Shri A.R.Krishnamurthy L/R A.K.Ramkumar, CHENNAI V. ACIT, CHENNAI

ITA 496/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57990 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OMKARESHWAR CHIDRA
• Assessee Lawyers: G SITARAMAN
• Keywords: Difference of opinion; Capital receipt; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 496/MDS/2010 ASSESSMENT YEAR : 2002-03 LATE SHRI A. R. KRISHNAMURTHY, L/R SHRI A.K. RAMKUMAR, AH 93, 8 TH MAIN ROAD, ANNA NAGAR, CHENNAI-600 040. V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-XIII, CHENNAI. (PAN: AAFPK4632H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G. SITARAMAN, CA RESPONDENT BY : SHRI OMKARESHWAR CHIDRA, CIT-DR DATE OF HEARING : 16-02-2012 DATE OF PRONOUNCEMENT : 2 4/02/2012 O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX, CHENNAI-X, CHENNAI IN C .NO. 10113/8/CIT-X/2009- 10 DATED 31-03-2010 FOR THE ASSESSMENT YEAR 2002-03 . 2. SHRI G. SITARAMAN, CA REPRESENTED ON BEHALF OF T HE ASSESSEE AND SHRI OMKARESHWAR CHIDRA, LEARNED CIT-DR REPRESENTED ON B EHALF OF THE REVENUE. I.T.A. NO.496/MDS/2010 2 3. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRE SENTATIVE THAT THE LATE ASSESSEE IS AN INDIVIDUAL WHO IS NOW REPRESENTED BY SHRI A. K. RAMKUMAR, THE LEGAL HEIR. IT WAS THE SUBMISSION THAT THE ISSUE RELATES TO THE ASSESSMENT YEAR 2002-03. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS ONE OF THE PERSONS WITH OVER 30 YEARS OF EXPERIENCE IN THE MARKETING DIVISI ON OF M/S. CITADEL FINE PHARMACEUTICALS LIMITED (CFPL FOR SHORT). ANOTHE R COMPANY IN THE NAME OF M/S. CITADEL AUROBINDO BIOTECH LIMITED (CABL FOR SHORT) ACQUIRED THE BRANDS OF CFPL. CONSEQUENTLY, CABL ENTERED INTO AN AGREEMENT WITH THE ASSESSEE ON 27- 03-2002 WHEREBY THE ASSESSEE WAS TO BE PAID NON-COM PETE FEE FOR OVER A PERIOD OF 10 YEARS. THE SUM AGREED TO WAS AN AMOUN T OF ` 6 CRORES. THE ASSESSEE HAD RECEIVED ` 1 CRORE DURING THE PREVIOUS YEAR ENDING 31-03-2002 . THE ASSESSEE HAD TREATED THE NON-COMPETE FEE RECEIV ED FROM CABL AS A CAPITAL RECEIPT AND HAD FILED HIS RETURN OF INCOME. IN THE RETURN OF INCOME THE ASSESSEE HAD SPECIFICALLY INTIMATED THAT THE ASSESSEE HAD EN TERED INTO THE NON-COMPETE AGREEMENT AND HAD RECEIVED THE AMOUNT OF ` 1 CRORE. THE RETURN FILED BY THE ASSESSEE HAD BEEN PROCESSED AND AN INTIMATION HAD B EEN ISSUED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (THE ACT FOR S HORT). SUBSEQUENTLY, A NOTICE UNDER SECTION 148 HAD BEEN ISSUED TO THE ASSESSEE O N 20-04-2006. IN THE REASONS RECORDED FOR THE PURPOSE OF RE-OPENING THE ASSESSMENT, THE ASSESSING OFFICER HAD SPECIFICALLY REFERRED TO THE TAXABILITY OF THE AMOUNT OF ` 1 CRORE RECEIVED BY THE ASSESSEE FROM CABL. DETAILS HAD BE EN CALLED FOR AND THE I.T.A. NO.496/MDS/2010 3 ASSESSEE HAD RESPONDED TO THE NOTICE ISSUED BY THE ASSESSING OFFICER. THE DETAILS FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN THE COURSE OF REASSESSMENT PROCEEDINGS WERE LETTER DATED 15-12-20 07, ANOTHER LETTER DATED 29-12-2007 ENCLOSING THE AGREEMENT DATED 27-03-2002 AS ALSO THE LEGAL OPINION DATED 29-12-2007 AND THE DEATH CERTIFICATE OF THE A SSESSEE. THE ASSESSING OFFICER HAD AFTER CONSIDERING THE REPLY PASSED AN A SSESSMENT ORDER ON 31-12- 2007 ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT OF ` 1 CRORE RECEIVED BY THE ASSESSEE FROM CABL WAS A CAPITAL RE CEIPT. IT WAS THE SUBMISSION THAT SUBSEQUENT TO THIS THE LEARNED CIT HAD ISSUED A NOTICE U/S 263 OF THE ACT ON 03-02-2010 ASKING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AMOUNT OF ` 1 CRORE CLAIMED AS NON-COMPETE FEE RECEIVED BY THE AS SESSEE FROM CABL SHOULD NOT BE TREATED AS A REVENUE RECEIPT. THE ASSESSEE HAD REPLIED VIDE LETTER DATED 23-02-2010 SUBMITTING ALL THE FACTS AGAIN BEFORE TH E LEARNED CIT. THE LEARNED CIT HAD PASSED AN ORDER U/S 263 OF THE ACT ON 31-03 -2010 WITHOUT APPRECIATING THE SUBMISSIONS OF THE ASSESSEE AND HAD DIRECTED TH E ASSESSING OFFICER TO BRING TO TAX THE AMOUNT OF ` 1 CRORE RECEIVED BY THE ASSESSEE AS NON-COMPETE FE E. IT WAS THE SUBMISSION THAT THE LEARNED CIT HAD HELD TH AT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WIT H SECTION 148 DATED 31-12- 2007 WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT WAS THE SUBMISSION THAT THE LEARNED CIT HAD NOTED THAT THE ASSESSING OFFICER HAD NOT CONDUCTED NECESSARY ENQUIRY WHEREAS ALL THE NECESSA RY ENQUIRIES HAD BEEN DONE I.T.A. NO.496/MDS/2010 4 BY THE ASSESSING OFFICER. IT WAS THE SUBMISSION TH AT THE ORDER PASSED BY THE LEARNED CIT U/S 263 WAS ONLY ON THE BASIS OF A CHAN GE OF OPINION WHICH WAS NOT PERMITTED. IT WAS THE SUBMISSION THAT THE ORDER O F THE LEARNED CIT WAS LIABLE TO BE SET ASIDE. HE PLACED RELIANCE ON THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. MAX INDIA REPORTED IN 295 ITR 2 82. 4. IN REPLY, THE LEARNED DR VEHEMENTLY SUPPORTED TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX. IT WAS THE SUBMISSION THAT THE ORDER OF THE ASSESSING OFFICER DATED 31-12-2007 WAS A CRYPTIC QU ARTER PAGE ORDER WITH ABSOLUTE NON-APPLICATION OF MIND. IT WAS THE SUBMI SSION THAT THERE WAS NO DISCUSSION ON THE ISSUE IN THE ASSESSMENT ORDER. I T WAS THE FURTHER SUBMISSION THAT IN THE CASE OF TWO OTHER KEY PERSONNEL OF CFL WHO HAD RECEIVED NON- COMPETE FEE FROM CABL THE ASSESSING OFFICER IN THOS E CASES HAD CATEGORICALLY HELD THAT THE SAME WAS REVENUE RECEIPT LIABLE TO TA X. IT WAS THUS THE SUBMISSION THAT THE OPINION FORMED BY THE ASSESSING OFFICER IT SELF WAS ERRONEOUS WHICH HAS RESULTED IN THE LOSS OF REVENUE AND CONSEQUENTLY WA S PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT WAS THE SUBMISSION THAT EVEN TH OUGH ADMITTEDLY THE ASSESSEE HAS GIVEN THE DETAILS BEFORE THE ASSESSING OFFICER, THE DETAILS WERE NOT LOOKED INTO BY PROPER APPLICATION OF MIND, MUCH LES S AN APPLICATION OF MIND, AND AS THERE WAS NO APPLICATION OF MIND BY THE ASSESSIN G OFFICER ON THE DETAILS PRODUCED BY THE ASSESSEE AND THE ASSESSING OFFICER HAD BLINDLY ACCEPTED THE CONTENTION OF THE ASSESSEE WITHOUT VERIFICATION, TH E LEARNED CIT WAS RIGHT IN I.T.A. NO.496/MDS/2010 5 INVOKING HIS POWERS U/S 263 OF THE ACT. IT WAS THE FURTHER SUBMISSION THAT THE LEARNED CIT HAD ONLY DIRECTED THE ASSESSING OFFICER TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW. HE RELIED UPON THE DECISION O F THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. JAPAN LINES LTD., REPOR TED IN 260 ITR 656, DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF T. SHE RAFFUDIN V. CIT, REPORTED IN 41 DTR 286, DECISION OF THE ITAT, CHENNAI BENCH D IN THE CASE OF SUPER CLOTH V. ASSISTANT COMMISSIONER OF INCOME-TAX, REPORTED IN 9 9 ITD 300, DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE PT. LASHKARI RAM V . CIT, REPORTED IN 272 ITR 309 AND THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF DUGGAL AND CO. V. CIT, REPORTED IN 220 ITR 456. 5. IN REPLY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT DETAILED ENQUIRIES HAD BEEN CONDUCTED. THE RE-OPENING OF TH E ASSESSMENT WAS DONE ONLY FOR CONSIDERING THE TAXABILITY OF THE AMOUNT OF ` 1 CRORE CLAIMED BY THE ASSESSEE AS NON-COMPETE FEE AND AS CAPITAL RECEIPT. IT WAS THE FURTHER SUBMISSION THAT THE LEARNED CIT HAD IN PAGE 5 OF HIS ORDER DIRECTED THE ASSESSING OFFICER TO BRING TO TAX THE AMOUNT OF ` 1 CRORE AS ALSO TO CONDUCT THE NECESSARY ENQUIRY REGARDING THE CLAIMS MADE AND ENTRIES RECORDED BY T HE COMPANY, CABL WHETHER THE REMAINING AMOUNT OF ` 5 CRORES WAS RECEIVED BY THE ASSESSEE. HE FURTHER DREW OUR ATTENTION TO PAGE 3 OF THE ORDER OF THE LE ARNED CIT WHEREIN IT IS STATED THAT THE BALANCE OF ` 5 CRORE WAS NOT RECEIVED TILL THE DATE OF THE ORDE R PASSED UNDER SECTION 263 AND THERE WAS NO POSSIBILITY OF R ECEIVING THE SAME AS CABL I.T.A. NO.496/MDS/2010 6 WAS A DEFUNCT COMPANY AND HAD NO BUSINESS ACTIVITY. IT WAS THE FURTHER SUBMISSION THAT AS PER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GUFFIC CHEM. P. LTD. V. CIT REPORTED IN 332 UITR 60 2, THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE IS NOT TAXABLE DURING THE ASSESSMENT YEAR 2002-03 AS THE AMENDMENT TO SECTION 28 OF THE ACT WAS W.E.F. 0 1-04-2003 AND THEREFORE IS NOT APPLICABLE FOR THE ASSESSMENT YEAR 2002-03. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE L EARNED DR HAD BEEN DIRECTED TO FILE THE COPY OF THE ORDER SHEET IN THE CASE OF THE ASSESSEE IN REGARD TO THE RE- ASSESSMENT PROCEEDINGS AS A CONSEQUENCE OF THE NOTI CE U/S. 148 ISSUED ON 20-04- 2006 AS ALSO THE COPY OF THE REASONS RECORDED. THE LEARNED DR HAS PROVIDED US THE SAID COPIES. A PERUSAL OF THE ORDER SHEET ENTRY IN THE ASSESSEES CASE CLEARLY SHOWS THAT ON THE BASIS OF THE COMMUNICATION RECEIVED FRO M THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(3), CHENNAI DATED 07-0 4-2006 ON THE QUESTION OF NON-COMPETE FEE PAID TO THE ASSESSEE BY CABL IS THE ISSUE FOR THE PURPOSE OF ISSUING A NOTICE UNDER SECTION 148. SUBSEQUENTLY N OTICE U/S. 142(1) HAD BEEN ISSUED TO THE ASSESSEE ASKING FOR DETAILS. IT IS N OTICED THAT ON 27-12-2007 THE DISCUSSION WITH ASSESSING OFFICER HAS TAKEN PLACE A ND THE ASSESSING OFFICER HAS RECORDED THE FOLLOWING : GOING THROUGH THE DETAILS FILED, AND I.V.O. AGREEM ENT AND ALSO INTRODUCTION OF SEC.28(VA) W.E.F. 1.4.2003, NO N- COMPETITION FEE IS CAPITAL RECEIPT IN NATURE. HENC E RETURNED INCOME IS ACCEPTED. A.O. DICTATED. I.T.A. NO.496/MDS/2010 7 THUS WHAT BECOMES CLEAR IS THAT THE PURPOSE OF RE-O PENING OF THE ASSESSMENT WAS THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE. IN THE COURSE OF RE- ASSESSMENT PROCEEDINGS THE DETAILS WERE PRODUCED BE FORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS CONSIDERED THE SAME AND H AS ALSO CONSIDERED THE PROVISIONS OF SECTION 28(VA) AND HAS COME TO A CONC LUSION THAT THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE FROM CABL IS NOT TAXAB LE. A CONSCIOUS DECISION HAS BEEN TAKEN BY THE ASSESSING OFFICER BY FORMING A SP ECIFIC OPINION EVEN CONSIDERING THE PROVISIONS OF SECTION 28(VA) OF THE ACT. THE VIEW OF THE ASSESSING OFFICER IN REGARD TO SECTION 28(VA) HAS A LSO BEEN UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF GUFFIC CHEM. P. LTD. R EPORTED IN 332 ITR 602. THE ASSESSING OFFICER HAVING TAKEN A CONSCIOUS DECISION AS IS EVIDENT FROM THE ORDER SHEET NOTINGS, JUST BECAUSE THE OPINION OF THE ASSE SSING OFFICER HAS NOT BEEN SPECIFICALLY BROUGHT OUT IN THE ASSESSMENT ORDER IT WOULD NOT MAKE THE ASSESSMENT ONE PASSED BY NON-APPLICATION OF MIND. THE GENUINENESS OF THE AGREEMENT BETWEEN THE ASSESSEE AND CABL IS NOT DISP UTED. THAT THE ASSESSEE HAS RECEIVED THE NON-COMPETE FEE OF ` 1 CRORE ONLY IS NOT DISPUTED. ONCE IT IS ACCEPTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE I S A NON-COMPETE FEE AND THE AGREEMENT IS NOT PUT UNDER QUESTION, THEN IN VI EW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GUFFIC CHEM. P . LTD., REFERRED TO SUPRA, THE ASSESSMENT YEAR IN THE PRESENT CASE BEING THE ASSES SMENT 2002-03, THE SAME CANNOT BE BROUGHT TO TAX AND WOULD HAVE TO BE TREAT ED AS A CAPITAL RECEIPT. THE I.T.A. NO.496/MDS/2010 8 VARIOUS DECISIONS CITED BY THE LEARNED DR WHEREIN T HE HON'BLE COURTS HAVE REPEATEDLY UPHELD THE ISSUE OF REVISION BY THE LEAR NED CIT, ARE ALL DISTINGUISHABLE ON THE SPECIFIC POINT THAT IN NONE OF THOSE CASES H AD THE ASSESSING OFFICER REOPENED THE ASSESSMENTS FOR A SPECIFIC ISSUE AND H AD FOUND THAT THE SPECIFIC ISSUE ON THE BASIS OF WHICH THE RE-OPENING HAS BEEN DONE DOES NOT LEAD TO AN ADDITION AND AGAIN ON THE SAME SPECIFIC ISSUE THE L EARNED CIT IS INVOKING HIS POWERS U/S. 263 OF THE ACT. IF WE HAVE TO ACCEPT T HE CLAIM OF THE LEARNED DR THAT THERE IS NON-APPLICATION OF MIND BY THE ASSESS ING OFFICER WHEN PASSING THE ASSESSMENT ORDER U/S 143(3) READ WITH SECTION 147 O N 31-12-2007, THEN THE COROLLARY TO THAT ARGUMENT WOULD BE THAT THE RE-OPE NING ITSELF IS ON ACCOUNT OF THE NON-APPLICATION OF MIND IN THE VERY ASSESSMENT WHICH IS BEING SOUGHT TO BE REVISED, WOULD FALL. IN THE PRESENT CASE, THE ASSE SSEE HAS MADE A CLAIM. THE ASSESSMENT HAS BEEN RE-OPENED FOR THE PURPOSE OF VE RIFYING THE SAID CLAIM. THE VERIFICATION OF THE SAID CLAIM HAD BEEN MADE BY THE ASSESSING OFFICER. AN OPINION HAS BEEN FORMED BY THE ASSESSING OFFICER AN D SO RECORDED IN THE ORDER SHEET BUT THE ASSESSMENT ORDER IS A CRYPTIC ORDER. THIS WOULD NOT MAKE THE ASSESSMENT ORDER ERRONEOUS OR PREJUDICIAL TO THE IN TERESTS OF THE REVENUE AS THE ASSESSING OFFICER HAS FORMED AN OPINION ON THE BASI S OF THE EVIDENCE PRODUCED. THE VIEW TAKEN BY THE LEARNED CIT WOULD ONLY BE A D IFFERENT VIEW ON THE BASIS OF THE SAME MATERIALS. THE LEARNED CIT U/S 263 OF THE ACT CANNOT INVOKE HIS POWERS JUST BECAUSE HIS OPINION ON THE BASIS OF THE EVIDENCES IS DIFFERENT FROM I.T.A. NO.496/MDS/2010 9 THAT OF THE ASSESSING OFFICER WHO HAS EXAMINED THE SAME EVIDENCES AND HAS COME TO A CONCLUSION. EVEN ON MERITS, THE LEARNED C IT HAS NOT DISPUTED THE GENUINENESS OF THE AGREEMENT BETWEEN THE ASSESSEE A ND CABL. THE AMOUNT OF ` 1 CRORE OR AN AMOUNT OF ` 6 CRORES, THE PAYMENT IS ON ACCOUNT OF THE NON- COMPETE AGREEMENT AND FOR THE PURPOSE OF NON-COMPET E AND IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F GUFFIC CHEM. P. LTD., REPORTED IN 332 ITR 602, THE SAME CANNOT BE BROUGHT TO TAX BY APPLYING THE AMENDED PROVISIONS OF SECTION 28(VA) OF THE ACT. I N THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ORDER OF THE LEARNED CIT PASSE D UNDER SECTION 263 OF THE ACT IS ONLY ON THE BASIS OF DIFFERENCE OF OPINION FROM THAT OF THE ASSESSING OFFICER WHICH IS NOT PERMISSIBLE. IN THE CIRCUMSTANCES, TH E ORDER PASSED UNDER SECTION 263 OF THE ACT BY THE LEARNED CIT STANDS QUASHED. IN THE CIRCUMSTANCES, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. THE ORDER WAS PRONOUNCED IN THE COURT ON 24/02/2 012. SD/- SD/- (N. S. SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 24 TH FEBRUARY, 2012. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE