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2016 (10) TMI 1056 - ITAT AHMEDABAD

2016 (10) TMI 1056 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - transfer of intellectual properties - Held that:- The explanation of the assessee cannot be rejected as improbable or wholly contrary to the law. The assessee’s claim that it has transferred certain intellectual properties, such as expertise and know how, in respect of GIS business, which were self generated and therefore not liable to tax, cannot be rejected outright as improbable. It is only on fine points of arrangements that .....

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enalty could nevertheless be leviable but that is not the case here. Thus it was not a fit case for imposition of penalty under section 271(1)(c) - Decided in favour of assessee. - I.T.A. No.1618/Ahd/2010 - Dated:- 19-10-2016 - S. S. Godara (Judicial Member) And Pramod Kumar (Accountant Member) For the Appellant :Sanjay R Shah For the Respondent : Satish Solanki ORDER Pramod Kumar (Accountant Member) 1. The short question that we are required to adjudicate in this appeal is whether, on the facts .....

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stallation thereof, development of computer software and maintenance of computer systems. During the course of scrutiny assessment proceedings, the Assessing Officer took note of a note appended to the computation of income which indicated that the amount of ₹ 2.60 crores received by the assessee, on sale of transfer of intellectual property by way of expertise and knowhow in the business relating to GIS (Global Information System) from its subsidiary, namely Global IP Technology Ltd, was .....

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He thus concluded that receipt in question is taxable under section 555(2)(a). Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. A further appeal before a coordinate bench of this Tribunal did not yield success either. The matter is right now pending before Hon ble High Court. Hon ble High Court has admitted the appeal against the decision of the Tribunal, confirming the stand of the Assessing Officer and the CIT(A), on the following substantial question .....

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acts and in the circumstances of the case, the Tribunal was right in law in holding that the receipt of ₹ 2,60,00,000/- for transfer of technology was the revenue receipt and not non taxable capital receipt ? 3. In the meantime, however, the Assessing Officer has also imposed the penalty under section 271(1)(c). While doing so, the Assessing Officer observed as follows 6. I have considered the submission of the assessee. The assessee, on merits, reiterated and relied upon various submissio .....

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assessee had made complete disclosure of the issue at hand in the return of income. There was no furnishing of inaccurate particulars. The addition was made only on account of difference of opinion and on such additions/disallowances penalty cannot be levied u/s.271(l)(c). It was further stated that penalty is not leviable on debatable issues. The contention of the assessee is not acceptable. In this case, the assessee has claimed the sum of ₹ 2.60 crores received from its associate concer .....

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the right to carry on the GIS related business and even the trade name of ORG had not been completely transferred to the subsidiary company. Only the right to use the technology and trade name "ORG-GIS" had been conferred on the transferee. It was, therefore, held that there was no transfer of capita! asset and hence the receipt of ₹ 2.60 crores amounted to revenue- recent, which was taxable. He further held that the consideration received by the assessee was akin to transfer of .....

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unds, he held that the receipt becomes taxable in the hands of the assessee for the year under consideration. The decision of Assessing Officer has been upheld by the Id. CIT [Appeals]. From the above, it can very well seen that the assessee has claimed the receipt of ₹ 2,60 crores received from its subsidiary company GIPL on account of transfer of expertise and know-how in the business relating to geographic information system as not liable to any capital gains tax in view of the decision .....

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t all applicable to the facts of this case. Further, as stated hereinabove that the issue is not at all a debatable one. Therefore, the case laws relied upon by it are of no help to the assessee in any manner. It was further stated that the in this case the assessee has returned a loss and the income was also finally assessed at loss after giving effect to the Id. CIT [appeals]'s order and, thus, there is motive to evade taxes by concealing the income or by furnishing inaccurate particulars .....

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explanation, penalty u/s. 271(l)(c) leviable even if the total income returned as well as finally assessed is a loss. Further, the Hon. Supreme Court in the case of Gold Coin Health Foods (Pvt.) Ltd. [218 CTR 559] has held that penalty is leviable even in a loss case. This contention of the assessee is also, therefore, rejected. Clause (c) of sub-section (1) of section 271 provides for penalty in case where the Assessing Officer is satisfied that any person "has concealed particulars of hi .....

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ll be deemed to be the result of concealment/furnishing of inaccurate particulars of income. Explanation 1 states a rule of law that in every case of addition to the returned income, there is a presumption of concealment. This presumption is rebuttable. The onus of rebutting such presumption is on the tax payer. The presumption can be rebutted by offering a plausible explanation. Where no explanation is offered, the assessee would be liable for penalty. In the instant case, no plausible reply co .....

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to the assessee. In these circumstances, it is held that the assessee has concealed the particulars of its income and also furnished inaccurate particulars in respect of the income as stated above. As per Explanation 1 to section 271(1), where in respect of any facts material to the computation of total income of any person, additions are made because of the following two reasons, the amount so added shall be deemed to be the income in respect of which particulars have been concealed: [a] such p .....

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nation, I am satisfied that the assessee has willfully, knowingly and without reasonable cause furnished inaccurate particulars of its income and, thus, tried to conceal the income so as to evade payment of tax thereon. Thus, Explanation 1 to section 271 of the Income-tax Act, 1961 is clearly applicable to the case of the assessee for furnishing inaccurate particulars of income and concealing the income for which it is liable to for penalty u/s.271(l)(c) of the Income-tax Act, 1961. I, therefore .....

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10 However, certain observations of Hon'ble ITAT in the case of Kanbay Software India Ltd. (supra) needs mentioning which apparently are relied upon by the appellant. In para 63 it has been observed by the ITAT that there cannot be any concealment of particulars of income on the issues of legal interpretations. In para 60 of the order, the Tribunal has observed that expression concealment of income in its natural sense and grammatical meaning implies an income is being hidden, camouflage or .....

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ontext of the peculiar facts of the case before the Hon'ble Bench. Secondly, if this observation is taken as a proposition of law that any disclosure made in the return of income or citing a case law is sufficient to get the assessee out of the purview of the provisions of Sec. 271(l)(c), then it has to be pointed out that such interpretation suffers from serious infirmities and has to be considered as per incurium. Distortion of facts with the aim to fit them with the ratio of pre identifie .....

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s concealed. Thus, the argument that the disclosure made in the return is sufficient to throw protective amour against the provisions of section 271(i)(c) is fallacious. This is also inconsistent with the observation of the higher judicial forum, the Hon'ble Gujarat High Court in the case of CIT Vs Vidhyagauri Natwarlal & Others (238 ITR 91). The observation of the honorable Gujarat High Court is reproduced hereunder as the scheme of Sec.271(1)(c) cannot be explained in a better way. The .....

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gal position. 7. We have noted that, as rightly pointed by Mr. Shah, the assessee has made a legal claim in a very fair and transparent manner, and the conduct of the assessee cannot be faulted. Whether a claim is acceptable in the quantum assessment proceedings or not is altogether a different matter but just because the claim of the assessee does not merit acceptance, such a fact alone cannot be decisive of whether or not penalty under section 271(1)(c) must also be imposed in respect of the d .....

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of a claim, but explanation for a claim having been made, which is crucial in the penalty proceedings. One has to examine explanation of the assessee, in a fair and objective manner and independent of decision on merits in the assessment proceedings, and then take a call whether or not such an explanation is an acceptable explanation or not. In CIT vs. Nathulal Agarwala & Sons [(1985) 153 ITR 292 (Pat) (FB)] Full Bench of Hon'ble Patna High Court had, inter alia, observed as follows : &q .....

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ay not prove what he asserts to the hilt positively but as a matter of fact materials must be brought on the record to show that what he says is reasonably valid." 8. The above views were approved by the Hon'ble Supreme Court in the case of CIT vs. Mussadilal Ram Bharose (l987) 165 ITR 14 (SC). Referring to the judgment of Hon'ble Patna High Court, Their Lordships observed : The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it w .....

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laced would be discharged and the presumption rebutted. The explanation offered by the assessee should be an acceptable explanation which essentially implies that the explanation should not be totally opposed to the human probabilities. 10. When in the light of this legal position, we turn to the explanation given by the assessee, we find that the explanation of the assessee cannot be rejected as improbable or wholly contrary to the law. Hon ble jurisdictional High Court has admitted an appeal a .....

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003 . The assessee s claim that it has transferred certain intellectual properties, such as expertise and know how, in respect of GIS business, which were self generated and therefore not liable to tax, cannot be rejected outright as improbable. It is only on fine points of arrangements that it has been held to be a right to use, rather than outright transfer, which has been given to the subsidiary. Under these circumstances, in our considered view, the claim of the assessee cannot be held to a .....

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., a company incorporated under the provisions of Companies Act, 1956 and having its registered office in New Delhi at a consideration of ₹ 2,60,00,000 pursuant to the Memorandum of Undertaking executed on March 26, 2003 between both the parties. The company claims that it is not liable to any capital gains tax in view of decision of Supreme Court in the case of CIT v/s B.C. Srinivasan Setty [(1981) 128 ITR 294 (SC). 12. On this issue, i.e. making a legal claim in a fair and transparent ma .....

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ed or covered up so as it cannot be seen, found, observed or discovered. That is certainly not the situation before us. The assessee has made a claim, and that too by revised return which virtually ensured that the fact of assessee having made this claim cannot remain unnoticed by the AO, and has given specific justification and all the supporting details for the same. By no stretch of logic, this situation can be treated as a situation in which any income is concealed by the assessee. Concealme .....

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he Act. The expression inaccurate refers to not in conformity with the fact or truth and that is the meaning which, in our considered view, is relevant in the context of furnishing of inaccurate particulars . The expression particulars refers to facts, details, specifics, or information about someone or something . Therefore, the plain meaning of the expression furnishing of inaccurate particulars of income implies furnishing of details or information about incomes which are not in conformity wi .....

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s making of a claim which was not admitted by the AOI. an action not contested by the assessee. The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. The authorities below have apparently proceeded to treat assessee s making an incorrect claim of income as furnishing of inaccurate particulars. What is a correct claim and what is an incorrect claim is a matter of perception. .....

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Court. The development of law is a dynamic process which is affected by the innumerable factors, and it is always an ongoing exercise. In such circumstances, a bona fide legal claim by the assessee being visited with penal consequences only because it has not been accepted thus far by the tax authorities or judicial authorities is an absurdity. In any event, as we have noted above, the connotations of expression particulars of income do not extend to the issues of interpretation of law and as s .....

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