TMI Blog2013 (10) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum proceedings, this receipt has been held to be taxable as revenue receipt. We are not referring to the quantum proceedings and the orders passed therein in detail to avoid repetition and prolixity. Relevant facts have been adverted to below. 3. The assessing officer initiated and levied penalty of ₹ 1,43,33,963/- under Section 271(l)(c) of the Income-tax Act 1961 (for short, 'the Act'). The appellant, however, succeeded before the Commissioner of Income-tax (Appeals) who deleted the penalty observing as under: 10. In the facts and circumstances of this case, it is noted that the appellant made a claim that certain receipts were capital in nature, and therefore, not liable to tax. However, probably realizing the contentious nature of the claim, full taxes were paid on the 'capital' receipt before filing of the return. The return was accompanied by a detailed note on the claim and, with a claim for refund. It is the appellant's case that there has been no concealment, as all facts were disclosed in the return of income itself. It is also argued that the explanation offered by him was on the basis of bona fide belief, and even if such claim wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax as profit in lieu of salary u/s 17(3)(i) of the Act. The Tribunal has discussed the issue in detail and decided it in view of several decisions relied upon by the Parties before it. The assessee had placed reliance on several decision like CIT v. Shyam Sundar Chhaparia [2008] 305 ITR 181 (MP); Rohitasav Chand v.CIT [2008] 306 ITR 242 (Delhi) and Saurabh Srivastava v. Dy. CIT [2008] 111 ITD 287 (Delhi) (SB). The Tribunal has distinguished these decisions on facts with this observation that in these cases the assessee was paid non-compete fee whereas in the case of the present assessee the payment has been made for termination of services. We are thus of the view that when provisions u/s 17(3) of the Act were clear and the amount whatever nomenclature can be attached to it was admittedly paid to the asessee due to termination of employer-employee relation, there was no scope of any debate that the amount received was not profits in lieu of salary within the meaning of the said provisions of section 17(3) of the Act. We are thus of the view that there was not any reason available with the assessee for nurturing a belief that the amount received is a capital receipt n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was also required to administer and attend to business operations of HCL-DELUXE (INDIA) in India. The appointment of Shri Ravinder Bahl and payment of remuneration to him was governed by terms and conditions as stated in letter dated 22.06.98, a copy of which is filed here with these papers. 2. HDX restructured its organizational set up in March 99. 3. HDX offered continued employment to Shri Ravinder Bahl on terms and conditions as laid out in letter dated April,6, 1999. A copy of this letter is filed here with these papers. This letter carried several preconditions. It offered renewed employment to Shri Ravinder Bahl for a period of 4 months only, i.e. for the period 06.04.99 to 01.08.99. For this period of four months. HDX offered to pay Shri Ravinder Bahl remuneration on the same terms, conditions and scale, as was previously paid to him under letter dated 22.06.98. Refer para 2 of letter dtd. 06.04.99. In addition, HDX offered to pay Shri R. Bahl a further sum of US $ 10,00,000.00 styled Extraordinary compensation, upon Shri Ravinder Bahl agreeing to sign in advance and return letter dated 06.04.99 and to carry out and also agreeing to refrain from carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gning or refusing to sign the letter dated 06.04.99, and agreeing to abide by the terms laid down in the said letter. HDX offer to pay Shri R. Bahl is borne out of commercial expediency and prudent business policy to ward off business competition and to safeguard and protect its business operations/interest in India. 8.02 Shri R. Bahl was required to perform/refrain from performing the following:- 8.03 During the period 06.04.99 to 01.08.99, or such earlier date as was to be established by HDX , to co-operate fully with the Deluxe Management, at its direction, in its selection, appointment, orientation and transition to a successor chief executive officer, including personally introducing such person to personnel of HDX and all significant suppliers and customers know to Shri R. Bahl. (Refer para 4 of letter dtd. 06.04.99). 8.04 For a period of three years and four months from 06.04.99, Shri R. Bahl is not to divulge, communicate or pass on any confidential information of HDX or DELUXE or any of their respective subsidiaries of any person who is not in the employment of HDX or DELUXE or any of their respective subsidiaries and who does not have a need to know such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within one year thereafter. Shri R. Bahl was also to execute, without delay, such additional assignments and other documents as HDX determined to be necessary or desirable to sell, assign, transfer, confirm or otherwise perfect such rights in and to HDX or its subsidiaries. (Refer para 10 of letter dtd 06.04.99). 8.09 Shri Rvainder Bahl was also to give up, as further described hereinafter, all claims against HDX and DELUXE and and their respective subsidiaries and each of their respective director officers, employees and representatives the ( Released Parties ). Shri R. Bahl also agreed not to commence any law suit or other legal proceeding or file or otherwise assert any complaint or other demand against the Released Parties based on any claim. Claims were defined to mean any rights that Shri R. Bahl presently had or which he may have thereafter to any compensation, reimbursement or other for of relief from the Released Parties whether or not Shri Ravinder Bahl knew about those rights, including but not limited to, claims for breach of contract, fraud or misrepresentation, violation of any anti-discrimination, disability, civil rights or other law or laws or regulations o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies when explanation is offered by an assessee but not substantiated. 10. In the present case as noted above, the assessee had furnished his explanation and the same was not found to be factually incorrect or false. The legal inference drawn from the facts , i.e., the receipt was revenue in nature, was found to be untenable. Sub clause 'B' to Explanation is, therefore, applicable and we have to examine whether the twin requirements mentioned in Sub-clause 'B' are satisfied. The first condition of Sub-clause 'B' to Explanation 1 is that the assessee should have furnished facts and material relating to computation of his income. Quantum of payment and the terms and conditions on which the payment had been received were clearly disclosed in the note. In our opinion, therefore, the appellant assessee had stated full and correct facts and nothing was concealed or withheld from the revenue. The first requirement is therefore satisfied. 11. The second requirement of Sub-clause 'B' to the Explanation 1 is that the claim or grounds for making the claim should be bona fide i.e. the claim should have been made in good faith. This issue has been dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeeded for legal or technical reasons. But every addition or disallowance made does not justify or mandate levy of penalty. Penalty is not an automatic or mandatory consequence, when addition is made, an expense is disallowed or a receipt is taxed as a revenue receipt. In Shervani Hospitalities. v. CIT [2013] 5 AD Delhi 601 it has been observed as under: 14. Thus penalty under Section 271(l)(c) is imposed when an assessee conceals his income or furnishes inaccurate particulars. In terms of the Explanation, we have to examine whether the case falls within the two limbs viz. sub-clause (A) or (B) and the effect thereof. Clause A applies when an assessee fails to furnish any explanation or when an explanation is found to be false. In respect of the two additions being examined, the assessee had furnished an explanation and the explanation has not been found to be factually incorrect or false. The fact that the expenditure was incurred and spent by the assessee is not disputed or denied but the claim of the assesee that it should be treated as revenue expense has been held to be a wrong claim. It is a case where the assessee was not been able to substantiate the claim. The expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is whether the appellant has been able to discharge the onus under Explanation 1 to Section 271 and show that the claim made by them or the explanation offered with regard to the claim made was bona fide and that the facts relating to the same and material for computation of the total income had been disclosed. These are two facets of clause (B) to Explanation 1. As far as disclosure of facts is concerned, this is clear from the note, which was attached with the return itself. We have quoted the relevant portion of the note above. Full and correct facts have been stated in the said note. The other question is whether the claim made was palpably wrong and legally untenable or a debatable and plausible claim on which the assessee did not succeed on legal interpretation. We have examined the nature of the claim made and the findings recorded by the High Court in their order dated 1st November, 2010. The claim made by the appellant may have been rejected, but it cannot be said that the same was not plausible or legally tenable. This aspect has been discussed above and it has been held that the claim made was bona fide. Regarding the legal opinion in writing, it is not mandatory for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee did not claim, either before the Assessing Officer or before the Commissioner of Income-tax (Appeals) that such a deduction was permissible under section 32(l)(iii) of the Act. No such contention on behalf of the assessee finds noted in the order of the Tribunal. Thus, it was the Tribunal which took the view that section 32(l)(iii) could be attracted to the deduction claimed by the assessee. It is also not the case of the assessee that it was under a bona fide belief that these two amounts could be claimed as revenue expenditure. The assessee, in fact, outrightly conceded before the Assessing Officer that these amounts could not have been claimed as revenue deductions. The only plea taken by the assessee before the income-tax authorities was that it was due to oversight that the amount of income-tax paid by the asessee as well as the amount claimed as deduction on account of certain equipment being written off could not be added back in the computation of income. 15. In Devsons (P.) Ltd. v. CIT [2010] 329 ITR 483/8 taxman.com 87/[2011] 196 Taxman 21 (Delhi), it has been held that when a legal issue arises for consideration, which is debatable but the claim made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here this court was considering the same provision, the court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This court referred to another decision of this court in Union of India v. Dharamendra Textile Processors [2008] 13 SCC 369 as also, the decision in Union of India v. Rajasthan Spt. Wvg. Mills [2009] 13 SCC 448 and reiterated in paragraph 13 that: 13. It goes without saying that for applicability of section 271 (1 )(c), conditions stated therein must exist. Therefore, it is obvious that it must be shown that the conditions under section 271(l)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Joint CIT [2007] 6 SCC 329, this court explained the terms concealment of income and furnishing inaccurate particulars . The court went on to hold therein that in order to attract the penalty under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint CIT, where the court explained the meaning of the terms conceal and inaccurate . It was only the ultimate inference in Dilip N. Shroff v. Joint CIT to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff v. Joint CIT was overruled. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word inaccurate has been defined as: Not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript. We have already seen the meaning of the word particulars in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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