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TMI Blog2014 (11) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... ms Pvt. Ltd. that the assessee company has sold commercial rights to the said company during the year under consideration for a sum of Rs. 31,75,000. Since the income arising from the said transaction was not offered by the assessee in the return of income for the year under consideration, the assessment was reopened by the Assessing Officer and a notice under S.148 of the Act was issued by him. During the course of re-assessment proceedings, it was found that the assessee has entered into an agreement with M/s. Pintell Systems Pvt. Ltd. on 1.1.2002 to transfer the MOU which was entered into by the assessee with M/s. Eldis sro Czech Republic for consultancy and developing different types of software as and when required in the aviation field. When the assessee was called upon by the Assessing Officer to show cause as to why the short-term capital gains arising out of the said transaction should not be assessed in its hands, it was contended that the commercial rights sold by the assessee in its consultancy business to M/s. Pintell Systems Pvt. Ltd. had no cost of acquisition and therefore, no capital gains tax was liviable in respect of the said transaction as per the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty imposed by the Assessing Officer under S.271(1)(c) was challenged by the assessee in appeal filed before the learned CIT(A) and the following submissions, as reproduced in the impugned order of the learned CIT(A), were made on behalf of the assessee in support of its case that penalty imposed by the Assessing Officer was not sustainable. 5. The learned CIT(A) found merit in the submissions made by the assessee. He held that the assessee had entertained a bona fide belief that the profit arising from the relevant transaction with M/s. Pintell Systems Pvt. Ltd. was not chargeable to tax. He also held that all the relevant particulars in support of its claim in this regard were duly furnished by the assessee and based on those very particulars, a different view was taken by the Assessing Officer, rejecting the claim of the assessee for exemption on account of short term capital gains. According to the learned CIT(A), the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. (322 ITR 158) cited by the assessee was squarely applicable in the case of the assessee and relying on the same, he cancelled the penalty imposed by the Assessing Officer un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the profit arising from such transfer therefore was chargeable to tax in the hands of the assessee as short term capital gains and the claim made by the assessee for exemption was patently wrong, attracting imposition of penalty under S.271(1)(c) as rightly held by the Assessing Officer. He therefore, urged that the impugned order of the learned CIT(A) cancelling the penalty may be set aside and that of the Assessing Officer be restored. 7. The learned counsel for the assessee, on the other hand, invited our attention to the relevant portion of the Directors' Report at page 6 of the paper-book and submitted ha that fact of sale of its consultancy business by the assessee company for a consideration of Rs. 31.75 lakhs was clearly disclosed in the Directors' Report, which was filed alongwith the return of income. In reply to the query raised by the Bench regarding the accounting treatment given to this transaction, he clarified that the net income arising from the said transaction amounting to Rs. 20,12,902 was credited by the assessee company to Capital Reserves Account and the same was disclosed under 'Reserves and Surplus' in the Schedule II forming part of the Balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.6.2011 in ITA No.1331/Hyd/2010. "9. We have considered the submissions of the rival parties and perused the material available on record. We find from the order of the CIT (A) that the assessee had never sold its right to carry on the business of software development or its right to carry on any business and it merely sold a specific sales contract with a client, which is routine outsourcing in all businesses and in the present case, only a specific contract has been outsourced. We further find that the expression from section 55(2)(a) of the Act which is applicable in the instant case "right to manufacture, produce or process any article or thing", and in our opinion, the case of the assessee clearly fell within the purview of subsection 55(2)(a) of the Act and there is no doubt that the amount received on the sale of the MOU was clearly taxable as per specific provision of the Act. The said expression in section 55(2)(a) of the Act was inserted by the Finance Act, 1997 with effect from 1-4- 1998 and hence the contention of the learned counsel for the assessee that the amendment to section 55(2)(a) bringing the transfer of commercial right to capital gain tax is effective fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10. As regards the claim of the assessee that all the material particulars relating to its claim of exemption of short term capital gains were duly furnished by it, it is observed that in the Directors' Report, a passing reference only was made to indicate that its consultancy business was sold by the assessee company for Rs. 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 Rs. 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. It is also pertinent to note that no exemption for the short term capital gain was separately or specifically claimed by the assessee either in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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