I.T.A. No.1618/Ahd/2010 Assessment year: 2003-04Page 1 of 12 IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, AHMEDABAD [Coram: Pramod Kumar AM and S S Godara JM] I.T.A. No.1618/Ahd/2010 Assessment year: 2003-04 ORG Informatics Limited Applicant 321, Abhishek Complex, 3rd Floor, Akshar Chowk, Old Padra Road, Baroda 390 020. [PAN: AACCS 9395K] Vs. Asstt. Commissioner of Income Tax, Circle- 4, Baroda Respondent Appearances by: Sanjay R Shah for appellant Satish Solanki for respondent Date of concluding hearing : 20.07.2016 Date of pronouncing order : 19.10.2016 ORDER Per Pramod Kumar, AM: [1] short question that we are required to adjudicate in this appeal is whether, on facts and in circumstances of case, learned CIT(A) was justified in upholding penalty of Rs 95,55,000 imposed on assessee under section 271(1)(c) of Income Tax Act, 1961, for assessment year 2003-04. impugned order, passed by CIT(A), is dated 19th January, 2010 and related quantum assessment was framed under section 143(3) of Income Tax Act, 1961. .T.A. No.1618/Ahd/2010 Assessment year: 2003-04 Page 2 of 12 [2] assessee is engaged in business of, inter alia, trading in computer systems, telecom systems and installation thereof, development of computer software and maintenance of computer systems. During course of scrutiny assessment proceedings, Assessing Officer took note of note appended to computation of income which indicated that amount of Rs 2.60 crores received by assessee, on sale of transfer of intellectual property by way of expertise and knowhow in business relating to GIS (Global Information System) from its subsidiary, namely Global IP Technology Ltd, was exempt from tax- and detailed reasons of such claim. Assessing Officer then examined MOU entered into between assessee and its subsidiary, i.e. Global IP technology Ltd, and concluded that assessee company has allowed to use right to technology, along with trade name, to its subsidiary company and therefore, consideration received by assessee company is akin to transfer of trade name and brand name, associated with business, and right to carry on business . He thus concluded that receipt in question is taxable under section 555(2)(a). Aggrieved, assessee carried matter in appeal before CIT(A) but without any success. further appeal before coordinate bench of this Tribunal did not yield success either. matter is right now pending before Hon ble High Court. Hon ble High Court has admitted appeal against decision of Tribunal, confirming stand of Assessing Officer and CIT(A), on following substantial questions of law:- (i) Whether on facts and in circumstances of case, Tribunal was right in law in neither sending matter back to Assessing Officer or C.I.T. (Appeals) to decide issue after considering sale agreement of 08.08.2003 nor itself deciding matter by referring to sale agreement of 08.08.2003 and instead committing same mistake which lower authority had committed viz. deciding matter by considering MOU of 26.03.2003 only? I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 3 of 12 (ii) Whether on facts and in circumstances of case, Tribunal was right in law in holding that receipt of Rs.2,60,00,000/- for transfer of technology was revenue receipt and not non taxable capital receipt ? [3] In meantime, however, Assessing Officer has also imposed penalty under section 271(1)(c). While doing so, Assessing Officer observed as follows 6. I have considered submission of assessee. assessee, on merits, reiterated and relied upon various submission made on issue at hand during course of assessment/appellate proceedings for year under reference on merits of claim of company for exemption of Rs.2.60 crores. After considering its submission, addition was made in assessment. Further, Id. CIT [Appeals] had confirmed addition after considering submission made before him by assessee. Therefore, no further discussion is made on this account. It was next contention of assessee that assessee had made complete disclosure of issue at hand in return of income. There was no furnishing of inaccurate particulars. addition was made only on account of difference of opinion and on such additions/disallowances penalty cannot be levied u/s.271(l)(c). It was further stated that penalty is not leviable on debatable issues. contention of assessee is not acceptable. In this case, assessee has claimed sum of Rs.2.60 crores received from its associate concern GIPL on account of transfer of expertise and know-how in business relating to GIS not liable to capital gains tax in view of decision of apex court in case of B.C. Srinivasan Setty [Supra] thereby treating it as capital receipt not chargeable to capital gains tax. Whereas in assessment, Assessing Officer, after examination of memorandum of understanding between assessee and its subsidiary GIPL and noted that as per para 7 of MOU, assessee had retained right to carry on GIS related business and even trade name of ORG had not been completely transferred to subsidiary company. Only right to use technology and trade name "ORG-GIS" had been conferred on transferee. It was, therefore, held that there was no transfer of capita! asset and hence receipt of Rs.2.60 crores amounted to revenue- recent, which was taxable. He further held that consideration received by assessee was akin to transfer of trade mark or brand name associated with business and right to carry on said business. Therefore, said receipt if I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 4 of 12 treated as capital was in lieu of transfer of brand name i.e. ORG and right to carry GIS business. He held, in that case, said receipt was squarely covered by provisions of section 55(2)(a) of Income-tax Act for computing capital gain for which cost of acquisition was nil. Hence, receipt was capital gain in hands of company. On both grounds, he held that receipt becomes taxable in hands of assessee for year under consideration. decision of Assessing Officer has been upheld by Id. CIT [Appeals]. From above, it can very well seen that assessee has claimed receipt of Rs.2,60 crores received from its subsidiary company GIPL on account of transfer of expertise and know-how in business relating to geographic information system as not liable to any capital gains tax in view of decision of Hon. Supreme Court in case of B.C. Srinivasan Setty [Supra], whereas same was taxable as revenue receipt in hands of assessee as held by Assessing Officer as well as Id. CIT [Appeals]. It is, therefore, apparently seen that assessee has claimed said receipt as capital receipt not liable to capital gains tax on pretext of decision of apex court amounts to filing of inaccurate particulars of income. decision of Hon. Supreme Court is not at all applicable to facts of this case. Further, as stated hereinabove that issue is not at all debatable one. Therefore, case laws relied upon by it are of no help to assessee in any manner. It was further stated that in this case assessee has returned loss and income was also finally assessed at loss after giving effect to Id. CIT [appeals]'s order and, thus, there is motive to evade taxes by concealing income or by furnishing inaccurate particulars of income. This is also not correct. As per Explanation 4[a], in any case where amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has effect of reducing loss declared in return or convert in that loss into income, means tax that would have been charge on income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been total income. In view this explanation, penalty u/s. 271(l)(c) leviable even if total income returned as well as finally assessed is loss. Further, Hon. Supreme Court in case of Gold Coin Health Foods (Pvt.) Ltd. [218 CTR 559] has held that penalty is leviable even in loss case. This contention of assessee is also, therefore, rejected. Clause (c) of sub-section (1) of section 271 provides for penalty in case where Assessing Officer is satisfied that any person "has concealed particulars of his income or furnished inaccurate particulars of such income". By way of deeming provisions in Explanation 1 to sub-section 1, amount added or disallowed in computing total Income shall be deemed to represent income in respect of which particulars have been concealed. Thus, any variation between returned and assessed income shall be I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 5 of 12 deemed to represent income in respect of which particulars have been concealed. Thus, any variation between returned and assed income shall be deemed to be result of concealment / furnishing of inaccurate particulars of income. Explanation 1 states rule of law that in every case of addition to returned income, there is presumption of concealment. This presumption is rebuttable. onus of rebutting such presumption is on tax payer. presumption can be rebutted by offering plausible explanation. Where no explanation is offered, assessee would be liable for penalty. In instant case, no plausible reply could be offered by assessee by adducing any corroborative evidence. same amounts to furnishing of inaccurate particulars of income. In case of Dharmendra Textiles Processors [294 ITR], apex court has held that there is no necessity of mens rea in penalty proceedings u/s. 271(l)(c). penalty is against civil wrong and not against criminal offence, therefore, department did not have to prove positive act of concealment. case laws relied upon by assessee is of no help to assessee. In these circumstances, it is held that assessee has concealed particulars of its income and also furnished inaccurate particulars in respect of income as stated above. As per Explanation 1 to section 271(1), where in respect of any facts material to computation of total income of any person, additions are made because of following two reasons, amount so added shall be deemed to be income in respect of which particulars have been concealed: [a] such person fails to offer explanation or offers explanation which is found by Assessing Officer or Commissioner [Appeals] or Commissioner to be false; or [b] such person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all facts relating to same and material to computation of his total income have been disclosed by him/ In these circumstances and that assessee has failed to offer any plausible explanation, I am satisfied that assessee has willfully, knowingly and without reasonable cause furnished inaccurate particulars of its income and, thus, tried to conceal income so as to evade payment of tax thereon. Thus, Explanation 1 to section 271 of Income-tax Act, 1961 is clearly applicable to case of assessee for furnishing inaccurate particulars of income and concealing income for which it is liable to for penalty u/s.271(l)(c) of Income-tax Act, 1961. I, therefore, levy penalty of Rs,95,55,000 as against minimum penalty leviable at Rs.95,55,000 and maximum penalty leviable at Rs. 2,86,65,000 in this case. I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 6 of 12 [4] stand so taken by Assessing Officer was confirmed by CIT(A). Apart from holding that assessee s explanation, on merits, was wholly unacceptable, CIT(A) also held that mere disclosure of related facts in income tax return cannot come to rescue of assessee. On this point, his observations are as follows:- 5.2.10 However, certain observations of Hon'ble ITAT in case of Kanbay Software India Ltd. (supra) needs mentioning which apparently are relied upon by appellant. In para 63 it has been observed by ITAT that there cannot be any concealment of particulars of income on issues of legal interpretations. In para 60 of order, Tribunal has observed that expression concealment of income in its natural sense and grammatical meaning implies income is being hidden, camouflage or covered up so as it cannot be seen, found or observed. appellant has sought to interpret above observation of Tribunal to mean that once mention is made of any judicial decision, penalty under section 271(1)(c) of Act cannot be imposed because this involved different legal interpretations. Such interpretation of Hon'ble Tribunal's decision is contrary to real finding of Tribunal for two reasons. Firstly, above observation of Tribunal is made within context of peculiar facts of case before Hon'ble Bench. Secondly, if this observation is taken as proposition of law that any disclosure made in return of income or citing case law is sufficient to get assessee out of purview of provisions of Sec. 271(l)(c), then it has to be pointed out that such interpretation suffers from serious infirmities and has to be considered as per incurium. Distortion of facts with aim to fit them with ratio of pre identified case law cannot be elevated to status of honest difference of opinion on legal interpretation. It has to be understood that concealment can take various forms and misrepresentation of facts knowingly also leads to concealment of real income because it camouflages real income and creates smoke screen behind which taxability is concealed. disclosure which deliberately shrouds or camouflages taxability of income would also lead to same consequences as if income is concealed. Thus, argument that disclosure made in return is sufficient to throw protective amour against provisions of section 271(i)(c) is fallacious. This is also inconsistent with observation of higher judicial forum, Hon'ble Gujarat High Court in case of CIT Vs Vidhyagauri Natwarlal & Others (238 ITR 91). observation of honorable Gujarat High Court is reproduced hereunder as scheme of Sec.271(1)(c) cannot be explained in better way. process of enquiry into correctness, truthfulness or accuracy of particulars furnished by assessee cannot be dosed at I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 7 of 12 threshold by looking at return. That would negative and render otiose very provisions of statute. [5] CIT(A) thus confirmed impugned penalty. assessee is not satisfied and is in further appeal before us. [6] We have heard rival contentions, perused material on record and duly considered facts of case in light of applicable legal position. [7] We have noted that, as rightly pointed by Mr. Shah, assessee has made legal claim in very fair and transparent manner, and conduct of assessee cannot be faulted. Whether claim is acceptable in quantum assessment proceedings or not is altogether different matter but just because claim of assessee does not merit acceptance, such fact alone cannot be decisive of whether or not penalty under section 271(1)(c) must also be imposed in respect of disallowance of claim, or else penalty proceedings, for all practical purpose, become corollary of quantum disallowances. That s not scheme of law, and there can hardly be any debate on this issue. Hon ble Courts above have held it time and again that assessment proceedings and penalty proceedings are independent proceedings and while findings in quantum proceedings may be relevant, such findings cannot be decisive, in respect of penalty issue, at all. It is not inadmissibility of claim, but explanation for claim having been made, which is crucial in penalty proceedings. One has to examine explanation of assessee, in fair and objective manner and independent of decision on merits in assessment proceedings, and then take call whether or not such explanation is acceptable explanation or not. In CIT vs. Nathulal Agarwala & Sons [(1985) 153 I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 8 of 12 ITR 292 (Pat) (FB)] Full Bench of Hon'ble Patna High Court had, inter alia, observed as follows : "As to nature of explanation to be rendered by assessee, it seems plain on principle that it is not law that moment any fantastic or unacceptable explanation is given, burden placed upon him would be discharged and presumption rebutted. It is not law and perhaps hardly can be that any and every explanation by assessee must be accepted. In my view, explanation of assessee for purpose of avoidance of penalty must be acceptable explanation. He may not prove what he asserts to hilt positively but as matter of fact materials must be brought on record to show that what he says is reasonably valid." [8] above views were approved by Hon'ble Supreme Court in case of CIT vs. Mussadilal Ram Bharose (l987) 165 ITR 14 (SC). Referring to judgment of Hon'ble Patna High Court, Their Lordships observed : Patna High Court emphasised that as to nature of explanation to be rendered by assessee, it was plain on principle that it was not law that moment any fantastic or unacceptable explanation was given, burden placed upon him would be discharged and presumption rebutted. We agree. We further agree that it is not law that any and every explanation by assessee must be accepted. It must be acceptable explanation, acceptable to fact-finding body. [9] Clearly, therefore, it is not law that moment any fantastic or unacceptable explanation is offered, burden placed would be discharged and presumption rebutted. explanation offered by assessee should be acceptable explanation which essentially implies that explanation should not be totally opposed to human probabilities. I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 9 of 12 [10] When in light of this legal position, we turn to explanation given by assessee, we find that explanation of assessee cannot be rejected as improbable or wholly contrary to law. Hon ble jurisdictional High Court has admitted appeal and matter is pending before Their Lordships. We have also noted that it is admitted position that agreement dated 8.8.2003 has not been considered by authorities below at all, and that, coordinate bench, vide order dated 28th February 2014, admitted this position and yet declined to remit matter to file of Assessing Officer on ground that assessee could not point out any prejudice which was caused to assessee by not considering agreement dated 8.8.2003 . assessee s claim that it has transferred certain intellectual properties, such as expertise and know how, in respect of GIS business, which were self generated and therefore not liable to tax, cannot be rejected outright as improbable. It is only on fine points of arrangements that it has been held to be right to use, rather than outright transfer, which has been given to subsidiary. Under these circumstances, in our considered view, claim of assessee cannot be held to wholly unacceptable claim. [11] What is even more important is that claim has been made in very fair and transparent manner. In computation of income, copy of which was placed before us at page 73 of paper-book, assessee has made following disclosure: assessee company has with effect from March 1, 2003 transferred expertise and know-how in business relating to Geographic Information System (GIS) to it s wholly owned subsidiary viz. Global IP Technology Pvt. Ltd., company incorporated under provisions of Companies Act, 1956 and having its registered office in New Delhi at consideration of Rs.2,60,00,000 pursuant to Memorandum of Undertaking executed on March 26, 2003 between both parties. company claims I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 10 of 12 that it is not liable to any capital gains tax in view of decision of Supreme Court in case of CIT v/s B.C. Srinivasan Setty [(1981) 128 ITR 294 (SC). [12] On this issue, i.e. making legal claim in fair and transparent manner, coordinate bench of this Tribunal, in case of Kanbay Software India Ltd. vs. DCIT [(2009) 119 ITD 153 (Pune)] has observed as follows : 60. expression concealment of income has not been defined in Act, but natural meanings of expression concealment are to keep from being seen, found, observed, or discovered . It would, therefore, follow that expression concealment of income, in its natural sense and grammatical meaning, implies income is being hidden, camouflaged or covered up so as it cannot be seen, found, observed or discovered. That is certainly not situation before us. assessee has made claim, and that too by revised return which virtually ensured that fact of assessee having made this claim cannot remain unnoticed by AO, and has given specific justification and all supporting details for same. By no stretch of logic, this situation can be treated as situation in which any income is concealed by assessee. Concealment of income by assessee cannot be passive situation anyway; it implies that person concealing income is hiding, covering up or camouflaging income something which essentially requires conscious effort. On contrary, this is situation in which assessee has acted in very transparent and straightforward manner. There cannot be any concealment of income in such situation. 61. expression furnishing of inaccurate particulars of income has also not been defined in Act. expression inaccurate refers to not in conformity with fact or truth and that is meaning which, in our considered view, is relevant in context of furnishing of inaccurate particulars . expression particulars refers to facts, details, specifics, or information about someone or something . Therefore, plain meaning of expression furnishing of inaccurate particulars of income implies furnishing of details or information about incomes which are not in conformity with facts or truth. details or information about income deal with factual details of income and this cannot be extended to areas which are subjective such as status of taxability of income, admissibility of deduction and interpretation of law. furnishing of inaccurate information thus relates to furnishing of factually correct (sic-incorrect) details and information about income. In present case, however, what has been treated as furnishing of inaccurate particulars is making of claim which was not admitted by AO- I . T . . N o. 1 6 1 8 / h d / 20 1 0 s s e s s m e nt y e r : 2 0 0 3 - 0 4 Page 11 of 12 action not contested by assessee. admission or rejection of claim is subjective exercise and whether claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. authorities below have apparently proceeded to treat assessee s making incorrect claim of income as furnishing of inaccurate particulars. What is correct claim and what is incorrect claim is matter of perception. In our considered view, raising legal claim, even if it is ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income. Inaccurate , as we have noted above, is something factually incorrect and interpretation of law can never be factual aspect. Just because AO does not accept interpretation, such interpretation is not rendered incorrect. Even judgments of Hon ble Supreme Court are reversed by Larger Benches of Hon ble Supreme Court. development of law is dynamic process which is affected by innumerable factors, and it is always ongoing exercise. In such circumstances, bona fide legal claim by assessee being visited with penal consequences only because it has not been accepted thus far by tax authorities or judicial authorities is absurdity. In any event, as we have noted above, connotations of expression particulars of income do not extend to issues of interpretation of law and as such making claim, which is found to be unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income. In this view of matter, case of assessee cannot be said to be case of furnishing of inaccurate particulars of income , in its natural sense, either. [13] Of course, even when assessee makes claim in transparent manner but such case is based on patently inadmissible legal position or distortion of facts, penalty could nevertheless be leviable but that is not case here. As regards CIT Vs Vidyagauri Natverlal & Ors. [(1999] 238 ITR 91 (Guj)] relied upon by learned CIT(A), that was case in disclosure, on factual aspect, was false to knowledge of assessee, and it was in this context that Their Lordships had observed that disclosure which has been made in any part of return which is incorrect or false to knowledge of assessee and if that fact is established, such disclosure cannot take it out from purview of act of concealment of particulars for purpose of levy of penalty . It is exception to rule that .T.A. No.1618/Ahd/2010 Assessment year: 2003-04 Page 12 of 12 normally when assessee makes transparent claim that penalty cannot be imposed. facts of present case do not fall in this category of exceptions. [14] In view of above discussions, as also bearing in mind entirety of case, we are of considered view that impugned penalty of Rs.95,55,000/- deserves to be deleted as it was not fit case for imposition of penalty under section 271(1)(c) of Act. We, therefore, direct Assessing Officer to delete impugned penalty. [15] In result, appeal is allowed. Pronounced in open court today on 19th day of October, 2016. Sd/- Sd/- S S Godara Pramod Kumar (Judicial Member) (Accountant Member) Dated: 19th day of October, 2016. Copies to: (1) appellant (2) respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad ORG Informatics Limited v. Asstt. Commissioner of Income-tax, Circle-4, Baroda