Gujarat High Court
Pr.Commissioner Of Income Tax-3 vs Piruz Areez Khambatta....Opponent(S) on 15 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/180/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 180 of 2016
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PR.COMMISSIONER OF INCOME TAX-3,AHMEDABAD....Appellant(s)
Versus
PIRUZ AREEZ KHAMBATTA....Opponent(s)
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Appearance:
MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 15/06/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue has filed this appeal against the judgment of Income Tax Appellate Tribunal raising following questions for our consideration.
"[A] Whether the Hon'ble ITAT has erred in law and on facts in deleting the penalty levied u/s. 271(1)(c) of Rs.1,60,65,000/ on the issue of addition of Rs.5,25,00,000/ made on account of noncompete fee."
[B] Whether the Hon'ble ITAT has erred in law and on facts by relying upon the decision of Hon'ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. though the facts in the present case were altogether different."
2. The issue pertains to penalty under section 271(1)(c) of the Income Tax Act, 1961 ('the Act' for Page 1 of 4 HC-NIC Page 1 of 4 Created On Fri Jun 17 02:41:24 IST 2016 O/TAXAP/180/2016 ORDER short). The Assessing Officer after denying the claim of the assessee that a certain receipt under non compete agreement was not taxable, proceeded to impose penalty. Commissioner of Income Tax (Appeals) confirmed the appeal. The Tribunal through the third member opinion deleted the penalty making following observations.
"20. Thus, as per Hon'ble jurisdictional High Court, "prima facie, even as per the Tribunal, the agreement was a composite agreement, a part of which at least provided for non competition." Thus, Hon'ble jurisdictional High Court, after analyzing the decision of ITAT, held that even as per ITAT the agreement was a composite agreement. In view of the totality of the above facts, I have no hesitation to hold that the claim of the assessee that the receipt from the non compete agreement was bona fide. The genuineness of the agreement between the assessee and RPL is not in dispute. It is also not in dispute that the sum of Rs.5.25 crores was received by the assessee as per this agreement. The receipt of the money is credited to the capital account with the narration "noncompete territory rights".
Any of the details furnished by the assessee either in the return of income or during the assessment proceedings are not found to be incorrect, erroneous of false. On these facts, the decision of Hon'ble Apex Court would be squarely applicable, because the additions have been made by the Assessing Officer by not accepting the assessee's claim that the receipt on account of noncompete fees is a capital receipt. Mere non acceptance of the assessee's claim by the Assessing Officer would not amount to furnishing of inaccurate particulars of Page 2 of 4 HC-NIC Page 2 of 4 Created On Fri Jun 17 02:41:24 IST 2016 O/TAXAP/180/2016 ORDER income. Considering the totality of the facts, as discussed by me earlier, the claim of the assessee that the receipt was in the nature of capital receipt was a bona fide claim. Whether the claim is accepted or not, it is a matter of opinion and the issue of taxability of Rs.5.25 crores is still sub judice before the Hon'ble High court.
In view of the above, I am of the opinion that, on these facts, the decision of Hon'ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. (supra) would be squarely applicable.
21. The ld. Departmental Representative has also contended that the assessee ought to have disclosed this receipt in the Profit & Loss Account and then, the assessee could have claimed the amount as exempt in the computation of income; and by not carrying out this exercise, the assessee has furnished inaccurate particulars of income. In response to this contention of the ld. Departmental Representative, the assessee's Counsel rightly pointed out that neither in the Incometax Act nor in the Accounting Principles the capital receipt is required to be credited to the Profit & Loss Account. The capital receipt is required to be credited to the capital account which was already done by the assessee. It has been also pointed out by the ld. Counsel that the accounts of the assessee are duly audited and the auditors have not pointed out any defect in the credit of receipt from noncompete agreement to the capital account and therefore, have not qualified the audit report. In view of above, I agree with the ld. Counsel that if the assessee bona fide believed that receipt from the nonagreement is capital receipt and has credited the same to the capital account with proper narration and the capital account is furnished along with return of income. The ld. Counsel for the assessee has also relief upon various Page 3 of 4 HC-NIC Page 3 of 4 Created On Fri Jun 17 02:41:24 IST 2016 O/TAXAP/180/2016 ORDER other decision of Hon'ble Apex Court in the case of Reliance petroproducts Pvt. Ltd. (supra), as interpreted by the Hon'ble Delhi High Court in the case of Zoom Communication P. Ltd. (Supra), is squarely applicable, I have not considered and dealt with all other cases relied upon by the ld. Counsel. To conclude the case of Reliance petroproducts Pvt. Ltd. (supra) and Hon'ble Delhi High Court in the case of Zoom Communication P. Ltd. (supra), hold that the CIT(A) was not justified in sustaining the penalty levied by the Assessing Officer u/s 271(1)(c) amounting to Rs.1,60,65,000/."
3. It can thus be seen that in the opinion of the Tribunal, this is not a case of non disclosure of the income. The claim made by the assessee was found untenable. The Tribunal therefore, referred to various decisions including that of the Supreme Court in case of CIT v. Reliance Petroproducts Pvt. Ltd., reported in 322 ITR 158.
4. We see no error. No question of law arises. Tax Appeal is dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) ANKIT Page 4 of 4 HC-NIC Page 4 of 4 Created On Fri Jun 17 02:41:24 IST 2016