MR. KANWALJIT SINGH,NEW DELHI vs. ACIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 650 to 652/Del/2015 (Assessment Year: 2006-07, 2008-09 and 2010-11) Kanwaljit Singh, Vs. ACIT, 75, Friends Colony (West), Circle-37(1), New Delhi New Delhi PAN: AAXPS6495A (Appellant) (Respondent)

Assessee by : Shri Vinod Kumar Bindal, CA Smt Sweety Kothari, CA Revenue by: Smt Naina Soin Kabil, Sr. DR Date of Hearing 11/09/2018 Date of pronouncement 10/12/2018

O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the three appeals filed by the assessee against the order of the ld CIT (A)-XX, New Delhi dated 19.12.2014, 22.12.2014 for the Assessment Year 2006-07, 2008-09 and 2010-11. 2. The assessee has raised the following grounds of appeal for the Assessment Year 2006-07:- “1. The learned CIT(A) erred in law and on facts in confirming the disallowance of the expenses of Rs. 1,22,355/- claimed as deduction against business income by holding the business income as salary income ignoring the facts and submissions of the assessee. Thus, the disallowance should be deleted.”

15/3/02. Thus the addition so made by wrongly appreciating the facts and considering the non-compete fee as salary should be deleted. 2. The learned CIT(A) erred in law and on facts in ignoring the provisions of law as per which non-compete fees has to be taxed under the head ‘Business income’ and that the assessee has an option to adopt cash or mercantile system of accounting for its business income. Thus the addition so made ignoring the provisions of law should be deleted. 3. The learned CIT(A) erred in law and on facts in confirming the disallowance of expenses of P.s. 2,79,634/- claimed as deduction by holding the business income as salary income ignoring the facts and submissions of the assessee. Thus the disallowance should be deleted. 4. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing. 4. The assessee has raised the following grounds of appeal for the Assessment Year 2010-11:- “1. The learned CIT(A) erred in law and on facts in confirming an addition of Rs, 4,32,288/- by holding the non-compete fees receivable by the appellant from M/s Uzind Corporation and offered for taxation by him as business income following cash system of accounting as salary ignoring that the said amount was not receivable because of employer- employee relationship but as non-compete fees in lieu of not taking away the business of the said firm in terms of the agreement dated 15/3/02. Thus the addition so made by wrongly appreciating the facts and considering the non-compete fee as salary should be deleted. 2. The learned CIT(A) erred in law and on facts in ignoring the provisions of law as per which non-compete fees has to be taxed under the head ‘Business income’ and that the assessee has an option to adopt cash or mercantile system of accounting for its business income. Thus the addition so made ignoring the provisions of law should be deleted.” 5. The assessee has raised the following additional grounds of appeal for AY 2006-07 :- “1. The assessing officer erred in law and on facts in issuing notice u/s 148 of the Act for reopening the assessment after four years without complying with the conditions laid down u/s 147 of the act. Thus, the assessment made on the basis of such notice should be cancelled. 2. The assessing officer erred in law and on facts in issuing notice u/s 148 of the Act without taking proper sanction u/s 151 of the Act as nothing has been mentioned about sanction on the said notice. Thus, the assessment framed on the basis of notice issued without proper sanction should be cancelled. 3. The assessing officer erred in law and on facts in issuing notice u/s 148 of the Act ignoring that the assessment for the AY 2006-07 had already been framed u/s 143(3) of the Act and the assessee has fully and truly disclosed all the material necessary for assessment in his Page | 2

return of income. Thus the assessment framed on the basis of notice issued without complying the provisions of the Act should be cancelled. 4. The assessing officer erred in law and on facts in reopening the assessment on the basis of same facts which were available during the original assessment proceedings as no new fact or information has come to the notice of the assessing officer. Thus, the notice u/s 148 was issued on mere change of opinion which is not permissible by law. Thus the assessment so framed should be cancelled.” 6. We 1st take up appeal of assessee for assessment year 2006 – 07 in ITA number 650/Del/2015. Briefly stated facts shows that assessee is an individual who is working as an employee of Uzind Corp, which is a partnership firm of his daughter and wife and also is a general sales agent of Uzbekistan Airways. Assessee filed his return of income for assessment year 2006 – 07 on 31/10/2006 declaring income of INR 9 152162/–. Assessment order was passed under section 143 (3) on 22/12/2008 at an income of INR 28 924680/–. In assessment, addition of INR 1 9799524 was made because of non compete fees paid by employer of assessee for assessment year assessment year 2006 – 07 of INR 2 7919109 which was shown by assessee of only INR 8 119515. Nature of addition shows that assessee and partnership firm entered into an agreement dated 15/3/2002, being a non compete agreement and according to terms of the said agreement, commission at the rate of 7% on freight and air ticket was to be paid to assessee. For AY 2003 – 04 up to A.Y.2006 – 07 There is a difference between the amount of non compete fees paid as declared by partnership firm and non compete fees offered by the assessee in his return. Partnership firm is maintaining its books of accounts on Mercantile system of accounting and therefore accordingly expenses were allowed on accrual basis whereas the assessee is a salaried employee of that firm and he is showing salary income chargeable to tax on due basis. Further assessee was showing the non compete fees received from that partnership firm as business income and for that income; he is following the cash basis of accounting. The learned assessing officer was of the view that same is chargeable to tax under the head salaries and not under the head business income as these amounts have been held to be paid year to year for carrying out no work and for those years as the assessee continued to be employee of that firm, but in his return started claiming it to be his business income as

if he was receiving non compete commission fees which is taxable under section 28 (va) of the act. 7. Thereafter, learned assessing officer recorded reasons for reopening of assessment on 15/03/2013 and issued notice under section 148 of the income tax act. According to the reasons recorded placed at page number 17 of the paper book , honourable Delhi High Court in assessee’s own case for assessment year 2003 – 04 to assessment year 2005 – 06, has held that non compete fees is to be taxed as salary under section 17 of the income tax act. Assessee has claimed expenditure from salary income as deductions. That is not allowable which are allowed in the original assessment proceedings. Hence, there is escaped assessment to that extent. 8. Assessee submitted his objection as per letter dated 9/9/2013 stating that that original assessment has been framed under section 143 (3) on 22/12/2008 beyond 4 years of the relevant assessment year. There is no failure on part of the assessee to disclose fully and truly all material facts. The assessee also challenged sanction by the higher authorities as it is not mentioned in the notice. Assessee also challenged that notice has been issued on change of opinion. It is also challenged that no new material has come to the notice of the assessing officer after completion of assessment. 9. Learned AO disposed of objections filed by assessee as per letter dated 29/10/2013, which is placed at page number 25 – 26 of the paper book. According to that, learned AO stated that notice under section 148 was issued with the prior approval of the Commissioner of income tax obtained on 15/3/2013. He further stated that proceedings under section 147 have been initiated in order to verify the genuineness of the claim/transactions et cetera. Accordingly, he rejected the objections of the assessee. 10. Pursuant to that the learned assessing officer passed order under section 147 read with section 143 (3) of the act on 14/2/2014, wherein, he held that assessee has debited a sum of INR 1 22355 as expenditure on account of business promotion, electricity charges, legal and professional fees and audit fees, which was earlier claimed against the non compete fees shown as consultancy receipt, now not allowable in view of the fact that the consultancy receipt is held to be chargeable to tax under the head salary. As under the head salaries no expenditure are allowed. This expenditure is

wrongly allowed to the assessee in the original assessment order. Therefore, the assessment order was passed at INR 9 274520/–. 11. The assessee aggrieved with the order of the learned AO preferred an appeal before the learned Commissioner of income tax appeals –XX, New Delhi. He passed an order on 19/12/2014 dismissing the appeal of the assessee. Therefore, assessee aggrieved with that order has preferred an appeal before us. 12. The assessee has raised additional grounds as stated in all the three appeals before us challenging the reopening. Application for admission of additional grounds were filed before us and argued by the learned authorised representative stating that these are all the legal grounds and no further facts are required to be investigated. He relied upon the plethora of judicial precedent to support his case. 13. The learned departmental representative vehemently objected stating that these legal grounds have already been addressed by the learned assessing officer and therefore there should not be admitted at this stage. 14. We have carefully considered the rival contention and perused the additional ground raised before us. All the additional grounds raised are legal in nature and according to us also, no fresh facts are required to be investigated, they go to the roots of the assessment as jurisdiction of the learned AO has been challenged and therefore we admit them and proceed to adjudicate. 15. The 1st additional ground is that the learned assessing officer has erred in law and on facts in issuing notice under section 148 of the act for reopening the assessment after 4 years without complying with the conditions laid down under section 147 of the act. Additional Ground number 3 and 4 are also challenging reopening. He stated that there is no mention in the notice about the failure on part of the assessee to disclose all material facts truly and fully. He referred to the reasons recorded supplied to the assessee vide letter dated 21/8/2013 and submitted that original assessment has been passed under section 143 (3) on 22/12/2008, where the return of income was accompanied with computation of total income and the audit report under section 44AB of the act. He stated that in the profit and loss account assessee has shown consultancy receipt as business income and claimed all

these expenditure as deduction. These facts have been verified by the assessing officer during the course of assessment proceedings. Hence, there is no failure on the part of the assessee to disclose truly and fully material facts as it has already been disclosed before the assessing officer. He referred to the assessment order passed under section 143 (3) originally on 22/12/2008 Where all these facts have been verified. He therefore submitted that reopening is invalid. 16. He further reporting to additional ground number 2 stating that there is no mention of any proper sanction under section 151 of the income tax act in the notice and therefore the above notice is invalid. 17. The learned departmental representative vehemently opposed the additional ground and stated that 148 is in order not notices properly sound and issued the reasons have been recorded and the objections have been filed by the assessee which is also been disposed of by the speaking order. He stated that the sanction has also been taken of the higher authority, which is also on the record. He further stated that there is no change of opinion, as the original assessment has been framed holding that it is a salary income and against the seller income as such, no deduction is allowed. He therefore submitted that the reopening is in order. 18. We have carefully considered the rival contention and found that the case of the assessee has been reopened on the same set of facts which were originally available before the assessing officer while framing the assessment under section 143 (3) of the act on 22/12/2008. The original return of the income of the assessee was supported with the computation of the total income where the assessee has claimed the non compete fees as business income and has claimed deduction of various expenditure there from. The return of income of the assessee was also supported with tax audit report filed by the assessee. This tax audit report has been perused by the AO at the time of making an assessment. He has mentioned the same in the first paragraph itself. Further LD OA himself has treated the consultancy income as salary income but failed to disallow the expenses. Therefore, it is apparent that all the facts were available before the assessing officer at the time of framing the original assessment order. The learned assessing officer though has taxed the non compete fees shown by the assessee as

consultancy fee under the head income from salary, which was disclosed by the assessee as business income. However, at that particular time learned assessing officer inadvertently did not disallow the various expenditure claimed against that income. For rectifying this error, learned assessing officer has issued notice under section 148 of the income tax act. The provisions of section 147 of the act are not for rectifying any error, which has crept into the assessment order. Apparently, in this case, no new tangible material has come to the notice of the assessee and there is no failure on the part of the assessee to disclose fully and truly all material facts. Many judicial precedent cited by the assessee also supported that view. In view of these glaring facts, we are not inclined to uphold the reopening of the assessment proceedings. Accordingly, the reopening initiated by the learned assessing officer is quashed allowing additional ground number 1, 3 and 4 of the appeal. 19. In view of our above finding, we do not find any necessity to adjudicate on additional ground number 2 and solitary ground raised in the appeal memo. 20. In the result, appeal of the assessee for assessment year 2006 – 07 in ITA number 650/del/2015 is allowed. 21. Now we take up the appeal of the assessee for assessment year 2008 – 09 in ITA number 651/del/2015. The brief facts of the case shows that assessee filed his return of income on 12/09/2008 declaring an income of INR 1 8213015 and the income of the assessee was accepted under section 143 (1) of the act on the returned income. Subsequently, notice under section 148 was issued on 15/02/2013. The reasons were supplied to the assessee vide letter dated 21/8/2013 stating that assessee had received non compete fees from partnership firm which has been declared by the assessee as income from business. However, the same is chargeable to tax under the head salary under section 17 of the income tax act. It was further stated that honourable Delhi High Court in ITA number 602/2010, 607/2010 921/2010 for assessment year 2003 – 04 to assessment year 2005 – 06 held that non compete fee is to be taxed as salary under section 17 of the income tax act, 1961. The assessee submitted his objection vide letter dated 9/9/2013. The assessee submitted that learned assessing officer could have selected the case for scrutiny under section 143 (2) up to

30/09/2009 as he was very well aware that the learned CIT – A, has sustained the above addition. Assessee also stated that it is merely a change of opinion. 22. The learned AO vide letter dated 11/11/2013 disposed of the objection of the assessee stating that action for reopening of the case, has been taken on the basis of the record available and in the light of the decision of the honourable Delhi High Court where the High Court has held that non compete fees is chargeable to tax as salary and not as business income. He therefore rejected the objections of the assessee. 23. Consequently, assessment order under section 143 (3) read with section 147 of the act was passed on 19/3/2014, following the decision of the honourable Delhi High Court in assessee’s own case making an addition of INR 5445899/– on account of non compete fees short disclosed by the assessee and further disallowing the expenditure of INR 2 79634 claimed by the assessee. The total income of the assessee was assessed at INR 2 3938550/– against the returned income of the assessee at INR 1 80 213015/–. 24. The assessee challenged the same before the learned Commissioner of income tax appeals. As per order dated 22/12/2014, He dismissed the appeal of the assessee holding that the issue is squarely covered in assessee’s own case in earlier years holding that income received by the appellant as salary income. Therefore, assessee aggrieved with the order of the learned Commissioner appeals has preferred appeal before us. 25. The assessee has raised an additional ground of appeal challenging the reopening of the assessment. For admission of the additional ground, the learned authorised representative repeated the same argument as were advanced before us for assessment year 2006 – 07 and similarly the learned departmental representative objected on the same reasons. For the reasons given by us for assessment year 2006 – 07, we admit the additional grounds. 26. The assessee has raised three additional grounds challenging 148 notices for reopening of the assessment stating that the conditions laid down under section 147 has not been fulfilled and further the learned assessing officer has failed to and now reopen the same for covering up his own mistake. It

was further stated that no new information has been received and in absence of that, the notice is invalid. Assessee has also raised the ground that reopening of the assessment on the basis of the decision of the honourable Delhi High Court passed in the case of the assessee for the earlier years holding that the High Court has decided a question of law which cannot be considered as a new information is all the facts were already on the record of the assessing officer. 27. The learned authorised representative reiterated the same arguments as stated in the grounds of appeal. 28. The learned departmental representative also supported the order of the learned assessing officer and stated that there is no infirmity in the reopening of the assessment. 29. We have carefully considered the rival contention and also find that no assessment has been framed in case of the assessee for this assessment year as the original return of income filed by the assessee has been accepted under section 143 (1) of the income tax act. Subsequently, on 30/11/2012. The honourable Delhi High Court has decided the whole issue holding that non compete fees received by the assessee is chargeable to tax under the head salary and not under the head business income. Therefore, the learned assessing officer has reopened the assessment proceedings. The decision of the honourable High Court is a tangible material, which provided guidance to the assessing officer that there is an escapement of income. It is further true that as the original return of income was accepted u/s 143(1) of the act, there is no application of mind and hence, there cannot be any change of opinion, therefore. In view of this, we do not find any infirmity in initiating reassessment proceedings by the learned assessing officer and therefore all the additional grounds raised by the assessee against the reopening of the assessment are dismissed. 30. Now coming to the original ground of appeal of the assessee with respect to the taxability of the non compete fees received by the assessee offered by him as business income but charged to tax by the AO as salary income. The parties submitted that now the issue squarely covered against the assessee by the decision of the honourable Delhi High Court wherein it has

been held that the above income is chargeable to tax under the head salary. In view of this ground number 1 and 2 of the appeal are dismissed. 31. The ground number 3 of the appeal is with respect to the disallowance of expenses of INR 2 79634/– claimed as deduction by holding that non compete fees is salary income as the business income earlier claimed by the assessee , held by the honourable Delhi High Court as salary income. Now there cannot be any question of granting any deduction of expenses under that head. No specific arguments were advanced by both the parties. Therefore, ground number 3 of the appeal of the assessee is dismissed. 32. Accordingly, appeal of the assessee for assessment year 2008 – 09 is dismissed. 33. Now we come to ITA number 652/del/2015 filed by the assessee for assessment year 2010 – 11. The facts for the year Shows that the assessee filed his return of income on 29/9/2010 declaring an income of INR 3 1724332/– which was processed under section 143 (1) of the income tax act. Subsequently, notice under section 148 of the income tax act was issued on 18/2/2013 and the reasons were provided to the assessee on 21/8/2013 and objection were filed by the assessee on 9/9/2013 which were disposed of by the learned assessing officer on 11/11/2013. 34. The reasons for the reopening of the assessment clearly shows that based on the decision of the honourable Delhi High Court the income of the non compete fee shown by the assessee as the business income is required to be taxed under the head of the salary. Therefore, the case was reopened. 35. Subsequently, the learned assessing officer passed in assessment order under section 143 (3) read with section 147 of the act on 19th/3/2014 making an addition of INR 4 32288/–, being the difference of the amount as non compete fees has declared by the partnership firm in non compete fees received by the assessee shown as income by the assessee. The total income of the assessee was assessed at INR 3 2156620/– against the income return by the assessee of INR 3 1724332/–. The assessee preferred an appeal against the order of the learned assessing officer before the learned Commissioner of income tax appeals, which was dismissed wide order dated 22/12/2014. Therefore, assessee is in appeal before us.