TMI Blog2013 (2) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. Whereas the requirement is that there should be a proper disclosure in the return of income. - As the assessee has failed to disclose the compensation received from DBA, it is a fit case for the levy of penalty for concealment of income and also for filing of inaccurate particulars of its income. Relying upon the decision of Supreme Court in CIT v. Reliance Petro Products Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] held that, the return of income is the only document where the assessee can furnish his particulars of income, whereas in the instant appeal, the appellant company has not disclosed the receipt of compensation received from DBA in its return of income nor in the computation of income accompanied with the return of income. - Penalty confirmed. - ITA Nos.3961 & 3962/Mum/2010 - - - Dated:- 7-11-2012 - D.K. Agarwal And N.K. Billaiya, JJ. Appellant Rep by: Shri Rajiv Khandelwal Respondent Rep by: Shri P.K. Shukla ORDER Per: N.K. Billaiya: Both these appeals by the assessee are directed against the order of the Commissioner of Income-tax (Appeals) - 5 dated 17.03.2010, pertaining to assessment years 2001-2002 and 2002-2003. As both the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is custodial service. In respect of custodial services, the assessee had agreements with several clients for providing services such as safe keeping of securities, collecting dividend, bonus or rights accrued to the clients, maintaining accounts of securities etc. The assessee was providing such services from the financial year 199596. The SEBI (Custodian of Securities) Regulations, 1996 stipulated that all custodians must fulfil the criteria of net worth of Rs. 50 crores and those who were not fulfilling the criteria on the date of notification, had been granted time period of five years for meeting the requirement. In case of the assessee the said deadline was to expire on 15th May, 2001. Though the assessee was still pursuing with SEBI for further extension, apprehending that extension will not be granted the assessee started the process of shifting some of the major clients to some other concerns. It had entered into an agreement with DBA in this regard on 19th July, 2000 and in terms of the said agreement had received payments of Rs.3,69,17,881 and Rs. 1,40,86,453 in the asst. yrs. 200102 and 2002-03 respectively. The dispute is regarding taxability of the said sums. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is available from several judgments including the judgment of apex Court. In case, termination of the contract is a normal incident of business and termination does not impair the profit earning structure of the assessee, the compensation for termination is revenue receipt as held by Hon ble Supreme Court in the case of Kettlewell Bullen Co. Ltd. (supra). But in case, the contract is so pivot to the business structure that termination impairs the profit earning structure or results in loss of source of assessee s income, the receipt will be a capital receipt as was held by the apex Court in the said case. There is also a specific provision i.e., s. 28(ii)(c) to deal with the taxability of receipt on termination of an agency. Such receipts are taxable irrespective of the fact whether it is a capital receipt or revenue receipt in view of the specific provisions of the section mentioned above. But, the provisions of s.28(ii)(c) are applicable only in case of an agency in its strict legal sense of the term. It will not apply to termination of any agreement/contract but only to an agency involving principal agent relationship under the Contract Act. This view is supported by the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee after surrendering the right in the agreement persuades the clients to join its services. It is because of this reason that an elaborate procedure has been laid down in the memorandum of association dt. 19th July, 2000 with DBA to facilitate consent of the client and for execution of agreement by the clients with DBA. In terms of cls. 2 to 5 of Part A of the memorandum of association, assessee and DBA within 30 days of execution of agreement are required to jointly make endeavour to interact with the selected clients by joint calls/meetings with a view to seeking their consent and within 10 days from date of joint interaction with the clients, assessee is required to make its best endeavour to obtain the consent from the selected clients. Thereafter due diligence is required to be done by DBA in respect of client portfolio and this has to be completed within 45 days from the date of receipt of in principle letter of consent from the selected clients and within 30 days from the date of completion of due diligence, DBA is required to make arrangement to enter agreement with the clients. There is also a procedure laid down for payment of transaction price as per Part B of ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensation so received. The assessee vide letter dated 14.08.2006 replied that they are in process of filing appeal before the Tribunal [Till that date only first appeal was decided against the assesseee] and requested to keep the penalty proceedings in abeyance till the decision of the Tribunal. The A.O. gave further opportunity of being heard. In response to which the assessee neither filed any explanation nor attended the proceedings. The A.O. went on to levy penalty u/s 271(1)(c) for filing inaccurate particulars of income for both the years. The assessee carried the matter before the CIT(A), but without any success. Aggrieved, the assessee is before us. 8. The Counsel for the assessee submitted that the levy of penalty is bad in law as the assessee has truly and fully disclosed all material facts relating to the compensation received from DBA. As the assessee was under a bonafide belief that the said receipts were of capital in nature and therefore, not taxable. Only because the contention of the assessee did not find favour with the Tribunal in quantum proceedings , that by itself would not amount to filing of inaccurate particulars or concealing of income. The counsel also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2001-2002, we find that under the head Business Income at clause (b), the assessee has shown - principal component of lease rent considered as item of capital receipt (see Note 1 below) amounting to Rs.18,03,355 and under the head Notes at page 12 of the paper book, the assessee has mentioned- in assessment year 1995-96, lease transaction with Rajasthan State Electricity Board have been treated by department as a finance transaction. As per stand adopted by the Assessing Officer in that assessment year, principal component amount included in the same is treated as an item of capital receipt and excluded from business income. 12. When the assessee has been so specific in respect of one item, which he has treated as capital receipt and also given the reason why it has treated the amount as capital receipt, the assessee could have also included the compensation so received in its computation of income and then could have claimed exemption from tax. It is also not known on what basis the assessee has claimed the compensation so received as exempt from tax because the Auditors have given a simple Note that the company is advised that such compensation being in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incident of business and termination does not impair the profit earning structure of the assessee, the compensation for termination is revenue receipt as held by Hon ble Supreme Court in the case of Kettlewell Bullen Co. Ltd. (supra). But in case, the contract is so pivot to the business structure that termination impairs the profit earning structure or results in loss of source of assessee s income, the receipt will be a capital receipt as was held by the apex Court in the said case. In our considerate view the observations of the tribunal are self explanatory on the facts of the instant case. The assessee has relied upon various judicial decisions, which are considered as under. (i) ITO v. Chhail Behari [(2011) 8 ITR 383] In that case the Tribunal has set aside the levy of penalty u/s 271(1)(c) on the ground that the penalty was initiated for filing inaccurate particulars of income, but it was levied for concealment of income. We do not find any merit on the reliance placed on this judgment because the assessee has not contended before the CIT(A) this issue as is evident from the grounds of appeal taken before the CIT(A) as per Form No.35 on record. Even before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the quantum proceedings. (iv) CIT v. Reliance Petro Products Pvt. Ltd. [(2010) 322 ITR 158 (SC)], In this case the Hon ble Supreme Court while affirming the decision of the Hon ble Gujarat High Court confirming the order of the Tribunal canceling penalty imposed on an assessee held as follows:- A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word particulars used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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