2024 (7) TMI 1305 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of depreciation on non-compete fees - HELD THAT - In quantum proceedings the Ld. CIT(A) has relied on the decision of Sharp Business System 2012 (11) TMI 324 - DELHI HIGH COURT and the said Judgment is under challenge before the Hon ble Supreme Court. As decided in Pepsico India Holding Pvt. Ltd. 2024 (4) TMI 1154 - DELHI HIGH COURT allowed the claim of depreciation on non compete fee after considering the Judgment of Sharp Business System Vs. CIT supra . As observed above there are different views by the Jurisdictional High Court and other High Courts on the issue of allowability of claim of the depreciation on non compete fees which is highly contentious and the lis is pending before the Hon ble Supreme Court. Therefore in our considered opinion the provisions of Section 271(1)(c) cannot be attracted against the Assessee. - Assessee appeal allowed.

Issues:
1. Penalty imposed under section 271(1)(c) of the Income Tax Act on disallowance of depreciation on non-compete fees.
2. Validity of the penalty order passed by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals).
3. Interpretation of the notice initiating the penalty under Section 274 r.w.s 271(1)(c) of the Act.
4. Justifiability of the penalty under Section 271(1)(c) for furnishing inaccurate particulars or concealment of income.
5. Consideration of judicial precedents in penalty proceedings.
6. Compliance with the mandatory requirements of Section 271(1)(c) in the case.
7. Dispute on disallowance leading to penalty imposition.
8. Contention on the debatable nature of the issue of depreciation on non-compete fees.
9. Conflict in views of different High Courts on the allowability of depreciation on non-compete fees.

Detailed Analysis:
1. The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act for disallowance of depreciation on non-compete fees. The grounds of appeal challenged the legality and jurisdiction of the penalty order, arguing that it was unwarranted and without specific charges, thus seeking its quashing.

2. The validity of the penalty order passed by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) was questioned on the basis of errors in appreciating the facts and circumstances of the case. The appeal contended that the penalty imposition was invalid and against the facts presented.

3. The interpretation of the notice initiating the penalty under Section 274 r.w.s 271(1)(c) of the Act was a crucial issue raised in the appeal. It was argued that the notice lacked specific charges, rendering it illegal and bad in law, leading to a request for the penalty order to be quashed.

4. The justifiability of the penalty under Section 271(1)(c) for furnishing inaccurate particulars or concealment of income was debated. The appeal highlighted the lack of clarity in the proceedings initiated by the Assessing Officer, questioning the legality of the penalty imposition.

5. The consideration of judicial precedents in the penalty proceedings was emphasized, pointing out discrepancies between the satisfaction recorded during assessment and penalty imposition. The appeal argued that the penalty order was illegal, bad in law, and without jurisdiction.

6. Compliance with the mandatory requirements of Section 271(1)(c) was a significant contention in the appeal. It was argued that the penalty imposition was unjust and not in accordance with the law due to non-fulfillment of mandatory provisions, seeking the penalty's deletion.

7. The dispute on disallowance leading to penalty imposition was discussed, highlighting differences of opinion between the Assessing Officer and the Assessee. The appeal contended that no penalty should be levied in this case due to the nature of the disallowance issue.

8. The debatable nature of the issue of depreciation on non-compete fees was a central argument in the appeal. It was asserted that since there were conflicting views by different High Courts on the allowability of such depreciation, the penalty under Section 271(1)(c) could not be justified.

9. The conflict in views of different High Courts on the allowability of depreciation on non-compete fees was a crucial aspect of the appeal. The appeal highlighted the contentious nature of the issue, pointing out that the matter was pending before the Honorable Supreme Court, leading to the quashing of the penalty order in the present case.

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