORES IN LIEU OF UTKAL WAIVING ALL CLAIMS UNDER THE AGREEMENT. 2.2 IN RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE CLAIMED PAYMENT OF RS.15 CORES TO REVATHI AND RS.7.50 CRORES TO UTKAL AS REVENUE EXPENDITURE. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 24 - 12 - 2008 PASSED U/S. 143(3) R.W.S. 145/144 OF THE ACT A LLOWED THE CLAIM OF ASSESSEE. THEREAFTER, THE ASSESSING OFFICER INITIATED PROCEEDINGS U/S. 154 OF THE ACT TO DISALLOW THE COMPENSATION PAID BY ASSESSEE AGGREGATING TO RS.22.5 CRORES TO REVATHI AND UTKAL CLAIMED AS REVENUE EXPENDITURE. IN PROCEEDINGS U/S. 154 THE ASSESSING OFFICER HELD THE AFORESAID PAYMENTS A RE CAPITAL IN NATURE AND DISALLOWED THE SAME. AGGRIEVED BY THE ORDER DATED 31 - 03 - 2013 , PASSED U/S. 154 THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). IN FIRST APPEAL, THE ASSESSEE ASSAILED THE ACTION OF ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SECTION 154 FOR MAKING SUCH DISALLOWANCE . A PART FROM CHALLENGING DISALLOWANCE ON GROUND OF JURISDICTION, THE ASSESSEE ASSAILED DISALLOWANCE ON MERITS , AS 4 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 WELL. THE COMMISSIO NER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER ACCEPTED THE APPEAL OF ASSESSEE ON THE GROUND OF JURISDICTION ALONE. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSING OFFICER EXCEEDED HIS AUTHORITY IN INVOKING THE PROVISIONS OF SECTION 154 OF THE ACT FOR MAKING SUCH DISALLOWANCE. AGAINST THE FINDINGS OF ASSESSING OFFICER THE REVENUE IS IN APPEAL. 3. THE SOLITARY GROUND RAISED BY THE DEPARTMENT IN APPEAL IS AS UNDER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ISSUE UNDER CONSIDERATION CANNOT BE CONSIDERED AS MISTAKE APPARENT FROM RECORD AND DIRECTED THE AO TO DELETE THE ADDITION OF RS.22.50 CRORES AS AGAINST HONBLE SUPREME COURTS DECISION IN THE CASE OF CIT VS. BES T & CO. (PVT.) LTD. 60 ITR 11 AND KETTEWELL BULLEN & CO. LTD. VS. CIT 53 ITR 261 AND CIT VS. HERO CYCLES PVT. LTD. (1997) 228 ITR 468? 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 4 . SHRI RAJEEV KUMAR REPRESENTING THE DEPARTMENT VEHEMENTLY OPPOSING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN COMING TO THE CONCLUSION THAT THE ACTION OF ASSESSING OFFICER U/S. 154 IS BEYOND HI S AUTHORITY. THE LD. DR SUBMITTED THAT IT IS A SETTLED POSITION THAT PAYMENT MADE FOR RESTRICTIVE COVENANTS IS CAPITAL IN NATURE. TO FURTHER SUBSTANTIATE HIS POINT THE LD. DR FILED WRITTEN SUBMISSIONS AND HAS ALSO PLACED RELIANCE ON VARIOUS DECISIONS. T HE RELEVANT EXTRACT OF THE SUBMISSIONS MADE BY LD. DR ARE REPRODUCED HERE - IN - BELOW : (F) FILING OF APPEAL BY THE DEPARTMENT BEFORE THE ITAT - 08. THE DEPARTMENT FILED APPEAL BEFORE THE HONBLE ITAT, PUNE, AGAINST THE ORDER OF THE CIT(A) FILED. IN THE STAT EMENT OF FACTS, ALMOST SIMILAR DISCUSSION WAS MADE AS DISCUSSED IN THE RECTIFICATION ORDER U/S. 154 OF THE ACT AND ALSO THE FACTS AS STATED BY THE CIT(A) AND HIS DECISION. THE AO ALSO REFERRED TO THE 5 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 CBDT'S CIRCULAR NO. 68 DATED 17/11/1971, CONTENDING THAT THE LD. CIT(A) HAD IGNORED THE SAID CIRCULAR WHEREIN IT WAS HELD THAT A MISTAKE ARISING AS A RESULT OF SUBSEQUENT INTERPRETATION OF LAW BY THE SUPREME COURT WOULD CONSTITUTE A MISTAKE APPARENT FROM THE RECORDS AND RECTIFICATION U/S. 154 OF THE ACT COULD B E MADE. THE AO ALSO REFERRED TO THE HON'BLE SUPREME COURT DECISION IN THE CASE OF CIT VS. HERO CYCLES PVT. LTD., 228 ITR 468 [1997] WHEREIN IT WAS HELD THAT THE RECTIFICATION U/S. 154 OF THE ACT CAN ONLY BE MADE WHEN A GLARING MISTAKE OF FACT OR LAW COMMIT TED BY THE OFFICER PASSING THE ORDER BECOMES APPARENT FROM ORDER. (G) TO BE ARGUED BEFORE THE HONBLE ITAT - 09. AS APPARENT FROM THE ABOVE, THERE ARE TWO ISSUES INVOLVED IN THIS CASE WHICH ARE TO BE ARGUED BEFORE THE ITAT. THE ISSUES ARE - (A) WHETHER, UNDER THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE 1COMPANY, RECTIFICATION ORDER U/S. 154 OF THE ACT WAS JUSTIFIED AND TENABLE AS PER LAW, AND (B)WHETHER, UNDER THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE COMPANY , THE COMPENSATION PAID FOR TERMINATION OF NON - COMPETE /NON - SOLICITATION AGREEMENTS TO REVATHI OF RS.15 CRORES AND UTKAL TOWARDS TERMINATION OF SHARE PURCHASE AGREEMENT (SPA) OF RS.7.50 CRORES COULD BE TREATED AS CAPITAL EXPENDITURE, DENYING THE ASSESSEE' S CLAIM OF THE SAME AS REVENUE EXPENDITURE. 10. (A) WHETHER , UNDER THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE COMPANY, RECTIFICATION ORDER U/S. 154 OF THE ACT WAS JUSTIFIED AND TENABLE AS PER LAW. (I) THE ISSUE HAD BEEN DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX, RAJKOT VS. SAURASHTRA KUTCH STOCK EXCHANGE LTD., [2008] 305 ITR 227 (SC) /[2008] 173 TAXMAN 322(SC). IN THIS CASE WHILE DECIDING THE CORE ISSUE AS TO WHETHER NON CONSIDERATION OF A DECISION OF JURISDICTIONAL COURT OR OF THE SUPREME COURT CAN BE SAID TO BE A 'MISTAKE APPARENT FROM THE RECORDS', THE HON'BLE COURT HELD THAT BOTH THE TRIBUNAL AND THE HIGH COURT WERE RIGHT IN HOLDING THAT SUCH A MISTAKE CAN BE SAID TO BE A 'MISTAKE A PPARENT FROM THE RECORDS' WHICH CAN BE RECTIFIED U/S. 154(2) OF THE ACT [ PARA 40 OF THE JUDGMENT]. IT WAS ALSO HELD THAT A DECISION OF THE 'JURISDICTIONAL COURT', I.E. THE HIGH COURT OF GUJARAT IN HIRALAL BHAGWATI'S CASE (SUPRA), WAS NOT BROUGHT TO THE NO TICE OF THE TRIBUNAL AND, THUS, THERE WAS A 'MISTAKE APPARENT FROM THE RECORDS' WHICH REQUIRED RECTIFICATION [ PARA 39 OF THE JUDGMENT]. (II) IN THE CASE OF ITO VS. SMT. MANINI NIRANJANBHAI [1992] 41 ITD 324 (AHD - TRIB) (SMC), WHILE OBSERVING THE CIRCULAR NO. 68 DATED 17/11/1971 OF THIS CBDT, [1972] 83 ITR (ST.) 6 HELD THAT IT IS NOW WELL SETTLED POSITION THAT THE SUPREME COURT DOES NOT DECLARE THE LAW W.E.F. THE DATE OF ITS ORDER AND THE LAW DECLARED BY THE SUPREME COURT HAS EFFECT NOT ONLY FROM THE DATE O F THE DECISION BUT FROM THE INCEPTION OF THE STATUTORY PROVISION. THE BOARD HAVE BEEN ADVISED THAT THE MISTAKE ARISING AS, A RESULT OF SUBSEQUENT INTERPRETATION OF LAW BY THE SUPREME COURT WOULD CONSTITUTED MISTAKE 6 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 APPARENT FROM RECORD AND RECTIFICATORY AC TION U/S. 154 OF THE ACT WOULD BE JUSTIFIED. (III) IN THE FOLLOWING CASES DIFFERENT HIGH COURTS HAVE HELD THAT NON - FOLLOWING OF DECISION OF THE JURISDICTIONAL HIGH COURT IS A RECTIFIABLE MISTAKE. AND ISSUE CONCLUDE BY THE DECISION OF JURISDICTIONAL HIGH COURT IN NOT DEBATABLE IN THE STATE. THE CASES ARE - A. OMEGA SPORTS & RADIO WORKS VS. CIT, 134 ITR 28 (ALL.) B. CIT VS. PREMIER POLYMERS (P) LTD., 107 CTR (CAL) 310, AND C. CIT VS. RAMLAL BABULAL [1998] 148 CTR ( P & H ) 643 (IV) IN THE CASE OF K.R. ALAGAPPAN VS. ACIT [2011] 332 ITR 517 (MAD), THE HON'BLE MADRAS HIGH COURT HELD THAT WERE THE ORIGINAL ORDER REFUSING EXEMPTION FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT WAS PASSED AND THE HIGH COURT ORDER WAS SUBSEQUENTLY REVERSED BY THE SUPREME COURT, THE ORIGINAL ORDER MUST BE RECTIFIED. (V) IN THE CASES OF CIT VS. E SEFTON & CO. P. LTD., 179 ITR 435 (CAL) AND PR. CIT VS. JIGGNA CONSTRUCTION [2016] 75 TAXMANN.COM 58 (GUJ), THE HON'BLE HIGH COURTS HELD THAT IF ASSESSMENT ORDER IS PLAINLY AND OB VIOUSLY INCONSISTENT WITH THE SPECIFIC AND CLEAR PROVISION AMENDED RETROSPECTIVELY, INDISPUTABLY THERE IS A MISTAKE APPARENT FROM RECORD. (VI) AN ORDER OF ASSESSMENT BASED UPON AND INTERPRETATION OR APPLICATION OF LAW WHICH IS ULTIMATELY FOUND TO BE WRON G IN THE LIGHT OF JUDICIAL PRONOUNCEMENT RENDERED SUBSEQUENTLY, DISCLOSES A MISTAKE APPARENT FROM THE RECORDS. WHEN THE COURTS DECIDE A MATTER IT DOES NOT MAKE THE LAW IN ANY STATES, BUT ALL IT DOES IS THAT IT INTERPRETS THE LAW AND STATES WHAT THE LAW HAS ALWAYS BEEN AND MUST BE UNDERSTOOD TO HAVE BEEN. WHEN AN ORDER IS MADE BY AN AUTHORITY ON THE BASIS OF A PARTICULAR DECISION, THE REVERSAL OF SUCH DECISION IN FURTHER PROCEEDINGS WILL JUSTIFY A RECTIFICATION OF THE ORDER BASED ON THE DECISION. A SUBSEQUEN T BINDING DECISION OF THE SUPREME COURT OR OF THE HIGH COURT HAS RETROSPECTIVE OPERATION AND OVERRULING IS ALWAYS RETROSPECTIVE - THE DECISION WHICH IS OVERRULED WAS NEVER THE LAW - TO APPLY OF SUBSEQUENT DECISION OF SUPREME COURT / JURISDICTIONAL HIGH COURT , RECTIFICATION CAN BE MADE. THE ABOVE HAS BEEN DECIDED BY A NUMBER OF HIGH COURTS AS BELOW - I. KIL KOTAGIRI TEA AND COPY ESTATES CO. LTD. VS. ITAT ( KER) 174 ITR 579 , II. MYSORE CEMENTS LTD. VS. DY. COM. OF COMMERCIAL TAXES (K AR) 116 CTR 284, III. CIT VS . ALANKAR BVOREWELLS (MAD.) 177 CTR 560 , IV. PERSHURAM POTTERY WORKS CO. LTD. VS. D.R. TR IVEDI, W.T.O (GUJ.) 100 ITR 651, V. WALCHAND NAGAR INDUSTRIES VS. V.S. GAITONDE, ITO, 44 ITR 260 ( BOM) , VI. CIT VS. AURN LUTHRA, 252 ITR 76 ( P & H) AND VII. BHAURA M JAWAHIRMAL VS. CIT, 121 ITR 487 (ALL) 7 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 10.1 IN VIEW OF ABOVE DECISIONS OF THE HON'BLE SUPREME COURTS AND VARIOUS HIGH COURTS, IT IS ARGUED AND SUBMITTED THAT IF DECISION OF THE HIGH COURT /SUPREME COURT IS FOUND ON AN ISSUE SUBSEQUENT TO PASSING OF THE ASSESSMENT ORDER, WHICH IS APPLICABLE ON SUCH ISSUE IN THE ASSESSMENT ORDER ITSELF, EITHER IN FAVOUR OF THE DEPARTMENT OR AGAINST THE DEPARTMENT, FOLLOWING THE SAID DECISIONS, RECTIFICATION ORDER U/S.154 OF THE ACT CAN BE PASSED BY THE ASSESSING OFFICER IN ACCORDANCE WITH THE INTERPRETATION OF LAW/STATUTE GIVEN BY THE COURTS. IT IS ONLY TO BE SEEN AS TO WHETHER SUCH AN ISSUE HAS BEEN DECIDED BY THE HON'BLE HIGH COURT/ SUPREME COURT IN ANY DECISION WHICH REQUIRES RECTIFICATION. 11. (B) WHETHER, UNDER THE AF ORESAID FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE COMPANY, THE COMPENSATION PAID FOR TERMINATION OF NON - COMPETE/NON - SOLICITATION AGREEMENTS TO REVATHI OF RS.15 CRORES AND UTKAL TOWARDS TERMINATION OF SHARE PURCHASE AGREEMENT (SPA) OF RS.7.50 CROR ES COULD BE TREATED AS CAPITAL EXPENDITURE, DENYING THE ASSESSEE'S CLAIM OF THE SAME AS REVENUE EXPENDITURE. 11.1 BEFORE DISCUSSING THE FACTS RELATING TO 'NON - COMPETE AGREEMENTS' ENTERED INTO BY AND BETWEEN THE APPELLANT COMPANY AND (A) UTKAL INVESTMENTS LTD. AND (B) REVATHI EQUIPMENT LTD. AND WHETHER SUCH NON - COMPETE/NON - SOLICITATION FEES/COMPENSATION PAID BY THE APPELLANT COMPANY IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE, IT WOULD BE PRUDENT TO DISCUSSED THE RELEVANT ISSUES PERTAINING TO THE SHARE PURCHASE AGREEMENT WITH UTKAL INVESTMENT LTD. AND CONSEQUENTIAL PAYMENTS OF SUCH FEES/COMPENSATION ON THE BASIS OF NON - SOLICITATION/NON - COMPETE AGREEMENTS WITH UTKAL INVESTMENT LTD. AND REVATHI EQUIPMENT LTD., TO BETTER UNDERSTAND THE REASONS FOR MAKING SU CH PAYMENTS. ACCORDINGLY, ANALYSIS IS MADE ON THE TERMS AND CONDITIONS OF SUCH AGREEMENTS PERTAINING TO RELEVANT TRANSACT IONS AS BELOW : - A. ANALYSES OF THE SHARE PURCHASE AGREEMENT WITH UTKAL INVESTMENT LTD. DATED 21/04/2002 (I) AS PER SHARE PURCHASE AGREEMENT DATED 21/04/2002 WITH THE APPELLANT COMPANY ATLAS COPCO INDIA LTD. (HEREINAFTER ATLAS), A CO - SELLER OF SHARES WITH CHICAGO PNEUMATIC TOOL COMPANY, AND USA BASED COMPANY (HEREINAFTER CP) WITH UTKAL INVESTMENT LTD. (HEREI NAFTER PURCHASER), IT IS NOTICED THAT AS PER CLAUSE 'E', PAGE 3 OF THE AGREEMENT THE SELLERS HAD AGREED TO SALE TO THE PURCHASER THE SHARES HELD BY THE SELLERS IN THE COMPANY AND THE PURCHASER HAD AGREED TO PURCHASE THE SHARES. AS PER CLAUSE 6.3.1 (G), IT WAS DECIDED AS BELOW - 'A MEETING OF THE BOARD SHALL BE HELD TO REGISTER THE TRANSFER OF THE CP SHARES IN FAVOUR OF THE PURCHASE IF THE SAME HAS NOT BEEN DEMATERIALIZED AND ACCEPTING THE RESIGNATION OF DIRECTORS AS PROVIDED IN SUB CLAUSE (E) ABOVE, APPROV ING THE APPOINTMENT OF SUCH PERSONS, AS THE PURCHASE MAY NOMINATE, TO BE DIRECTORS OF THE COMPANY AND THEREAFTER CONSIDERING AND IF THOUGHT FIT, APPROVING A NON - COMPETE AGREEMENT TO THE ENTERED INTO BY THE COMPANY WITH THE SELLERS IN THE FORM ATTACHED HERE IN IN SCHEDULE 6.3.1(G) (THE NON - COMPETE AGREEMENT)'; 8 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 FROM THE ABOVE, IT IS VERY MUCH CLEAR THAT IN PURSUANCE TO THE ABOVE MENTIONED SHARE PURCHASE AGREEMENT, THE BOARD OF DIRECTORS OF THE APPELLANT COMPANY HAD TO REGISTER THE TRANSFER OF THE CP SHARES IN FAVOUR OF THE PURCHASER AND FOR REASONS MENTIONED THEREIN IN CLAUSE (G) ABOVE. A NON - COMPETE AGREEMENT TO THE ENTERED INTO BY THE COMPANY WITH THE SELLERS. THIS BEING THE TERMS, IT CAN VERY, WELL BE SAID THAT CANCELLATION OF AGREEMENT AND PAYMENT OF NOM - C OMPETE /NON - SOLICITATION FEES WITH THE UTKAL INVESTMENT LTD. BY THE APPELLANT COMPANY HAD ORIGINATED FROM THE TRANSFER OF SHARES, WHICH WERE NOTHING BUT THE TRANSACTION IN THE FORM OF CAPITAL ASSET. THEREFORE, PAYMENT MADE IN CONNECTION WITH MEETING UP OF THE TERMS AS LAID DOWN IN THE SHARE PURCHASE AGREEMENT COULD NOT BE SAID OTHER THAN IN THE NATURE OF CAPITAL EXPENDITURE. (II) AGAIN, CLAUSE 6.4 OF THE SHARE PURCHASE AGREEMENT HAS MADE A CONDITION FOR PAYMENT OF NON - COMPETE SUM, AS DEFINED IN NON - COMPET E AGREEMENT TO BE PAID TO ATLAS AND IF THE SAME IS NOT PAID TO ATLAS, THE POWER HAS BEEN GIVEN TO ATLAS TO PLEDGE OVER THE SHARES TO REALIZED THE NON - COMPETE SUM. THE SAID CLAUSE IS AS BELOW - 'THE NON - COMPETE SUM (AS DEFINED IN THE NON - COMPETE AGREEMENT) SHALL BE PAID ATLAS IN ACCORDANCE WITH THE TERMS OF THE NON - COMPETE AGREEMENTS. IN THE EVENT THAT THE NON - COMPETE SUM IS NOT PAID TO ATLAS WITHIN THE NEXT WORKING DAY OF CLOSING FOR ANY REASON, ATLAS SHALL EXERCISE THE PLEDGE OVER THE SHARES TO REALIZED TH E NON - COMPETE SUM'. FURTHER, ON PERUSAL OF CLAUSE 6.5(B) WHICH DEALS WITH THE CONDITIONS OR 'TERMINATION ON NON - FULFILMENT OF CONDITION PRECEDENT'. IT IS SEEN THAT THE SAID CLAUSE IS AN UNDER - 'B. IN THE EVENT THAT CLOSING HAS NOT OCCURRED BECAUSE OF TH E NON - FULFILLMENT OF ARTICLE 4.2.1, THE PURCHASE WITH THE LIABLE TO PAY TO ATLAS A SUM OF RS.5,00,00,000/ - (RUPEES 50 MILLION) AS COMPENSATION / DAMAGES. THE ESCROW AGENT SHALL INVOKE THE ATLAS GUARANTEE TO ENFORCE THE TERMS OF THIS ARTICLE.' THE AFORESAI D TERMS AND CONDITIONS AS LAID DOWN IN CLAUSE 6.4 AND 6.5 (G) THEMSELVES ALSO PROVE THAT BOTH THE PURCHASE OF SHARES BY THE UTKAL INVESTMENT LTD. AND PAYMENT OF COMPENSATION /DAMAGES IN CASE OF NON - FULFILLMENT OF CERTAIN CONDITIONS AS PER SHARE PURCHASE AG REEMENT WITH THE SELLERS, VIS - A - VIS PAYMENT OF NON - COMPETE SUM TO EITHER OF THE PARTIES WERE NOTHING BUT THE TRANSACTIONS CAPITAL IN NATURE. IN FACT, SUBSEQUENT NON - COMPETE AGREEMENT AND NON - SOLICITATION AGREEMENT HAD ORIGINATED OUT OF THE AFORESAID SHARE PURCHASE AGREEMENT AND TRANSACTIONS OF SHARES WHICH WERE CAPITAL IN NATURE AND, THEREFORE, PAYMENTS MADE /COMPENSATION PAID FOR TERMINATION OF NON - COMPETE/NON - SOLICITATION AGREEMENTS WERE, THEREFORE, CAPITAL EXPENDITURE IN NATURE AND COULD NOT BE CLAIMED AS REVENUE EXPENDITURE, AS HAS BEEN ALLEGEDLY CLAIMED BY THE APPELLANT. 9 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 B. ANALYSES OF THE NON - COMPETE AGREEMENT WITH REVATHI EQUIPMENT LTD. DATED 17/08/2008. 11.2 NOW, FROM THE AGREEMENT DATED 17/08/2002 ENTERED INTO BY AND BETWEEN THE APPELLANT COMPANY ATLAS COPCO INDIA LTD. (HEREINAFTER ATLAS) AND WITH CHICAGO PNEUMATIC TOOL COMPANY, AND USA BASED COMPANY (HEREINAFTER CP) WITH REVATHI EQUIPMENT LTD. (HEREINAF TER REL). IT IS SEEN THAT ATLAS AND CP TOGETHER HELD 12.80,200 EQUITY SHARES OF RS.10 EACH FULLY PAID UP IN REL CONSTITUTING 39.88% OF THE TOTAL PAID UP CAPITAL OF REL AND HAD TRANSFERRED THEIR ENTIRE SHAREHOLDING IN REL TO UTKAL INVESTMENT LTD. AND CONSEQ UENT TO THEIR DIVESTMENT IN REL, ATLAS AND CP HAD AGREED NOT TO SOLICIT CUSTOMERS AND EMPLOYEES OF REL ON THE TERMS PROVIDED IN THIS AGREEMENT (CLAUSE B & C, PAGE NO. 2). RESTRICTIONS HAVE ALSO BEEN IMPOSED VIDE ARTICLE - 2, PAGE NO. 3 OF THE SAID AGREEMENT WHEREIN IN CLAUSE 2.2 IT HAS BEEN ENUMERATED AS BELOW - '2.2 IN THE EVENT THAT CP GROUP OR ANY AFFILIATE THEREOF, AFTER THE DATE OF THIS AGREEMENT SHALL ACQUIRED, WHETHER BY MERGER, ASSET PURCHASE OR STOCK PURCHASE, ANY COMPANY OR OTHER BUSINESS ENTITY THAT IS ENGAGED IN SUBSTANTIALLY, EITHER IN WHOLE OR IN PART, IN THE BUSINESS IN THE TERRITORY, THE CONDUCT OF SUCH BUSINESS BY SUCH ACQUIRED COMPANY OR OTHER BUSINESS ENTITY SHALL NOT BE SUBJECT TO BE PROVISIONS OF THIS AGREEMENT PROVIDED THAT NOT MORE TH AN TEN PERCENT (10%) OF ITS GROSS REVENUES ARE DERIVED FROM SUCH BUSINESS CONDUCTED WITH THE TERRITORY' ARTICLE 3 OF THE AFORESAID AGREEMENT HAS AGAIN GIVEN THE CONSIDERATION TERMING AS BELOW - IN CONSIDERATION OF THE CP GROUP ENTERING TO THESE AGREEME NT REL HEREBY AGREES TO PAY TO ATLAS A SUM OF RS.7,50,00,000/ - (RS. 75 MILLION) ( THE CONSIDERATION) WITHIN THE NEXT WORKING DAY OF SIGNING OF THIS AGREEMENT, REL SHALL PAY THE CONSIDERATION TO ATLAS BY WAY OF A BANKERS DRAFT/ PAY ORDER DRAWN IN FAVOUR OF ATLAS AFTER DEDUCTION OF APPLICABLE TAXES. ARTICLE - 4.2 WHICH DEALS WITH REMEDIES FOR BREACH IS AS BELOW - 4.2 THE AGGREGATE AMOUNT OF DAMAGES PAYABLE IN CONNECTION WITH ANY AND ALSO SUCH BREACHES SHALL IN NO EVENT EXCEED THE CONSIDERATION. 11.2.1 FROM THE AFORESAID VARIOUS CLAUSES OF THE AGREEMENT DATED 17/08/2002 BY THE CP GROUP WHICH INCLUDED THE APPELLANT COMPANY UNDER CONSIDERATION AND REL VERY WELL INDICATE THAT THE COMPENSATION / DAMAGES PAYABLE TO EITHER OF THE PARTIES FOR BREACH OF A NY CONDITIONS, ORIGINATED FROM THE HOLDING OF SHARES BY THE CP GROUP IN REL CONSTITUTING 39.88 % OF THE TOTAL PAID OF CAPITAL OF THE REL WHICH HAD BEEN TRANSFERRED TO UTKAL INVESTMENT LTD. AND, THEREFORE, DAMAGES/ COMPENSATION PAID BY THE APPELLANT COMPANY TO BOTH THE UTKAL INVESTMENT LTD. AND REL IN THE FORM OF COMPENSATION FOR 10 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 TERMINATION OF NON - COMPETE/NON - SOLICITATION AGREEMENT OF RS.22,50,00,000/ - WERE NOTHING BUT THE EXPENDITURE CAPITAL IN NATURE. 11.2.2 REFERENCE MAY ALSO BE MADE TO ARTICLE - 2, CLAU SES 2.1(A) TO 2.1(E) DEALING WITH 'NON - COMPETITION AND NON - SOLICITATION' OF SCHEDULE - 6.3.1 (G) OF THE NON - COMPETE AGREEMENT DATED 17/08/2002 WHEREIN THE RESTRICTIONS HAVE BEEN IMPOSED BY LAYING DOWN THE CONDITIONS OF 3 YEARS TO 5 YEARS FOR DEALING WITH VAR IOUS BUSINESS ACTIVITIES BY AND BETWEEN THE CP GROUND AND THE REL AND FOR EITHER OF THE PARTIES. VIDE ARTICLE - 3 OF THE SAID SCHEDULE REL HAD AGREED TO PAY THE APPELLANT COMPANY THAT IS ATLAS A SUM OF RS.1 CRORE AS NON - COMPETE SUM. THEREFORE, SINCE THE ENTI RE PAYMENT OF COMPENSATION FOR TERMINATION OF NON - COMPETE/NON - SOLICITATION AGREEMENT DEALT WITH THE TRANSACTION CAPITAL IN NATURE, ANY PAYMENT MADE FOR THIS PURPOSE BY THE APPELLANT COMPANY COULD NOT BE CLAIMED AS REVENUE EXPENDITURE AND, THEREFORE, AS THE APPELLANT FAILED TO DISCLOSE THE TRUE AND CORRECT INCOME IN THE RETURN OF INCOME FILED AND SUCH AN ASSESSMENT WAS MADE U/S. 143(3) OF THE ACT, SUBSEQUENTLY IN PURSUANCE TO THE DECISIONS OF THE HON'BLE COURTS HOLDING THAT SUCH PAYMENTS WERE CAPITAL IN NATU RE, A RECTIFICATION ORDER U/S. 154 OF THE ACT COULD BE PASSED BY THE ASSESSING OFFICER RECTIFYING SUCH A MISTAKE AS AN APPARENT MISTAKE. 4.1 THE V ARIOUS CASE LAWS ON WHICH THE LD. DR PLACED RELIANCE ARE AS UNDER : I . COMMISSIONER OF INCOME TAX VS. COAL SHI PMENTS (P.) LTD., 82 ITR 902 (SC); II . KETTLEWELL BULLEN & CO. LTD. VS. COMMISSIONER OF INCOME TAX, 53 ITR 261 (SC); III . COMMISSIONER OF INCOME TAX VS. BEST AND CO. (PRIVATE) LTD., 60 ITR 11 (SC); IV . ASSISTANT COMMISSIONER OF INCOME TAX VS. SAURASHTRA KUTCH STOCK EXC HANGE LTD., 305 ITR 227 (SC); V . ASSAM BENGAL CEMENT CO. LTD. VS. COMMISSIONER OF INCOME TAX, 27 ITR 34 (SC); VI . TECUMSEH INDIA PRIVATE LIMITED VS. ADDL. COMMISSIONER OF INCOME TAX , 5 ITR (TRIB.) 150 (DELHI)(SB). 5. ON THE OTHER HAND SHRI R. MURLIDHAR APPEARING ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). THE LD. AR SUBMITTED THAT IT IS NOT A CASE WHERE THE ASSESSEE HAS MADE PAYMENT TO REVATHI AND UTKAL FOR ENTERING INTO NON - COMPETE AGREEMENT. 11 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 THE ASSESSEE HAS MADE PAYMENT TO REVATHI AND UTKAL AS COMPENSATION FOR BREACH OF AGREEMENT EARLIER ENTERED BY THE ASSESSEE WITH THE SAID COMPANIES WITH NON - SOLICITATION AND NON - COMPETE COVENANTS. IN OTHER WORDS, THE PAYMENT OF RS.22.50 CRORES HAS BEEN MADE BY THE ASSE SSEE TO RELEAS E THE ASSESSEE FROM THE RESTRICTIVE COVENANTS OF NON - SOLICITATION AND NON - COMPETE AGREEMENTS DATED 05 - 08 - 2002. THUS, THE PAYMENTS OF COMPENSATION BY THE ASSESSEE TO REVATHI AND UTKAL ARE NOT CAPITAL IN NATURE. 5.1 THE LD. AR SUBMITTED THAT DURING THE SCRUTINY ASSESSMENT PROCEEDINGS EVERYTHING WAS OPEN BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER AFTER EXAMINING ENTIRE FACTS OF THE CASE ALLOWED THE CLAIM OF ASSESSEE. THE PROVISIONS OF SECTION 154 HAVE BEEN INVOKED BY THE ASSESSI NG OFFICER ONLY ON CHANGE OF OPINION. THE SCOPE OF SECTION 154 IS ONLY LIMITED TO THE EXTENT OF RECTIFICATION OF APPARENT MISTAKE, IF ANY IN THE ASSESSMENT ORDER. THE PROVISIONS OF SECTION 154 CANNOT BE INVOKED TO SUBSTITUTE THE OPINION ONCE FORMED BY TH E ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT. THE ASSESSING OFFICER VIDE NOTICE DATED 12 - 03 - 2013 (AT PAGES 48A AND 48B OF THE PAPER BOOK) PROPOSED TO RECTIFY THE ALLEGED MISTAKE IN RELATION TO COMPENSATION OF RS.22.50 CRORES PAID BY THE ASSESSEE ON TERMINATION OF AGREEMENT HOLDING IT TO BE CAPITAL IN NATURE. THE ASSESSEE VIDE LETTER DATED 22 - 03 - 2013 (AT PAGES 49 TO 59 OF THE PAPER BOOK) OBJECTED TO THE PROPOSED RECTIFICATION. THE ASSESSEE ALSO SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS A DEBA TABLE, THEREFORE, IT DOES NOT FALL WITHIN THE DOMAIN OF RECTIFICATION OF MISTAKE U/S. 154 OF THE ACT. THE ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSEE AND PROCEEDED ON TO PASS ORDER U/S. 154 HOLDING THE COMPENSATION OF RS.22.50 CRORES PAID B Y THE ASSESSEE AS CAPITAL EXPENDITURE. THE LD. AR CONTENDED THAT 12 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 SUCH DISALLOWANCE REQUIRE DUE DELIBERATION S EVEN AT THE TIME OF SCRUTINY ASSESSMENT PROCEEDINGS U/S. 1 4 3(3) OF THE ACT. SUCH PROCEEDINGS ARE ENORMOUSLY OUTSIDE THE SCOPE OF SECTION 154 OF T HE ACT, THEREFORE, THE ASSESSING OFFICER HAS CLEARLY EXCEEDED JURISDICTION U/S. 154 OF THE ACT. THE LD. AR CONTEND ED THAT POWERS OF ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 154 ARE LIMITED TO RECTIFY THE MISTAKE APPARENT FROM RECORD. THE LD. AR POINTED THAT THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF T.S. BALARAM, ITO VS. VOLKART BROS. REPORTED AS 82 ITR 50 HAS EXPLAINED THE MEANING OF MISTAKE APPARENT FROM RECORD. THE LD. AR SUBMITTED THAT THE HONBLE APEX COURT HAS HELD THAT A MISTAKE APPARENT FROM RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG - DRAWN PROCESS OF REASONING TO POINTS ON WHICH THERE MAY BE CONCEIVABLE TWO OPINIONS. A DECISION ON A DEBATABLE POINT OF LAW IS NOT A MISTAKE AP PARENT FROM THE RECORD. TO FURTHER STRENGTHEN HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . MEPCO INDUSTRIES LTD. VS. COMMISSIONER OF INCOME TAX, 185 TAXMAN 409 (SC); II . COMMISSIONER OF INCOME TAX VS. NATHPA JHAKRI JOINT VENTURE, 35 8 ITR 233 (BOM); III . J.M. SHAH VS. J.M. BHATIA, AAC, 94 ITR 519 (BOM); IV . ARVIND N. MAFATLAL VS. T.A. BALAKRISHNAN, DY. CED, 67 ITR 449 (BOM); 5.2 THE LD. AR SUBMITTED THAT WHEN AN ISSUE UNDER CONSIDERATION IS A DEBATABLE , ORDER ON SUCH AN ISSUE COULD NOT BE PASSED IN PROCEEDING U/S. 154 OF THE ACT. TO SUPPORT THIS ARGUMENT THE LD. AR PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TATA COMMUNICATIONS LTD. VS. ASST. COMMISSIONER OF INCOME TAX IN ITA NO. 3757/MUM/2010 FOR ASSESSMENT YE AR 1997 - 98 DECIDED ON 08 - 05 - 2013. 13 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 5.3 ON MERITS OF THE ISSUE THE LD. AR SUBMITTED THAT PAYMENT TOWARDS NON - SOLICITATION AND NON - COMPETE AGREEMENTS IS REVENUE IN NATURE. TO SUPPORT HIS CONTENTIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . COMMISSIONER OF INCOME TAX VS. M/S. EVEREST ADVERTISING PVT. LTD. IN INCOME TAX APPEAL NO. 6539 OF 2010 DECIDED ON 04 - 12 - 2012; II . COMMISSIONER OF INCOME TAX VS. EICHER LTD., 302 ITR 249 (DEL); III . CARBORANDUM UNIVERSAL LTD. VS. JOINT COMMISSIONER OF INCOME TAX, 2 6 TAXMANN.COM 268 (MADRAS); IV . ASSISTANT COMMISSIONER OF INCOME TAX VS. CLARIANT CHEMICALS (I) LTD., 53 TAXMANN.COM 284 (MUMBAI - TRIB.); V . JOINT COMMISSIONER OF INCOME TAX VS. SYNERGY CREDIT CORPN. LTD., 9 SOT 75 (MUMBAI). 5.4 THE LD. AR SUBMITTED THAT IN ALL THE ABOVE CASES THE HONBLE HIGH COURTS AND TRIBUNAL HAVE HELD THAT PAYMENTS TOWARDS NON - COMPETE COVENANTS IN THE AGREEMENT FOR THE PERIOD OF 3 YEARS/5 YEARS IS AN ALLOWABLE REVENUE EXPENDITURE. 5.5 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAD PAID COMPENSATION FOR VIOLATING NON - SOLICITATION AND NON - COMPETE AGREEMENTS TO ENABLE THE ASSESSEE TO CARRY ON ITS BUSINESS ACTIVITIES WITH GREATER FREEDOM AND MORE PROFITABILITY . THUS, THE EXPENDITURE TOWARDS PAYMENT OF COMPENSATION IS ALLOWABLE AS REVEN UE EXPENDITURE. THE ASSESSEE HAS PAID THE COMPENSATION FOR REMOVAL OF DISABILITIES AND OBSTACLES, WITH SUCH PAYMENT OF COMPENSATION NO NEW ASSET EITHER TANGIBLE OR INTANGIBLE HAS COME INTO EXISTENCE WHICH WOULD PROVIDE ANY ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE. TO BUTTRESS THIS ARGUMENT THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . BIKANER GYPSUMS LTD. VS. COMMISSIONER OF INCOME TAX, 187 ITR 39 (SC); 14 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 II . AIRPORT AUTHORITY OF INDIA VS. COMMISSIONER OF INCOME TAX, 340 ITR 407 (DELHI); III . JAMNA AUT O INDUSTRIES VS. COMMISSIONER OF INCOME TAX, 299 ITR 92 (P&H); IV . COMMISSIONER OF INCOME TAX VS. S.A. BUILDERS (P.) LTD., 299 ITR 88 (P&H). THE LD. AR SUBMITTED THAT THUS, IN VIEW OF THE FACTS OF THE CASE AND VARIOUS CASE LAWS THE ACTION OF ASSESSING OFFICER IN MAKING DISALLOWANCE OF EXPENDITURE TOWARDS PAYMENT OF COMPENSATION HOLDING IT TO BE CAPITAL IN NATURE IS BEYOND THE SCOPE OF PROCEEDINGS U/S. 154 OF THE ACT. THE LD. AR PRAYED FOR UPHOLDING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS ING THE APPEAL OF REVENUE. 6 . W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED VARIOUS DECISIONS ON WHICH RIVAL SIDES HAVE PLACED RELIANCE TO SUPPORT THEIR RESPECTIVE CONTENTIONS. THE FIRST ISSUE BEFORE US IS, WHETHER THE ASSESSING OFFICER IS JUSTIFIED IN ASSUMING JURISDICTION U/S. 154 OF THE ACT TO MAKE ADDITION OF RS.22.50 CRORES IN RESPECT OF PAYMENT OF COMPENSA TION FOR VIOLATING THE TERMS AND CONDITION OF NON - SOLICITATION AND NON - COMPETE AGREEMENTS. 7. BEFORE PROCEEDING WITH THE ISSUE IT WOULD BE RELEVANT TO MENTION THE PROVISIONS OF SECTION 154 OF THE ACT : 154. [(1)] WITH A VIEW TO RECTIFYING ANY MISTAKE APP ARENT FROM RECORD AN INCOME TAX AUTHORITY REFERRED TO IN SECTION 116 MAY, - (A) AMEND ANY ORDER PASSED BY IT UNDER THE PROVISIONS OF THIS ACT; [ (B) AMEND ANY INTIMATION OR DEEMED INTIMATION UNDER SUB - SECTION (1) OF SECTION 143 ;]] [ (C) A MEND ANY INTIMATION UNDER SUB - SECTION (1) OF SECTION 200A;] [D) AMEND ANY INTIMATION UNDER SUB - SECTION (1) OF SECTION 206CB.] 15 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 A BARE PERUSAL OF ABOVE PROVISIONS INDICATES THAT THE ASSESSING OFFICER CAN ASSUME JURISDICTION U/S. 154 TO RECTIFY MISTAKE APPARENT FROM RECORD. 8 . THE EXPRESSION MISTAKE APPARENT CONNOTES THAT A MISTAKE OR ERROR SHOULD BE OBVIOUS OR EVIDENT WITHOUT FURTHER EXPLANATION. IN OTHER WORDS, A MISTAKE THAT CAN BE REALIZED WITHOUT DEBATE OR A DISSERTATION. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF T.S. BALARAM, ITO VS. VOLKART BROS. (SUPRA) HAS HELD : A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY CONC EIVABLY BE TWO OPINIONS. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NATHPA JHAKRI JOINT VENTURE (SUPRA) FOLLOWING THE RATIO LAID DOWN IN THE CASE OF T.S. BALARAM, ITO VS. VOLKART BROS. (SUPRA) HELD THAT WHERE ISSUE IS DEBATABLE THE SAME CANNOT BE E NTERTAINED U/S. 154 OF THE ACT. 9 . IN THE PRESENT CASE, WE FIND THAT THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER DATED 24 - 12 - 2008 U/S. 143(3) R.W.S. 145/144 OF THE ACT. THE ENTIRE ASSESSMENT WAS OPEN BEFORE THE ASSESSING OFFICER. THE ASSESSING O FFICER MADE ADDITION S OF APPROXIMATELY RS.30 CRORES ON VARIOUS COUNTS IN THE INCOME RETURNED BY THE ASSESSEE. FROM THE ASSESSMENT ORDER, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS APPLIED HIS MIND IN CONSIDERING EACH AND EVERY ELEMENT OF EXPENDITURE CLA IMED BY THE ASSESSEE. THEREAFTER, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 154 TO DISALLOW ASSESSEES CLAIM AMOUNTING TO RS.22.50 CRORES PAID AS COMPENSATION FOR VIOLATION OF NON - SOLICITATION AND NON - COMPETE AGREEMENTS. THE ASSESSEE HAD CL AIMED PAYMENT OF SAID COMPENSATION AS 16 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 REVENUE EXPENDITURE , WHICH WAS ACCEPTED BY THE ASSESSING OFFICER IN PROCEEDINGS U/S. 143(3) OF THE ACT . SUBSEQUENTLY, THE ASSESSING OFFICER INITIATED PROCEEDINGS U/S. 154 TO DISALLOW SAID CLAIM OF ASSESSEE BY TREATING THE AFORESAID EXPENDITURE AS A CAPITAL IN NATURE. FACTS ON RECORD CLEARLY INDICATE THAT THE PROCEEDINGS U/S. 154 HAVE BEEN INITIATED BY THE ASSESSING OFFICER MERELY ON ACCOUNT OF CHANGE OF OPINION. THE LAW DOES NOT PERMIT THE ASSESSING OFFICER TO ASSUME JURISDICTION U/S. 154 TO IMPRESS UPON HIS CHANGE OF OPINION. THE SCOPE OF SECTION 154 IS VERY NARROW . THE PROVISIONS OF SECTION PERMITS ASSESSING OFFICER ONLY TO RECTIFY THE MISTAKE APPARENT ON RECORD. 10. BOTH THE SIDES HAVE PLACED ON RECORD VARIOUS DECISIONS SUPPORTING THEIR RESPECTIVE VIEW. WE FIND THAT IN SOME CASES NON - COMPETE FEE HAS BEEN HELD TO BE CAPITAL IN NATURE, WHEREAS, THERE ARE OTHER SET OF CASES WHERE NON - COMPETE FEE HAS BEEN HELD TO BE REVENUE EXPENDITURE. THIS OF COURSE RESULTS IN M AKING THE ISSUE DEBATABLE. THE JODHPUR BENCH OF THE TRIBUNAL IN THE CASE OF BANSWARA SYNTEX LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX REPORTED AS 108 ITD 48 HAS HELD THAT A DECISION ON DEBATABLE POINT OF LAW IS NOT MISTAKE APPARENT FROM RECORD. 11. T HE POWERS CONFERRED U/S. 154 ON THE ASSESSING OFFICER ARE LIMITED ONLY TO RECTIFY THE PATENT MISTAKES. THE ASSESSING OFFICER CANNOT USE THE CANON OF SECTION 154 TO REVIEW ITS DECISIONS. IN THE INSTANT CASE THE ASSESSING OFFICER HAS EXERCISED HIS POWER U/ S. 154 NOT TO RECTIFY ANY MISTAKE BUT TO THRUST HIS CHANGE D OPINION. THIS CANNOT BE PERMITTED UNDER THE PROVISIONS OF SECTION 154 OF THE ACT. THE ASSESSING OFFICER DOES NOT HAVE UNFETTERED POWERS UNDER THE SECTION TO PLAY WITH THE ASSESSMENT OF ASSESSEE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF 17 ITA NO . 2286/PUN/2014, A.Y. 2005 - 06 INCOME TAX (APPEALS) IN REJECTING THE ACTION OF ASSESSING OFFICER FOR MAKING ADDITION. THUS, WE CONCUR WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, THE IMPUGNED ORD ER IS UPHELD AND THE APPEAL OF REVENUE IS DISMISSED. 12. SINCE, WE HAVE UPHELD THE FINDINGS OF FIRST APPELLATE AUTHORITY ON THE GROUND OF JURISDICTION, THE SUBMISSION OF RIVAL SIDES ON MERITS OF THE ADDITION HAVE BECOME ACADEMIC AND HENCE ARE NOT DEALT UP ON. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH DAY OF JANUARY, 201 8 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 10 TH JANUARY, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - V, PUNE 4. / THE CIT - V, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE