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TMI Blog2023 (5) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2015, confirming the levy of penalty u/s 271(1)(c) of the Income Tax Act of an amount of Rs.13,50,00,000/- is erroneous, contrary to law and facts of the case and liable to be cancelled in full. 2. The Commissioner ought to have noted that the mandatory precondition for invocation of the statutory provisions i.e. furnishing of inaccurate particulars and concealment of income have not been established in the present case and thus vitiates the levy. 3. The Commissioner erred in not considering the fact that the claim of the Appellant is wholly based on an interpretation of the provisions of the Act. All relevant information has been furnished in the return of income. The levy of penalty is thus wholly unwarranted. 4. The Commissioner errs in concluding that the alleged omission was deliberate and ought to have noted that in fact there was no omission at all, let alone one that was deliberate. The entire amount represented Intellectual Property Rights, the consideration of which was a capital receipt and no portion thereof was 'goodwill'. The amounts and details thereof stood reflected in the financials of the Appellant and there was thus no non-disclosure warranting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty rights transferred to the sister concern are explained to be trade names, trade-marks or service marks together with the goodwill associated therewith and also copyrights, trade secrets, confidential or proprietary information, computer programmes and all other sorts of intangible rights and properties. 3.3 On going through the above explanation embedded in the sale agreement, the Assessing Officer has noted that in the computation of income, the assessee has not offered any capital gains towards transfer of goodwill. Therefore, the Assessing Officer made enquiries to the assessee to explain the position. In reply to the queries made by the assessing authority, it was informed by the assessee that the sister concern has debited the consideration under the head 'goodwill', pending allocation of the excess consideration paid over depreciation value of the assets. But for this difference, as far as the assessee is concerned, there was no goodwill included in the transaction. The assessee explained that a sum of Rs. 66.9 crores related to depreciation reserve received on transfer and the balance amount related to additional consideration paid against purchase of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pentafour Technologies Ltd. As against the total consideration paid by it, Rs..626,08,80,282/- was accounted under 'fixed assets' towards goodwill on acquisition of the software division. It was also stated in the notes attached to the accounts of the sister concern that the goodwill amount of Rs.. 626.09 crores included non compete value of Rs..180 crores and overseas products, intellectual rights and brand name of Rs..364.21 crores. Ultimately, the amount attached to the goodwill has been stated in its accounts as Rs.. 81.88 crores. 3.6 Subsequently, the ld. CIT, by exercising powers conferred under section 263 of the Act, examined the records and called for reply from the assessee by letter dated 23.03.2005 and noted that the Assessing Officer passed the assessment order under section 143(3) of the Act dated 31.03.2003, though treated Rs..31,74,40,000/- as the price of the goodwill, the quantum determined by the assessing authority was not correct. The ld. CIT found that the Assessing Officer has adopted the value of goodwill at the average of the five years' profit and no multiplier was applied to follow the accepted method of valuation of goodwill and therefore, held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and issued show-cause notice dated 15.03.2012. The assessee filed its reply dated 21.03.2012 by stating that the penalty proceedings may be dropped. The content of the assessee's reply is reproduced as under: In the return of income filed for the A.Y.2000-01 the assessee-company had claimed exemption u/s 1OB in respect of i) Interest receipt of Rs.6,78,25,947 ii) Miscellaneous Income Rs.1,04,96,650 iii) Rental income Rs.49,84,852 iv) Creditors written off Rs.55,21,052/- The assessee's claim of exemption u/s.10B was rejected by the Assessing Officer. The Assessing Officer had held that the sale consideration received for transfer of software division included element of Goodwill and accordingly assessed to tax a sum of Rs.31,74,40, 000. The Assessing Officer has arrived at the capital gains on sale of assets Rs.47,62,02,528/-. While arriving at this figure of at Rs.47,46,01,529/- the Assessing Officer has adopted the WDV of the asset after deduction of notional depreciation on the assets. On appeal by the assessee, the CIT(A) upheld the Assessing Officer's decision to deny exemption u/s.10B in respect of interest receipts, misc. receipts etc. The CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d capital gain on sale of goodwill at Rs.31,74,40,000/- which was enhanced to Rs.1,26,67,00,000/- in the order u/s 143(3) rws 263 of the Act. However, the CIT(A) in the order referred to above has confirmed the addition of capital gain on sale at Rs.67.50 crores. In view of this, I am of the opinion that the assessee has failed to disclose its true and correct income and thereby attracted the provisions of section 271(1)(c) and hence penalty is leviable on this ground. (b) The case laws relied upon by the assessee are distinguishable from the facts of the case since in the assessee's case it has not disclosed any capital gains which amounts to concealment of income. Income sought to be evaded Rs. 67.50 crores Tax @ 20% Rs. 13.50 crores Penalty @ 100% of the tax sought to be evaded Rs. 13.50 crores Penalty @ 300% of the tax sought to be evaded Rs. 40.50 crores 12. Considering the facts and circumstances of the case, I levy a minimum penalty of Rs.13.50 crores. This should paid as per demand notice and challan enclosed. As the penalty levied is more than Rs.20,000/- this penalty is levied with the prior approval of the Joint Commissioner of Income-tax, Med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non compete fee. Factually speaking, there was no case of any competition between these units working under the same management with a common chairman and CEO. Therefore, it viewed that the amount attributed to non compete fee is nothing but a colourful arrangement of the accounts to shadow over the reality of the transfer of goodwill. Further, many of the components of the consideration have been termed by the assessee as non compete fee, IPR value, brand value, etc. to evade payment of capital gains tax on the transfer of the software division for the reason that goodwill alone was taxable for the assessment year 2000- 01, compared to the transfer of other intangible assets like non compete fee, brand value, etc. iv. On examination of the treatment given by M/s. Pentafour Technologies Ltd. (the transferee company) in its accounts, wherein a sizeable portion of the consideration has been accounted as 'goodwill'. After examining every aspect of the case in a very detailed manner, the Commissioner of Income-tax in his order u/s 263 came to the conclusion that the alleged payment towards non compete fee, IPR on brand/ brand value, etc. was a figment of a creative accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred for a consideration of Rs.350 crores. This consideration was apportioned as follows: Towards Current Assets Rs. 1,13,23,85,139 Gross Fixed Assets Rs. 2,36,76,14,861 Rs. 3,50,00,00,000 The appellant computed the short-term capital gains on the transfer of software division as follows: Sale consideration of Fixed Assets Rs. 2,36,76,14,861 Less: Cost of acquisition of fixed assets Rs. 2,18,67,48,574 Short Term Capital Gain Rs. 18,08,66,287 In addition to the sum of Rs.350 crores as consideration for sale of fixed assets for the transfer of software unit, the appellant received a sum of Rs.544.21 crores as brand value and non-compete fee. The assessee did not offer this receipt as income on the ground that it was a capital receipt. I am of the view that the price of transfer of Intellectual Property Rights of Pentafour brand includes the component of goodwill which calls for taxation after quantification. I, therefore hold that the AO was justified in law in taxing the goodwill component included in the IPR Pentafour brand. The quantum addition was already confirmed. The goodwill component of 67.50 crores out of the sum 544.21 crore is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 143(3) of the Act dated 31.03.2003. There is no initiation of penalty by the Assessing Officer in respect of the order passed under section 143(3) r.w.s. 263 of the Act dated 31,.03.2006. Therefore, the penalty proceedings initiated by the Assessing Offier are time barred. 11.4 The ld. Counsel further submitted that vide order dated 11.06.2012, the ITAT upheld the revision order passed by the ld. CIT dated 23.03.2005 and other orders of the ld. CIT(A) in toto. Against the orders of the Tribunal, the assessee filed three appeals before the Hon'ble Madras High Court, which was admitted and substantial question of law has been framed by the Hon'ble High Court. Once substantial question of law has been framed by the Hon'ble High Court, no penalty under section 271(1)(c) of the Act can be imposed. For this preposition, the ld. Counsel relied on the judgement of the Hon'ble Delhi High Court in the case of PCIT v. Harsh International (P.) Ltd. [2021] 128 taxmann.com 88 (Delhi). 11.5 The ld. Counsel relied on the decision of the Hon'ble Madras High Court in the case of Transferee Company i.e., Pentasoft Technologies Ltd. v. DCIT [2014] 264 CTR 0187 (Mad) and submitted that the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early applies. 13. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper books filed by the assessee along with written submissions of both parties. In this case, the assess company, M/s. Pentamedia Graphics Ltd., by agreement dated 23.02.2000, has transferred its software and training division to sister concern M/s. Pentafour Communications Ltd. (later on renamed as M/s. Pentafour Technologies Ltd.) and the consideration for the transaction was Rs..894.21 crores. The assessee filed its return of income, wherein, he has not offered any capital gains towards goodwill. The Assessing Officer, after examining the details filed by the assessee and also by considering all the relevant documents including agreement with M/s. Pentafour Technologies Ltd., assessed the capital gains on sale of goodwill at Rs..31,74,40,000/-. Subsequently, the ld. CIT, by exercising powers conferred under section 263 of the Act set aside the assessment order passed by the Assessing Officer under section 143(3) of the Act dated 31.03.2003 and directed the Assessing Officer to recalculate the capital gains. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards goodwill". 16. From the above findings, it is very clear that the assessee has deliberately made an attempt not to disclose true facts before the Assessing Officer, thereby, concealed the income by filing inaccurate particulars. Thus, the provisions of section 271(1)(c) of the Act clearly applies to the present case. 17. So far as argument of the ld. Counsel that there is no goodwill is concerned, factually, the argument of the ld. Counsel is not correct as the Tribunal has given a clear findings that there is goodwill, which was not disclosed by the assessee. 18. Another argument of the ld. Counsel is that penalty proceedings was initiated by the Assessing Officer as per assessment order under section 143(3) of the Act dated 31.03.2003, whereas, no penalty was initiated in view of the order under section 143(3) r.w.s. 263 of the Act dated 31.03.2006 and therefore, penalty cannot be levied under section 271(1)(c) of the Act. So far as this argument is concerned, the Assessing Officer has initiated penalty proceedings on 31.03.2003 for concealment of goodwill. Subsequently, in his revision order under section 263 of the Act, the ld. CIT enhanced the quantum, which is continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on by the ld. Counsel in the case of PCIT v. Harsh International (P.) Ltd. (supra) has no application to the facts of the present case for the reason that in that case, the facts are entirely distinguishable. In the present case, the ITAT sustained the addition on the ground that there was deliberate attempt on the part of the assessee company not to disclose the sale of goodwill and non-disclosure of goodwill tantamount to concealment of income and furnishing of inaccurate particulars of income by adopting colourable device stating that the payments were made towards non-compete fee, IPR on brand value, IPR on brand, etc. Otherwise also, the Delhi High Court in the case of PCIT v. Harsh International (P.) Ltd. (supra) is not binding on the Tribunal in view of the decision in the case of Visvas Promoters P. Ltd. v. ITAT & Anr. 323 ITR 114, wherein, the Hon'ble Jurisdictional High Court has held that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its own territorial jurisdiction, and in other states or outside the territorial jurisdiction of that High Court, it may, at best, have only persuasive effect. 21. W ..... 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