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TMI Blog2023 (5) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated in view of the order u/s 143(3) r.w.s. 263 and therefore, penalty cannot be levied under section 271(1)(c) - AO has initiated penalty proceedings for concealment of goodwill. Subsequently, in his revision order u/s 263 CIT enhanced the quantum, which is continuation of the proceedings. The concealment of income and furnishing of inaccurate particulars has been considered by the AO by passing assessment order under section 143(3) of the Act dated 31.03.2003. It is not the case that the concealment started after passing order under section 143(3) r.w.s. 263 - Therefore, the argument of the ld. Counsel no penalty was initiated in view of the order u/s 143(3) r.w.s. 263 is rejected. Issue of limitation to pass penalty order u/s 271(1)(c) - In the present case, the assessee has not filed any additional ground and no reason was given and the ld. Counsel has raised this issue for the first time while arguing the case. In our opinion, only based on the argument, legal issue cannot be decided unless there is a ground raised in the appeal. Since no such ground was raised in the appeal, the argument of the ld. Counsel is rejected. Addition on the ground that there was delibe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital receipt and no portion thereof was 'goodwill . The amounts and details thereof stood reflected in the financials of the Appellant and there was thus no non-disclosure warranting the levy of penalty. 5. The Commissioner erred in not applying the rationale of various judgments that supported the present case. Further it ought to have been noted that an incorrect claim, if at all, does not result in a conclusion of concealment of income as such, so as to attract penalty u/s 271(1)(c) since the same proceeds only on a different interpretation of the statutory position . 6. The Commissioner of Income-tax (Appeals) ought to have noted that the quantum of Royalty as well as the manner of computation thereof had been estimated by various officer of the department and this estimation cannot be the basis of the levy of penalty. 7. The Commissioner of Income-tax (Appeals) erred in not noting that the earlier orders of the Income Tax Appellate Tribunal and the Commissioner of Income-tax (Appeals) have not been accepted and are pending appeal before the High Court, Madras. 8 Any other ground that may be raised at the time of personal hearing. 3.1 Facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no goodwill included in the transaction. The assessee explained that a sum of Rs. 66.9 crores related to depreciation reserve received on transfer and the balance amount related to additional consideration paid against purchase of the assets. The assessee accordingly submitted before the Assessing Officer that no consideration was exchanged for transfer of goodwill as such. The above explanation offered by the assessee was not acceptable to the Assessing Officer. He held that the consideration also included a portion attributable to the transfer of goodwill of the software division of the assessee company. Relying on the judgment of the Hon'ble Bombay High Court in the case of Evans Fraser Co. Ltd. vs. CIT 137 ITR 493, the Assessing Officer held that even if it is impossible to ascertain in terms of money value of goodwill in view of its nebulous character and its uncertain nature, it is possible to value the goodwill by applying accounting standards at a certain multiple of the average profits of the past in the belief that if the business is continued in the same name and style, the same amount of profits would be earned in future as well. The Assessing Officer, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessing authority was not correct. The ld. CIT found that the Assessing Officer has adopted the value of goodwill at the average of the five years' profit and no multiplier was applied to follow the accepted method of valuation of goodwill and therefore, held that the assessment order was erroneous and prejudicial to the interests of the Revenue, as far as this issue of valuation is concerned. 3.7 The ld. CIT, further noted that the amount attributed to non-compete fee is nothing but a colourful arrangement of the accounts to shadow over the reality of the transfer of goodwill. He further noted that the treatment given by M/s. Pentafour Technologies Ltd, which is transferee company, in its account, wherein a sizeable portion of the consideration has been accounted as 'goodwill' and came to conclusion that the average profit of the assessee has to be multiplied by a reasonable factor to decide the fair value of goodwill and as this multiplying exercise has not been done by the Assessing Officer, the assessment order has become erroneous and prejudicial to the interests of the Revenue. Accordingly, he set aside that portion of the assessment order and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arriving at this figure of at Rs.47,46,01,529/- the Assessing Officer has adopted the WDV of the asset after deduction of notional depreciation on the assets. On appeal by the assessee, the CIT(A) upheld the Assessing Officer's decision to deny exemption u/s.10B in respect of interest receipts, misc. receipts etc. The CIT(A) had held that the Assessing Officer was not correct in law in adopting the written down value of assets after deduction of notional depreciation. The CIT(A) had concurred with the Assessing Officer that there was element of Goodwill in sale value of software division. It is respectfully submitted that the assessee-company, has preferred an appeal before ITAT against the CIT(A)'s order and the favourable decision of the ITAT is awaited. It is submitted that the various claims made in the return of income are based in interpretation on the provisions of the Act. The assessee has not furnished any inaccurate particulars of income or concealed any part of the income for the year under consideration. The assessee respectfully submits that in order to attract the provisions of section 271(1)(c) there has to be concealment of income or fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.50 crores Penalty @ 100% of the tax sought to be evaded Rs. 13.50 crores Penalty @ 300% of the tax sought to be evaded Rs. 40.50 crores 12. Considering the facts and circumstances of the case, I levy a minimum penalty of Rs.13.50 crores. This should paid as per demand notice and challan enclosed. As the penalty levied is more than Rs.20,000/- this penalty is levied with the prior approval of the Joint Commissioner of Income-tax, Media Range, Chennai. 9. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The assessee has raised following grounds before the ld. CIT(A): 4. Aggrieved on the penalty order, the appellant preferred this appeal raising the following grounds of appeal: 1. The order of the ld. AO is contrary to law, facts and circumstances of the case. 2. The ld. AO erred in levying penalty u/s. 271(1)(c) of the Income Tax Act 1961 of an amount of Rs.13,50,00,000/- without considering the appellant s reply filed on 21.03.2012 to the show cause notice dated 26.12.2008. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason that goodwill alone was taxable for the assessment year 2000- 01, compared to the transfer of other intangible assets like non compete fee, brand value, etc. iv. On examination of the treatment given by M/s. Pentafour Technologies Ltd. (the transferee company) in its accounts, wherein a sizeable portion of the consideration has been accounted as 'goodwill'. After examining every aspect of the case in a very detailed manner, the Commissioner of Income-tax in his order u/s 263 came to the conclusion that the alleged payment towards non compete fee, IPR on brand/ brand value, etc. was a figment of a creative accounting with no relevance to real price. He observed that all these figures were imaginary to re-engineer the balance sheet of the assessee and group companies with no cash flow affected because of cross transactions where issue of shares at an exorbitant premium as a payment consideration for alleged sale. As an evidence to this, he has pointed out that the amount relating to the sale consideration has been written off by the assessee and the value of shares has come down below Rs.25/-. It means brand value is nothing but goodwill. The Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,36,76,14,861 Less: Cost of acquisition of fixed assets Rs. 2,18,67,48,574 Short Term Capital Gain Rs. 18,08,66,287 In addition to the sum of Rs.350 crores as consideration for sale of fixed assets for the transfer of software unit, the appellant received a sum of Rs.544.21 crores as brand value and non-compete fee. The assessee did not offer this receipt as income on the ground that it was a capital receipt. I am of the view that the price of transfer of Intellectual Property Rights of Pentafour brand includes the component of goodwill which calls for taxation after quantification. I, therefore hold that the AO was justified in law in taxing the goodwill component included in the IPR Pentafour brand. The quantum addition was already confirmed. The goodwill component of 67.50 crores out of the sum 544.21 crore is reasonable. Hence the income sought to be evaded is 67.50 crores and on that imposition of penalty is justified. The justification of quantum is emanated from i. The goodwill com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.s. 263 of the Act dated 31,.03.2006. Therefore, the penalty proceedings initiated by the Assessing Offier are time barred. 11.4 The ld. Counsel further submitted that vide order dated 11.06.2012, the ITAT upheld the revision order passed by the ld. CIT dated 23.03.2005 and other orders of the ld. CIT(A) in toto. Against the orders of the Tribunal, the assessee filed three appeals before the Hon ble Madras High Court, which was admitted and substantial question of law has been framed by the Hon ble High Court. Once substantial question of law has been framed by the Hon ble High Court, no penalty under section 271(1)(c) of the Act can be imposed. For this preposition, the ld. Counsel relied on the judgement of the Hon ble Delhi High Court in the case of PCIT v. Harsh International (P.) Ltd. [2021] 128 taxmann.com 88 (Delhi). 11.5 The ld. Counsel relied on the decision of the Hon ble Madras High Court in the case of Transferee Company i.e., Pentasoft Technologies Ltd. v. DCIT [2014] 264 CTR 0187 (Mad) and submitted that the Hon ble High Court has confirmed that there is no goodwill at all. It was further submission that it is not the case of the Revenue before the Hon ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below including paper books filed by the assessee along with written submissions of both parties. In this case, the assess company, M/s. Pentamedia Graphics Ltd., by agreement dated 23.02.2000, has transferred its software and training division to sister concern M/s. Pentafour Communications Ltd. (later on renamed as M/s. Pentafour Technologies Ltd.) and the consideration for the transaction was ₹.894.21 crores. The assessee filed its return of income, wherein, he has not offered any capital gains towards goodwill. The Assessing Officer, after examining the details filed by the assessee and also by considering all the relevant documents including agreement with M/s. Pentafour Technologies Ltd., assessed the capital gains on sale of goodwill at ₹.31,74,40,000/-. Subsequently, the ld. CIT, by exercising powers conferred under section 263 of the Act set aside the assessment order passed by the Assessing Officer under section 143(3) of the Act dated 31.03.2003 and directed the Assessing Officer to recalculate the capital gains. The Assessing Officer, consequent to the order passed by the ld. CIT under section 263 of the Act dated 23.03.2005 passed the assessment order unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely made an attempt not to disclose true facts before the Assessing Officer, thereby, concealed the income by filing inaccurate particulars. Thus, the provisions of section 271(1)(c) of the Act clearly applies to the present case. 17. So far as argument of the ld. Counsel that there is no goodwill is concerned, factually, the argument of the ld. Counsel is not correct as the Tribunal has given a clear findings that there is goodwill, which was not disclosed by the assessee. 18. Another argument of the ld. Counsel is that penalty proceedings was initiated by the Assessing Officer as per assessment order under section 143(3) of the Act dated 31.03.2003, whereas, no penalty was initiated in view of the order under section 143(3) r.w.s. 263 of the Act dated 31.03.2006 and therefore, penalty cannot be levied under section 271(1)(c) of the Act. So far as this argument is concerned, the Assessing Officer has initiated penalty proceedings on 31.03.2003 for concealment of goodwill. Subsequently, in his revision order under section 263 of the Act, the ld. CIT enhanced the quantum, which is continuation of the proceedings. The concealment of income and furnishing of inaccurate particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no application to the facts of the present case for the reason that in that case, the facts are entirely distinguishable. In the present case, the ITAT sustained the addition on the ground that there was deliberate attempt on the part of the assessee company not to disclose the sale of goodwill and non-disclosure of goodwill tantamount to concealment of income and furnishing of inaccurate particulars of income by adopting colourable device stating that the payments were made towards non-compete fee, IPR on brand value, IPR on brand, etc. Otherwise also, the Delhi High Court in the case of PCIT v. Harsh International (P.) Ltd. (supra) is not binding on the Tribunal in view of the decision in the case of Visvas Promoters P. Ltd. v. ITAT Anr. 323 ITR 114, wherein, the Hon ble Jurisdictional High Court has held that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its own territorial jurisdiction, and in other states or outside the territorial jurisdiction of that High Court, it may, at best, have only persuasive effect. 21. With regard to the case law relied on by the ld. Counsel for the assessee relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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