2015 (8) TMI 129 - AT - Income Tax

Non compete Fee - revenue v/s capital receipt - Nature of surrendered income - voluntary or not - Penalty u/s 271 - Held that - In the statement of Director of Shri. Deepak Babbar, it has been clearly stated in response to question No.2 as noted by the ld. CIT(A) that the company has no business activities since 1997 much before the year 1998 in which it has been claimed by the assessee company that it has entered into an agreement with Swiss company for not doing any business to Russian Federation on account of which, it is being claimed that the assessee company has received a compensation of ₹ 32,51,697/- as non-complete fees. The ld. CIT(A) accordingly observed that a collusion between the assessee company and the USA company cannot be ruled out and even on query no document has been produced from the USA company to show that Shri. Rajiv Gosain was authorized by them as being their authorized signatory. It was also observed by the ld. CIT(A) that during the course of assessment proceedings, the Assessing Officer has raised certain queries and asked the assessee to furnish the details of USA company along with name and address, balance sheet, etc. But nothing was submitted before the Assessing Officer and he accordingly doubted the genuineness of the USA Company. It was concluded by the ld. CIT(A) that Shri. Deepak Babbar was a dummy Director of the assessee company and he has no knowledge of the affairs of the assessee company, as all its affairs were managed by Shri. K.K. Gosain and his son Shri. Rajiv Gosain. When the assessee was cornered with all these facts collected by the Assessing Officer, the assessee came forward and made a surrender of ₹ 32,51,697/- through its letter dated 10.3.2003 though with certain conditions. On the basis of the surrender statement, the Assessing Officer has made addition of this amount of ₹ 32,51,697/-. Assessing Officer has no power or jurisdiction to enter into an agreement with any of the assessee. He has no right to waive the interest or penalty. He has to act in accordance with the law. Therefore, where the assessee has surrendered the aforesaid amount, the Assessing Officer has taxed the same. Moreover, it is not a case of voluntary surrender where the assessee has came forward and made a surrender statement. It is a case where the Assessing Officer has made detailed investigation and when the assessee was cornered, he come forward with the proposal of surrender. Therefore, the contention of the assessee that it was conditional surrender and cannot be accepted in part, cannot be accepted. - Levy of penalty confirmed. Thus we are of the considered opinion that the lower authorities have rightly doubted this transaction and treated it to be sham. Accordingly we find no infirmity in the order of the ld. CIT(A) who has rightly confirmed the addition made by the Assessing Officer. - Decided against assessee.

Summary

Issues Involved:
1. Nature of the receipt of Rs. 32,51,697/- as capital or revenue.
2. Validity of the addition under Section 68 of the Income-tax Act.
3. Conditional surrender and its acceptance by the Assessing Officer.
4. Allegation of incomplete records and manipulation by revenue authorities.

Detailed Analysis:

Issue 1: Nature of the Receipt of Rs. 32,51,697/- as Capital or Revenue
The primary issue was whether the sum of Rs. 32,51,697/- received by the assessee was a capital receipt or a revenue receipt. The assessee claimed it as a capital receipt, citing it as compensation for non-compete fees. However, the Assessing Officer and the CIT(A) determined it to be a revenue receipt. The CIT(A) observed that the assessee had no prior export business or infrastructure to support such a claim. The agreements with Golden ADA Inc. and Tanaiga Real Estate Corporation were found to be dubious, with no actual business activities or exports conducted. The CIT(A) concluded that the entire arrangement appeared to be a sham and thus upheld the addition as revenue receipt.

Issue 2: Validity of the Addition under Section 68 of the Income-tax Act
The CIT(A) also considered the amount as an unexplained receipt under Section 68 of the Income-tax Act. Despite the assessee's claims, the CIT(A) found insufficient evidence to substantiate the source of the funds from Tanaiga Real Estate Corporation. The origin of the funds was traced back to the USA, where Rajiv Gosain, the son of the promoter of the assessee company, resided. The CIT(A) concluded that the assessee failed to satisfactorily explain the nature of the receipt, thereby justifying the addition under Section 68.

Issue 3: Conditional Surrender and Its Acceptance by the Assessing Officer
The assessee argued that the surrender of Rs. 32,51,697/- was conditional, subject to no interest or penalty being levied. However, the Tribunal noted that the Assessing Officer has no jurisdiction to enter into such agreements or waive statutory interest and penalties. The surrender was made after detailed investigations by the Assessing Officer, indicating it was not voluntary. Therefore, the Assessing Officer's action of taxing the amount was upheld.

Issue 4: Allegation of Incomplete Records and Manipulation by Revenue Authorities
The assessee alleged that the CIT(A) relied on an incomplete record and manipulated documents. However, the Tribunal did not find merit in this argument, as the CIT(A) had conducted a thorough examination of the available records and evidence. The Tribunal found no infirmity in the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the appeal, affirming the CIT(A)'s decision to treat the receipt of Rs. 32,51,697/- as a revenue receipt and uphold the addition under Section 68. The Tribunal also rejected the contention of conditional surrender, emphasizing that the Assessing Officer must act in accordance with the law and cannot waive statutory requirements. The appeal was dismissed, and the order was pronounced in the open court.