2014 (11) TMI 435 - AT - Income Tax

Cancellation of penalty u/s 271(1)(c) - Bonafide belief to treat the profits arisen from the relevant transaction to be chargeable to tax or not Relevant particulars furnished or not - Held that - The penalty imposed by the AO u/s 271(1)(c) in respect of addition made to the total income of the assessee on account of short term capital gains has been cancelled by the CIT(A) on the basis that the claim made by the assessee for exemption of such short term capital gain was a bona fide claim and all the particulars relevant to the clam were duly furnished by the assessee the claim of exemption has already been rejected by the Tribunal in the quantum proceedings - the relevant clause relied upon by the learned counsel for the assessee cannot be seen in isolation to ascertain the exact nature of asset transferred by the assessee, and it is necessary to read the entire agreement as a whole to ascertain such nature - It was thus a clear case of transfer of commercial right by the assessee and there is nothing in the agreement to suggest or indicate that 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 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 the documents filed alongwith the return of income the order of the CIT(A) that all the material particulars relating to its claim for exemption on account of capital gain were fully and truly furnished by the assessee cannot be accepted - the claim made by the assessee for exemption on account of short term capital gain arising from the transaction entered into with M/s. Pintell Systems Pvt. Ltd was patently a wrong claim and the assessee having failed to furnish the correct particulars of its income on account of short term capital gains, it is a fit case to impose penalty under S.271(1)(c) of the Act thus, the order of the CIT(A) is to be set aside Decided in favour of revenue.

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Whether the transaction in question constituted the sale of commercial rights or the right to carry on business.
3. The applicability of the Supreme Court's decision in the case of Reliance Petro Products P. Ltd. to the present case.

Detailed Analysis:

1. Validity of the Penalty Imposed Under Section 271(1)(c):
The Revenue appealed against the order of the CIT(A) which cancelled the penalty of Rs. 11,11,250 imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act. The penalty was imposed due to the assessee's failure to disclose income arising from the sale of commercial rights amounting to Rs. 31,75,000. The Assessing Officer concluded that the assessee concealed particulars of its income, leading to the imposition of the penalty. The CIT(A) found that the assessee had a bona fide belief that the profit from the transaction was not taxable, and thus cancelled the penalty. The Tribunal, however, disagreed with the CIT(A), reinstating the penalty by emphasizing that the claim for exemption was patently wrong and not bona fide, and that the relevant particulars were not fully disclosed by the assessee.

2. Nature of the Transaction:
The core issue was whether the transaction constituted the sale of commercial rights or the right to carry on business. The assessee argued that the commercial rights sold had no cost of acquisition, and thus no capital gains tax was applicable as per CIT v. Srinivasa Setty (128 ITR 294). The Assessing Officer and the Tribunal, however, held that the transaction involved the sale of commercial rights, not the right to carry on business. The Tribunal noted that the sale was of a specific sales contract with a client, which falls under the purview of Section 55(2)(a) of the Income Tax Act, making the profit arising from it taxable as short-term capital gains. The Tribunal rejected the contention that the amendment to Section 55(2)(a) was effective from the assessment year 2003-04, clarifying that it was effective from 1-4-1998.

3. Applicability of Reliance Petro Products P. Ltd. Case:
The CIT(A) relied on the Supreme Court's decision in Reliance Petro Products P. Ltd. (322 ITR 158), which dealt with the meaning of 'inaccurate particulars'. The Tribunal found this reliance misplaced, as the penalty in the present case was imposed for concealing particulars of income, not for furnishing inaccurate particulars. The Tribunal emphasized that the assessee did not disclose the transaction details in the return of income or the accompanying documents, and thus failed to furnish correct particulars of its income.

Conclusion:
The Tribunal concluded that the assessee's claim for exemption was patently wrong and not bona fide. The assessee failed to disclose the transaction details and the basis for claiming exemption in the return of income. Consequently, the Tribunal set aside the CIT(A)'s order cancelling the penalty and restored the Assessing Officer's order imposing the penalty under Section 271(1)(c). The appeal of the Revenue was allowed, and the penalty was reinstated.