Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit.,Circle-1(2),, Baroda vs India Medtronics Pvt.Ltd.,, Baroda on 31 March, 2017
आयकर अपीलीय अिधकरण, मुं बई ायपीठ 'के' मुं बई
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI
ी जी. एस. प ू, ले खासद , एवं ी अमरजीत िसंह, ाियक सद , के सम#
BEFORE SHRI G.S.PANNU, AM AND SHRI AMARJIT SINGH, JM
आयकर अपील सं/ I.T.A. No.442/Ahd/2010
(िनधा%रण वष% / Assessment Year: 2002-03)
The Dy. CIT Cir 1(2) बनाम/ M/s. India Medtronic P. Ltd.
Aayakar Bhavan, Vs. 919-2, GIDC Ind. Est.
Race Course Circle Makarpura,
Baroda Baroda - 390010
थायी लेखा सं ./जीआइआर सं ./PAN/GIR No. : AAACI4227Q
(अ पीलाथ /Appellant) .. ( थ / Respondent)
Revenue by: Shri. N. Padmanabhan
Assessee by: Shri R.R.Vora &
Shri Nikhil Tiwari
सु नवाई की तारीख / Date of Hearing: 09.02.2017
घोषणा की तारीख /Date of Pronouncement: 31.03.2017
आदे श / O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 21.10.2009 passed by the Commissioner of Income Tax (Appeals)-I, Baroda [hereinafter referred to as the "CIT(A)"] relevant to the A.Y. 2002-03 in which the penalty levied by the Assessing Officer has been ordered to be deleted.
2. The revenue has raised the following grounds:-
ITA No.442/Ahd./2010 A.Y.2002-03
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the penalty u/.s271(1)(c) of the Act on the additions / disallowances which were confirmed in the quantum appeal:
(i) Addition of Rs.4.73 crores on account of disallowance of non-compete fees to the directors of the company.
(ii) Disallowance of depreciation of Rs.3,12,500/- on goodwill.
(iii) Addition of Rs.20,99,543/- on account of transfer pricing.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in not appreciating the fact that the assessee has furnished inaccurate particulars of income in order to evade tax.
3. The appellant craves leave to add to amend or alter the above ground as may be deemed necessary.
3. The brief facts of the case are that the assessee filed its return of income for the A.Y.2002-03 on 01.12.2002 declaring total income to the tune of Rs.5,23,71,880/-. The case was selected for scrutiny and assessment order 143(3) of the Income Tax Act, 1961 ( in short "the Act") was passed on 30.03.2005 determining total income to the tune of Rs.10,29,81,829/-. In the said order the penalty proceeding u/s.271(1)(c) of the Act was initiated on account of following grounds:-
i) Non compete fees : Rs.4,73,00,000/-
ii) Depreciation on goodwill : Rs. 3,12,500/-
iii) On account of Transfer Pricing : Rs. 20,99,543/-
iv) Depreciation on Plant & Machinery: Rs. 8,97,910/-
2
ITA No.442/Ahd./2010
A.Y.2002-03
The notice was issued on 30.03.2005 for furnishing the inaccurate particulars of income and concealing the income which was duly served upon the assessee. In the appeal before the CIT(A), CIT(A) confirmed the addition in respect of non-complete fees, depreciation on goodwill and transfer pricing by virtue of order dated 23.11.2007. The addition of Rs.8,97,910/- in respect of the depreciation on plant and machinery was deleted by the CIT(A). Thereafter, on receipt of the order passed by the CIT(A) a letter dated 09.02.2009 was issued to the assessee to submit the written explanation in connection with levy of penalty u/s.271(1)(c) of the Act on the above said issues. The assessee also submitted the reply dated 09.02.2009. Thereafter, considering the reply, the Assessing Officer levied the penalty to the tune of Rs.1,77,48,000/-. Feeling aggrieved the assessee filed an appeal before the CIT(A) and the CIT(A) deleted penalty on account of addition of non compete fees of Rs.4,73,00,000/-, depreciation on goodwill of Rs.3,12,500/-, on account of transfer pricing of Rs.20,99,543/-. Since the revenue was not satisfied, therefore, the present appeal has been filed before us.
ISSUE NO.1 & 2:-
4. Issue no.1 and 2 are interconnected, therefore are being taken up together for adjudication. Under these issues the revenue has challenged the deletion of penalty on account of addition of Rs.4.73 crores in respect of disallowance of non-compete fees and on account of depreciation of Rs.3,12,500/- on goodwill and on account of addition of Rs.20,99,543/- on account of transfer pricing. So far as the disallowance of depreciation of Rs.3,12,500/- on goodwill is concerned the same has been deleted by the 3 ITA No.442/Ahd./2010 A.Y.2002-03 Hon'ble Income Tax Appellate Tribunal in ITA No.811/Ahd./2008, order dated 25.10.2016 for A.Y.2002-03 in assessee's own case. So far as the other addition in connection with the transfer pricing to the tune of Rs.20,99,543/- is concerned, this addition has also been remanded back to the Assessing Officer for further adjudication by the Hon'ble Income Tax Appellate Tribunal in ITA No.811/Ahd./2008, order dated 25.10.2016 for A.Y.2002-03 in assessee's own case. No doubt, in the said circumstances no penalty is sustainable on account of disallowance of depreciation of Rs.3,12,500/- on goodwill and addition of Rs.20,99,543/- on account of transfer pricing. Now we have to see about the addition of Rs.4.73 crores on account of non compete fees to the directors of the company leads to the penalty or not. It is to be seen whether the penalty in this connection has rightly been deleted by the CIT(A) or not. Before going further, it is necessary to advert the finding of the CIT(A) on record:-
"4.1 I have considered the submission of the ld. A.R. and the facts of the case. The penalty has been levied under clause (c) of sub-section (1) of section 271, which provides for penalty in cases where the Assessing Officer is satisfied that any person "has concealed particulars of his income or furnished inaccurate particulars of such income". For imposing the penalty, it is necessary that there should be either concealment of particulars of income or furnishing of inaccurate particulars of such income. The position with regard to the onus of establishing concealment / furnishing of inaccurate particulars has undergone changes. By the 4 ITA No.442/Ahd./2010 A.Y.2002-03 omission, with effect from 1.4.1964, of the word "deliberately", the element of mens rea has been excluded from the penalty proceedings. By way of the deeming provisions in Explanation 1 to sub-section 1, the amount added or disallowed in computing the total income shall be deemed to represent the income in respect of which particulars have been concealed. Thus, any variation between the returned and assessed income shall be deemed to be the result of concealment / furnishing of inaccurate particulars of income. The judicial decisions have reflected this change. The earlier legal position, as enunciated by the Supreme Court in CIT v. Anwar Ali, 76 ITR 696, was that it was for the revenue to positively prove concealment before levy of penalty was possible. However, this view no longer holds good after the introduction of the said Explanation. The present position, as enunciated by the Apex Court in V.A.Balasubramaniam and Bros. & Co. v. CIT 236 ITR 977, following its own decisions in CIT v. Mussadilal Ram Bharose, 165 ITR 14, CIT v. K.R.Sadayappan, 185 ITR 49 and Addl. CIT v. Jivanlal Sah, 205 ITR 244 is that it is for the assessee to rebut the presumption regarding concealment raised against him by the Explanation. To summarise, Explanation 1 states as rule of law that in every case of addition to the returned income, there is a presumption of concealment. This presumption is rebuttable. The onus of rebutting such preemption is on the tax payer. The 5 ITA No.442/Ahd./2010 A.Y.2002-03 presumption can be rebutted by offering a plausible explanation. Where no explanation is offered, the assessee would be liable for penalty. Where offered, the explanation should not be found to be false. However, where the assessee is not able to substantiate its explanation, penalty may not be exigible, if such explanation is bona fide and all the facts relating to the same and material to the consumption of its total income have been disclosed.
4.2 It is a well settled proposition that penalty proceedings and assessment proceedings are distinct. Judicial opinion is unanimous that where all the facts relating to the addition have been disclosed by the assessee, it would not be a fit case for penalty. Mere difference of opinion regarding the meaning and scope of a provision of law may result in yield of addition quantum of tax on assessment but may not justify or warrant the imposition of penalty.
4.3 Recently the decision of the Supreme Court in the case of Dharmendra Taxtiles Processors has generated some controversy. The assessing authorities have interpreted the decision to mean that there is now no place for mens rea in penalty proceedings, and that every addition or disallowance would have the consequence of mandatory imposition of penalty. However, in Rajasthan Spinning and Weaving Mills (supra), the Supreme Court has revisited its decision in the case of Dharmendra Textiles Processors and clarified that it 6 ITA No.442/Ahd./2010 A.Y.2002-03 merely reiterates the earlier existing position, i.e. penalty can be levied only in a case where there has been either concealment of income or furnishing of inaccurate particulars of income. Whether there has been concealment or furnishing of inaccurate particulars would be decided only after any of the three following conditions are satisfied:-
(i) Where no explanation is offered,
(ii) Where the explanation offered is found to be false, or
(iii) Where the explanation is unsubstantiated.
4.4 In the instant case, the penalty relates to the treatment accorded to the payment of non-compete fees. It is noteworthy that there was a substantial amount of litigation on this issue which was finally put at rest by the insertion of clause (va) in section 28, whereby such receipts were deemed to be revenue receipt and hence taxable. Prior to this legislative amendment, there was cleavage of opinion, even amongst High Courts, as to whether such receipts constituted capital receipt or revenue receipt and the corresponding payment constituted capital or revenue expenditure. Hence, the addition was only a result of different views being taken by the assessee and the A.O. No material facts were concealed or withheld. Accordingly, I am of the opinion that the penalty with regard to this amount of Rs.4,73,00,000/- was not justified and is therefore, cancelled."
7ITA No.442/Ahd./2010 A.Y.2002-03
5. In the instant case, the assessee claimed the non-compete fees to the tune of Rs.4,73,00,000/- as revenue in nature. However, thereafter, the claim of the assessee was determined and non-compete fees was treated as capital in nature and the said finding was confirmed to the extent of order passed by the Hon'ble Income Tax Appellate Tribunal in the case of the assessee in the relevant assessment year. It is elaborately discussed by the CIT(A) in his order that the assessee did not concealed the particulars of his income or furnished inaccurate particulars of such income. It is just a claim which has been raised by the assessee on account of various decisions of the Hon'ble Income Tax Appellate Tribunal as well as Hon'ble High Courts which has been declined. So far as the claim of the assessee is concerned, it is not in dispute that the two views have been taken by the Hon'ble Income Tax Appellate Tribunal and other authorities in which the claim of the assessee was once treated as revenue expenditure and thereafter, the claim of the assessee was treated as capital in nature. In case of Career Laucher India Ltd. 358 ITR 179, Hon'ble Delhi High Court and Clariant Chemicals (I) Ltd. 41 CCH 626 (Mumbai) the non-compete fees was treated as revenue in nature. However, in the instant case the non- compete fees was treated as capital in nature and the depreciation was allowed. The issue is quite debatable and in view of the law settled in M/s.Orion International Support Services Vs. ACIT (Mumbai) (ITA No.1383/M/2007) dated 25th May 2011, no penalty is leviable. The assessee asserted the claim of non-compete fees which has not been accepted by the revenue and the rejection of the claim nowhere leads to levy the penalty in view of the law settled in CIT Vs. Reliance Petroproducts (P) Ltd. 322 ITR 158 (SC). The facts were not concealed by 8 ITA No.442/Ahd./2010 A.Y.2002-03 the assessee, however the assessee disclosed the full facts, no penalty is leviable also in view of the law settled in S.M.Construction ITA No.412 of 2013 Bombay dated 3rd March 2015. In view of the said circumstances, we are of the view that the CIT(A) has rightly deleted the penalty and passed the order judiciously and correctly which is not require to be interfere with at this appellate stage. Accordingly, these issues are decided in favour of the assessee against the revenue.
6. In the result, the appeal filed by the revenue is hereby ordered to be Dismissed.
Order pronounced in the open court on 31st March, 2017.
Sd/- Sd/-
(G.S.PANNU) (AMARJIT SINGH)
लेख ा सद / ACCOUNTANT MEMBER ाियक सद /JUDICIAL MEMBER
मुंबई Mumbai; िदनां क Dated : 31st March, 2017 MP आदे श की (ितिलिप अ )े िषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. थ / The Respondent.
3. आयकर आयु((अपील) / The CIT(A)-
4. आयकर आयु( / CIT
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुं बई / DR, ITAT, Mumbai
6. गाड- फाईल / Guard file.
आदे शानु सार/ BY ORDER, स ािपत ित //True Copy// उप/सहायक पंजीकार /(Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुं बई / ITAT, Mumbai 9