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2015 (11) TMI 636 - ITAT MUMBAI

2015 (11) TMI 636 - ITAT MUMBAI - TMI - Penalty under section 271(1)(c) - difference between the reported and the assessed income on account of 'Non-compete fees' - Held that:- The only point of difference between the assessee and the Revenue is the relevant head of income under which the receipt from M/s. Termo Electron LLS India Pvt. Ltd. is liable to be taxed. Therefore, it is a case where a claim made in the return of income of taxing the receipt from M/s. Termo Electron LLS India Pvt. Ltd. .....

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fference between the assessee and the Revenue revolves around the head of income under which the impugned receipt from M/s. Termo Electron LLS India Pvt. Ltd. is liable to be taxed. The Hon'ble Bombay High Court in the case of M/s. Bennett Coleman & Co. Ltd.(2013 (3) TMI 373 - BOMBAY HIGH COURT) held that where there is only a change of head of income and in the absence of facts to show that the claim of the assessee was not bonafide, penalty under section 271(1)(c) of the Act is not maintainabl .....

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irected against separate but similarly worded orders of the CIT(A) dated 26/12/2014, whereby the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') for assessment year 2009-10 vide respective orders dated 12/3/2013 have been affirmed. Since the facts and circumstances in both the appeals are common, the appeal in the case of Shri Arun Toshniwal in ITA No.211/Mum/2015 is taken as the lead case. 2. The appellant in ITA NO.211/Mu .....

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377; 5,88,33,904/-. The difference between the reported and the assessed income of ₹ 5.00 crores was on account of 'Non-compete fees' received by the assessee from M/s. Termo Electron LLS India Pvt. Ltd. In the return of income assessee had declared the said sum of ₹ 5.00 crores as a long term capital gain against which he claimed deduction under section 54EC to the tune of ₹ 50.00 lacs and the balance amount of ₹ 4.50 crores was deposited in the capital gain savi .....

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concealment/furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act, qua the aforesaid amount. As a consequence the Assessing Officer levied a penalty under section 271(1)(c) of the Act equivalent to 100% of the tax sought to be evaded on the aforesaid sum, which came to ₹ 1.50 crores. As per the Assessing Officer, assessee had willfully claimed the 'Non-Compete fee' of ₹ 5.00 crores as long term capital gain to avoid taxability of bu .....

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re of the receipt as a capital receipt and, therefore, there was no concealment. Secondly, it is pointed out that the addition made by the Assessing Officer by invoking section 28(va) of the Act was merely based on an interpretation of law, which was in variance with that of the assessee. According to the appellant, at the time of filing of the return of income the decision of Mumbai Bench of the Tribunal in the case of Mrs. Hami Aspi Balsara Vs. ACIT, 126 ITD 100(Mum) supported the stand of the .....

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;Non-Compete fee' disclosed and the amount assessed by the Assessing Officer and that merely the head of income has been changed, which does not justify the levy of penalty and in support reliance has been placed on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Bennet Coelman & Co. Ltd., Income Tax Appeal (LOD) No. 2117 of 2012 dated 26/2/2013, a copy of which has been placed on record. 5. On the other hand, Ld. Departmental Representative appearing for the Rev .....

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ative has relied upon the judgment of Hon'ble Supreme Court in the case of Mak Data P. Ltd. vs. CIT, 358 ITR 593(SC) to submit that even in a case of a voluntary addition, penalty under section 271(1)(c) is justified. Ld. Departmental Representative has referred to the discussion made by the CIT(A) in his order whereby it has been concluded that the explanation of the assessee regarding nonapplication of section 28(va) of the Act was incorrect and not bonafide. Therefore, the penalty levied .....

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furnished inaccurate particulars of such income. 6.1 In the present case, the penalty has been levied with regard to an amount of ₹ 5.00 crores, which has been found to be assessable as income under the head 'profits and gains of business or profession' by invocation of section 28(va) of the Act. In so far as the merit of the said stand of the Assessing Officer is concerned, the same is not the issue before us. What we are concerned is the purported satisfaction of the Assessing Of .....

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company called Chemito Technologies Pvt. Ltd. since 1/7/1983. The said concern is engaged in the manufacture and assembling of various types of laboratory equipments. The said concern sold one of its Division called 'analytical technologies and instrumentation' to M/s. Termo Electron LLS India Pvt. Ltd. on slump sale basis vide agreement dated 27/5/2008 for a consideration of ₹ 58,00,00,000/-. In the said agreement there was a Non-Compete clause, in terms of which the seller for a .....

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r otherwise in carrying out activities of the acquired business. Subsequently on 2/6/2008, purchaser company M/s. Termo Electron LLS India Pvt. Ltd. entered into a separate Non-Compete and Non-Solicitation agreement with the assessee whereby the assessee received a sum of ₹ 5.00 crores. In the return of income filed, assessee treated such receipt on account of Non-Compete and Non-Solicitation agreement as a long term capital gain. So however, the Assessing Officer was of the view that such .....

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ivity in relation to any business; or......" and concluded that the sum of ₹ 5 crores was an amount assessable under the head 'profits and gains of business or profession' and not as capital gains. 6.2 As per the Revenue, the aforesaid provision inserted by Finance Act, 2002 w.e.f. 1/4/2003 clearly established that the sum of ₹ 5.00 crores received by the assessee for not carrying out any activity in relation to the business acquired by M/s. Termo Electron LLS India Pvt. .....

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tax as a long term capital gain was a bonafide claim or not. In support of the bonafides of assessee's claim, it has been asserted before us that at the time of filing of the return of income the decision of the Mumbai Bench of the Tribunal in the case of Mrs. Hami Aspi Balsara(supra) dated 22/5/2009 was prevailing which was in favour of assessee's stand. In the said decision, the Tribunal was dealing with receipt of Non-Compete fee for assessment year 2005-06, which was after insertion .....

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oresaid, the point made out by the assessee is that the business which has been transferred was being carried out by Chemito Technologies Pvt. Ltd. and not by the assessee himself because assessee was a director of Chemito Technologies Pvt. Ltd. 6.3 Factually speaking, the proposition sought to be canvassed by the assessee in the return of income filed on 30/7/2009 was indeed supported by the then prevailing decision of the Mumbai Bench of the Tribunal in the case of Mrs. Hami Aspi Balsara(supra .....

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with persons connected with the transferor. Accordingly, as per Special Bench the purchaser of business may pay consideration to the transferor of business for not engaging in any competition but also to persons associated with the transferor for not engaging in competition. As per the Special Bench, the receipt of Non-Compete fee by the persons connected with the transferor for not indulging in competition would also fall for consideration under section 28(va) of the Act. It is this propositio .....

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the case of Mrs. Hami Aspi Balsara(supra), which was prevailing at the relevant time. In fact the Ld. Representative for the assessee also referred to another decision of the Tribunal in the case of Savita Mandhana in ITA No.3900/Mum/2010 for Assessment Year 2006-07 dated 7/10/2011, wherein also the proposition laid down by the Tribunal in the case Mrs. Hami Aspi Balsara(supra) has been affirmed. The decision of the Special Bench of the Tribunal in the case of Dr. V.V. Raju (supra), which has di .....

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h is based on a parity of reasoning laid down by the Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (supra). As per Hon'ble Supreme Court, where no information given in the return of income is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. As per the Hon'ble Supreme Court, mere making of wrong claim in the return of income would not tantamount to furnishing of inaccurate particulars of income. Quit .....

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turn of income of taxing the receipt from M/s. Termo Electron LLS India Pvt. Ltd. under the head 'capital gain' has been found to be not sustainable in law. As per the authoritative pronouncement of the Hon'ble Supreme Court in the case of Reliance Petro Products Ltd. (supra), such a fact-situation does not amount to furnishing of inaccurate particulars regarding income within the meaning of section under 271(1)(c) of the Act. Thus, on this aspect itself the penalty is unsustainable. .....

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r section 271(1)(c) of the Act is not maintainable. On this count also, we find that the penalty imposed under section 271(1)(c) in the present case is unsustainable. 6.7 Before parting, we may refer to the reliance placed by the CIT(A) as well as by the Ld. Departmental Representative on the judgment of Hon'ble supreme Court in the case of Mak Data P. Ltd.(supra) to justify the levy of penalty in the present case. We have carefully perused the judgment of Hon'ble Supreme Court and find .....

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ly on the basis that assessee surrendered an income to settle the dispute. In fact, the fact-situation before us stands on a different footing. The Hon'ble Supreme Court explained that in the course of examining the efficacy of penalty imposed under section 271(1)(c) of the Act, the question to be examined is whether the assessee has offered any explanation for concealment of particulars of income or furnishing of inaccurate particulars of income. As per Hon'ble Supreme Court, the Explan .....

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Hon'ble Supreme Court applied the aforesaid proposition to the facts of the case before it and found that the penalty under section 271(1)(c) of the Act was exigible. So however, in the context of the factual matrix which is before us, the penalty under section 271(1)(c) of the Act cannot be justified even on application of the aforesaid legal proposition laid down by the Hon'ble Supreme Court in the case of Mak Data P. Ltd.(supra). We say so for the reason that in the present case asse .....

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