SCINIDA INVESTMENTS P. LTD,MUMBAI vs. ASST CIT CIR 7(2), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the orders dt. 20.05.2011 of CIT(A)-30,Mumbai,the Assessee has filed the present appeal.The effective ground of appeal is about confirmation of penalty levied u/s.271(1)(c) of the Act. Facts of the case: 2.During the year under consideration the assessee had sold one of its properties namely Padmavilas Palace (PVP),situated at Pune to Indian Hotels Co. Ltd for a consideration of Rs.11. 50 crores.After the sale transaction,the assessee entered into an agreement with the purchaser for not competing with it in the business of running a hotel directly or indirectly in and around Pune as per the non-compete agreement dated 25.11.1998.The assessee received a sum of Rs.1.00 crores for the said agreement over and above the sum of Rs.11.50 crores received earlier. The assessee claimed that amount received as non-compete fee was not taxable. The AO did not accept the contention of the assessee and taxed the disputed amount i.e. Rs.1.00 crores as business income.He also held that if the assessee in appellate proceedings was successful the amount of Rs.1.00 crores was to be taxed as capital gains.The assessee preferred an appeal before the First Appellate Authority (FAA),who held that the sum of Rs.1.00 crore was to be taxed as capital gains and had to be apportioned as long term and short term capital gain in the same proportion as the entire consideration for the sale had been apportioned between the land and the building.The Tribunal, vide its order dated 6.3.2009 (ITA No.3199/Mum/2003 ) upheld the order of the FAA. In the meanwhile the AO initiated penalty proceedings u/s.271(1)(c) for furnishing inaccurate particulars and concealing the income for the year under appeal.In response to the show cause notice issued for levying penalty,the assessee argued that it had not furnished any inaccurate particulars of income or had concealed its income,that short term capital gain on sale of assessee’s property had been decided in favour of the assessee by the Tribunal, that full and complete disclosure was made in the final account about receipt of Rs.1.00 crore, that the assessee had relied upon the legal position prevailing at the time when the return was filed, that amendment to clause (va) to section 28 was effective for 1.4.2003, that there was difference of 6431/M/11Scindia Investment-99-00 opinion between the AO and the assessee.However,the AO was not convinced and held that there was contradiction in the claim of the assessee,that if the assessee was not running the premises as a hotel then there could not be any question of receiving non-compete fee, that the amount paid as non-compete fee was part of consideration for building and land appurtenant thereto, that by claiming the receipt as capital receipt the assessee had tried to bring down its taxable income, that it amounted to furnishing of inaccurate particulars of income as per Explanation 1 to section 271(1) of the Act.Referring to the judgment of Dharmendra Textile Processors (306 ITR277), he levied a penalty of Rs.25.21 lacs. 3.The assessee challenged the penalty order before the First Appellate Authority (FAA). After considering the facts of the case, the FAA held that assessee had furnished inaccurate particulars by stating that the amount paid as non-compete fee was a capital receipt and was taxable, that the amount in question was exigible to tax as capital gains,that there was a deliberate attempt on the part of the assessee to furnish inaccurate particulars and to reduce the taxable income.Finally, he upheld the order of the AO. 4.Before us,the Authorised Representative(AR) stated that assessee had disclosed all the facts in the return of income with regard to receipt of non-compete fee, that the FAA held that disputed sum was taxable as capital gains and not as business income, that the Tribunal had upheld the order of the FAA in quantum proceedings,that in the penalty order FAA had not given any finding about filing of inaccurate particulars,that it was a clear case of difference of opinion,that the department had not challenged the order of the Tribunal before the Hon’ble High Court, that the finding of fact recorded about the nature of transaction had become final, that there was difference with regard to the head of income under which the sum of Rs.1.00 crore was to be taxed,that the assessee had relied upon prevalent legal position and had made its claim.He referred to page nos.18, 23, 77,93, of the paper book and relied upon the case of Nalin P. Shah (HUF) (Income tax Appeal-LOD-No.49 of 2013 and others dt.4th March 2013).Departmental Representative (DR) supported the order of the FAA and contended that plot of land was not part of hotel, that such a sale could not be covered by a non compete agreement. 5.We have heard the rival submissions and perused the materials before us. We find that the assessee had, after sale of PVP received Rs.1.00 crores as per the agreement dated 25.11.1998, that it treated the said sum as capital receipt, that the AO was of the opinion that it had to be assessed as business income, that the AO alternatively held that in case of any relief granted by the appellate authorities the amount was to be taxed under the head capital gains, that FAA, in the quantum proceedings,held that sum was to be taxed as capital gains in certain ratio, that AO challenged the order of the FAA before the Tribunal, that the Tribunal upheld the order of the FAA holding that disputed amount was rightly taxed as capital gains. We are of the opinion that penalty proceedings are entirely different from assessment proceedings.Additions/disallowances made in the quantum appeal and upheld by the appellate authorities cannot result in automatic levy of concealment penalty u/s. 271(1)(c) of the Act. While deciding the penalty proceedings what has to be seen is the explanation filed by the assessee .In the case under consideration the assessee had disclosed the fact of receipt of Rs.1.00 crores more than one time.We find that in the P&L account a note was given (Pg-18 & 19 of the PB)about the said item of income. Similar note is appearing at page-23 of the paper book. In 2