2018 (2) TMI 1906 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - under valuation of closing stock - HELD THAT - It is true that the business of the proprietary concern M/s. Suvarnamahal was continued as business of the partnership firm on and from 25.02.2008. In the case of ALA Firm 1991 (2) TMI 1 - SUPREME COURT , the facts were that the firm was dissolved and the business was discontinued. Therefore, the stock in trade were re-valued at market price whereas the facts of the case in hand show that the business continued in the hands of the partnership firm and the stock in trade were never valued. The facts of the case in hand are in line with the facts considered by the Hon ble Supreme Court in the case of Shakti Trading Company 2001 (8) TMI 5 - SUPREME COURT . When the method adopted by the assessee was duly supported by the decision of the Hon ble Supreme Court, it cannot be said that the assessee has filed inaccurate particulars of income or has concealed the particulars of income. Moreover, when there are two decisions of the Apex Court, one in favour of the assessee and one in favour of the revenue itself makes the issue highly debatable. In our understanding of the law, penalty cannot be levied u/s. 271(1)(c) under such circumstances. We, accordingly, set aside the findings of the CIT(A) and direct the A.O. to delete the penalty so levied Penalty levied u/s. 271(1)(c) - assessee has not disclosed the income arising from transfer of Trademark/Goodwill in the return of income - HELD THAT - Insofar as the treatment of the consideration the dispute is settled and the same has to be taxed u/s. 45 of the Act. Admittedly, it is a fact that in spite of the findings of the Tribunal, the A.O. treated the same as income under the business head. 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. Therefore, the assessee cannot be held liable for concealing any particulars of the its income. Moreover, the A.O. has not taxed the 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: Cross appeals by Assessee and Revenue against penalty levied under section 271(1)(c) of the Income Tax Act for under valuation of closing stock and non-disclosure of income from transfer of trademark/goodwill.

Analysis:

1. ITA No. 1445/Ahd/2014 - Assessee's appeal for A.Y. 2008-09:
- Background: The dispute arose from the valuation of closing stock after a proprietary business was converted into a partnership firm. The Assessing Officer (A.O.) valued the stock at market rate, leading to a penalty under section 271(1)(c).
- Arguments: The Assessee contended that the valuation method was in line with legal precedents and not inaccurate. The Assessee's counsel argued that the penalty was unjustified.
- Decision: The Tribunal found that the Assessee's valuation method was supported by legal precedent, distinguishing it from the case cited by the A.O. The Tribunal held that the penalty was unwarranted and directed its deletion.

2. ITA No. 1597/Ahd/2014 - Revenue's appeal for A.Y. 2008-09:
- Background: The Revenue challenged the deletion of penalty for non-disclosure of income from the transfer of trademark/goodwill. The A.O. treated the amount as income under the business head, leading to penalty proceedings.
- Arguments: The Assessee argued that the treatment of the amount as business income was incorrect, and the penalty was unjustified. The Revenue contended that the penalty should be upheld.
- Decision: The Tribunal noted discrepancies in the treatment of the income and held that the Assessee could not be penalized for non-disclosure due to the incorrect head under which the income was taxed. The Tribunal upheld the deletion of the penalty.

In both cases, the Tribunal emphasized adherence to legal principles and precedent in determining the tax liabilities and penalties. The judgments highlight the importance of accurate valuation and proper disclosure of income under the Income Tax Act, ensuring fair treatment for taxpayers and upholding the rule of law in tax matters.