TMI Blog2014 (11) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... at any right to carry on business was transferred by the assessee – revenue rightly contended that the claim made by the assessee for exemption of short term capital gain arising from the transaction entered into with M/s. Pintell Systems Pvt. Ltd on the basis that the transaction involved transfer of right to carry on business, thus, was patently a wrong claim and there is nothing to show that the Said claim of the assessee was a bona fide claim. In the Directors’ Report, a passing reference only was made to indicate that its consultancy business was sold by the assessee company for ₹ 31,75,000 - There was however, no mention made about this transaction in the notes forming part of accounts, despite the fact that a sum of ₹ 20,12,902 stated to be profit arising from the transaction was credited to the capital account and the same was directly shown under “Reserves and Surplus” in Schedule 2 of the balance Sheet - No details were given showing the exact nature of this amount appearing as capital reserve nor the basis of arriving at the said figure was given either in the Schedule or even in the notes forming part of the accounts for the year under consideration - no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was reopened by the Assessing Officer and a notice under S.148 of the Act was issued by him. During the course of re-assessment proceedings, it was found that the assessee has entered into an agreement with M/s. Pintell Systems Pvt. Ltd. on 1.1.2002 to transfer the MOU which was entered into by the assessee with M/s. Eldis sro Czech Republic for consultancy and developing different types of software as and when required in the aviation field. When the assessee was called upon by the Assessing Officer to show cause as to why the short-term capital gains arising out of the said transaction should not be assessed in its hands, it was contended that the commercial rights sold by the assessee in its consultancy business to M/s. Pintell Systems Pvt. Ltd. had no cost of acquisition and therefore, no capital gains tax was liviable in respect of the said transaction as per the provisions of S.45 of the Act in view of the decision of the Hon'ble Supreme Court in the case of CIT V/s. Srinivasa Setty (128 ITR 294). This contention of the assessee was not found acceptable by the Assessing Officer. According to him, it was not a case of sale or transfer of right to carry on any business by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposed by the Assessing Officer was not sustainable. 5. The learned CIT(A) found merit in the submissions made by the assessee. He held that the assessee had entertained a bona fide belief that the profit arising from the relevant transaction with M/s. Pintell Systems Pvt. Ltd. was not chargeable to tax. He also held that all the relevant particulars in support of its claim in this regard were duly furnished by the assessee and based on those very particulars, a different view was taken by the Assessing Officer, rejecting the claim of the assessee for exemption on account of short term capital gains. According to the learned CIT(A), the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. (322 ITR 158) cited by the assessee was squarely applicable in the case of the assessee and relying on the same, he cancelled the penalty imposed by the Assessing Officer under S.271(1)(c) holding that there was neither concealment of particulars of its income by the assessee nor furnishing of inaccurate particulars of income. Aggrieved by the order of the learned CIT(A), Revenue has preferred this appeal before the Tribunal. 6. The Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the Assessing Officer. He therefore, urged that the impugned order of the learned CIT(A) cancelling the penalty may be set aside and that of the Assessing Officer be restored. 7. The learned counsel for the assessee, on the other hand, invited our attention to the relevant portion of the Directors Report at page 6 of the paper-book and submitted ha that fact of sale of its consultancy business by the assessee company for a consideration of ₹ 31.75 lakhs was clearly disclosed in the Directors Report, which was filed alongwith the return of income. In reply to the query raised by the Bench regarding the accounting treatment given to this transaction, he clarified that the net income arising from the said transaction amounting to ₹ 20,12,902 was credited by the assessee company to Capital Reserves Account and the same was disclosed under Reserves and Surplus in the Schedule II forming part of the Balance Sheet. He also took us through the agreement entered into by the assessee with M/s. Pintell Systems Pvt. Ltd. in an attempt to support the case of the assessee that what was transferred as per the said agreement was right of the assessee to carry on the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e development or its right to carry on any business and it merely sold a specific sales contract with a client, which is routine outsourcing in all businesses and in the present case, only a specific contract has been outsourced. We further find that the expression from section 55(2)(a) of the Act which is applicable in the instant case right to manufacture, produce or process any article or thing , and in our opinion, the case of the assessee clearly fell within the purview of subsection 55(2)(a) of the Act and there is no doubt that the amount received on the sale of the MOU was clearly taxable as per specific provision of the Act. The said expression in section 55(2)(a) of the Act was inserted by the Finance Act, 1997 with effect from 1-4- 1998 and hence the contention of the learned counsel for the assessee that the amendment to section 55(2)(a) bringing the transfer of commercial right to capital gain tax is effective from the assessment year 2003-04 and 2002-03, is not correct. In view of the above and after considering the totality of facts and the circumstances of the instant case, we do not find any infirmity in the order of the CIT (A) in upholding the order of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort term capital gains were duly furnished by it, it is observed that in the Directors Report, a passing reference only was made to indicate that its consultancy business was sold by the assessee company for ₹ 31,75,000. There was however, no mention made about this transaction in the notes forming part of accounts, despite the fact that a sum of ₹ 20,12,902 stated to be profit arising from the transaction was credited to the capital account and the same was directly shown under Reserves and Surplus in Schedule 2 of the balance Sheet. No details were given showing the exact nature of this amount appearing as capital reserve nor the basis of arriving at the said figure was given either in the Schedule or even in the notes forming part of the accounts for the year under consideration. It is also pertinent to note that no exemption for the short term capital gain was separately or specifically claimed by the assessee either in the return of income or even in the computation of total income and even the basis of claiming the said exemption being the relevant asset having no cost of acquisition was not mentioned by the assessee either in the return of income or in any of ..... 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