ACIT,, CHENNAI vs. SRI. K.SRIKANTH,, CHENNAI

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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 48 -:

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

reopening of the concluded assessment u/s 147 of the 1961 Act. Reliance

was placed by learned CIT-DR on the decision of Hon’ble Supreme Court in

the case of CIT v. P.V.S. Beedies Pvt. Ltd.(1999) 237 ITR 13(SC). Thus,

learned CIT-DR would contend that factual error was brought to the notice

of the AO and hence reopening of the concluded assessment by invoking

provisions of Section 147 is justified , by relying on the decision of the

Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private

Limited(supra) ,para 18 and it was submitted by learned CIT-DR that even

in the cases covered u/s.143(1) wherein no assessment is framed under

Sec.143(3) of the 1961 Act , if ingredient of Section 147 are fulfilled,

reopening of the concluded assessment u/s 147 of the 1961 Act is

justified. It was submitted that under assessment of income/excessive

loss deduction/relief can lead to invocation of Sec.147 of the Act. The

learned CIT-DR submitted that there has to be live link to form a belief

that income of the assessee has escaped assessment which would justify

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 49 -:

reopening of the concluded assessment u/s 147 of the 1961 Act . It was

submitted that any material which would lead to forming of a belief that

income of the assessee is under-assessed or excessive loss was claimed or

excessive deduction/relief was claimed by tax-payer would be sufficient to

invoke provisions of Section 147 of the 1961 Act. Our attention was

drawn by learned CIT-DR to Para No.16 & 17 of the decision of the Hon’ble

Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited

(supra) and it was submitted that in the instant case proviso to Section

147 is not applicable as no scrutiny assessment was framed u/s 143(3) of

the 1961 Act. It was submitted that intimation u/s.143(1) is not

assessment and the only requirement is that reasons are to be recorded

for reopening of the concluded assessment and then Sec.147 can be

invoked. It was submitted by learned CIT-DR that factual error can be

pointed out by anybody and if there is a live link with income escaping

assessment and reasons to believe, Section 147 can be invoked. Reliance

was placed by learned CIT-DR on the decision of Hon’ble Supreme Court in

the case of CIT v. P.V.S.Beedies Private Limited(supra). The reliance was

also placed by learned CIT-DR on the decision of Hon’ble Supreme Court

in the case of Girilal & Co., v. ITO reported 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 50 -:

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 of reopening of

the concluded assessment, as under:

a.The assessee has not furnished any material before AO, wherein

the AO could come to know whether the assessee has received non-

compete fees or garnishee payments were made by the assessee.

Therefore, he relied upon the decision of Hon’ble Supreme Court in

the case of Rajesh Jhaveri Stock Brokers Private Limited(supra) and

Calcutta Discount Company Limited v. ITO reported in (1961) 41 ITR

191(SC) and submitted that key ingredients for invoking provisions

of Sec.147 are fulfilled in the instant case and hence reopening of

the concluded assessment be upheld .

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 51 -:

b. It was also submitted by learned CIT-DR that the material with

AO was sufficient to reopen the concluded assessment u/s 147 of

the 1961 Act . The learned CIT-DR relied upon decision of Hon’ble

Delhi High Court in the case of CIT v. Orient Craft Limited reported

in (2013) 354 ITR 536(Del. HC) and submitted that there is a

requirement of having tangible material to come to conclusion that

income of the assessee has escaped assessment and there is no

requirement of having fresh material to reopen the concluded

assessment u/s 147 of the 1961 Act. He also relied upon decision(s)

of Hon’ble Madras High Court in the case of Mrs. A. Sridevi(supra)

and also in the case of Jayaram Paper Mills Pvt. Ltd.(supra) and

submitted that if the assessee has made claim which is not

supported by material , then AO can make re-assessment. The

learned CIT-DR would submit that decision(s) of Hon’ble Madras

High Court in the cases of TANMAC India v. DCIT reported in

(2017)78 taxmann.com 155(Mad. HC) and also decision in the case

of Tenzing Match Works v. DCIT in TCA No. 702/2009 be not taken

into consideration.

The learned CIT-DR would submit that original return of income was filed by assessee on 28th March, 2002. The learned CIT-DR submitted that return of income was originally processed u/s.143(1) of the Act on 26th

March 2003 and reopening of the concluded assessment was done u/s 147

of the 1961 Act, vide notice dated 30.03.2006 issued u/s 148 of the 1961

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 52 -:

Act. Our attention was drawn to Page Nos.19 & 20 of the Paper Book

Volume-1, wherein the aforesaid notice is placed. The learned CIT-DR

would also draw our attention to various orders passed by Hon’ble Madras

High Court in writ petition file by assessee challenging reopening of the

concluded assessment. 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 Bank’ , hence there is no diversion of income by

overriding title. Our attention was also drawn to the appellate order

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 53 -:

passed by ld. CIT(A). It was submitted by learned CIT-DR that the

shares were not pledged with ‘Indian Bank’ but since ‘Indian Bank’ came

to know about the sales of shares by assessee to Pentamedia Group of

Concerns through media reports and hence the said ‘Indian Bank’ stepped

in to protect its interest. It was submitted that there was no overriding

title over the shares as the shares were never pledged with the bank and

overriding title is where the property is encumbered. It was submitted that

the assessee namely Mr. K. Srikanth was only guarantor for certain loans

availed by ‘Aditya Leather Exports Private Limited’ and to recover their

money from the said ‘Aditya Leather Exports Private Limited’, the bank

namely ‘Indian Bank’ issued garnishee notice and the assessee was

merely guarantor and the shares were never in the picture when the

assessee stood guarantor. It was submitted by learned CIT-DR that it was

a liability of the assessee to repay the loans availed by the said ‘Aditya

Leather Exports Private Limited’ as the assessee was guarantor , and since

the assessee was selling the shares of ‘Kris Sriknanth Sports

Entertainment Private Limited’, the assessee entered into deal with

‘Indian Bank’ to settle the bank loan, for which the assessee paid Rs. 4.25

Crores to Bank. . The learned CIT-DR submitted that this settlement will

not impinge upon the sale consideration as the shares were not carrying

any obligation to be discharged. It was submitted that Garnishee has

come at a later date only when ‘Indian Bank’ came to know that the

assessee is selling his shares. It was submitted by learned CIT-DR that the

title of the share was perfect with Mr. K Srikanth(assessee) and/or minor

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 54 -:

sons. Our attention was drawn by learned CIT-DR to Hon’ble DRT Order

of 2001 which is placed in Page No.125-132 of the Paper Book and was

submitted that compromise petition was filed and shares were not

impugned by any of the proceedings . It was submitted that the money

was received by the assessee and then discharged to the bank. It was

submitted that memo of compromise was entered into with Indian Bank,

which was settled out of Court, and there was no order of Court of

garnishee and it was settlement out of court entered into by assessee with

the ‘Indian bank’. It 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 55 -:

overriding title. The learned CIT-DR relied upon decision of Hon’ble

Supreme Court in the case of CIT v. Sitaldas Tirathdas reported in

(1961)41 ITR 367(SC) and submitted that there were no diversion of

income by overriding title rather it was only application of income. The

learned CIT-DR would also draw our attention to provisions of Section

48(1) of the 1961 Act and submitted that deduction from capital gains can

only be allowed when the amount is incurred wholly and exclusively in

connection with transfer of shares. It was submitted by learned CIT-DR

that the decision of Hon’ble Madras High Court in the case of Bradford

Trading Company Private Limited(supra) is different and not applicable to

the facts of the case in the instant case. It was submitted that approbation

and reprobation is not allowed as in the original return of income filed with

the department , the assessee has declared sale consideration to the tune

of Rs. 15 crores while it was claimed at Rs. 12 crores in the return of

income pursuant to orders passed by Hon’ble Madras High Court in writ

proceedings. It was submitted that sale consideration was not considered

at Rs. 15 crores by the AO but was considered at Rs. 12 crores and hence

learned CIT had rightly invoked proceedings u/s 263 of the 1961 Act and

brought to tax remaining Rs. 3 crores.

The Ld.Counsel for the assessee drew our attention to Page No.1 & 35 of

the Paper Book, which is the acknowledgement of the original return of

income filed by assessee as well revised return of income filed by assessee

u/s 147 of the 1961 Act, in pursuance to orders of Hon’ble Madras High

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 56 -:

Court. It was submitted that in original return of income , exemption

claimed was Rs. 11.94 Crs. , while in the revised return of income, the

exemption claimed was Rs. 12.41 crores and the difference was on

account of dividend income received which was in any case exempt from

tax and there was no income tax impact owing to such differential . Our

attention was drawn to page 36 of the paper book and it was submitted

that dividend income of Rs. 66,65,190/- was received by son of the

assessee namely Mr. Adityaa Srikanth. It was submitted that there is no

difference in the Income Tax liability owing to such differential in the

exempt income owing to dividend income received by minor son of the

assessee. The assessee relied upon decision in the case of CIT v. Orient

Craft Limited (2013) 354 ITR 536(Del. HC) and also decision in the case

of Rajesh Jhaveri 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 57 -:

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 is empowered to reopen concluded assessment after four

years by invoking provisions of Section 147 of the 1961 Act and to see

that there is true and full disclosure as held in the case of Girilal and

Company (supra) . The assessee’s counsel also tried to distinguish the

case laws relied upon by learned CIT-DR to contend that reopening of the

assessment was not done properly within the provisions of Section 147 of

the 1961 Act and it was submitted that there was no triggering point for

invoking provisions of Section 147/148 of the 1961 Act in the instant case.

It was submitted that three separate agreements were entered into by

assessee for sale of shares and three agreements for non-compete fees.

It was submitted that there was a diversion of income by overriding title

relying on real income theory . The learned counsel for the assessee

relied upon decision of Hon’ble Supreme Court in the case of CIT v.

Sitaldas Tirathdas reported in (1961) 41 ITR 0367(SC) and decision of

Hon’ble Supreme Court in the case of DCIT v. T. Jayachandran (2018) 406

ITR 1 (SC) . It was submitted by learned counsel for the assessee that

only real income can be brought to tax. It was submitted that the sale

was made under compelling circumstances and it was court monitored

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 58 -:

sale of share and hence payment of Rs. 4.25 crores to ‘Indian Bank’ is an

expense in connection with transfer of shares and was rightly claimed by

assessee. The prayers were made by learned counsel for the assessee to

quash the assessment. It was submitted that contract of minor was

entered into through the assessee who is natural guardian of the minor

sons being father and income is to be clubbed for tax purposes. On being

asked by the Bench, the learned counsel for the assessee submitted that

minor money being sale consideration of shares were diverted towards

payment of loan due from ‘Aditya Leather Exports Private Limited’ without

any orders of the Court for using minor’s money for payment of aforesaid

dues to Indian Bank. On being confronted, the learned counsel for

assessee admitted that page 15 of the paper book is an unsigned page

which is claimed to be attached to return of income , while rest of the

enclosures were signed, thus strengthening doubt on the claim of the

assessee that said document was at all attached with the return of income

originally filed by assessee. The assessee was also present during 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 59 -:

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) and

submitted that learned CIT(A) allowed relief to the assessee. It was

submitted that neither ld.CIT(A) nor the assessee has furnished any reply

to issues raised by the AO. It was submitted that there is no specific

clarification as to what the assessee was doing earlier and what assessee

was doing later and this is merely an agreement to avoid tax and assessee

is continuing as Director in the new company. It was brought to notice by

learned CIT-DR that non compete fee was brought to tax by provisions of

Section 28(va) read with Section 2(24)(xii) of the 1961 Act by Finance

Act, 2002 w.e.f. 01.04.2003 and submitted that prior to that

reasonableness is to be seen for which quantum is to be found out and

basis of computing non-compete fee is to be seen. The learned CIT-DR

relied upon decision of Hon’ble Madras High Court in the case of CIT v.

Chemech Laboratories Limited, dated 23.12.2016.11.2016. The learned

CIT-DR would also rely on the decision in following case laws:

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 60 -:

a) CIT v. Mediworld Publications Private Limited

b) Mrs. Hami Aspi Balsara v. ACIT

c) Ramesh D. Tainwala v. ITO ( TS-594-ITAT-2011(Mum.)

It was submitted by learned CIT-DR that if consideration is paid to the

shareholders then capital gains are to be computed and brought to tax

and not non-compete fee as contended by assessee. It was submitted by

learned CIT-DR that if only business is snatched away, then non-compete

fee will come into picture otherwise it is business receipt which is to be

brought to tax in the hands of the assessee . The Ld.CIT-DR submitted

that the assessee is continued with the company even after transfer of

shares as Director and hence there is no question of non compete fee

being claimed as an exempt income by the assessee and entire

consideration of Rs. 15 crores is to be brought to tax as per provisions of

the 1961 Act. The learned CIT DR relied upon decision of Hon’ble AAR in

the case of H M Publishers Holdings Limited in AAR No. 1238 of 2012.

The Ld.AR submitted that reasoning of Ld.CIT(A) is sound and needs to be

confirmed and no substance in the arguments of Revenue and the

decisions relied upon by Revenue are all after the insertion of Sec.28(va)

by Finance Act, 2002 w.e.f. 01.04.2003 while presently we are concerned

with ay: 2001-02 and the amendment brought in by Finance Act, 2002 by

introducing Section 28(va) are prospective in nature. The learned counsel

relied upon decision of tribunal in the case of R. K. Swamy v. ACIT

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 61 -:

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 assessee submitted that in the year ended 31.03.2001 ,

the assessee and minor children received Rs. 9.50 crores while Rs. 2.5

crores was received in year ended 31.03.2002. Thus, it was submitted by

learned counsel for the assessee that only Rs. 12 crores was received

while Rs.3 crores was never received and hence the same cannot be

brought to tax as only real income can be brought to tax. Our attention

was drawn to page 53 of the Paper book , wherein sundry debtors as at

31.03.2001 were to the tune of Rs. 5.51 crores. On Being asked and

directed to produce the bounced cheque of Rs. 300 lacs , the learned

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 62 -:

counsel for the assessee submitted that the assessee does not have

bounced cheque of Rs. 300 lacs and the same cannot be produced.Thus,

the learned counsel for the assessee expressed inability to produce the

bounced cheque of Rs. 300 lacs. It was also submitted that no

proceedings for recovery of said Rs. 300 lacs was initiated by

assessee/minor sons against Pentamedia Group Concerns for bouncing of

cheque. It is also submitted that 99% shares in ‘Kris Srikanth Sports

Entertainment Private Limited’ were held by his minor sons. It was also

explained that as on 31.03.2002, sundry debtors included said sum of

Rs.3 Crores . The assessee has filed Balance Sheet as on 31.03.2002

wherein sundry debtors to the tune of Rs. 300.66 lacs are reflected and

assessee is claiming said amount of Rs. 3 Crs. is still receivables as on

31.03.2002. It was submitted that AO has recognized that Rs3 Crs. was

not received by the assessee and AO took a view which is a plausible view

and Ld.CIT cannot substitute its view with its opinion by invoking

provisions of Section.263 of the 1961 Act, which is not permissible. The

Ld.AR relied upon the decision of A.R. Real Estate Developers Pvt. Ltd. v.

ITO in ITA No.804/Chny/2019 , dated 18.09.2019 for ay: 2014-15. The

Ld.DR submitted that an amount of Rs.5.5 crs. was receivable by assessee

as on 31.03.2001 and an amount of Rs. 3.00 crores was receivable as on

31.03.2002. It was submitted by learned CIT-DR that this amount of Rs.

300 lacs was due to assessee as per its Balance Sheet as good money

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 63 -:

and hence the entire amount of Rs. 15 crores including an outstanding

amount of Rs. 3 crores is chargeable to tax. It was submitted that it was

AO’s mistake that he took total consideration at Rs. 12 Crs. as chargeable

to tax instead of Rs15 Crs. which was 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 assessee that it was a contractual agreement between the parties to

value the shares and no valuation report was prepared nor any basis for

valuation of shares is available with the assessee, rather it is submitted

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 64 -:

that it was a negotiated price entered into between two parties to the

contract. The assessee’s counsel also relied upon decision of Chennai-

tribunal in the case of Empee Holdings Limited v. DCIT in ITA no.

1503/chny/2014 for ay: 2005-06, dated 07.11.2019 to which both of us

were part of the Division Bench who pronounced the said order. It was

also submitted that in ay: 2001-02 with which we are concerned, Section

50C and 43CA of the 1961 Act were not in statute and hence actual sale

consideration entered into between two contracting parties voluntarily

cannot be substituted by invoking deeming fiction of the said sections .

The learned CIT-DR submitted that assessee has himself admitted that

there was no quantification/valuation report for valuing the shares and

hence the entire amount of Rs. 15 crores be treated as consideration for

sale of shares. It was also submitted that so far as reopening of the

concluded assessment u/s 147 is concerned , it will not make any

difference between manual processing of return of income and electronic

processing of return.

record including case laws cited by both the rival parties and impugned

order of the authorities below. We have observed that the assessee is

engaged in the business of modelling, cricket commentary , Journalism,

consulting and BPCL dealership. It is an admitted fact that the assessee is

an renowned cricketer of international fame and was at one point of time

part of Indian/National Cricket team and later also rose to become Captain

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 65 -:

of Indian Cricket Team. It is also admitted fact that later on after retiring

from cricket team, the assessee turn to cricket commentary and other

activities associated with sport of cricket. Thus, undisputedly the assessee

is a known name the field of sports of Cricket. It is also an admitted fact

that in India , Sport of Cricket is one of the frontline sporting activity and

large number of people are keenly interested in the sport of Cricket. With

this background now , we will proceed to adjudicate all these four appeals. The assessee originally filed its return of income u/s 139 on 28th March

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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 66 -:

the aforesaid exempt income claimed by him were filed , which is stated

to be placed at page 15 of the paper book which on our perusal we found

that it is an unsigned enclosure. The Revenue on its part is averring that

this document stated to be placed at page 15/paper book is a suspect

document which is planted by the assessee and was not part of the return

of income originally filed by assessee. We will see at later point of time in

this order as to the validity of reliance on this document and whether the

disclosure of exempt income even if it was made by assessee was

sufficient on the part of the assessee to discharge primary onus cast on it

to make true and full disclosure to come out of clutches of Section

147/148 of the 1961 Act . The return of income was admittedly originally

processed by Revenue u/s 143(1) of the 1961 Act and intimation dated

26.03.2003 was issued to assessee by AO u/s 143(1) of the 1961 Act

computing refund of Rs. 94,24,254/- being made payable to the assessee.

This processing of return of income was done manually prior to

introduction of e-processing of return of income by department. If we

refer to Section 143(1) of the 1961 Act as it was existing in the statute at

that point of time , it is clear that the scope of Section 143(1) is very

restrictive and is limited to correcting any arithmetical errors or to an

incorrect claim apparent from any information in the return of income filed

by assessee . The provision of Section 143(1) of the 1961 Act as were

applicable at that point of time when return of income was processed on

26.03.2003 are reproduced below:

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 67 -:

“Assessment.

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2) , an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to 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 framed u/s 143(3) read with Section 143(2) of the

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 68 -:

1961 Act. It is an admitted position that in the instant case, no scrutiny

assessment was framed by AO originally u/s 143(3) of the 1961 Act. It is

also an admitted position that reopening of the concluded assessment in

the instant case by AO by invoking provisions of Section 147 of the 1961

Act was done in the instant case by Revenue within four years from the

end of assessment year viz. notice of reopening of the concluded

assessment was issued on 30.03.2006 while we are presently seized of

ay: 2001-02. It is also admitted position that the return of income was not

originally securitized by Revenue u/s 143(2) read with Section 143(3) and

merely processing of return of income was done with in provisions of

Section 143(1) of the 1961 Act , which cannot be equated with scrutiny

assessment u/s 143(3) read with Section 143(2) of the 1961 Act. The

ratio of decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri

Stock Brokers Private Limited(supra) shall be clearly applicable and the

Revenue can validly reopen the concluded assessment by invoking

provisions of Section 147 of the 1961 Act . In the instant case return of

income was not originally scrutinised u/s 143(2) read with Section 143(3)

and reopening of the concluded assessment was done within four years

from the end of the assessment, clearly proviso to Section 147 is not

applicable and reopening of the concluded assessment can be done within

a period of four years from the end of assessment year by invoking

provisions of Section 147 of the 1961 Act . Moreover, first of all the

disclosure as is contemplated to have been made by the assessee in the

instant case has been doubted by Revenue to be suspect and it is claimed

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 69 -:

by Revenue that document at page 15 of the paper book is a planted

document which is planted after words and this document was never part

of the return of income originally filed by assessee with Revenue u/s

139(4) of the 1961 Act on 28.03.2002. It is also claimed by Revenue that

this document was also not specified as one of the enclosed document in

the list of documents enclosed with return of income . It is also claimed by

Revenue that this is the only document which is not signed by assessee ,

while rest of the other documents as were made part of the return of

income as enclosures were signed by assessee. Now let us see the content

of this 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 70 -:

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 primary onus cast on the assessee is not discharged. Reliance is

made to decision of Hon’ble Supreme Court in the case of New Delhi

Television Limited v. DCIT reported in (2020) 116 taxmann.com 151(SC).

The above disclosure do not give complete disclosure of the loans availed

by a company named ‘Aditya Leather Exports Private Limited’ from ‘Indian

Bank’ which was in default by said company . The above disclosure also

did not disclose that the assessee was a Director of the said company

namely ‘Aditya Leather Exports Private Limited’ and also stood guarantor

of the loan availed by said company ‘Aditya Leather Exports Private

Limited’ . It also did not disclose that the shares of ‘Kris Srikanth Sports

Entertainment Private Limited’ were not subject matter of charge with

‘Indian Bank’. It also did not mention that it is under memo of

compromise that the said amount of Rs. 4.25 crores was paid by the

assessee to ‘Indian Bank’ in settlement of the aforesaid defaulted loan by

‘Aditya Leather Exports Private Limited’ and the payments were never

made under direction of any Court Orders but were made under a

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 71 -:

compromise arrangement entered into by assessee voluntarily with the

said ‘Indian Bank’ . The aforesaid disclosure also did not mention about

the agreements made simultaneously by assessee and his minor sons (

through assessee) for transfer of entire shareholding of said company ‘Kris

Srikanth Sports Entertainment Private Limited’ for an aggregate value of

Rs. 7.50 crores ( wherein majority shareholding to the tune of 99% was

held by minor sons of the assessee), and that also assessee entered into

non compete agreement with the buyers namely Pentamedia Group of

Concerns , of the entire shareholding of said company ‘Kris Srikanth

Sports Entertainment Private Limited’ agreeing not to compete for a

period of six years with the said company ‘Kris Srikanth Sports

Entertainment Private Limited’ for a non compete fee of Rs. 7.50 crores.

This disclosure also did not specify that minor sons of the assessee who

were holding 99% of shareholding of ‘Kris Srikanth Sports Entertainment

Private Limited’ were never guarantor of loan availed by said ‘Aditya

Leather Exports Private Limited’ from ‘Indian Bank’ nor they were

Directors of Aditya Leather Exports Private Limited and he being natural

guardian of minor sons were under duty under law relating to Minors and

Guardianship as 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 72 -:

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 an act of the assessee. Further, the assessee is claiming that he has

not received Rs. 3 crores out of total consideration of Rs. 15 crores. The

said consideration of Rs. 15 crores is bifurcated into sale of shares of ‘Kris

Shrikant Sports Entertainment Private Limited’ to the tune of Rs. 7.50

crores while rest of Rs. 7.50 crores is claimed towards non compete fee.

The assessee did not produced bounced cheque of Rs. 3 crores despite

being directed by Court and secondly , the assessee is claiming that Rs. 3

crores which is not received shall be attributed towards sale of shares of

‘Kris Srikanth Sports Entertainment Private Limited’ and not towards non

compete fee, which is claimed as an exempt income. It is again a perverse

claim as the assesse has duly transferred entire shareholding of ‘Kris

Srikanth Sports Entertainment Private Limited’ to the buyers Pentamedia

Group of Concerns and later no legal suit was filed for non payment of

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 73 -:

alleged part sale proceeds of shares of ‘Kris Srikanth Sports Entertainment

Private Limited’ . The majority of shares of ‘Kris Srikanth Sports

Entertainment Private Limited’ to the tune of 99% were held by minor

sons of the assessee and the assessee is natural guardian of the minor

sons was duty bound to protect the interest of minor as per law prevailing

in India as to minors and guardianship. Reference is drawn to provisions

of The Hindu Minority and Guardianship Act, 1956 especially to provisions

of Section 8. The assessee has claimed that Rs. 12 crores in all was

received as against total consideration in both the agreements of Rs. 15

crores, out of which Rs. 7.50 crores being for sale of shares and Rs. 7.50

crores being towards non compete fee. Thus, the proceeds of sale of

shares shall be deemed to have been fully received to the tune of Rs. 7.50

crores firstly being belonging to minor and secondly the entire

shareholding stood transferred to the buyers. It is again a perversity to

claim that sale proceeds of shares of ‘Kris Srikanth Sports Entertainment

Private Limited’ held by minor sons under a simultaneous agreements

made for sale of shares as well non compete fee, was not received but the

entire non compete fee was received which is claimed as an exempt

income. It is clearly visible that an attempt is made by assessee to evade

taxes. Thus, we reject the claim of the assessee and hold that entire sale

proceeds of sale 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 74 -:

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 within the provisions of the 1961 Act. Thus, we hold that the

primary facts were not completely , correctly and truly disclosed by

assessee in the return of income originally filed by assessee with Revenue

and there is clearly an attempt to evade taxes, even if we accept the

contention of the assessee that the disclosure of exempt income was

made by assessee in the return of income originally filed with Revenue, as

is placed in paper book /page 15 ( although it is a suspect disclosure as

Revenue is alleging that this document is planted by assessee before ITAT

and this document was never filed by assessee along with original return

of income filed by assessee with Revenue). Thus, we hold that the

Revenue has rightly invoked provisions of Section 147 of the 1961 Act and

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 75 -:

we uphold reopening of the concluded assessment within four years from

the end of the assessment as was made by Revenue in the instant case

and more-so even scrutiny assessment was not framed by Revenue

initially u/s 143(3) of the 1961 Act and return was merely processed u/s

143(1) of the 1961 Act. Thus, we reject the contentions of the assessee

and uphold the reopening of the concluded assessment by Revenue u/s

147 of the 1961 Act. While upholding reopening of the concluded

assessment u/s 147 in the instant case, we note that there was tangible

material before the AO to reopen the concluded assessment as the

assessee is claiming huge exemption of income by making incomplete,

untrue and wrong claim before the AO and scrutiny assessment having not

been made earlier by Revenue by invoking provisions of Section 143(3)

read with Section 143(2) of the 1961 Act while originally processing

return of income , and reopening of the concluded assessment u/s 147 of

the 1961 Act is sought to be done within four years from the end of

assessment , the Revenue is within its right to reopen the concluded

assessment u/s 147 of the 1961 Act. The ratio of decision of Hon’ble

Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private

Limited(supra) shall be clearly applicable as processing of return of income

u/s 143(1) cannot be equated to scrutiny assessment u/s 143(3) read

with Section 143(2) of the 1961 Act. It is also laid down by Hon’ble

Supreme Court in the case of P.V.S. Beedies(supra) that reopening of

concluded assessment u/s 147 of the 1961 Act can be made by AO based

on factual errors pointed out by audit team of department. Hence, in the

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 76 -:

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 into by assessee with said Pentamedia Group concerns for non

compete by assessee with the said company namely ‘Kris Srikanth Sports

Entertainment Private Limited’ for a period of six years for total

consideration of Rs. 7.50 crores . The said company namely ‘Kris Srikanth

Sports Entertainment Private Limited’ is engaged in providing cricket

coaching through electronic media. The said agreements are claimed to be

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 77 -:

entered into based on negotiated price between two independent parties.

It is also a matter of fact that the assessee is a renowned cricketer who

was part of Indian/national cricket team at one point of time and also was

captain of Indian Cricket Team. It is also fact that the assessee resorted to

cricket commentary and other activities associated with sport of cricket

after retiring from cricket team . The assessee undoubtedly enjoys

reputation and brand value in sporting activities more specifically in

Cricket. The name of the assessee is also part of the name of the

company namely ‘Kris Srikanth Sports Entertainment Private Limited’

whose shares are transferred . The assessee has agreed not to compete

with the said company ‘Kris Srikanth Sports Entertainment Private Limited’

for a period of six years for a total consideration of Rs. 7.50 crores . The

said company is engaged in the business of providing cricket coaching

through electronic media. The period of six years for not competing with

the said company ‘Kris Srikanth Sports Entertainment Private Limited’ by

assessee vide non compete agreement is by no means a small period. The

Revenue has merely rejected non compete fee charged by the assessee

and no cogent reasons are provided . The Revenue has also not brought

on record cogent reasons for discarding the valuation of shares of Rs. 7.50

crores for sale of entire shareholding of ‘Kris Srikanth Sports

Entertainment Private Limited’. The assessee has discharged its primary

onus and now it was for revenue to have rebutted the said primary onus

by bringing on record cogent material to dislodge the claim of the

assessee. For the relevant year under consideration , there were no

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 78 -:

specific provision/section in the 1961 Act brought to our notice by

Revenue which debarred negotiated price for the valuation of share or

which created a deeming fiction for valuing shares. Thus, we accept the

valuation of shares and non compete fee charged by assessee, based 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 under law is to protect the

interest and welfare of minor which is paramount. The assessee being

natural guardian was duty bound to protect the interest of his minor sons.

The shares held by minor sons in ‘Kris Srikanth Sports Entertainment

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 79 -:

Private Limited’ were divested for a total consideration of Rs. 7.50 crores .

The shares in ‘ Kris Srikanth Sports Entertainment Private Limited’ to the

tune of 99% were held by minor sons of the assessee. The shares of the

minor stood transferred to Pentamedia Group Concerns and minors were

divested of their shareholding in ‘Kris Srikanth Sports Entertainment

Private Limited’. There are simultaneous agreement for sale of shares as

well for non compete which were simultaneously entered by the assessee

on his behalf as well on behalf of the minor, of which total value was Rs.

15 crores out of which Rs. 12 crores stood realised.Thus, it is to be held

that the entire consideration of Rs. 7.50 crores towards sale of shares of

minor in ‘Kris Srikanth Sports Entertainment Private Limited’ stood

realized and to be brought to tax within provisions of the 1961 Act

including provisions of Section 60-64 of the 1961 Act. It is admitted fact

that no permission of Court for selling/divesting of shares of minor is

brought on record. Under these circumstances, we are of the considered

view that the assessee was duty bound to protect the interest of the minor

sons. Thus, we hold that sale consideration of Rs. 7.50 crores towards sale

of shares stood fully realized and it is required to be brought to tax by

invoking provisions of the 1961 Act including clubbing provisions as are

contained in Section 61 to 64 of the 1961 Act. So far as consideration of

Rs. 7.50 crores towards non compete fee is concerned which is for non

competing by assessee with ‘Kris Srikanth Sports Entertainment Private

Limited’ , we are of the considered view that the said amount is not

chargeable to tax as in the impugned ay: 2001-02, the said amount was

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 80 -:

not chargeable to tax as amendment in Section 28 wherein clause (va)

was inserted by Finance Act, 2002 w.e.f. 01.04.2003 and prior to that , it

could not be brought to tax as it was held to be capital receipt. The ratio

of decision of Hon’ble Supreme Court in the case of Guffic Chem Private

Limited(cited supra) is applicable, as we are presently dealing with ay:

2001-02 which is prior to aforesaid amendment made by Finance 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-

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 income-

tax 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 never subject matter of charge with

Indian Bank. The shares were held by minor sons of the assessee in ‘Kris

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 81 -:

Srikanth Sports Entertainment Private Limited’ and minor sons were not

the guarantor of the said loan availed by ‘Aditya Leather Exports Private

Limited’ from Indian Bank which stood defaulted. The minor sons of the

assessee also could not be made to pay for the default of the said Aditya

Leather Exports Private Limited of which the assessee was

Director/Guarantor not the minor sons. The assessee was the Director of

the said company namely ‘Aditya Leather Exports Private Limited’ as well

guarantor of the said loan , but the assessee had no right to transfer the

proceeds of sale of shares held by his minor sons in ‘Kris Srikanth Sports

Entertainment Private Limited’ to Indian Bank , except with permission of

Courts. No such permission was obtained by assessee. The said act of

claiming deduction for amount paid to Indian Bank out of sale proceed of

shares held by minor sons is clearly an act of perversity/illegality as well

an attempt made to evade taxes. The assessee also simultaneously

received non compete fee to the tune of Rs. 4.50 crores out of total

agreed non compete fee of Rs. 7.50 crores and the said proceed shall be

deemed to have been applied for payment to Indian Bank. The said

amount of Rs. 4.50 crores is already held by us to be exempt from tax and

it will not matter even if the said sum was paid to discharge to loan of

Indian Bank . Further, there was no charge held by Indian Bank on shares

of ‘Kris Srikanth Sports Entertainment Private Limited’. In any case as

discussed above, the shares were held by Minor sons of the assessee. The

minor sons of the assessee were neither Director of Aditya Leather

Exports Private Limited nor guarantors for the said loan granted by Indian

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 82 -:

Bank to Aditya Leather Exports Private Limited. The assessee being

natural guardian of minor son has no right to use sale proceeds belonging

to minor sons to discharge Indian Bank Loan without permission of the

Court and then turn back and say that the said amount paid to Indian

bank is to be allowed deduction on the ground of diversion of overriding

tittle, which will lead to traversity of justice and illegality. The assessee

has not come to Court with clean hand and we cannot be party to such

illegal and perverse act of the assessee. Thus, we hold that the said

amount of Rs. 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

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 83 -:

not get any deduction from taxable income of amount paid to Indian Bank

to discharge liability of ‘Aditya Leather Exports Private Limited’ of the

misconceived cannot be part of scheme of illegitimate tax evasion

undertaken by assessee. Further , we also hold that payments made to

Indian Bank by assessee to the tune of Rs. 4.25 crores was merely an

application of income. Reference is drawn to decision of Third Member of

ITAT , Mumbai in case of Perfect Thread Mills Limited v. DCIT reported in

(2020) 181 ITD 1( Mum-trib.)(TM). We order accordingly.

Thus, we summarize and conclude our decision as under:

a) We uphold reopening of concluded assessment by AO invoking

provisions of Section 147 of the 1961 Act.

b) We hold that sale consideration of Rs. 7.50 crores was duly

received for sale of shares of ‘Kris Srikanth Sports Entertainment

Private Limited’ which is to be brought to tax under provisions of

1961 Act including Section 60-64 of the 1961 Act.

c) We hold that non compete fee of Rs. 7.50 crores was exempt

from tax being capital receipt.

d) We hold that payment of Rs. 4.25 crores was made by assessee

to ‘Indian Bank’ to settle loan availed by ‘Aditya Leather Exports

Private Limited’ which was in default , out of non compete fee

earned by assessee which we have already held to be exempt

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 84 -: from tax and now it is academic whether there was any diversion

of income by overriding title or not. In any case for

completeness, we hold that the assessee was not entitled for

deduction by way of diversion by overriding title as there was no

charge held by ‘Indian Bank’ and there was merely a compromise

entered into by assessee with Indian Bank voluntarily to pay

defaulted loans availed by said ‘Aditya Leather Exports Private

Limited’ . Thus, the payment to Indian Bank was merely an

application of income and that too of an exempt income.

e) The question of taxability of Rs. 3 crores which was not received

by assessee is again an academic question as we have already

held that this non receipt of Rs. 3 crores was on account of non

compete fee which is held to be exempt income.

Order pronounced on the 19th May , 2020 in Chennai.

Sd/- Sd/- (र$मत कोचर) (जॉज� माथन) (GEORGE MATHAN) (RAMIT KOCHAR) �या�यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER चे�नई/Chennai, 1दनांक/Dated: 19th May, 2020. TLN

ITA No.307/Chny/2010 & ITA Nos.1015 & 1016/Chny/2012 & ITA No.1324/Chny/2012 :- 85 -: आदेश क. +�त$ल2प अ3े2षत/Copy to: 4. आयकर आयु4त/CIT 1. अपीलाथ*/Appellant 5. 2वभागीय +�त�न�ध/DR 2. +,यथ*/Respondent 6. गाड� फाईल/GF 3. आयकर आयु4त (अपील)/CIT(A)