The DCIT, Circle-1(2), Baroda V. M/s. India Medtronics Pvt.Ltd., Baroda

ITA 442/AHD/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8824 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-10-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 11-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N. PADMANABHAN
• Assessee Lawyers: R.R.VORA
• Keywords: Depreciation; Transfer pricing; Difference of opinion; Capital receipt; Revenue expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 205

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI , , , , # BEFORE SHRI G.S.PANNU, AM AND SHRI AMARJIT SINGH, J M / I.T.A. NO.442/AHD/2010 ( $% &% / ASSESSMENT YEAR: 2002-03) THE DY. CIT CIR 1(2) AAYAKAR BHAVAN, RACE COURSE CIRCLE BARODA / VS. M/S. INDIA MEDTRONIC P. LTD. 919-2, GIDC IND. E ST. MAKARPURA, BARODA - 390010 ./ ./PAN/GIR NO. : AAACI4227Q ( /APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 09.02.2017 /DATE OF PRONOUNCEMENT: 31.03.2017 / O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST TH E ORDER DATED 21.10.2009 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BARODA [HEREINAFTER REFERRED TO AS THE CIT(A)] RE LEVANT TO THE A.Y. 2002-03 IN WHICH THE PENALTY LEVIED BY THE ASS ESSING OFFICER HAS BEEN ORDERED TO BE DELETED. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- REVENUE BY: SHRI. N. PADMANABHAN ASSESSEE BY: SHRI R.R.VORA & SHRI NIKHIL TIWARI ITA NO.442/AHD./2010 A.Y.2002-03 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE PENALTY U/.S 271(1)(C) OF THE ACT ON THE ADDITIONS / DISALLOWANCES WHICH WERE CONFIRMED IN THE QUANTUM APPEAL: (I) ADDITION OF RS.4.73 CRORES ON ACCOUNT OF DISALLOWAN CE OF NON-COMPETE FEES TO THE DIRECTORS OF THE COMPANY. (II) DISALLOWANCE OF DEPRECIATION OF RS.3,12,500/- ON GOODWILL. (III) ADDITION OF RS.20,99,543/- ON ACCOUNT OF TRANSFER PRICING. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME IN ORDER TO EVADE TAX. 3. THE APPELLANT CRAVES LEAVE TO ADD TO AMEND OR AL TER THE ABOVE GROUND AS MAY BE DEEMED NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME FOR THE A.Y.2002-03 ON 01.12.2002 DECLARING TOTAL INCOME TO THE TUNE OF RS.5,23,71,880/-. THE CASE WAS SELECTED FO R SCRUTINY AND ASSESSMENT ORDER 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) WAS PASSED ON 30.03.2005 DETERMINING TOTAL INCOME T O THE TUNE OF RS.10,29,81,829/-. IN THE SAID ORDER THE PENALTY P ROCEEDING U/S.271(1)(C) OF THE ACT WAS INITIATED ON ACCOUNT OF FOLLOWING GROUN DS:- I) NON COMPETE FEES : RS.4,73,00,000/- II) DEPRECIATION ON GOODWILL : RS. 3,12,500/- III) ON ACCOUNT OF TRANSFER PRICING : RS. 20,9 9,543/- IV) DEPRECIATION ON PLANT & MACHINERY: RS. 8 ,97,910/- ITA NO.442/AHD./2010 A.Y.2002-03 3 THE NOTICE WAS ISSUED ON 30.03.2005 FOR FURNISHING THE INACCURATE PARTICULARS OF INCOME AND CONCEALING THE INCOME WHI CH WAS DULY SERVED UPON THE ASSESSEE. IN THE APPEAL BEFORE THE CIT(A) , CIT(A) CONFIRMED THE ADDITION IN RESPECT OF NON-COMPLETE FEES, DEPRECIAT ION ON GOODWILL AND TRANSFER PRICING BY VIRTUE OF ORDER DATED 23.11.200 7. THE ADDITION OF RS.8,97,910/- IN RESPECT OF THE DEPRECIATION ON PLA NT AND MACHINERY WAS DELETED BY THE CIT(A). THEREAFTER, ON RECEIPT OF T HE ORDER PASSED BY THE CIT(A) A LETTER DATED 09.02.2009 WAS ISSUED TO THE ASSESSEE TO SUBMIT THE WRITTEN EXPLANATION IN CONNECTION WITH LEVY OF PENA LTY U/S.271(1)(C) OF THE ACT ON THE ABOVE SAID ISSUES. THE ASSESSEE ALSO SU BMITTED THE REPLY DATED 09.02.2009. THEREAFTER, CONSIDERING THE REPLY, THE ASSESSING OFFICER LEVIED THE PENALTY TO THE TUNE OF RS.1,77,48,000/-. FEELI NG AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DE LETED PENALTY ON ACCOUNT OF ADDITION OF NON COMPETE FEES OF RS.4,73, 00,000/-, DEPRECIATION ON GOODWILL OF RS.3,12,500/-, ON ACCOUNT OF TRANSFE R PRICING OF RS.20,99,543/-. SINCE THE REVENUE WAS NOT SATISFIE D, THEREFORE, THE PRESENT APPEAL HAS BEEN FILED BEFORE US. ISSUE NO.1 & 2:- 4. ISSUE NO.1 AND 2 ARE INTERCONNECTED, THEREFORE A RE BEING TAKEN UP TOGETHER FOR ADJUDICATION. UNDER THESE ISSUES THE REVENUE HAS CHALLENGED THE DELETION OF PENALTY ON ACCOUNT OF ADDITION OF R S.4.73 CRORES IN RESPECT OF DISALLOWANCE OF NON-COMPETE FEES AND ON ACCOUNT OF DEPRECIATION OF RS.3,12,500/- ON GOODWILL AND ON ACCOUNT OF ADDITIO N OF RS.20,99,543/- ON ACCOUNT OF TRANSFER PRICING. SO FAR AS THE DISALLO WANCE OF DEPRECIATION OF RS.3,12,500/- ON GOODWILL IS CONCERNED THE SAME HAS BEEN DELETED BY THE ITA NO.442/AHD./2010 A.Y.2002-03 4 HONBLE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.811 /AHD./2008, ORDER DATED 25.10.2016 FOR A.Y.2002-03 IN ASSESSEES OWN CASE. SO FAR AS THE OTHER ADDITION IN CONNECTION WITH THE TRANSFER PRIC ING TO THE TUNE OF RS.20,99,543/- IS CONCERNED, THIS ADDITION HAS ALSO BEEN REMANDED BACK TO THE ASSESSING OFFICER FOR FURTHER ADJUDICATION BY T HE HONBLE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.811/AHD./2008, ORDER D ATED 25.10.2016 FOR A.Y.2002-03 IN ASSESSEES OWN CASE. NO DOUBT, IN THE SAID CIRCUMSTANCES NO PENALTY IS SUSTAINABLE ON ACCOUNT OF DISALLOWANC E OF DEPRECIATION OF RS.3,12,500/- ON GOODWILL AND ADDITION OF RS.20,99, 543/- ON ACCOUNT OF TRANSFER PRICING. NOW WE HAVE TO SEE ABOUT THE AD DITION OF RS.4.73 CRORES ON ACCOUNT OF NON COMPETE FEES TO THE DIRECTORS OF THE COMPANY LEADS TO THE PENALTY OR NOT. IT IS TO BE SEEN WHETHER THE PENAL TY IN THIS CONNECTION HAS RIGHTLY BEEN DELETED BY THE CIT(A) OR NOT. BEFORE GOING FURTHER, IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RE CORD:- 4.1 I HAVE CONSIDERED THE SUBMISSION OF THE LD. A. R. AND THE FACTS OF THE CASE. THE PENALTY HAS BEEN LEVIED UNDER CLA USE (C) OF SUB-SECTION (1) OF SECTION 271, WHICH PROVIDES FOR PENALTY IN CASES WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY PERSON HAS CONCEALED PARTICULARS OF HIS INCOME OR FURNISH ED INACCURATE PARTICULARS OF SUCH INCOME. FOR IMPOSI NG THE PENALTY, IT IS NECESSARY THAT THERE SHOULD BE EITHE R CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. THE POSITIO N WITH REGARD TO THE ONUS OF ESTABLISHING CONCEALMENT / FU RNISHING OF INACCURATE PARTICULARS HAS UNDERGONE CHANGES. BY T HE ITA NO.442/AHD./2010 A.Y.2002-03 5 OMISSION, WITH EFFECT FROM 1.4.1964, OF THE WORD DELIBERATELY, THE ELEMENT OF MENS REA HAS BEEN EX CLUDED FROM THE PENALTY PROCEEDINGS. BY WAY OF THE DEEMIN G PROVISIONS IN EXPLANATION 1 TO SUB-SECTION 1, THE A MOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME S HALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THUS, ANY VARIATI ON BETWEEN THE RETURNED AND ASSESSED INCOME SHALL BE DEEMED TO BE THE RESULT OF CONCEALMENT / FURNISHING OF INACCURATE PA RTICULARS OF INCOME. THE JUDICIAL DECISIONS HAVE REFLECTED THIS CHANGE. THE EARLIER LEGAL POSITION, AS ENUNCIATED BY THE SU PREME COURT IN CIT V. ANWAR ALI, 76 ITR 696, WAS THAT IT WAS FOR THE REVENUE TO POSITIVELY PROVE CONCEALMENT BEFORE LEVY OF PENALTY WAS POSSIBLE. HOWEVER, THIS VIEW NO LONGER HOLDS GOOD AFTER THE INTRODUCTION OF THE SAID EXPLANATION . THE PRESENT POSITION, AS ENUNCIATED BY THE APEX COURT I N V.A.BALASUBRAMANIAM AND BROS. & CO. V. CIT 236 ITR 977, FOLLOWING ITS OWN DECISIONS IN CIT V. MUSSADILAL RA M BHAROSE, 165 ITR 14, CIT V. K.R.SADAYAPPAN, 185 ITR 49 AND ADDL. CIT V. JIVANLAL SAH, 205 ITR 244 IS THAT IT IS FOR THE ASSESSEE TO REBUT THE PRESUMPTION REGARDING CONCEAL MENT RAISED AGAINST HIM BY THE EXPLANATION. TO SUMMARIS E, EXPLANATION 1 STATES AS RULE OF LAW THAT IN EVERY C ASE OF ADDITION TO THE RETURNED INCOME, THERE IS A PRESUMP TION OF CONCEALMENT. THIS PRESUMPTION IS REBUTTABLE. THE ONUS OF REBUTTING SUCH PREEMPTION IS ON THE TAX PAYER. THE ITA NO.442/AHD./2010 A.Y.2002-03 6 PRESUMPTION CAN BE REBUTTED BY OFFERING A PLAUSIBLE EXPLANATION. WHERE NO EXPLANATION IS OFFERED, THE ASSESSEE WOULD BE LIABLE FOR PENALTY. WHERE OFFERED, THE EX PLANATION SHOULD NOT BE FOUND TO BE FALSE. HOWEVER, WHERE TH E ASSESSEE IS NOT ABLE TO SUBSTANTIATE ITS EXPLANATION, PENALT Y MAY NOT BE EXIGIBLE, IF SUCH EXPLANATION IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE CONSUMPTIO N OF ITS TOTAL INCOME HAVE BEEN DISCLOSED. 4.2 IT IS A WELL SETTLED PROPOSITION THAT PENALTY P ROCEEDINGS AND ASSESSMENT PROCEEDINGS ARE DISTINCT. JUDICIAL OPIN ION IS UNANIMOUS THAT WHERE ALL THE FACTS RELATING TO THE ADDITION HAVE BEEN DISCLOSED BY THE ASSESSEE, IT WOULD NOT B E A FIT CASE FOR PENALTY. MERE DIFFERENCE OF OPINION REGARDING THE MEANING AND SCOPE OF A PROVISION OF LAW MAY RESULT IN YIELD OF ADDITION QUANTUM OF TAX ON ASSESSMENT BUT MAY NO T JUSTIFY OR WARRANT THE IMPOSITION OF PENALTY. 4.3 RECENTLY THE DECISION OF THE SUPREME COURT IN T HE CASE OF DHARMENDRA TAXTILES PROCESSORS HAS GENERATED SOME CONTROVERSY. THE ASSESSING AUTHORITIES HAVE INTERP RETED THE DECISION TO MEAN THAT THERE IS NOW NO PLACE FOR MEN S REA IN PENALTY PROCEEDINGS, AND THAT EVERY ADDITION OR DIS ALLOWANCE WOULD HAVE THE CONSEQUENCE OF MANDATORY IMPOSITION OF PENALTY. HOWEVER, IN RAJASTHAN SPINNING AND WEAVIN G MILLS (SUPRA), THE SUPREME COURT HAS REVISITED ITS DECISI ON IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS AND CLARIFIE D THAT IT ITA NO.442/AHD./2010 A.Y.2002-03 7 MERELY REITERATES THE EARLIER EXISTING POSITION, I. E. PENALTY CAN BE LEVIED ONLY IN A CASE WHERE THERE HAS BEEN EITHE R CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. WHETHER THERE HAS BEEN CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS WOULD BE DECID ED ONLY AFTER ANY OF THE THREE FOLLOWING CONDITIONS ARE SAT ISFIED:- (I) WHERE NO EXPLANATION IS OFFERED, (II) WHERE THE EXPLANATION OFFERED IS FOUND TO BE FALSE, OR (III) WHERE THE EXPLANATION IS UNSUBSTANTIATED. 4.4 IN THE INSTANT CASE, THE PENALTY RELATES TO THE TREATMENT ACCORDED TO THE PAYMENT OF NON-COMPETE FEES. IT IS NOTEWORTHY THAT THERE WAS A SUBSTANTIAL AMOUNT OF L ITIGATION ON THIS ISSUE WHICH WAS FINALLY PUT AT REST BY THE INSERTION OF CLAUSE (VA) IN SECTION 28, WHEREBY SUCH RECEIPTS WE RE DEEMED TO BE REVENUE RECEIPT AND HENCE TAXABLE. PRIOR TO THIS LEGISLATIVE AMENDMENT, THERE WAS CLEAVAGE OF OPINIO N, EVEN AMONGST HIGH COURTS, AS TO WHETHER SUCH RECEIPTS CO NSTITUTED CAPITAL RECEIPT OR REVENUE RECEIPT AND THE CORRESPO NDING PAYMENT CONSTITUTED CAPITAL OR REVENUE EXPENDITURE. HENCE, THE ADDITION WAS ONLY A RESULT OF DIFFERENT VIEWS B EING TAKEN BY THE ASSESSEE AND THE A.O. NO MATERIAL FACTS WER E CONCEALED OR WITHHELD. ACCORDINGLY, I AM OF THE OP INION THAT THE PENALTY WITH REGARD TO THIS AMOUNT OF RS.4,73,0 0,000/- WAS NOT JUSTIFIED AND IS THEREFORE, CANCELLED. ITA NO.442/AHD./2010 A.Y.2002-03 8 5. IN THE INSTANT CASE, THE ASSESSEE CLAIMED THE NO N-COMPETE FEES TO THE TUNE OF RS.4,73,00,000/- AS REVENUE IN NATURE. HOW EVER, THEREAFTER, THE CLAIM OF THE ASSESSEE WAS DETERMINED AND NON-COMPET E FEES WAS TREATED AS CAPITAL IN NATURE AND THE SAID FINDING WAS CONFIRME D TO THE EXTENT OF ORDER PASSED BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. IT IS EL ABORATELY DISCUSSED BY THE CIT(A) IN HIS ORDER THAT THE ASSESSEE DID NOT CONCE ALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. IT IS JUST A CLAIM WHICH HAS BEEN RAISED BY THE ASSESSEE ON ACCOUNT OF VARIOUS DECISIONS OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL AS WELL A S HONBLE HIGH COURTS WHICH HAS BEEN DECLINED. SO FAR AS THE CLAI M OF THE ASSESSEE IS CONCERNED, IT IS NOT IN DISPUTE THAT THE TWO VIEWS HAVE BEEN TAKEN BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL AND OTHER AUT HORITIES IN WHICH THE CLAIM OF THE ASSESSEE WAS ONCE TREATED AS REVENUE E XPENDITURE AND THEREAFTER, THE CLAIM OF THE ASSESSEE WAS TREATED A S CAPITAL IN NATURE. IN CASE OF CAREER LAUCHER INDIA LTD. 358 ITR 179, HONBLE D ELHI HIGH COURT AND CLARIANT CHEMICALS (I) LTD. 41 CCH 626 (MUMBAI) THE NON-COMPETE FEES WAS TREATED AS REVENUE IN NATURE. HOWEVER, IN THE INSTANT CASE THE NON- COMPETE FEES WAS TREATED AS CAPITAL IN NATURE AND T HE DEPRECIATION WAS ALLOWED. THE ISSUE IS QUITE DEBATABLE AND IN VIEW OF THE LAW SETTLED IN M/S.ORION INTERNATIONAL SUPPORT SERVICES VS. ACIT ( MUMBAI) (ITA NO.1383/M/2007) DATED 25 TH MAY 2011, NO PENALTY IS LEVIABLE. THE ASSESSEE ASSERTED THE CLAIM OF NON-COMPETE FEES WHI CH HAS NOT BEEN ACCEPTED BY THE REVENUE AND THE REJECTION OF THE CL AIM NOWHERE LEADS TO LEVY THE PENALTY IN VIEW OF THE LAW SETTLED IN CIT VS. RELIANCE PETROPRODUCTS (P) LTD. 322 ITR 158 (SC). THE FACTS WERE NOT CONCEALED BY ITA NO.442/AHD./2010 A.Y.2002-03 9 THE ASSESSEE, HOWEVER THE ASSESSEE DISCLOSED THE FU LL FACTS, NO PENALTY IS LEVIABLE ALSO IN VIEW OF THE LAW SETTLED IN S.M.CON STRUCTION ITA NO.412 OF 2013 BOMBAY DATED 3 RD MARCH 2015. IN VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE PENALTY AND PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH IS NOT RE QUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2017 . SD/- SD/- (G.S.PANNU) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 31 ST MARCH , 2017 MP (! )&! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 5. + , + , / DR, ITAT, MUMBAI 6. * ,- / GUARD FILE. / BY ORDER, # # //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI