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2016 (8) TMI 658 - HC - Income TaxPenalty levied u/s.271(1)(c) - Valuation of Goodwill - ITAT deleted penalty levy - Held that - It is an undisputed fact that all transactions were supported by duly executed legal Agreements, having been acted by both the parties. Under the circumstances, the Revenue had no right or legal justification to doubt its genuineness, particularly when, there was no material on record to support the stand of Revenue. In the case of Mangalore Ganesh Beedi Works (2015 (10) TMI 1283 - SUPREME COURT ), the Apex Court has categorically held that the I.T. Act does not clothe the taxing authorities with any power or jurisdiction to rewrite the terms of the Agreement arrived at between the parties with each other at arms length and with no allegation of any collusion between them. Thus the Tribunal has not committed any error in allowing the appeal filed by assessee.- Decided against the Revenue.
Issues:
1. Valuation of Goodwill and Trademark for tax purposes. 2. Jurisdiction of the Appellate Tribunal in deleting additions. 3. Confirmation of penalty deletion by the Appellate Tribunal. Issue 1: Valuation of Goodwill and Trademark for tax purposes The case involved Tax Appeal Nos. 1905/2008 and 1906/2008 challenging the order of the Income Tax Appellate Tribunal regarding the valuation of Goodwill. The Appellate Tribunal had deleted the addition sustained by the CIT(A) on account of Goodwill valuation. The Revenue argued that the Appellate Tribunal erred in valuing the Goodwill and Trademark, as the assessee did not provide a basis for the valuation. The Revenue contended that the Assessing Officer correctly revalued the sale consideration of Goodwill and Trademark. However, the Tribunal found that all transactions were supported by legally executed Agreements, and there was no material to doubt their genuineness. The Tribunal relied on the principle that taxing authorities cannot rewrite agreements between parties at arms length without evidence of collusion. Consequently, the Tribunal's decision was upheld, and the questions in Tax Appeal Nos. 1905/2008 and 1906/2008 were answered in favor of the assessee. Issue 2: Jurisdiction of the Appellate Tribunal in deleting additions The Appellate Tribunal's jurisdiction was questioned in Tax Appeal Nos. 1905/2008 and 1906/2008 regarding the deletion of additions made by the CIT(A). The Tribunal had deleted the addition sustained by the CIT(A) concerning the valuation of Goodwill. The Revenue argued that the Tribunal exceeded its jurisdiction in deleting the additions. However, the Tribunal's decision was based on the fact that all transactions were supported by legal Agreements and there was no evidence to support the Revenue's doubts. The Tribunal's decision was upheld, and the questions of jurisdiction were answered in favor of the assessee. Issue 3: Confirmation of penalty deletion by the Appellate Tribunal Tax Appeal No. 1605/2009 was filed against the deletion of a penalty by the Appellate Tribunal. The penalty was levied by the Assessing Officer based on an addition towards capital gains on the transfer of Goodwill, which was later deleted by the Tribunal. The Tribunal's decision to cancel the penalty was upheld, as the addition towards capital gains on Goodwill transfer was no longer applicable. The question raised in Tax Appeal No. 1605/2009 was answered in favor of the assessee. In conclusion, the High Court upheld the Tribunal's decisions in all the Tax Appeals, finding in favor of the assessee regarding the valuation of Goodwill, jurisdiction of the Appellate Tribunal, and the deletion of the penalty. The Court emphasized the importance of legally executed Agreements and the principle that taxing authorities cannot interfere in arms-length transactions without evidence of collusion.
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