2005 (6) TMI 504 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of Rs. 21 lakhs as revenue receipt.
2. Reopening of assessment.
3. Levy of interest under sections 234B and 234C.

Issue-Wise Detailed Analysis:

1. Deletion of Rs. 21 lakhs as revenue receipt:

The Revenue challenged the CIT (Appeals) order for deleting the addition of Rs. 21 lakhs, which the Assessing Officer (AO) treated as revenue receipt. The assessee, a founder director of Log-In Systems Innovations Ltd., received Rs. 21 lakhs from Synergy Credit Corporation Ltd. for a restrictive covenant agreement. The AO considered this amount as part of the salary under section 17(1)(iv), arguing that the agreement was a service contract between employer and employee, not a restrictive covenant. The CIT (Appeals) deleted the addition, stating that the payment was indeed for the restrictive covenant.

The Tribunal examined the facts and found that all events were part of the same transaction. The assessee was offered employment on 8-10-1993, and the restrictive covenant agreement was entered on 15-10-1993. The Tribunal concluded that the restrictive covenant agreement was part of the employment contract, intended to save taxes. Referring to the case of K. Ramasamy v. CIT, the Tribunal held that the Rs. 21 lakhs was a revenue receipt and part of the salary, thus taxable under sections 17(1)(iv) and 17(3)(ii).

2. Reopening of assessment:

The assessee argued that the assessment could not be reopened as the initial intimation under section 143(1)(a) was essentially an order under section 143(2). The Tribunal, however, held that an intimation under section 143(1)(a) cannot be treated as a section 143(2) order. The Tribunal cited the Allahabad High Court decision in Pradeep Kumar Har Saran Lal v. Assessing Officer, which stated that reassessment proceedings could be initiated if the conditions under section 147 are satisfied, even if the initial return was accepted without scrutiny.

3. Levy of interest under sections 234B and 234C:

The Tribunal found that the imposition of interest under sections 234B and 234C is consequential. The Assessing Officer was directed to impose the interest as per the provisions of law.

Conclusion:

The Tribunal set aside the CIT (Appeals) order and restored the AO's decision, holding that the Rs. 21 lakhs received by the assessee was a revenue receipt and part of the salary. The reopening of the assessment was deemed correct, and the imposition of interest under sections 234B and 234C was upheld.