SCINIDA INVESTMENTS P. LTD, MUMBAI V. ASST CIT CIR 7(2), MUMBAI

ITA 6431/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4298 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-12-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 20-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NIKHALJE
• Assessee Lawyers: K K VED; J D MISTRI NIRAJ SHETH
• Keywords: Business income; Difference of opinion; Capital receipt
• Section: 28

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANDEEP GOSAIN,JUDICIAL MEMBER /.ITA NO.6431/M/2011, /ASSESSMENT YEAR-1999-2000 SCINDIA INVESTMENTS PVT. LTD. B-431, PHOENIX HOUSE 462, SENAPATI BAPAT MARG LOWER PAREL,MUMBAI-400 013. PAN:AAACS 8590 C VS ASST. CIT-7(2) AAYAKAR BHAVAN MAHARSHI KARVE MARG MUMBAI-400 020. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : S/ SHRI J.D. MISTRI,NIRAJ SHETH & K.K. VED / REVENUE BY : SHRI PRAMOD NIKHALJE (DR) / DATE OF HEARING : 24-11 -2015 / DATE OF PRONOUNCEMENT : 01.01. 2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) !# $% PER RAJENDRA, AM - CHALLENGING THE ORDERS DT. 20.05.2011 OF CIT(A)-30, MUMBAI,THE ASSESSEE HAS FILED THE PRESENT APPEAL.THE EFFECTIVE GROUND OF APPEAL IS ABOUT CONF IRMATION OF PENALTY LEVIED U/S.271(1)(C) OF THE ACT. FACTS OF THE CASE: 2. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D SOLD ONE OF ITS PROPERTIES NAMELY PADMAVILAS PALACE (PVP),SITUATED AT PUNE TO INDIAN HOTELS CO. LTD FOR A CONSIDERATION OF RS.11. 50 CRORES.AFTER THE SALE TRANSACTION,THE ASSESSEE E NTERED INTO AN AGREEMENT WITH THE PURCHASER FOR NOT COMPETING WITH IT IN THE BUSINESS OF RUNNING A HOTEL DIRECTLY OR INDIRECTLY IN AND AROUND PUNE AS PER THE NON-COMPETE AGREEMENT DATED 25.11.1998.T HE ASSESSEE RECEIVED A SUM OF RS.1.00 CRORES FOR THE SAID AGREEMENT OVER AND ABOVE THE SU M OF RS.11.50 CRORES RECEIVED EARLIER. THE ASSESSEE CLAIMED THAT AMOUNT RECEIVED AS NON-COMPET E FEE WAS NOT TAXABLE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND TAXED THE DISPUTED AMOUNT I.E. RS.1.00 CRORES AS BUSINESS INCOME.HE ALSO HELD THAT IF THE ASSESSEE I N APPELLATE PROCEEDINGS WAS SUCCESSFUL THE AMOUNT OF RS.1.00 CRORES WAS TO BE TAXED AS CAPITAL GAINS.THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA),WHO HELD THAT THE SUM OF RS.1.00 CRORE WAS TO BE TAXED AS CAPITAL GAINS AND HAD TO BE APPORTIONED A S LONG TERM AND SHORT TERM CAPITAL GAIN IN THE SAME PROPORTION AS THE ENTIRE CONSIDERATION FOR THE SALE HAD BEEN APPORTIONED BETWEEN THE LAND AND THE BUILDING.THE TRIBUNAL, VIDE ITS ORDER DATED 6.3.2009 (ITA NO.3199/MUM/2003 ) UPHELD THE ORDER OF THE FAA. IN THE MEANWHILE THE AO INITIATED PENALTY PROCEEDIN GS U/S.271(1)(C) FOR FURNISHING INACCURATE PARTICULARS AND CONCEALING THE INCOME FOR THE YEAR UNDER APPEAL.IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED FOR LEVYING PENALTY,THE ASSESSEE ARGU ED THAT IT HAD NOT FURNISHED ANY INACCURATE PARTICULARS OF INCOME OR HAD CONCEALED ITS INCOME,T HAT SHORT TERM CAPITAL GAIN ON SALE OF ASSESSEES PROPERTY HAD BEEN DECIDED IN FAVOUR OF T HE ASSESSEE BY THE TRIBUNAL, THAT FULL AND COMPLETE DISCLOSURE WAS MADE IN THE FINAL ACCOUNT A BOUT RECEIPT OF RS.1.00 CRORE, THAT THE ASSESSEE HAD RELIED UPON THE LEGAL POSITION PREVAIL ING AT THE TIME WHEN THE RETURN WAS FILED, THAT AMENDMENT TO CLAUSE (VA) TO SECTION 28 WAS EFFECTIV E FOR 1.4.2003, THAT THERE WAS DIFFERENCE OF 6431/M/11SCINDIA INVESTMENT-99-00 2 OPINION BETWEEN THE AO AND THE ASSESSEE.HOWEVER,THE AO WAS NOT CONVINCED AND HELD THAT THERE WAS CONTRADICTION IN THE CLAIM OF THE ASSESSEE,THAT IF THE ASSESSEE WAS NOT RUNNING THE PREMISES AS A HOTEL THEN THERE COULD NOT BE ANY QUESTION OF RECEIVING NON-COMPETE FEE, THAT THE AMOUNT PAID AS NON-COMPETE FEE WAS PART OF CONSIDERATION F OR BUILDING AND LAND APPURTENANT THERETO, THAT BY CLAIMING THE RECEIPT AS CAPITAL RECEIPT THE ASSE SSEE HAD TRIED TO BRING DOWN ITS TAXABLE INCOME, THAT IT AMOUNTED TO FURNISHING OF INACCURATE PARTIC ULARS OF INCOME AS PER EXPLANATION 1 TO SECTION 271(1) OF THE ACT.REFERRING TO THE JUDGMENT OF DHAR MENDRA TEXTILE PROCESSORS (306 ITR277), HE LEVIED A PENALTY OF RS.25.21 LACS. 3. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE TH E FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE FACTS OF THE CASE, THE FAA HELD THA T ASSESSEE HAD FURNISHED INACCURATE PARTICULARS BY STATING THAT THE AMOUNT PAID AS NON-COMPETE FEE WAS A CAPITAL RECEIPT AND WAS TAXABLE, THAT THE AMOUNT IN QUESTION WAS EXIGIBLE TO TAX AS CAPITAL G AINS,THAT THERE WAS A DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO FURNISH INACCURATE PARTICUL ARS AND TO REDUCE THE TAXABLE INCOME.FINALLY, HE UPHELD THE ORDER OF THE AO. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR) STATED THAT ASSESSEE HAD DISCLOSED ALL THE FACTS IN THE RETURN OF INCOME WITH REGARD TO RECEIPT OF NON- COMPETE FEE, THAT THE FAA HELD THAT DISPUTED SUM WAS TAXABLE AS CAPITAL GAINS AND NOT AS BUSINES S INCOME, THAT THE TRIBUNAL HAD UPHELD THE ORDER OF THE FAA IN QUANTUM PROCEEDINGS,THAT IN THE PENALTY ORDER FAA HAD NOT GIVEN ANY FINDING ABOUT FILING OF INACCURATE PARTICULARS,THAT IT WAS A CLEAR CASE OF DIFFERENCE OF OPINION,THAT THE DEPARTMENT HAD NOT CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT, THAT THE FINDING OF FACT RECORDED ABOUT THE NATURE OF TR ANSACTION HAD BECOME FINAL, THAT THERE WAS DIFFERENCE WITH REGARD TO THE HEAD OF INCOME UNDER WHICH THE SUM OF RS.1.00 CRORE WAS TO BE TAXED,THAT THE ASSESSEE HAD RELIED UPON PREVALENT L EGAL POSITION AND HAD MADE ITS CLAIM.HE REFERRED TO PAGE NOS.18, 23, 77,93, OF THE PAPER BO OK AND RELIED UPON THE CASE OF NALIN P. SHAH (HUF) (INCOME TAX APPEAL-LOD-NO.49 OF 2013 AND OTHE RS DT.4 TH MARCH 2013).DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA AND CONTENDED THAT PLOT OF LAND WAS NOT PART OF HOTEL, THAT SUCH A SALE COULD NOT BE COVERED BY A NON COMPETE AGREEMENT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS BEFORE US. WE FIND THAT THE ASSESSEE HAD, AFTER SALE OF PVP RECEIVED RS.1.00 C RORES AS PER THE AGREEMENT DATED 25.11.1998, THAT IT TREATED THE SAID SUM AS CAPITAL RECEIPT, TH AT THE AO WAS OF THE OPINION THAT IT HAD TO BE ASSESSED AS BUSINESS INCOME, THAT THE AO ALTERNATIV ELY HELD THAT IN CASE OF ANY RELIEF GRANTED BY THE APPELLATE AUTHORITIES THE AMOUNT WAS TO BE TAXE D UNDER THE HEAD CAPITAL GAINS, THAT FAA, IN THE QUANTUM PROCEEDINGS,HELD THAT SUM WAS TO BE TAX ED AS CAPITAL GAINS IN CERTAIN RATIO, THAT AO CHALLENGED THE ORDER OF THE FAA BEFORE THE TRIBUNAL , THAT THE TRIBUNAL UPHELD THE ORDER OF THE FAA HOLDING THAT DISPUTED AMOUNT WAS RIGHTLY TAXED AS CAPITAL GAINS. WE ARE OF THE OPINION THAT PENALTY PROCEEDINGS ARE ENTIRELY DIFFERENT FROM ASSESSMENT PROCEEDINGS.ADDITIONS/DISALLOWANCES MADE IN THE QUA NTUM APPEAL AND UPHELD BY THE APPELLATE AUTHORITIES CANNOT RESULT IN AUTOMATIC LEVY OF CONC EALMENT PENALTY U/S. 271(1)(C) OF THE ACT. WHILE DECIDING THE PENALTY PROCEEDINGS WHAT HAS TO BE SEEN IS THE EXPLANATION FILED BY THE ASSESSEE .IN THE CASE UNDER CONSIDERATION THE ASSES SEE HAD DISCLOSED THE FACT OF RECEIPT OF RS.1.00 CRORES MORE THAN ONE TIME.WE FIND THAT IN THE P&L A CCOUNT A NOTE WAS GIVEN (PG-18 & 19 OF THE PB)ABOUT THE SAID ITEM OF INCOME. SIMILAR NOTE IS A PPEARING AT PAGE-23 OF THE PAPER BOOK. IN 6431/M/11SCINDIA INVESTMENT-99-00 3 SHORT,THE AO WAS AWARE THAT THE ASSESSEE HAD TREATE D THE SAID ITEM AS CAPITAL RECEIPT, AND HAD NOT OFFERED THE SAME FOR TAXATION,BUT, THE FACT WOULD N OT LEAD TO THE CONCLUSION THAT IT HAD FILED INACCURATE PARTICULARS OF INCOME.REJECTING THE CLAI M MADE BY THE ASSESSEE AND SUBSEQUENT CONFIRMATION BY THE FAA/BY THE TRIBUNAL COULD RESUL T IN LEVYING TAX.BUT IT CANNOT BE HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS. IN THE CASE OF AJAIB SINGH(253ITR630)THE HONBLE P & H HIGH COURT HAS HELD AS UNDER: DISALLOWANCE OF AN EXPENSE PER SE CANNOT MEAN THAT THE ASSESSEE HAS FURNISHED INCORRECT PARTICULARS OF ITS INCOME. CONCEALMENT INVOLVES PEN AL ACTION. IT HAS TO BE PROVED AS A CONSCIOUS ACT. THE ESSENTIAL PRE-CONDITION FOR INVOKING EXPLA NATION 1 TO SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, IS THAT THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) TO BE FALSE. IT IS ONLY IN SUCH A SITUATION THAT THE ASSESSING OFFICER CAN INVOKE THE EXPLANATION TO SECTION 271(1)(C) AND IMPOSE PENALTY. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE ASSESSEE HAD NOT FURNISHED INACCURATE PARTICULARS O F INCOME.THEREFORE,REVERSING THE ORDER OF THE FAA WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAV OUR OF THE ASSESSEE. AS A RESULT, APPEALS FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( / SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER !# / ACCOUNTANT MEMBER /MUMBAI, /DATE: 01.01.2016 . . . .. . JV.SR.PS. & ' / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ $ & , 4. THE CONCERNED CIT / $ & 5. DR A BENCH, ITAT, MUMBAI / ') , E , . . . 6. GUARD FILE/ (, //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.