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March, 31st 2014

%                                 Date of decision: 18th March, 2014

+      ITA 112/2014

       COMMISSIONER OF INCOME TAX-XVI       ..... Appellant
                   Through Ms Suruchi Aggarwal, sr. standing


       SHRI ATUL KUMAR SWAMI                     ..... Respondent
                    Through Mr Salil Aggarwal, Adv.



       The revenue is in appeal aggrieved by the order dated 20.9.2013 of

the Income Tax Appellate Tribunal (ITAT) whereby the assessee's appeal

was allowed.

2.      The assessee had in respect of assessment year 1999-2000 in the

note filed together with the accounts and the returns disclosed that he

received a sum of Rs.88 lakhs as one-time non-compete fee.                He

concededly paid advance tax of Rs.27,60,600/- on the same. He states

that this was a one-time capital receipt; the return was processed under

section 143(1). The revenue sought to reopen the assessment recording
ITA 112/2014                                                Page 1 of 4
reasons for doing so as follows by its notice dated 09.01.2002:

       "The income tax return for asstt. year 1999-2000 was filed
       on 29th July, 1999 claiming a refund ofRs.2674420/-. The
       assessee was the promoter of overseas Cargo Service
       Private Limited and had entered into as Asset Transfer
       Agreement with M/s Bax Global India Pvt. Ltd. for transfer
       of assets of OCS to BAX. As agreed under the ATA the
       assessee had entered into a Non Competition Agreement
       with BAX. Under the terms of NCA, the assessee had
       undertaken not to engage directly or indirectly, either alone
       or in association with any person or persons in any activity,
       which will be in competition with the current business of
       BAX and for observing the restrictions specified in NCA, a
       consideration amounting to Rs.8 lacs was payable to the
       assessee by BAX. "
       "The assessee had paid advance tax of Rs.27, 60,000/- on the
       above mentioned amount of Rs. 88 lacs and is now claiming
       refund of Rs.30, 74,254/- on the contention that as it is
       capital receipt, it should not be chargeable to tax. However,
       the income of the assessee of Rs. 88 lacs received by him
       should be chargeable to tax as it is not a capital receipt but
       is to be charged to income tax under the head "Profit &
       Gains of Business of Profession". In terms of section 28 of
       the IT Act, 1961, section 28 is reproduced hereunder to
       bring the assessee in net of this provision. "
       'any compensation or other payment due to or received by;
       a) any person by whatever name called managing the of an
       Indian company at or in connection with the termination of his
       management or the modification of the terms and conditions
       relating thereto. In the light of the above facts, income ofRs.88
       lacs has escaped assessment and the very fact that the assessee
       has already paid advance refund on it on after thought,
       substantiates the contention of the revenue that the above
       mentioned amount is chargeable to income tax. Hence notice
       u/s 148 issued."

3.     The assessee objected to the reopening of the assessment

ITA 112/2014                                                    Page 2 of 4
contending that there was no fresh or tangible material discerned by the

revenue for notice for reassessment. This objection was overruled and

the AO added back the said amount as business income observing that the

nature of the consideration receipt having regard to the terms of the

agreement was such that it was income and not capital receipt. The

assessee preferred an appeal but without success to the Commissioner

(Appeals). The Commissioner (Appeals) had during the pendency of the

appeal called for remand report and after discussing its contents rejected

the appeal.

4.     The Income Tax Appellate Tribunal after considering the decision

of the Supreme Court in CIT vs. Kelvinator (India) Ltd. (2010) 320 ITR

561 as well as the later rulings of the Supreme Court and this Court held

that there was no tangible material and that the mere circumstance that

advance tax to the tune of Rs.27.6 lakhs was paid did not amount to

admission by him. The learned counsel for the revenue contends that

having regard to the Explanation 1 of section 147 read with section

143(1), the reopening of the assessment in this case was justified. She

also argued that the agreement entered into by the assessee under which

the amount was paid had not been filed during the assessment stage. This

according to the revenue justified the reassessment proceedings.

5.     As to what constitutes valid "reasons to believe" is no longer a
ITA 112/2014                                                Page 3 of 4
matter of debate. So long as the law declared in Kelvinator (supra)

stands, a valid reopening of assessment has to be based only on tangible

material to justify the conclusion that there is escapement of income. In

the present case the note forming part of the return clearly mentioned and

described the nature of the receipt under a non-compete agreement. The

reasons for the notice under section 147 nowhere mentioned that the

revenue came up with any other fresh material warranting reopening of

assessment. In these circumstances, the Court is of the opinion that mere

conclusion of the proceedings under section 143(1) ipso facto does not

bring invocation of powers for reopening the assessment.            We are

satisfied that the Tribunal's reasons are justified and do not call for any


       The appeal is accordingly without merit and is dismissed.

                                             S. RAVINDRA BHAT

                                                R.V. EASWAR
MARCH 18, 2014

ITA 112/2014                                                 Page 4 of 4
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