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2015 (8) TMI 129 - ITAT LUCKNOW

2015 (8) TMI 129 - ITAT LUCKNOW - TMI - Non compete Fee - revenue v/s capital receipt - Nature of surrendered income - voluntary or not - Penalty u/s 271 - Held that:- In the statement of Director of Shri. Deepak Babbar, it has been clearly stated in response to question No.2 as noted by the ld. CIT(A) that the company has no business activities since 1997 much before the year 1998 in which it has been claimed by the assessee company that it has entered into an agreement with Swiss company for n .....

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IT(A) that during the course of assessment proceedings, the Assessing Officer has raised certain queries and asked the assessee to furnish the details of USA company along with name and address, balance sheet, etc. But nothing was submitted before the Assessing Officer and he accordingly doubted the genuineness of the USA Company.

It was concluded by the ld. CIT(A) that Shri. Deepak Babbar was a dummy Director of the assessee company and he has no knowledge of the affairs of the asses .....

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to enter into an agreement with any of the assessee. He has no right to waive the interest or penalty. He has to act in accordance with the law. Therefore, where the assessee has surrendered the aforesaid amount, the Assessing Officer has taxed the same. Moreover, it is not a case of voluntary surrender where the assessee has came forward and made a surrender statement. It is a case where the Assessing Officer has made detailed investigation and when the assessee was cornered, he come forward w .....

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387/LKW/2014 - Dated:- 30-7-2015 - Shri Sunil Kumar Yadav and Shri. A. K. Garodia, JJ. For the Petitioner : Shri. Rakesh Garg, Advocate For the Respondent : Shri. R. K. Ram, D.R. ORDER PER SUNIL KUMAR YADAV: This appeal is preferred by the assessee against the order of the ld. CIT(A), inter alia, on the following grounds:- 1. Because the CIT (A) has erred on facts and in law in holding that the sum of ₹ 32,51,697/- is not a capital receipt, but is a revenue receipt and is liable to tax. 2. .....

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) has erred on facts and in law in holding that the addition of ₹ 32,51,697/- offered for taxation on conditional basis, with no charge of interest and levy of penalty, was not a conditional offer and was a case of agreed assessment, thus the assessee was liable to pay interest. 5. Because in any case and in all circumstances of the case, the CIT(A) has erred in dismissing the appeal without appreciating the facts and circumstances of the case and holding that the sum of 32,51,697/- is a t .....

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the findings therein and is thus liable to be seen aside on this ground alone. 2. Though various grounds are raised, but they all relate to the nature of receipt received by the assessee on account of Non-compete Fee. 3. The facts in brief borne from the record are that during the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has received a sum of ₹ 32,51,697/- as compensation in convertible foreign exchange, but this amount was not offered to .....

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have not been filed by the assessee and thereafter the assessee vide letter dated 10.03.2003 surrendered this amount as income stating that it was being done to avoid protracted litigation and subject to the condition that no penalty and interest is levied. Relying upon the surrender statement, the Assessing Officer has made an addition of ₹ 32,51,697/- after treating it to be revenue receipt. 4. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and raised a plea that the a .....

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vied, but the Assessing Officer has charged interest under section 234A of the Income-tax Act, 1961 (hereinafter called in short the Act") and also levied the penalty under section 271(1)(c) of the Act. 5. It was also explained that the assessee-company was incorporated in 1985 and was engaged in the business of weaving Glass Cloth. In the year 1995, the assessee sought opportunities to export goods to USSR and subsequent to negotiations, the assessee entered into an agreement with Golden A .....

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name of GADA along with facilities provided by GADA, namely, Letter of Credit, Bank Guarantee, Counter guarantee etc. Since GADA had already established its reputation as to quality and the goods, companies / buyers in the USSR were willing to buy through GADA and in its name. Further, GADA also agreed to underwrite any damages, losses including expected profit suffered by the appellant through securitization of all transactions through GADA. The assessee put all its sources in the business, bu .....

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ing its registered office at Road Town, Pases Estate, Tortilla, Switzerland (hereinafter referred in short as "TANAIGA"), who was interested in exporting its goods to USSR. However, the buyers in USSR were still interested in buying the goods only through GADA. In order to procure the business, TANAIGA entered into an agreement with the assessee and GADA to purchase the rights of the assessee-company to export the goods in the name of GADA for the balance period out of ten (10) years, .....

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f the "Covenant not to Compete" and related contractual rights (if any ) in the assessment year 2000-2001, the assessee filed its return of income declaring the said amount as capital receipts. 8. The ld. CIT(A) was not convinced with the explanations furnished by the assessee and he accordingly confirmed the addition made by the Assessing Officer. While adjudicating the appeal, the ld. CIT(A) has observed that the Assessing Officer has made enquiry about the business activities of the .....

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light of the judgments referred to by the assessee and the ld. CIT(A) has noticed that the copies of both the agreements with USA company and Switzerland company were signed by Shri. Deepak Babbar, Director of the company. It was also found that the person who signed the agreement on behalf of the USA Company is Shri. Rajiv Gosain who is son of Shri. K.K. Gosain, the promoter of the assesseecompany. It was also noticed that both the agreements have been found to be signed in India and the same .....

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e agreements on behalf of the assessee-company, has deposed that he was an Accountant with M/s Tech. Trusion System & Services (P) Ltd. and this company was under liquidation since financial year 1993-2000 and Shri. K.K. Gosain and Shri. C. Kumar were Directors of the said company. In response to the nature of agreement and receipts, Shri. Deepak Babbar has deposed that he was an Accountant and he has signed the agreement as authorized signatory on behalf of the then Directors and during Sep .....

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the Assessing Officer has asked the assessee to furnish the details of other parties with whom assessee has entered into agreement, but the assessee did not furnish the requisite evidence despite various opportunities. The ld. CIT(A) has also taken note that the assessee never entered into any export business in Russia or any other country. He was asked to furnish evidence if he has undertaken any export activity with these companies. Despite specific queries raised by the Assessing Officer, the .....

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ing in the nature of agreed addition, no appeal lies u/s 246 before me the discussion about the amount of ₹ 32,51,697/- is capital receipt or revenue receipt as raised in Ground No. (b) becomes only of academic nature. However, in the interest of justice and looking to the plea taken by the Ld. AR. that the AO Should have passed the assessment order on merit instead of only relying on its letter dated 10.03.2003; I have also taken up of the Ground No. (c) for adjudication based on the docu .....

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affiliates were bound to exclusively purchase all their requirements from India solely from assesses company and the assessescompany was bound to do business only, with GADA for its exports to Russian Federation. As per the further submission made by the assesses company, the agreement did not materialize at the outset itself because the USA Company went into bankruptcy but the assesses company also did riot do any export business for the USA Company, However, as claimed by the assesses company, .....

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reed not to do the business of expert of any commodities from India to Russian Federation for a period of seven years from the data of agreement, subject to its receipt of US $ 74900 as compensation towards non-compete fees and US $ 100 as balance token amount towards damages, total amount being US $ 75000 or ₹ 32,51,897/-, This amount has been found to be credited in the bank account of the assessed company on 28.07.1999 i.e. during the financial year relating to the assessment year under .....

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ses is that M/s Oberoi Hotels (P) Ltd. was operating and managing many hotels belonging to others for a fee at several places like Cairo, Colombo, Katmandu etc. One such hotel was being, operated at Singapore for a certain amount-of management fees: As per the terms of agreement, M/s Oberoi Hotels (P) Ltd, had a right to exercise the option of purchasing the Singapore Hotel, in case its owners desired to transfer the same during the currency of the agreement. However, the Oberoi Hotels (P) Ltd., .....

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on by the assessee while making declaration about the nature of receipt of ₹ 32,51,697/- as being capital receipt, I find that in the instant case under appeal, it is seen that the assesses was neither in the business of export nor had the infrastructure to do such business. Even as per the Inspectors report, no registered office of the assessee company on the address mentioned by the assessee company has been found. In the statement, of its director Sri Deepak Babbar, it has been clearly .....

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d the assessee company was not doing any business since 1997, how it can be believed that a foreign company would enter into an agreement with it for not doing such business that did not exist at all and pay a hefty sum of ₹ 32,51,697/-. Therefore, facts of the case of the case of the assesses, is totally different than the facts of the case of M/s Oberoi Hotlb (P) Ltd. (supra) cited by it. Unlike, the Oberoi Hotels (P) Ltd., which was operating and managing hotels and getting a fee, the a .....

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of the assesses that the USA Company went into bankruptcy just, after entering into the agreement with them is not found to be convincing at all specially when, no evidence about its bankruptcy as called for by the AO has been filed. It is also quite interesting that Sri Rajiv Gosain who is son of Sri K.K. Gosain, promoter of the assesses company has signed the agreement on behalf of the USA Company as being its authorized signatory. Therefore, collusion between the USA Company and the assesses .....

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been easily submitted. Therefore, even the genuineness of the copy of the agreement produced by the assesses company with USA Company, could not be established. The AO to go into the examination of facts of the case relating to correctness of the claim of the assessee, even made efforts to call the promoter of the assesses company, Sri K.K. Gosain to examine him but the assesses company did not produce him by taking the plea that he was out of India (or last 4 to 5 months). I have also found fro .....

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at if he is authorized representative of the USA Company, in what capacity, he is representing the assesses-company because he is neither an advocate nor a chartered accountant engaged by the assesses company and also not holding any post in the assessee-company. Therefore, his involvement in the affairs of the assessee-company and also having been found him to have signed the agreement on behalf of the USA Company, his deep involvement in the whole affairs in getting the amount of ₹ 32,61 .....

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Tanaiga could not be established. Even the director of the assessee-company Sri Deepak Babbar whose statement was recorded at the time of assessment is nothing but a dummy director because on going through his statement as reproduced in para No. 6.6 (page no 17 to 20), it is very clear that he did not know much about the activities of the assesses company and admittedly, he was an accountant of this company prior to becoming the director. It has also been stated by him that he is not in receipt .....

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t appear before the AO to avoid any direct confrontation with respect to the facts of the case. Considering the above facts and circumstances of the case and failure of the assessee company during the assessment proceeding as well as during the appeal proceeding to establish the source of fund being from the Swiss Company M/s Tanaiga and to establish the genuineness of both the agreements claimed to have been entered with both USA & Swiss Company resulting into receipt of ₹ 32,51,897/- .....

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ailed to satisfactorily explain she nature of the receipt of ₹ 32,51,S97/- as being capital receipt in the hand of the assesses (appellant) and therefore, it has later on declared this amount as its income by filing a letter dated 10.3.2013. Considering these facts, I find that this amount is nothing but an unexplained receipt in the hand of the assesses liable to be added under section 68 and therefore, I find that the AO has rightly treated this amount in the hand of the assessee as its .....

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Aggrieved, the assessee has preferred an appeal before the Tribunal and has reiterated its contentions as raised before the ld. CIT(A). The ld. counsel for the assessee has further contended that having executed the non-compete fees agreement with M/s Tanaiga Real Estate Corporation, the assessee has surrendered its right to supply or export any product to another entity whether in USA or elsewhere and the consideration of a lump sum amount of US $ 75000 as overall and final consideration to be .....

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received the aforesaid amount on account of sale of his right to export in USSR and other countries, the same was rightly treated to be the capital receipt and credited to the reserve account. The ld. counsel for the assessee has further contended that the Assessing Officer has made addition solely on the basis of conditional surrender statement which cannot be relied on, as it was conditional one and was not accepted in toto. 11. The ld. D.R., on the other hand, has placed reliance upon the ord .....

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essee was given exclusive business rights to export the goods to USSR in the name of GADA along with facilities provided by GADA, namely, Letter of Credit, Bank Guarantee, Counter guarantee etc. This agreement was signed by Shri. Deepak Babbar, the authorized signatory of the assessee and Shri. Rajiv Gosain, the authorized signatory for GADA Inc. and also for representative office of GADA Inc. in Moscow and Golden ADA Belgium NV/ Shako Real Estate, Belgium. The copy of this agreement is availabl .....

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assessee-company. 13. The essence of this agreement was that GADA and its affiliates were bound to exclusively purchase of their requirements from India solely from the assessee-company and the assessee-company was also bound to do business only with GADA for its exports to Russian Federation, but unfortunately this agreement did not materialize at the outset itself because the USA company went into bankruptcy and the assessee-company did not do any export business for the USA company and ultima .....

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from India to Russian Federation for a period of 7 years from the date of agreement. 14. The issue arose before the Assessing Officer is whether the receipt of the said amount of ₹ 32,51,697/- as revenue receipt or capital receipt. The Assessing Officer has made detailed investigation during the course of assessment proceedings and the glaring fact noticed by the Assessing Officer was that the initial agreement for exporting commodities to Russian Federation are executed between the assess .....

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ny was not known to the assessee-company. The ld. CIT(A) accordingly doubted the genuineness of such an agreement executed for not exporting anything to Russian Federation, for which the assessee has bargained with M/s Tanaiga Real Estate Corporation and received a sum of ₹ 32,51,697/- as non-compete fees and loss to its commercial rights. Now the question before us is whether the assessee has acquired any commercial right by virtue of agreement executed between the assessee with USA compa .....

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y stated in response to question No.2 as noted by the ld. CIT(A) that the company has no business activities since 1997 much before the year 1998 in which it has been claimed by the assessee company that it has entered into an agreement with Swiss company for not doing any business to Russian Federation on account of which, it is being claimed that the assessee company has received a compensation of ₹ 32,51,697/- as non-complete fees. The ld. CIT(A) accordingly observed that a collusion be .....

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d before the Assessing Officer and he accordingly doubted the genuineness of the USA Company. The ld. CIT(A) has also observed that during the course of assessment proceedings, the assessee company could not file any evidence to show that the amount was paid by the Swiss company, M/s Tanaiga Real Estate Corporation. On enquiry, it has been surfaced that this amount was debited by UBOCI to World Trade Centre, New York on 28.07.1999. Therefore, the origin of source of fund has been found to be fro .....

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as Director. It was also deposed by him that the affairs of the company was managed by Shri. K. K. Gosain, father of Shri. Rajiv Gosain who has signed on behalf of the USA Company. Therefore, it was concluded by the ld. CIT(A) that Shri. Deepak Babbar was a dummy Director of the assessee company and he has no knowledge of the affairs of the assessee company, as all its affairs were managed by Shri. K.K. Gosain and his son Shri. Rajiv Gosain. When the assessee was cornered with all these facts c .....

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