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Shri Prakash Joy Versus The Asstt. Commissioner of Incometax, Circle-1, Kota. and Vica-Versa

2016 (4) TMI 748 - ITAT JAIPUR

Penalty u/s 271(1)(c) - Held that:- The assessee has charged the affiliate fees from the licensee for the rights granted in the agreement. As per the jurisprudence, rights and obligation go together. If a person has a right, it also has obligation to discharge. A right without corresponding obligation does not exist. Merely because the right has been granted to the affiliate under the agreement, the licensee, the assessee cannot shy to discharge his obligation under the agreement which are requi .....

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de and there is no revenue loss to the department. From the above, it is established that since the claim is bonafide and is also debatable and there is no concealment of income, therefore, in view of the decision of Hon’ble Supreme Court in the matter of CIT vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) and also in accordance with the judgment passed in the case of CIT vs. H.M.A. Udyog Pvt. Ltd., [2006 (8) TMI 595 - DELHI HIGH COURT], wherein it has been held that in a case where .....

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assessee. - ITA Nos. 585/JP/2013, ITA Nos. 578/JP/2013 - Dated:- 24-2-2016 - SHRI T.R.MEENA, AM AND SHRI LALIET KUMAR, JM For The Assessee bys by : Shri Siddharth Ranka and Shri M. Iqbal (Advocates) For The Revenue : Shri Ajay Malik (Addl.CIT) ORDER PER SHRI LALIET KUMAR, J.M. These are two cross appeals filed by the assessee and revenue arising from the order dated 21.03.2013 passed by the learned CIT (A), Kota for the A.Y. 2007-08. The assessee has raised the following grounds of appeal :- 1. .....

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furnished inaccurate particulars of such income therefore the imposition of penalty is unjustified, bad in law, deserves to be deleted. 1.3. That there was not a definite conclusion in the assessment order at the time of initiation of proceedings and there being no satisfaction as to on what basis the penalty has been imposed namely; whether it is concealment of income or furnishing of inaccurate particulars of such income. Satisfaction has to be at the time of the very initiation of the proceed .....

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otherwise. 1.5. That in quantum proceedings there being two views/difference of opinion in between the ld. CIT (Appeals) and Hon ble Income Tax Appellate Tribunal, the issue being highly debatable; it does not tantamount to imposition of penalty u/s 271(12)(c) of the Income Tax Act. 1.6. The ld. Lower authorities grossly erred in not awaiting the outcome of appeal filed by the assessee before the hon ble Rajasthan High Court against the order of the Hon ble ITAT before imposing penalty u/s 271( .....

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e was given that the agreement is valid for four years and further the AO has held that the advance license fee should be treated as business income in the current year rather than amortizing in the subsequent year. 3. The assessee being aggrieved by the order passed by the AO, has challenged the order before ld. CIT (A), who vide his order dated 15.03.2010 has not confirmed the order passed by the AO and has held that the advance license fee is required to be amortized as per the established pr .....

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was detrimental to revenue. Only because advance license fees was not refundable , in my considered view, it does not follow that it should be taxed in the year of receipt. It is not difficult to appreciate that it is not mandatory to reduce every business arrangement into a written agreement. The assessing officer has sought to disturb an established practice without showing that it was not being followed as claimed. He also failed to show that this practice did not reveal a true picture of inc .....

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withstanding surrender in a recent survey of ₹ 58,03,162/- of advance license fee that would have been offered to tax in subsequent years, I do not confirm the decision of the assessing officer to add ₹ 63,77,229/- of advance license fee. Ground 3 of the appeal is accepted. 4. The order passed by the ld. CIT (A) was challenged by the Revenue before this Bench. This Tribunal vide order dated 26.11.2010 has set aside the order passed by ld. CIT (A) and has upheld the order passed by t .....

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le, upto 31st March, 2006 the advance license fee was shown at ₹ 26,70,000/- and assessee for A.Y. 2007-08 has offered for taxation at ₹ 24,95,240/-. Out of the receipts upto March,2007 i.e. ₹ 62,02,469/-, the assessee has shown in March, 2008 at ₹ 32,20,000/- as income. Out of the receipts upto March, 2008 at ₹ 31,48,237/-, the assessee has shown in March, 2009 ₹ 5,02,306/- only. From these facts it is clearly established that assessee is not showing the rece .....

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le for the reason that there is no provision in law for deferment of tax liability and tax has to be paid in the year in which it is payable. The advance license fee are undisputedly non refundable and, therefore, that should have been shown in the year in which they were received. The reasons assigned by AO for making the addition in the current year are reasonable. The AO has explained the reasons that why the receipts on account of advance license fee are taxable in the year under considerati .....

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in subsequent year in proportionate basis as he has shown these receipts in the manner he likes. Some receipts are shown @ 50% in the next year, some receipts are shown at less than 50% and in some other cases the receipts have been shown @ 70%. The ld. A/R has fairly accepted that assessee has shown the receipts in subsequent years in a disproportionate percentage. In view of the above facts and circumstances, we hold that entire receipts received during the year under consideration are liable .....

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otherwise it will tantamount to double taxation. We order accordingly. 5. In between, the AO had issued notice for imposition of penalty on the assessee. Before we discuss the notice, it is necessary to reproduce the conclusion and satisfaction drawn by the AO at the time of passing the assessment order. We would like to mention here that in the assessment order, the AO has mentioned penalty proceedings under section 271(1)(c) to be initiated separately . In this back ground, the notice was iss .....

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concealed the particulars of yours income or have furnished inaccurate particulars of such income. You are hereby requested to appear before me at 11.00 AM on 25/1/2010 in my office at C.R. Building Rawatbhata Road, Kota and show cause why an order imposing a penalty should not be made u/s 271 of the I.T. Act, 1961. If you do not wish to avail yourself of this opportunity of being heard a person or through an authorised representative you my show cause in writing on or before the said date which .....

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he law along with the return of income. The AO was not convinced with the reply submitted by the assessee, as a result thereof, the AO imposed the penalty of ₹ 22,00,000/- on the assessee. 6. The assessee feeling aggrieved by the order passed by the AO, challenged the matter before ld. CIT (A) and has filed detailed written submissions in support of the contention, the same has been reproduced by ld. CIT (A) in his order commencing from pages 4 to 18. However, the ld. CIT (A) after discuss .....

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order passed by the authorities below and also to the documents more particularly the franchisee agreements entered between the assessee and the franchisees placed from pages 139 to 209 of the paper book. By showing the agreement, it was contended by the ld. A/R of the assessee that the advance license fees received by the assessee is required to be amortized for some time as there is a corresponding obligation of the assessee to be discharged during the term of the agreement. There is recurring .....

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on. However, the remaining amount was amortized in the subsequent assessment years i.e. 2008-09, 09-10 and 10-11. In the A.Y. 2008-09 an amount of ₹ 32,20,000/- was credited as license fee and similarly an amount of ₹ 5,02,304/- was credited in the accounts of the assessee for the assessment year 2009-10. It was also submitted that the assessee has shown the complete advance fee, license fee received in the Balance Sheet as per Schedule A and has further disclosed fully and truly the .....

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e issue of treatment of advance license fee is a debatable issue and whether the advance license fee is required to be treated as Business income in one year or is required to be spread over the period of four years, is not settled. In various matters where the assessees are in the same business, the license fee has been permitted to be amortized for a period of four years. Therefore, the assessee has only followed the established practice in the trade. It was further submitted that the reason f .....

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ance of notice. The AO before issue of notice, has not applied his mind and has not recorded his satisfaction. Even the in printed proforma notice sent for imposition of penalty, the relevant clause has not been spelt out and the AO was not sure whether the penalty was being imposed on account of submission of inaccurate particulars or on account of concealment of income. In this regard, the ld. A/R has drawn our attention to the law laid down by Hon ble Supreme Court, High Courts and the Tribun .....

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t the assessee falls in the highest bucket (of Tax) and therefore no difference will be there if the Receipts will be shown in the subsequent years. The assessee does not say that the advance license fees is refundable. The assessee has rightly shown as income the entire fees is refundable. The assessee has rightly shown as income the entire advance license fee in the subsequent assessment as income the entire advance license fee in the subsequent assessment years. Copies of Written Submission d .....

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umstances the penalty is liable to be deleted. Further more against the order passed by the Id. Income Tax Appellate Tribunal, the assessee being not satisfied with the Hon'ble Rajasthan High Court u/s 260A of the Income Tax Act. The said appeal is still pending. 1.16 That the penalty proceedings are quasi-criminal in nature and merely because addition has been made does not mean that penalty has to be automatically levied. The Id. Assessing Officer in the penalty order has simply mentioned .....

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isee receipts having been shown in succeeding years ought to have been properly considered by the Id. Assessing Officer and such material needs to be reappraised in the penalty proceeding. The penalty is not automatic. Different considerations come to play in a case of imposition of penalty, while addition may be sustained for diverse reasons but penalty being not automatic, should not be levied in a routine manner, the assessee can discharge burden in penalty proceedings and in the instant case .....

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ereinabove and on record, is that the assessee has not gained anything even by showing the income in succeeding assessment year rather on perusal of a Chart quoted in para 1.12 hereinabove extra income to the tune of ₹ 0.63 lacs has been added in the case of the assessee and this cannot be the scheme of law and permissible under the Income-tax Act. It is surprising that even after the finding of the Hon'ble Income Tax Appellate Tribunal that credit should be allowed in succeeding asses .....

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sfied as to on what count the penalty proceeding were initiated. He should have been satisfied himself as to whether is initiating the proceeding for furnishing inaccurate particulars of income or for concealment of particulars of income. Has this been clarified the assessee appellant would have furnished a further detailed replay in rebuttal. That the Assessing office should have spelt out the basis for initiation of the proceedings. We reply on the following authorities :- • 211 ITR 35 &b .....

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itions is made the penalty shall not automatically follow. In a case of genuine difference between A and 'A' penalty cannot be lived, same view has been taken by Pune bench in the case of Kanbay Software India 122 TJ 721. In the case of CIT v sidhartha Enterprises 184 Taxman 460 PH it was helf that is not necessary that in every case where particulars are inaccurate, penalty must follow. Penalty is imposed only when there is some element of deliberate default and not when there is merely .....

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rue that some discrepancy has been observed during the assessment proceeding, may be they were sufficient to make addition/disallowance. Even the issue is debatable one appellate authority disallowed. However, nothing has been spelt out by the Id. Assessing Officer in concrete ground to justify levy of penalty towards such disallowance/addition. 1.20 The Hon'ble supreme court in the case of CIT v. Reliance Petro Products Pvt. Ltd. reported in (2010) 322 ITR 158 (SC) has observed as under :- .....

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cannot be held guilty of furnishing inaccurate particulars, In order to expose the assessee to penalty, unless the case in strictly covered by the provisions, 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, because that is the only document where the assessee can furnish the particulars of his income, When .....

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o furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. Thus in the instant case t is submitted that entire information was available with the Assessing Officer alongwith return itself. The Tribunal has merely held that all advance receipts since they were in the nature of non-refundable, therefore, has held that it is to be taxed in the year of receipt. by No strength of imagination it can be s .....

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rted in (2008) 303 ITR 49 (Raj.) held that the Tribunal has specifically recorded that there was no finding of the income Tax authorities that the assessee had deliberately mad false claim for claiming dedication, The case of the assessee that it has not included the particulars item in the taxable item under a bona fide belief was accepted. 1.22 The Hon'ble Supreme Court in the case of Sree Krishna Electricals V/s State of Tamil Nadu (2009) 23 VST 249 (SC) which pertains to the penalty proc .....

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nover are disclosed in the dealer's own accounts books and the assessing authorities include these item in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty lived stands set aside. Thus in the instant case everything is recorded/mentioned in the Profit & Loss account and Balance-Sheet and other enclosures 1.23 We also rely on the judgment of the Hon'ble Rajasthan High Court in the case of Chadnrapal Bagga V. ITAT (2003) 261 ITR 67 (Raj.) wher .....

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re as a natural corollary standard deduction/statutory allowance u/s 24 (1) was disallowed. 1.24 We also rely on the judgment of the Hon'ble Supreme Court in the case of T. Ashok Pai 292 ITR 11 where it has been that acted on the basis of wrong legal advice- no penalty explanation cannot be invoked. Here it may be stated that The assessee is not technically sound to know the taxation laws and he was dependent upon the authorized representative/Chartered Accountant who opined that income has .....

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tself of no consequence, What is material is whether the claim supported by a bona fide explanation, i.e., a genuine grounds, with the material facts having been disclosed, and which we find as so. In fact, to the extent the claim is for standard deduction against rental income, the same raises no question of substantiation, i.e., is self corroborative. It is at best a case of an incorrect claim, with all the material facts on record. The ratio of teh decisions in the case of CIT V. Reliance Pet .....

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dent evidence of Positive Income is necessary 263 ITR 484 86 ITR 557 246 ITR 568 246 ITR 571 275 ITR 303 271 ITR 519 36 TW 15 7.3. The ld. D/R for the revenue has submitted that the order passed by the Tribunal is conclusive, binding and the penalty has been imposed by the AO in accordance with the final conclusion drawn by the Tribunal. It was further submitted that there was deliberate attempt on the part of the assessee to avoid the payment of fair tax to the revenue and as such the conduct o .....

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be dismissed by this Tribunal. 7.5. In view of the CBDT Circular No. 21of 2015 dated 10.12.2015 (F.No.279/Misc. 142/2007-ITJ(Pt) the appeal of the revenue bearing no. 578/JP/2013 is dismissed. Under the powers vested by Sec. 268A(1) of the I.T. Act, CBDT has recently issued Ci rcular No.21 of 2015 dated 10.12.2015(F.No.279/Misc. 142/2007-ITJ(Pt) instructing the authori ties below that departmental appeal should not be f i led before ITAT where the demand/tax ef fect does not exceed ₹ 10 la .....

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filed the particulars of the advance license fee received by him in the audit report for the year under consideration i.e. 2007-08 and has also given the details of the advance license fee in Schedule A to the audit report. Further, the assessee has also mentioned in the return of income that out of the said amount of ₹ 62,02,469/-, the assessee is only treating the income of ₹ 24,95,240/- in the current assessment year. In our view, once all these facts have been duly disclosed by .....

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icating the issue of treatment of advance license fee in the quantum appeal, with respect, has not gone into the obligation to be discharged by the assessee in view of the agreement. If the licensee is required to discharge statutory and legal obligation under the agreement, the liberty should have been given to the assessee to treat the pro-rata income in the assessment year under consideration. The perusal of the franchisee agreement shows that the term of the license granted to the affiliate .....

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veloped by the Company and other material at additional cost for the courses as stipulated in Annexure-A hereto 1.4. Technical know-how to run the courses 1.5. Faculty support 1.6. Marketing support If we look into the nature of obligation of the assessee, it is clear that the obligations required to be discharged by the assessee were not restricted to the year of entry into the agreement, rather it was spread over for a period of three years. Like the assessee was required to provide the materi .....

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he affiliate under the agreement, the licensee, the assessee cannot shy to discharge his obligation under the agreement which are required to fulfill during the term of agreement In the light of the above, the decision of the Tribunal in the quantum appeal is one possible view which was taken. Whereas the other possible view could also be taken by the Tribunal, as mentioned above. Thus the treatment of the advance license fee in the assessment year or that of the three subsequent year, is vexed .....

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