ACIT, CIRCLE-4, NAGPUR vs. M/S. VIGNAHARTA INVESTMENT & FINANCE COMPANY PVT. LTD.,, NAGPUR

The brief facts of the case as emanating from records are : The assessee is a share broker. During the course of scrutiny assessment proceedings the Assessing Officer inter alia made addition of Rs.98,00,000/- u/s. 28(va)(b) of the Act. The Assessing Officer also initiated penalty proceedings u/s. 271(1)(c) in respect of aforesaid addition. Thereafter, the Assessing Officer vide order dated 29-07-2013 passed u/s. 271(1)(c) levied penalty of Rs.28,45,624/-.

Shri K.K. Thakar appearing on behalf of the assessee submitted that during the period relevant to the assessment year under appeal the assessee had received non compete fees. The assessee capitalized the same. However, the Assessing Officer held the same as revenue receipt and made addition in the income returned. Penalty u/s. 271(1)(c) was also levied on the said addition. The ld. AR submitted that Hon‟ble Delhi High Court in the case of CIT Vs. Electrolux Kelvinator Ltd. (supra) deleted levy of penalty u/s. 271(1)(c) holding non compete fees as revenue expenditure or capital

1 The ld. AR further raised legal issue that the penalty order is liable to be quashed on the ground of defect in recording of proper satisfaction for initiating penalty proceedings. The ld. AR submitted that in the assessment order while initiating penalty the Assessing Officer has not mentioned any charge u/s. 271(1)(c) for which penalty proceedings are initiated. Whereas, while passing the order levying penalty u/s. 271(1)(c) the penalty is being levied for concealment. The ld. AR submitted that in the light of decision of Hon‟ble Karnataka High Court in the case of Commissioner of Income Tax Vs. Manjunatha Cotton & Ginning Factory reported as 359 ITR 565 the Assessing Officer was required to specify the charge for which penalty proceedings are being initiated.

On the other hand Shri R.K. Baral representing the Department vehemently defended the assessment order and prayed for reversing the findings of Commissioner of Income Tax (Appeals) deleting the penalty.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee has not filed cross objections or formal application under Rule 27 of the Appellate Tribunal Rules, 1963. The ld. AR has raised legal ground orally pointing

A perusal of assessment order reveal that the penalty proceedings u/s. 271(1)(c) have been initiated in respect of single addition i.e. addition made on account of non compete fees by treating the same as revenue receipt. While initiating penalty proceedings the Assessing Officer has not specified the charge u/s. 271(1)(c) i.e. whether the penalty proceedings are initiated for „concealment of income‟ or „furnishing inaccurate particulars of income‟, has not been specifically mentioned by the Assessing Officer. Thereafter, while levying penalty, the Assessing Officer levied penalty on the charge of concealment of income. In the case of Commissioner of Income Tax Vs. Manjunatha Cotton & Ginning Factory (supra), the Hon‟ble High Court held that the assessee should know the grounds which he has to meet specifically. Otherwise, the principle of natural justice is offended. On the basis of such proceedings, no penalty could be imposed on the assessee‟.

In view of the law laid down by the Hon‟ble High Court unless the charge u/s. 271(1)(c) on which the Assessing Officer intends to levy penalty is conveyed to the assessee, the penalty proceedings would fail the test of judicial scrutiny. Thus, in view of settled legal position, the penalty order is liable to be quashed on account of legal deficiency in not mentioning the 5 ITA No. 48/NAG/2015, A.Y. 2007-08

In the result, the appeal of Revenue is dismissed.