O/TAXAP/360/2017 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 360 of 2017 COMMISSIONER OF INCOME TAX - VADODARA - 2 Appellant(s) Versus ORG INFORMATICS LIMITED Opponent(s) Appearance: MR KM PARIKH, ADVOCATE for Appellant(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 14/06/2017 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1 This appeal is filed by Revenue challenging judgement of Income Tax Appellate Tribunal dated 19.10.2016. Following question is presented for our consideration: Whether in facts and circumstances of case and in law, I.T.A.T is justified in not upholding penalty u/s.271(1)(c) of Act imposed by Assessing Officer and upheld by CIT(A), without appreciating that assessee had deliberately did not offer revenue receipt amounting to Rs.2,60,00,000/ to tax and claimed same as capital receipt which amounted to filing inaccurate particulars of income? 2 As can be seen from question, issue Page 1 of 5 HC-NIC Page 1 of 5 Created On Wed Jun 21 09:55:01 IST 2017 O/TAXAP/360/2017 ORDER pertains to penalty imposed by Assessing Officer and confirmed by CIT(A) and respondent assessee which was deleted by Tribunal. For assessment year 2003 04, assessee had filed return of income in which one of issues pertain to receipt of Rs.2.60crores by assessee. For transfer of intellectual property right, assessee claimed that such receipt was exempt from tax and accordingly did not offer it to tax in return filed for such year. Assessing Officer was of view that such receipt was in nature of capital gain and had to be taxed accordingly. order of Assessing Officer was confirmed by CIT(A) and Tribunal. We are informed that assessee s appeal against judgement is admitted and pending before High Court. 3 Assessing Officer had instituted penalty proceedings and issued notice to assessee in this regard. In response to such notice for penalty, assessee pointed out that return was filed along with all prescribed annexures. copy of computation of income also contained disclosure Page 2 of 5 HC-NIC Page 2 of 5 Created On Wed Jun 21 09:55:01 IST 2017 O/TAXAP/360/2017 ORDER through separate note that intellectual property rights receipt of Rs.2.60 crores was excluded from computation of income. In note 4 of computation, assessee had given detailed reasons for claiming such exemption. In Annual Report attached to return, assessee had made further following disclosures: [a] Director s report on page 10 of annual report under head subsidiaries mentions about GIPTPL being wholly owned subsidiary as well as about sale of technical know how to GIPTPL for Rs.2.60 crores. [b] schedule of other income reflected in profit and loss account for year under reference discloses aforesaid transfer of intellectual properties and amount thereof of Rs.2.60 crores as separate line item. [c] schedule L of notes to accounts and significant accounting policies lists down related party transactions at para 10 wherein transaction in question has been reported as separate I line item as sale of Intellectual property of Rs.2.60 crores to subsidiary company. 4 Despite such disclosures, Assessing Officer proceeded to impose penalty under Section 271 (1)(c) of Income Tax Act on ground that assessee failed to offer explanation for making such claim. According to Assessing Officer, once claim was Page 3 of 5 HC-NIC Page 3 of 5 Created On Wed Jun 21 09:55:01 IST 2017 O/TAXAP/360/2017 ORDER rejected onus was on assessee to dislodge revertible presumption of claim of concealment of income. CIT(A) having confirmed decision of Assessing Officer, Revenue approached Tribunal. Tribunal by impugned judgement held that assessee had made legal claim in transparent manner. Whether such claim is acceptable or not, is altogether different matter. Merely because claim is not accepted would not give rise to penalty proceedings. That, Tribunal further took note of assesses contention that even against quantum addition assessee had preferred appeal, which was admitted by High Court, which would mean that very issue of taxing income was debatable. Tribunal further noted that in computation of income, assessee had made full disclosures and had given reasons for treating income as exempt which was as under: assessee company has with effect from March 1, 2003 transferred expertise and know how in business relating to eographic 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 Page 4 of 5 HC-NIC Page 4 of 5 Created On Wed Jun 21 09:55:01 IST 2017 O/TAXAP/360/2017 ORDER both parties. company claims (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)). 5 It can thus be seen that, as matter of fact, Tribunal came to conclusion that assessee had made claim making full disclosures and in transparent manner. assessee had not only disclosed receipt in question, but had also recorded reasons for claiming that such receipt is not taxable. Tribunal, therefore, correctly came to conclusion that merely because such claim was not accepted by Revenue, would not mean automatically that assessee should be exposed to penalty proceedings. Where there was neither concealment of income nor concealment of particulars of income, Tribunal rightly did not sustain penalty orders. Tax appeal is dismissed. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Bimal Page 5 of 5 HC-NIC Page 5 of 5 Created On Wed Jun 21 09:55:01 IST 2017 Commissioner of Income-tax, Vadodara - 2 v. ORG Informatics Limited