TaxTMI 
TaxTMI 
2020 (5) TMI 464
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appellate proceedings before learned CIT(A) has arisen from an assessment order dated 31.12.2008 passed by learned Assessing Officer (hereinafter called "the AO") u/s 143(3) read with Section 147 of the 1961 Act.. The appeal in ITA no. 307/Chny/2010 is filed by assessee against an revisionary order dated 22.01.2010 passed by learned Commissioner of Income-tax, Chennai-I, Chennai u/s 263 of the Income-tax Act,1961 for ay: 2001-02 holding that re-assessment framed by learned Assessing Officer u/s 143(3) read with Section 147 of the 1961 Act, vide reassessment order dated 31.12.2008 is erroneous so far as prejudicial to the interest of Revenue for reasons stated therein in the revisionary order. The appeal in ITA no. 1016/chny/2012 is filed by assessee for ay: 2001-02 which has arisen from appellate order dated 27.03.2012 passed by learned CIT(A), which appeal has arisen before learned CIT(A) from consequential assessment order dated 08.11.2010 passed by AO u/s 143(3) read with Section 263 of the 1961 Act. 2. The grounds of appeal raised by assessee as well Revenue in memo of aforesaid appeals filed with Income-Tax Appellate Tribunal, Chennai (hereinafter called "the Tribunal") wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e CIT (Appeals) went wrong in recording the findings in this regard in paras 7.3 & 7.3.1 of the impugned order without assigning proper reasons and justification. 10. The CIT (Appeals) failed to appreciate that the scope of section 48 of the Act was not considered while erroneously sustaining the exclusion of the garnishee payment to Indian Bank in the computation of Long Term Capital Gains and further ought to have appreciated that the evidence placed on record clearly demonstrated the fact of encumbrance as well as the fact of such payments directly made to M/s Indian Bank. 11. The CIT (Appeals) failed to appreciate that the theory of diversion by overriding title even though brought to his notice as well as in the assessment proceedings, non consideration of the said legal theory to the facts of the case would vitiate their action in re-computing Long Term Capital Gains. 12. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing the impugned order and any order passed in violation of the principles of natural justice is nullity in law. 13. The CIT (Appeals) failed to appreciate that the recomputation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly a nomenclature to avoid tax as held in the Apex Court's decision in the case of S.A. Builderes reported in 288 ITR 1. 2.7 It is submitted that the decision relied upon by the CIT(A) in the case of M/s Guffic chem Pvt. Ltd vs CIT (332 ITR 602) cannot be applied to the facts of the case since the issue is not whether to treat the non compete fee as capital or revenue receipt. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored." c) Grounds in ITA No.307/Chny/2010 for ay: 2001-02(Assessee's appea) "1. The order of The Commissioner of Income Tax, Chennai-I, Chennai - 600 034 dated 22.1.2010 in C.No.218(36)/CIT-l/263/2009-10 for the above assessment year is contrary to law, facts, and in the circumstances of the case. 2. The CIT erred in passing the order u/s 263 of the Act in directing the Assessing Officer to re-examine the computation of Long Term Capital Gains as well as to reexamine the eligibility of the deduction u/s 54F of the Act without assigning proper reasons and justification. 3. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s subjected to the extra ordinary jurisdiction of the Madras High Court under Article 226 of the Constitution of India and the Writ Petition filed to challenge the reopening proceedings on the facts and in the circumstances of the case is still pending for decision. 13. The CIT failed to appreciate that in the light of the above fact and in the light of the interim order(s) passed by the Hon'ble High Court in W.P.No.49683/2006, the order of revision under consideration was bad in law. 14. The CIT failed to appreciate that there was no proper opportunity given before passing the impugned order and any order passed in violation of the principles of natural justice is nullity in law, 15. The Appellant craves leave to file additional grounds/arguments at the time of hearing." d) Grounds in ITA No.1016/Chny/2012 for ay: 2001-02(Assessee's Appeal) "1. The order of The Commissioner of Income Tax (Appeals) III, Chennai - 600 034 dated 27.03.2012 in I.T.A.No.283/10-11/A.III for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in sustaining the order giving effect t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant craves leave to file additional grounds/arguments at the time of hearing." 3. Since common issues are involved in all these four appeals, these appeals were heard together and are now disposed off by this common order. 4. First we will take up cross-appeals filed by assessee and Revenue in ITA No.1015/Chny/2012 & in ITA No.1324/Chny/2012, both for ay: 2001-02. Briefly stated facts of the case are that the assessee is engaged in the business of Modelling, Cricket Commentary, Journalism and Consulting & BPCL Dealership. The assessee filed his return of income with Revenue for impugned ay: 2001-02 on 28.03.2002, declaring an income of Rs. 20,42,510/-. The said return of income was processed by Revenue u/s.143(1) of the 1961 Act and admittedly no scrutiny assessment u/s 143(3) of the 1961 Act was originally framed by Revenue. The AO observed from enclosures of the return of income filed by assessee with Revenue that assessee has sold shares held in his name, minor children and wife, during the impugned year under consideration. It is stated that the amounts transacted as Restricted covenants arises on the course of sale of shares and hence the same cannot be claimed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oted and developed by the assessee. As per the agreement, the assessee shall not carry on either by himself or in association with any other person or persons or associate or involve directly or indirectly with any other company, firm or person in a business similar to that carried on by M/s. KRIS SRIKKANTH SPORTS ENTERTAINMENT PRIVATE LIMITED, for a period of 6 years. In consideration of the above agreement, the purchaser has paid a sum of Rs. 2.5 crore (Rupees Two Crores and fifty Lakhs only). Agreement 3. The assessee entered into an agreement with M/s. ABN FINANCIAL SERVICES PRIVATE LIMITED, No. 13, Rani Annadurai Street, Raja Annamalaipuram, Chennai-600 028. The purchaser propose to purchase 1/3rd of issued, subscribed and paid up shares in KRIS SRIKKANTH SPORTS ENTERTAINMENT PRIVATE LIMITED, (Formerly known as A.A.International Private Limited) from the various shareholders in their name. The company was promoted by the assessee who had necessary expertise and contacts relating to the said business and the business of the company was wholly promoted and developed by the assessee. As per the agreement, the assessee shall not carry o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imited. The AO observed that the assessee has received a sum of Rs. 12 Crs. for transfer of the shares and details of payments received by the assessee through banking channel and the details of payments as furnished by assessee was re-produced by AO in its assessment order, as under: Date Bank Amount 21.09.2000 UTI Bank 10000000 23.09.2000 UTI Bank 10000000 08.01.2001 UTI Bank 20000000 08.01.2001 UTI Bank 5000000 08.01.2001 UTI Bank 5000000 08.01.2001 UTI Bank 10000000 06.02.2001 UTI Bank 10000000 22.02.2001 UTI Bank 10000000 01.03.2001 UTI Bank 3500000 16.03.2001 UTI Bank 1500000 22.03.2001 UTI Bank Total up to year ending 31.03.2001 (A) 95000000 11.04.2001 UTI Bank 2500000 16.04.2001 UTI Bank 5000000 17.04.2001 UTI Bank 5000000 20.04.2001 UTI Bank 2500000 27.04.2001 UTI Bank 2500000 30.04.2001 UTI Bank 2500000 11.05.2001 UTI Bank 5000000 TOTAL UP TO YEAR ENDING 31.03.2001 (B) 25000000 TOTAL R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....suing notice u/s 148 of the 1961 Act as the time limit for framing of scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act has already expired. The assessee also submitted that the reason recorded by AO for re-opening of the assessment by invoking provisions of Section 147 of the 1961 Act do not disclose that the AO had any reason to believe that any income of the assessee had escaped assessment. The assessee also submitted before AO that there was no indication as to on what information or on what material the AO had reasons to believe that the claim of the assessee was incorrect. The AO dismissed the contentions of the assessee on jurisdictional ground and upheld the re-opening of the assessment as in the opinion of the AO no scrutiny assessment was framed by Revenue against assessee u/s.143(3) of the Act and only intimation was issued u/s.143(1)(a) of the Act. It was observed by AO that from 01.04.1989, the provisions of Sec.147 has undergone change and intimation u/s.143(1) is not an assessment. The AO relied upon decision of Hon'ble Supreme Court in the case of Delhi Development Authority. It was observed by the AO that no assessment was originally framed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee as there was no specific clause in agreements as to what assessee was doing earlier and also that it is not indicated as to what are the present activities of the company which purchased the shares. The AO also observed that mere made to believe agreements were entered into by assessee with Pentamedia Group Concerns to enable recipient of the money to avoid tax on the same and there was no specific restriction on assessee to do professional activity parallel with the company. As per AO, this agreement was entered into without any basis to enable the assessee only to reduce the tax liability. The AO also observed that the assessee is working as Director in the same company and it was not clear to the AO as to activities undertaken by the said company. The AO also observed that there was no condition as to penalty to be levied in case terms and conditions of the agreement are violated. Thus, as per AO these agreements are sham agreements which are not enforceable at law and entire consideration received by assessee and his minor child were held to be chargeable to tax as capital gains on sale of shares which as per AO was camaflouged as non-compete fee. Thus, the AO reje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the additions made by the AO. The learned CIT(A) was, inter-alia, pleased to dismiss objections raised by assessee on jurisdictional ground as to legality and validity of reopening of the concluded assessment u/s 147 of the 1961 Act by holding that re-opening of the concluded assessment by invoking provisions of Section 147 of the 1961 Act was validly initiated by AO u/s 147 of the 1961 Act, by holding as under: "5. I have carefully considered the facts of the case and the submissions of the ld.AR. I have also gone through the decisions and the circular relied on by the AO and AR. In this case the return had only been processed u/s.143(1) of the Act and no assessment order u/s.143(3) was passed. Hence, the fact of the present case is different from the case of Kelvinator of India Ltd (supra) where a regular order of assessment had been passed u/s.143(3) on 17.11.1989 before issue of notice u/s.148 on 20.04.1990. Intimation u/s.143(1) is not an assessment. In similar circumstances, the Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd 291 ITR 500(SC) held that proceedings initiated u/s.147 are valid. As intimation u/s.143(1)(a) is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty of the second part that consequent on the purchase of 1/3 of the Issued and subscribed share capital of the company by the party of the second part, the party of the first part shall not carry on either by himself or in association with any other person or persons or associate or involve directly or indirectly with any other company, firm or person in a business similar to that carried on by M/s. Kris Siikkanth Sports Entertainment P.Ltd., for a period of 6 years...... That in consideration of the payment by the party of the Second Part to the party of the First Part of the sum herein stated in the manner herein contained and of mutual covenants of the parties, the party of the First Part Hereby confirms and covenants with the party of the Second Part that he shall not for a period of six years from the date hereof carry on any business similar to that carried on by M/s.Kris Srikkanth Sports Entertainment P Ltd. either by himself or in association with any other person or persons nor shall he involved, or associate himself as Proprietor, Partner, Director, Consultant or Advisor to any Company, Firm or other person carrying on or involved in a similar business. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceived for similar circumstances prior to the amendment could not be Taxed upholding the decision of the Delhi High Court in I.T.A.No.728 of 2009 dated 29.7.2009 to this effect. The facts of the appellant are covered by the above decisions. In view of the above factual and legal positions, the addition is deleted and the ground is allowed." So far as the contentions of the assessee that Rs. 4.25 Crs. received by the assessee from the sale proceeds of shares is to be appropriated in discharge of liability through Indian Bank which was stated to be diversion by overriding title and hence the same cannot be brought to tax as contended by the appellant, was repelled by Ld.CIT(A) by holding as under: "7.3 I have carefully considered the facts of the case and the submissions of the Id.AR. I have also gone through the decision relied on by the ld.AR. I have also carefully perused the affidavit filed by Indian Bank, order of DRT in OA No.1642/1998 and 1399/1998 dated 23.2.2001 and other details submitted by the appellant. From the facts on record, it is clear that the appellant was a guarantor in respect of the loan granted by Indian Bank to Aditya Leather Exports P. Ltd. (ALE)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irst kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another person of one's income, which has been received and since applied. The present case is a clear instance of application of money. 7.3.1 Further, the claim of the appellant that there were encumbrances in the property to be sold and therefore the amount paid was towards clearing these encumbrances, in my opinion, cannot be accepted. This was not the case of any encumbrance created on the property sold, the sale of which will necessarily presuppose clearing of those encumbrances. In fact, in this case there was no specific encumbrance: on the said shares. Even, when there are specific encumbrances like that of a loan that has been obtained on the said shares, the clearances of the loan by way of sale of shares would only be an application of income that is received by way of sale of share and cannot be in any way said to be an expenditure incurred towards sale or improvement in the cost of the asset. The decision relied upon by the ld.AR in the case of Bradford Trading Co. Pvt. Ltd. (261 ITR 222), in my opinion, Is not applicable to the facts of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners :- (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. 8. Quite c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that "In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown". Hon'ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, "It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly", and also observed that "arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020". It has been an unprecedented si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words "ordinarily", in the light of the above analysis of the legal position, the period during whichlockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case." We have also observed that Hon'ble Supreme Court has passed an order whereby in exercise of its powers under Article 141/142 of Constitution of India has extend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s), which led to invocation of revisionary powers u/s 263 by learned CIT. The second issue on which learned CIT invoked revisionary powers u/s 263 was with respect to the deduction allowed by AO u/s 54F of the 1961 Act. The learned CIT observed that in computation of income filed by assessee with revised return of income, the assessee has claimed deduction u/s 54F of the 1961 Act to the tune of Rs. 35,62,189/- while the AO has allowed deduction u/s 54F of the 1961 Act to the tune of Rs. 43,69,613/-. It was also observed by learned CIT that AO has failed to get facts of the investment and whether the assessee claim is in accordance with Section 54F of the 1961 Act read with the proviso. The aforesaid reasons led to the invocation of revisionary powers by learned CIT u/s 263 of the 1961 Act by considering that assessment order dated 31.12.2008 passed by AO u/s 143(3) read with Section 147 of the 1961 Act was erroneous so far as prejudicial to the interest of Revenue, which led to issuance of notice dated 13.10.2009 issued by learned CIT u/s 263 of the 1961 Act. The assessee in response to notice dated 13.10.2019 issued by learned CIT u/s 263 of the 1961 Act submitted in its reply vid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de appeal in ITA No.1016/Chny/2012 for ay: 2001-02, the assessee has challenged consequential assessment order dated 08.11.2010 passed by AO u/s.143(3) r.w.s.263 which assessment order was consequential to revisionary order dated 22.01.2010 passed by learned CIT u/s 263 of the 1961 Act, vide assessment order dated 08.11.2010, wherein sale consideration for sale of shares was taken to be Rs. 15 crores as against Rs. 12 crores which was earlier erroneously adopted by AO while farming assessment u/s 143(3) read with Section 147 of the 1961 Act but, however, AO while framing assessment order u/s 143(3) read with Section 263 of the 1961 Act, allowed deduction u/s.54F to the tune of Rs. 43,69,613/-. Thus, the second ground for invocation of Section 263 of the 1961 Act by learned CIT was held by AO to be in favour of assessee while framing consequential assessment order u/s 143(3) read with Section 263 of the 1961 Act. The claim of the assessee that he has not received Rs. 3 Crs. and hence same should be excluded from sale consideration was rejected by AO while passing consequential order u/s 143(3) read with Section 263 of the 1961 Act and hence this differential amount of Rs. 3 Crs. was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O has rightly taken Rs. 15 crores as the total sale consideration. The appellant had a right to receive Rs. 15 crores as per the agreement dated 27.11.2000. The agreement itself speaks that "both parties, however agreed that their share holders will have a lien over the said shares till such time as the payments are realized.... The parties hereto agree that any dispute, difference or claim arising from out of this agreement including any difference in any opinion regarding interpretation of the terms of this agreement or the non-payment of sale consideration shall be referred to an Arbitration consisting of a Sole Arbitrator to be named and appointed by the Shareholder..." Nothing has been brought on record to show that the total consideration was disputed or was not due as at the end of the year. Under the Income-tax Act, liability to pay income tax arises on the accrual of the income. The appellant acquired the right to receive Rs. 15 crores on entering into the agreement on 27.11.2000 and, therefore, the income has accrued during the year. Hence, the AO has rightly made the addition. The ground is accordingly dismissed." The assessee being aggrieved by consequential....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 raised by assessee in its appeal in ITA no. 1015/ Chny/2012 for ay: 2001-02 filed with tribunal. After hearing contentions of the both the parties and perusing material on record, Ground No.1 raised by assessee in its appeal filed with tribunal stands dismissed as being general in nature which in our considered view does not requires separate adjudication. We order accordingly. The learned counsel for the assessee submitted that in aforesaid assessee's appeal in ITA no. 1015/ Chny/2012 for ay: 2001-02, Ground Nos.2-5 concerns with challenge to re-opening of the concluded assessment by AO by invoking provisions of Sec.147 r.w.s.148 of the Act. It was submitted by Ld.Counsel for the assessee that original return of income was filed by assessee with Revenue on 28.03.2002 along with enclosures. The learned counsel for the assessee drew our attention to acknowledgement of return of income along with enclosures which is stated to have been filed by assessee with Revenue, which are placed on record at Pg.No.1-17/paper book. It was submitted that the return of income was processed by AO u/s.143(1) of the Act, vide intimation dated 26.03.2003, wherein an amount of refund of Rs. 94,2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore regular assessment was completed, which reply dated 04.11.2006 is placed in paper books at page 24. The AO issued two further letters show-causing assessee as to why an amount of Rs. 7.50 crores received as consideration for Restrictive covenants be not treated as income chargeable to tax, the said notices are placed in paper book/page 25 and 26. It was submitted by learned counsel for the assessee that the assessee filed letter dated 20.12.2016 with AO submitting that the return of income filed u/s 139 may be treated as return of income filed in pursuance to notice u/s 148 of the 1961 Act, subject to permitting assessee to file a revised return of income before the assessment is completed and after knowing the reasons for reopening of the concluded assessment which led to issuance of notice u/s 148 of the 1961 Act. The asessee's counsel claimed that the assessee also asked AO vide letter dated 20.12.2006 to furnish reasons for reopening of the concluded assessment u/s 147 of the 1961 Act. The said letter dated 20.12.2006 is filed in paper book at page 27. It was submitted by learned counsel for the assessee that the assessee filed Writ Petition before Hon'ble Madras High Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....objections were filed by assessee on 30.12.2008 to reopening of the concluded assessment with AO which are placed in page number 6-8/Paper Book-Vol.III. It was brought to the notice of the Bench that Hon'ble Madras High Court has dismissed the writ petition filed by assessee in W.P.No. 49683 of 2006 and M.P.No.1 of 2006 vide orders dated 23.01.2019, with following observations: "4. This apart, the final assessment order passed by the Assessing Officer was taken by way of an appeal to the Appellate Authority and thereafter, to the Income Tax Appellate Tribunal and the said appeal is now pending adjudication. 5. Under these circumstances, all the grounds raised in the present writ petition as well as the additional grounds, if any shall be raised before the Appellate Tribunal by the writ petitioner by producing documents or other materials. 6. With the above liberty, the writ petition stands dismissed. However, there shall be no order as to costs. Consequently, connected miscellaneous petition is also dismissed." The ld.Counsel for the assessee submitted that the AO framed reassessment u/s.143(3) r.w.s.147, vide orders dated 31.12.2008. It was submitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itted that dispute is with respect to non-compete fee which was treated by AO as part of sale consideration of shares and accordingly brought to tax. The reliance was placed by learned counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Guffic Chem Private Limited v. CIT reported in (2011) 332 ITR 602(SC). The learned counsel for the assessee relied upon decision of Hon'ble Delhi High Court in the case of CIT v. Orient Craft Ltd., reported in (2013)354 ITR 536(Del.) and submitted that reopening of concluded assessment u/s 147 of the 1961 Act was bad in law. The said decision is placed in Paper Book/Volume II at page 5-13. The assessee also relied upon decision of Hon'ble Madras High Court in the case of Tanmac India v. DCIT, reported in (2017)78 taxmann.com 155(Mad.). It was submitted by learned counsel for the assessee that there should be reasons to believe that income of the assessee has escaped assessment and that there should be fresh tangible incriminating material available with the AO before reopening of the concluded assessment by invoking provisions of Section 147 of the 1961 Act. It was submitted by learned counsel for the assessee that Expla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was submitted by learned counsel for the assessee that original return of income was filed by assessee in time. It was submitted by learned counsel for the assessee that AO asked for copies of agreement to reopen concluded assessment which clearly leads to one and only one conclusion that the AO made roving enquiries to reopen concluded assessment, which is not permissible. Our attention was also drawn to Page No.3 of the Paper Book Volume III, wherein, the assessee has claimed some expenses in connection with the sale of the shares. The total sale consideration as per agreement was Rs. 15 Crs., out of which Rs. 3 Crs. were never received by the assessee. Our attention was also drawn to Page No.2 of the Paper Book Volume III, wherein, reconciliation between original return and revised return of income filed with Revenue, is placed. It was submitted that the return of income u/s 148 was filed in February, 2008 and assessment was completed on 31.12.2008. It was submitted that no fresh tangible incriminating evidences were available with AO and the re-opening of concluded assessment was done wrongly wherein roving enquiries were made by the AO to justify reopening of concluded asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Limited' and there was a lien on the shares of' 'Kris Srikanth Sports Entertainment Private Limited'. Our attention was drawn to Para Nos. 7-7.2 of the appellate order passed by learned CIT(A) and it was submitted that learned CIT(A) held that it is application of income and not diversion of income by overriding title. It was submitted by learned counsel for the assessee that these expenses were incurred in connection with the transfer of shares. The learned counsel for the assessee relied upon decision of Hon'ble Madras High Court in the case of CIT v. Bradford Trading Co. Pvt. Ltd., reported in (2003) 261 ITR 222(Mad. HC). It was submitted that there was an impediment to transfer of shares of 'Kris Srikanth Sports Entertainment Private Limited' and the assessee paid an amount of Rs. 4.25 crores to remove that impediment and hence, it is a diversion of income by overriding title. The learned counsel for the assessee relied upon decision of Hon'ble Supreme Court in the case of DCIT v. T.Jayachandran reported in (2018) 406 ITR 1(SC) and submitted that only real income of the assessee can be brought to tax and this amount of Rs. 4.25 Crs. has to be treated as an expenditure u/s.48(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome and the AO did not had details of exempt income available with it as claimed to have been filed along with return of income filed by assessee with the Revenue. It was also submitted by learned CITDR that in this document at S.No. 15 of the Paper Book there is a mention about garnishee attachment by 'Indian Bank', and if this document at S.No. 15/PB is excluded which is a suspect document, the AO did not had any information about 'Indian Bank' overriding garnishee attachment. It was submitted by learned CIT-DR that originally assessment was framed u/s 143(1)(a) of the 1961 Act. Thus, in nutshell it was submitted by learned CIT-DR that this document number 15 is a dubious/suspect document which is planted by the assessee subsequently and the AO had rightly invoked provisions of Section 147 of the 1961 Act. The assessment was originally not framed u/s 143(3) of the 1961 Act but return of income was processed u/s 143(1)(a) of the 1961 Act and the AO did not had any evidence of two claims of exemption made by assessee in the return of income. The notice u/s 143(2) of the 1961 Act was not originally issued and return of income was manually processed by invoking provisions of Section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DR that failure to take steps u/s 143(2) will not make AO remediless u/s 147/148 of the 1961 Act. The learned CIT-DR relied upon decision of Hon'ble Supreme Court in the case of CIT v. P.V.S.Beedies Private Limited reported in (1999) 237 ITR 13(SC) and it was submitted that even objections raised by internal audit party could be basis for reopening of the assessment u/s 147/148 of the 1961 Act. It was submitted by learned CIT-DR that the assessee has not furnished full and true particulars in the return of income filed by the assessee. Our attention was drawn by learned CIT-DR to Page No.15 Volume-1 of the Paper Book and it was submitted that the assessee has not furnished full and true particulars before the AO. The learned CIT-DR also relied upon decision of Hon'ble Supreme Court in the case of Girilal & Co. v. ITO, reported in (2016) 387 ITR 122(SC). It was submitted by learned CIT-DR that the assessee has furnished information only after Hon'ble High Court allowed proceedings u/s 147 of the 1961 Act to go ahead. Our attention was drawn by learned CIT-DR to Page No.32 of the Paper Book, wherein, decision of Hon'ble Madras High Court is placed. Our attention was also drawn to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aper Book-III wherein reconciliation statement reconciling both the return of income(s) are filed. It was submitted that the assessee was only holding 125 equity shares in the company namely 'Kris Srikanth Sports Entertainment Private Limited', while majority of shares are held by other shareholders which mainly consisted of minor children of the assessee whose income were clubbed with the income of the assessee as per provisions of the 1961 Act. Our attention was drawn to Page No.42 of the Paper Book and Page No.104 of the Paper Book. Our attention was drawn by learned CIT-DR to the decision of the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited (supra), Para No.18. Our attention was also drawn to Explanation-1 to Sec.147 and Explanation 1(b) to Sec.147 of the 1961 Act. It was submitted that if the income is assessed u/s.143(1)(a), then Explanation 2(c) to Section 147 will come into play and only tangible material is required to reopen the concluded assessment and there is no requirement of having fresh material to reopen concluded assessment. It was submitted that if audit objections is based on factual errors, then it can be a valid ground for r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ported in (2016) 387 ITR 122(SC) and also upon the decision of Hon'ble Madras High Court in the case of Smt. A. Sridevi v. ITO reported in (2018)409 ITR 502(Mad. HC). The learned CIT-DR would also rely on decision of Hon'ble Madras High Court in the case of Jayaram Paper Mills Limited v. CIT reported in (2010) 321 ITR 56(Mad.). It was submitted by learned CIT-DR that garnishee payments to 'Indian Bank' is not connected with earning of capital gains and disclosure made by assessee was not true and correct. The ld.CIT-DR relied upon the decision of Hon'ble Madras High Court in the case of CIT v. Ideal Garden Complex Private Limited reported in (2012) 340 ITR 609(Mad.) and also decision of Hon'ble Supreme Court in the case of Honda Siel Power Products Limited v. DCIT reported on (2012) 340 ITR 64(SC). The learned CIT-DR would also rely on decision of Hon'ble Bombay High Court in the case of Hinduja Foundaiton v. ITO in WP No.2866/2018, vide order dated 15.02.2019. The ld.CIT-DR also relied upon decision of the Hon'ble Delhi High Court in the case of Consolidated Photo and Finvest v. ACIT reported in (2006) 281 ITR 394(Delhi) The learned CIT-DR summarized his contention as to validity ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment. We have already referred to these orders in the preceding para's of this order and for sake of brevity they are not repeated. It is claimed by learned CIT-DR that in the return filed in pursuance to notice issued u/s 148 of the 1961 Act, the assessee is claiming higher exemption than what was claimed by it earlier in the original return of income filed with the Revenue. It was submitted that proceedings u/s 147/148 are for the benefit of Revenue and the assessee cannot now challenge reopening of the assessment u/s 148 of the 1961 Act. It was submitted that the assessee is indulging in approbation and reprobation at the same time which is not permissible. It was submitted by learned CIT-DR that the assessee can claim deduction for non recovery of dues of Rs. 3 Crs. in subsequent years but the assessee cannot challenge the proceedings u/s.148 of the Act. The Ld.CIT-DR submitted on the merits of the issue that the assessee has claimed garnishee deduction on account of payments made to 'Indian Bank'. Our attention was drawn to re-assessment order passed by the AO and it was submitted that the assessee infact received the amount and then it was paid to the banker namely 'Indian....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was submitted by learned CIT-DR that there is no garnishee order of court but rather it was only a threat of garnishee. At this stage learned counsel for the assessee placed on record letter in File No. 2/5/2016-Recovery, issued by Government of India, Ministry of Finance, Department of Financial Services and contended that all properties of guarantor is subject to charge and the DRT can order for attachment and sale of such property u/s 19(12) to (18) of the RDDB & FI Act 1993 and prayers were made to allow deduction ( the said letter is placed in file). The Ld. CIT- DR drew our attention to Para No.7.3 of the appellate order passed by Ld.CIT(A) and submitted that there were no encumbrance on sale of shares. It was submitted that learned CIT(A) has clearly held that decision of Hon'ble Madras High Court in the case of CIT v. Bradford Trading Co. Private Limited, reported in 261 ITR 222 shall not be applicable as facts in that case were different. It was submitted that garnishee application was to recover the amount due to the bank and rather it is application of income and not diversion of income by overriding title. The learned CIT-DR relied upon decision of Hon'ble Supreme Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....veri Stock Brokers Private Limited(supra) and it was submitted that the information was received from Revenue audit which is fresh material. It was submitted that Revenue missed to frame scrutiny assessment u/s 143(2) read with Section 143(3) of the 1961 Act and reasons to believe which formed basis of invoking provisions of Section 147 for reopening of the concluded assessment were based on old material and once no notice u/s 143(2) of the 1961 Act was issued at that time for framing scrutiny assessment, the Revenue has missed the bus and now it cannot rely on stale material to get extended limitation period by invoking provisions of Section 147 of the 1961 Act. It was submitted that the assessee made full and true disclosure in the return of income filed with department originally. It was submitted that Revenue can no doubt invoke provisions of Section 147 of the 1961 Act, if there are factual errors in disclosures as held by Hon'ble Supreme Court in the case of PVS Beedies(supra) and in that case reopening was done after four years based on audit objections and Revenue is empowered to see that there is true and full disclosure. The assessee's counsel also submitted that Revenue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the course of hearing before the Bench on 17.10.2019. The Ld.CIT-DR relied upon the decision of Hon'ble Supreme Court in the case of R.N. Gosai A v. Yashpal Dhir, judgment dated 23.10.1992 and decision of Hon'ble Madras High Court in the case of G. Kumar v. Samuthiradevi, vide judgment dated 19.12.2012. The ld.CIT-DR submitted that in the case of share agreement, there are no consequences provided for making default in payment of sale consideration of shares. The learned counsel for the assessee submitted that no basis for valuation of shares and of compete fees is there and it was a negotiated price between the buyer and seller. It was submitted by learned counsel for the assessee that it is only because of Mr. K. Srikanth, the assessee who was a renowned cricket player in Indian team that non compete fees was paid by the Pentamedia Group Concerns. The Ld.CIT-DR submitted at this is point of time that it is merely a tax avoidance scheme and non-compete fees is nothing but sale consideration of shares and the AO had rightly included the same as income of the assessee while computing capital gains. The ld.CIT-DR referred to Para No.6.1 of the appellate order passed by Ld.CIT(A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in nature. The learned counsel relied upon decision of tribunal in the case of R. K. Swamy v. ACIT reported in (2004) 88 ITD 185(Chennai-trib.) and decision in the case of G.Raveendran v. CIT reported in (2015)375 ITR 326(Mad. HC) and it was submitted that there was no need to interfere with the orders of the Ld.CIT(A) so far as department appeal is concerned and prayers were made to dismiss the appeal filed by Revenue. It was submitted that there is a separate contract between unrelated parties for non compete fee. It was submitted that the wisdom of businessmen should prevail as it is a contractual transaction between unrelated parties which is at arms length price. It was submitted that shareholders who transferred shares are minor and assessee is a separate 'person' under the 1961 Act albeit father of the minor sons. The learned CIT-DR relied on the grounds of appeal and it was submitted that non-compete fees is in context of sale of share and it was submitted that it is immaterial whether assessee sold shares or minors son shares were sold, these shares are to be treated as assessee's share and the assessee sold the shares of minor children. The learned counsel for the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s rectified by learned CIT by invoking provisions of Section 263 of the 1961 Act. It was submitted by learned CIT-DR that the assessee has accounted for his income on accrual basis and it was submitted that invocation of provisions of Section 263 is valid. The learned CIT-DR submitted that the assessee has not submitted that there is any error on the basis of accounting followed by the assessee viz. cash or mercantile. So far as regards computation of deduction u/s 54F of the 1961 Act, the learned CIT-DR submitted that learned CIT invoked provisions of Section 263 of the 1961 Act and directed AO to verify the claim of the assessee u/s.54F of the Act. The learned CIT-DR submitted that the AO verified and allowed the claim of deduction u/s 54 F to the tune of Rs. 43 lakhs, instead of Rs. 35 lakhs, even while framing assessment u/s.143(3) r.w.s.263 of the Act. The case of the assessee was re-fixed for clarification to find out as to the basis / quantification of valuation of shares and as to whether any valuation report at the behest of the contracting parties, was prepared to value shares. The assessee has filed written submissions and it was submitted by learned counsel for the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 2002 for impugned ay: 2001-01. The said return of income was not filed within the prescribed time u/s 139(1) of the 1961 Act but was admittedly filed belatedly, albeit within time prescribed u/s 139(4) of the 1961 Act. The income declared by assessee under the said return of income was to the tune of Rs. 20,42,507/-. The exempt income claimed in the said return of income originally filed by the assessee u/s 139 of the Act was to the tune of Rs. 11,98,48,643/- as per acknowledgement of return of income placed in paper book at page 1, wherein the column of exempt income, the aforesaid amount of Rs. 11,98,48,643/- is duly filed in at column 24(page 1/pb). The assessee also filed a claim for refund of an amount of Rs. 85,20,565/- which was filed along with return of income in Form No. 30,placed at page 3 of the Paper Book. Along with this return of income filed by assessee, it has claimed to have filed a covering letter which specify the list of enclosures to return of income. The said covering letter did not specify about the enclosure as to details of exempt income being furnished, but however it is now claimed by assessee that details of the aforesaid exempt income claimed by h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee : Provided that except as otherwise provided in this sub-section, the acknowledgement of the return shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him : Provided further that no intimation under this sub-section shall be sent after the expiry of [one year from the end of the financial year in which the return is made :] [Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 31st day of March, 2002.]" Thus, the AO cannot go into merits of the claim made by assessee and such corrections are limited to correcting any arithmetical errors and to correcting incorrect claims apparent from any information in the return. Thus, even if the return of income was processed manually in the instant case, the AO had a restrictive powers to correcting only arithmetical errors in the return of income and to an incorrect claim which is apparent from any information in the return of income and it cannot be equated with scrutiny assessment f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his document which is placed at paper book/page 15 which is claimed by Revenue to be a planted document, and while going through the aforesaid document, it is observed that following disclosure was made by assessee, as under: "K.Srikanth Assessment Year 2001-02 Annexure to Statement of Income a, Income claimed to be exempt and not included in total income - consideration for restrictive covenant Rs. 7.50 Crores. b. Residuary sale proceeds of shares after mandatory diversion of Rs. 4.25 crores by Indian Bank overriding garnishee attachment-Rs. 3.25 Crores. K.Srikanth Assessment Year 2001-02 Income claimed to be Exempt Rs. a. Restrictive Covenant 75,000,000 b. Indian Bank Overriding Garnishee attachment 42,500,000 c. Dividend : Minor Adityaa 2,348,643 119,848,643 Perusal of the above disclosure as was allegedly claimed to have been made by assessee which is albeit disputed by Revenue to be planted/suspect document, it clearly appears that these are bald disclosures made by assessee and it cannot be said that the assessee has made true and complete disclosure of the primary facts and in our view clearly pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are applicable in India to protect interest of Minor sons who infact were holder of share capital of 'Kris Srikanth Sports Entertainment Private Limited' which was a subject matter of transfer. The assessee as per laws applicable to minor and guardianship In India could not have diverted sale proceed of shares held by Minor Sons to repay Indian Bank for loan of Rs. 4.25 crores availed by 'Aditya Leather Exports Private Limited', to the prejudice of minors interest without permission of Courts as per laws applicable to Minors and Guardianship in India. It was a blatant illegal act and Income-tax Act, 1961 Act cannot be read in vaccum dehors other prevailing laws in India. The assessee if so desire could have always contended that proceeds of non compete fee received by him was utilized for payment of dues to Indian Bank but to claim that the assessee appropriated proceeds of sale of shares of minor sons for the purposes of payment to Indian Bank while utilizing non compete fee received by him, which he is claiming as an exempt income, for other purposes is a perversity which cannot be accepted. The assessee has not come to court with clean hands and courts cannot be party to such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of shares by minor sons of the assessee of the company namely 'Kris Srikanth Sports Entertainment Private Limited' to Pentamedia Group of Concerns to the tune of Rs. 7.50 crores was received by assessee which shall be brought to tax under the provisions of the 1961 Act including provisions of Section 60-64 of the 1961 Act. Further, we hold that non receipt of Rs. 3 crores ( out of total non compete fee of Rs. 7.50 crores) as was the claim set up by assessee was towards non compete fee payable by Pentamedia Group of Concerns to assessee for not competing with them for a period of six years. Further, we also hold that proceeds of non compete fee of Rs. 4.50 creores actually received by assessee was utilized by assessee to pay 'Indian Bank' an amount of Rs. 4.25 crores towards defaulted loan availed by 'Aditya Leather Exports Private Limited' of which assessee was Director as well Guarantor. As we will also see in the later part of this order that claim of exemption/deduction made for payment of Rs. 4.25 crores to Indian Bank by diversion by over-riding title was a wrong claim made by assessee even on merits and he was not entitled for deduction / exemption of said income even withi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it team of department. Hence, in the instant case, we hold that the Revenue was within its right to reopen the concluded assessment u/s 147 of the 1961 Act and we uphold the reopening of the concluded assessment by Revenue in the instant case. We order accordingly. Now, coming to merits of the issues before us. We have observed that the assessee along with his minor sons has entered into sale of entire shareholding of 'Kris Srikanth Sports Entertainment Private Limited' with Pentamedia Group of Concerns. It is observed that almost entire shareholding to the tune of 99% was held by minor sons of the assessee and assessee merely held 125 shares of the said company. The clubbing provisions as are contained in Section 60 to 64 of the 1961 Act are attracted and income of the minor sons are to be clubbed with the income of the assessee. The perusal of these agreements will reveal that the assessee has entered into agreement of sale of shares to the tune of Rs. 7.50 crores by virtue of which entire shareholding in the said company 'Kris Srikanth Sports Entertainment Private Limited' will stand transferred to Pentamedia Group of Concerns. Simultaneously, there were agreements entered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on negotiated agreement as we donot find them to be unconscionably or patently wrong requiring interference in the business deal entered into by and between willing parties, as there is no material brought on record to take a contrary view. Now, coming to sale consideration of Rs. 7.50 crores for sale of shares of 'Kris Srikanth Sports Entertainment Private Limited', we have observed that majority of shares exceeding 99% were held by minor sons. It is the assessee who was natural guardian for his minor sons of the assessee and the assessee executed agreement for sale of shares on behalf of his minor sons.The assessee being natural guardian was duty bound to protect the interest of minor sons. There are Minority and Guardianship laws prevalent in India which protects the interest of minors and the guardians are duty bound to protect interest of minors and if the proceeds belong to minor are to be diverted or minor are to be divested of their assets then permission of Court is required. Attention is drawn to The Hindu Minority and Guardianship Act, 1956 especially to provisions of Section 8 of the said act. The purpose and intent of these laws and indulgence by Courts as provided und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nance Act, 2002 which is applicable from 01.04.2003. Thus,an amount of Rs. 7.50 crores which was purportedly towards non compete fee is not chargeable to tax within provisions of the 1961 Act as were applicable for ay: 2001-02. Under these circumstances once it is held that Rs. 7.50 crores which was towards non compete fee is exempt from tax in the instant case, it will not matter as to how this is applied by assessee as the income at source is held to be exempt from tax. Thus, even if an amount of Rs. 3 crore is not received, it will not matter as the income at source of Rs. 7.50 crores towards non compete fee is held to be exempt from incometax and at the same time even if Rs. 4.25 crores is paid to Indian Bank to clear the loan of 'Aditya Leather Exports Private Limited', then also it is an application of exempt income which will not have bearing on the taxability of assessee's income. However for sake of completeness, it is held that the assessee has paid an amount of Rs. 4.25 crores to Indian Bank under a memo of compromise with said Bank and there was no garnishee attachment of the bank on said shares. The shares of 'Kris Srikanth Sports Entertainment Private Limited' were ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 4.25 crores was paid by assessee out of non compete fee received by assessee and further it is mere application of income and there is no diversion by overriding title as the shares were never part of the charge in favour of Indian Bank. The said amount of Rs. 4.25 crores was paid by assessee to Indian Bank to settle defaulted loan obligation of Aditya Leather Exports Private Limited. Further, the assessee has entered into simultaneous agreement for sale of shares as well for non compete fee and Indian Bank was also in a position to exercise restraint over non compete fee which belonged to assessee and even Indian Bank could not have exercised any extended lien over shareholding of minor sons in 'Kris Srikanth Sports Entertainment Private Limited' without permission of Court keeping in view laws prevailing in India relevant to minor and guardianship. No such permission was ever taken from Courts by Indian Bank or by assessee under the laws applicable to minor and guardianship and hence extended lien if at all it is available was over non compete fee which in any case is held to be an exempt income. Thus, the assessee will not get any deduction from taxable income of amount paid t....