2018 (8) TMI 1853 - HC - Income Tax

Penalty u/s 271(1)(c) - characterization of income - assessee is an H.U.F. and who is partner in the partnership business - Income relates to valuation of trademark and goodwill - Tribunal held that the proportionate income falling at the hands of the assessee would be taxed as capital gain and not business income - HELD THAT - The provisions of Section 45(3) of the Act clearly states that for the purposes of Section 48, the amount recorded in the books of accounts as the value of the capital assets shall be deemed to the full value of the consideration. In our understanding of the facts, the HUF proprietary concern could not have envisaged the value of the trademark/goodwill to be recorded by the partnership firm in its books of accounts. The assessee cannot be held liable for concealing any particulars of the its income. Moreover, the A.O. Has not taxed he income in the head of income as directed by the Tribunal but has taxed the same under a different head of income. On these facts, we do not find this to be a case for the levy of penalty u/s.271(1)(c) of the Act and therefore there is no error or infirmity in the findings of the ld. CIT (A). Appeal filed by the Revenue is dismissed

Summary

Issues:
Penalty under Section 271(1)(c) of the Income tax Act, 1961.

Analysis:
The case involved an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the deletion of a penalty under Section 271(1)(c) of the Act. The issue revolved around the imposition of a penalty on the income arising from the transfer of Trademark/Goodwill, which was not disclosed in the return of income. The respondent assessee, an H.U.F. and a partner in a partnership business, was in question. The Tribunal determined that the income should be taxed as capital gain and not business income, leading to the question of imposing a penalty. The Tribunal, in its decision, highlighted that the amount recorded in the books of accounts as the value of the capital assets should be deemed as the full value of consideration for tax purposes. It was noted that the assessee could not be held liable for concealing income particulars, especially since the income was not taxed under the correct head as directed by the Tribunal. Consequently, the Tribunal found no grounds for the levy of a penalty under Section 271(1)(c) of the Act, affirming the decision of the CIT (Appeals) and dismissing the Revenue's appeal.

In conclusion, the High Court upheld the decision of the Tribunal and dismissed the Tax Appeal. The judgment emphasized that the treatment of the consideration amount and the incorrect tax head under which the income was taxed were pivotal factors in determining the lack of grounds for imposing the penalty under Section 271(1)(c) of the Income Tax Act, 1961.