Nelito Systems Ltd, Mumbai vs Department Of Income Tax

सव ी आई.पी. बंसल, या यक सद य, एवं ी एन .के ."ब#लैया, लेखा सद य के सम& Before Shri I P Bansal, JM, & Shri N K Billaiya, AM

आयकर अपील सं./ITA No.547/Mum/2013 ( नधा रण वष / Assessment Year :1996-97)

The DCIT 7(1) Vs. Nelito Systems Ltd. Aayakar Bhavan, A1/248, Shah & Nahar Mumbai- 400 020 Indl. Estate, Dhanraj Mills Compound, Lower Parel Mumbai 400 013 PAN AAACN1818L (अपीलाथ) /Appellant) (*+यथ) / Respondent)

Appellant by : Shri Surinderjit Singh Respondent by : S/Shri H P Mahajani, Prasad Bapat

Date of Hearing : 20.04.2015 Date of Pronouncement : 20.04.2015

आदे श / O R D E R

Per I P Bansal, Judicial Member :

This appeal is filed by the Revenue and it is directed against the order of the CIT(A) dated 05.10.2012 for A.Y. 1996 -97. The Revenue has raised the following grounds of appeal:

"i. The Learned CIT(A) has erred on facts and in law in deleting penalty of Rs.3,68,00,000/- on account of non-compete fees, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer.

ii The Learned CIT(A) has erred on facts and in law in not appreciating the fact that the claim of capital expenditures as in nature of revenue 2 ITA No 547/M/2013 AY:1996-97

expenditure on the given facts amounted to furnishing of inaccurate particulars.

iii The Learned CIT(A) has erred on facts and in law in holding that the issue in question was a debatable issue, without appreciating the fact that the assessee in its original return had claimed the expenditure towards compete fees as amortization for a period of 10 years and subsequently assessee claimed the entire expenditure as revenue expenditure. Therefore, the Learned CIT(A) has failed to appreciate that the assessee was aware about the capital nature of the said expenditure but assessee claimed the same as revenue expenditure with the intention to conceal the true income."

2. At the outset, it was submitted by the learned AR that the appeal filed by the Revenue should be dismissed as against upholding of the addition of Rs. 4 crore upon which the impugned penalty has been levied, the question of law has already been admitted by the Hon'ble Bombay High Court. Reference in this regard was made to the order dated 15.03.2013 passed by the Hon'ble Bombay High Court in Income Tax Appeal No. 359 of 2013, which for the sake of convenience is reproduced below:

"P.C. :-

1. Heard. Admit on the following substantial questions of law:-

(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the impugned payment of non compete fee of Rs.4 crores to NELCO is capital expenditure? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in rejecting the additional ground advancing the alternative argument that the impugned payment of Rs.4 crores be allowed as deferred revenue expenditure spread over a period of 10 years being the duration of the restrictive covenant?

(iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal misdirected itself in law in not consequentially and alternatively directing the respondent to grant depreciation as a result of its own conclusion that the non compete fee of Rs. 4 crores is capital expenditure?

(M.S. SANKLECHA, J.) (J.P. DEVADHAR, J.) " 3 ITA No 547/M/2013 AY:1996-97

3. It was submitted that in the case of CIT Vs. Nayan Builders and Developers, Hon'ble Jurisdictional High Court vide order dated 08.07.2014 passed in Income Tax Appeal No. 415 of 2012 has dismissed the departmental appeal with the following observations:

"PC

1. Having heard Mr. Ahuja, learned counsel appearing on behalf of the Appellant, we find that this Appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the Appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee's Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27th September 2010 admitting Income Tax Appeal No. 2368 of 2009. In our view, there was no case made out for imposition of penalty and the same was rightly set aside. The Appeal raises no substantial question of law, it is dismissed. No costs.

(B P COLABAWALLA J.) (S C DHARMADHIKARI J.)"

4. It was further submitted that the Tribunal in the case of Nayan Builders & Developers vs. ITO, vide its order dated 18.03.2011 in ITA No.2379/Mum/2009 for A.Y. 1997-98 had allowed the appeal filed by the assessee by deleting the penalty on the ground that in quantum appeal, the question of law was admitted by the Hon'ble High Court in respect of additions in regard to which concealment penalty was levied. Copy of this order is also filed at Annexure D and the Tribunal order is as under:

"2. Shorn off unnecessary details it is an admitted position from both the sides that the penalty has been finally upheld qua the addition of Rs.1,04,76,050 towards income from Spectrum Corporate Services Ltd. assessed in this year, disallowance of brokerage of Rs.10,79,221 and disallowance of legal fees of Rs.2,00,000. It is seen that the Tribunal has upheld these additions in quantum proceedings for which the penalty has been held to be imposable. The learned A.R. has placed on record the judgement of the Hon'ble jurisdictional High Court in Income Tax Appeal No.2368 of 2009 admitting inter alia the following two questions:-

4 ITA No 547/M/2013 AY:1996-97

"1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the deposit Rs.1,04,76,050/- received from Spectrum is exigible to tax in the Assessment Year 1997- 98?

2. Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the disallowance of brokerage Rs.10,79,221/- and legal fees Rs.2,00,000/-?"

3. It is, therefore, abundantly clear that the additions in respect of which penalty was confirmed have been accepted by the Hon'ble Bombay High Court leading to substantial question of law. When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u/s 271(1)(c) as has been held in several cases including Rupam Mercantile Vs. DCIT [(2004) 91 ITD 237 (Ahd) (TM)] and Smt.Ramila Ratilal Shah Vs. ACIT [(1998) 60 TTJ (Ahd) 171]. The admission of substantial question of law by the Hon'ble High Court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty. Since the additions, in respect of which penalty has been upheld in the present proceedings, have been held by the Hon'ble High Court to be involving a substantial question of law, in our considered opinion, the penalty is not exigible under this section. We, therefore, order for the deletion of penalty.

4. In the result, the appeal is allowed"

5. The learned AR further submitted that similar view has been taken in the following decisions:

• ITO vs. Ramesh D Tainwala (ITA No. 2175/Mum2015 for AY 2007-08(Mum Tribunal)) • CIT vs. Liquid Investment and Trading Co. (ITA 240/2009) Delhi High Court • M/s. Schrader Duncan ltd. Vs. ACIT (ITA No. 8223/Mum/2010 (Mum Tribunal)) • Vidyavihar Containers Ltd. Vs. ACIT (ITA 5541 & 5544/Mum/2013)

Copy of all these decisions are filed as Annexures E,F,G and H respectively. Referring to the aforementioned decisions, it was submitted by the AR that the departmental appeal is liable to be dismissed simply on the ground that no case has been made by 5 ITA No 547/M/2013 AY:1996-97

the Revenue with regard to levy of concealment of penalty in view of question of law in quantum proceedings. However, the learned DR relied on the order of the AO.

6. After hearing both the parties, respectfully, following the aforementioned decisions of the Bombay High Court, Delhi High Court and the co-ordinate Benches, we decline to interfere with the order of CIT(A) deleting the penalty.

7. In the result, the departmental appeal is dismissed.

Order pronounced in the open court on this 20th day of April 2015.

Sd/- Sd/- (N K Billaiya) (I P Bansal) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, Dt : 20th April, 2015 SA

Copy forwarded to : 1. The Appellant 2. The Respondent 3. The C.I.T, concerned 4. The CIT (A)-concerned 5. The DR, "F" Bench, Mumbai BY ORDER

//True Copy// ASSISTANT REGISTRAR ITAT, Mumbai Benches, Mumbai