ORG INFORMATICS LTD, Baroda V. The Dy.CIT.,Circle-4, Baroda

ITA 1618/AHD/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0253 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Wholly owned subsidiary; Reasonable cause; Difference of opinion; Capital receipt; Revised return
• Section: 143(3)

Judgement Text

I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO. 1618 /AHD/201 0 ASSESSMENT YEAR: 20 03 - 04 ORG INFORMATICS LIMITED ............. ... .. APPLICANT 321, ABHISHEK COMPLEX, 3 RD FLOOR, A KSHAR C H OWK, 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 THE APPELLANT SATISH SOLANKI FOR THE RESPONDENT DATE OF CONC LUDING THE HEARING : 20.07.2016 DATE OF PRONOUNC ING THE ORDER : 19 .10.2016 O R D E R PER PRAMOD KUMAR , AM : [1] THE SHORT QUESTION THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CI T(A) WAS JUSTIFIED IN UPHOLDING THE PENALTY OF RS 95,55,000 IMPOSED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2003 - 04. THE IMPUGNED ORDER, PASSED BY THE CIT(A), IS DATED 19 TH JANUARY, 2010 AND THE RELATED QUANTUM ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 2 OF 12 [ 2 ] THE ASSESSEE IS ENGAGED IN THE BUSINESS OF, INTER ALIA, TRADING IN COMPUTER SYSTEMS, TELECOM SYSTEMS AND INSTALLATION THEREOF, DEVELOPMENT OF COMPUTER SOFTWARE AND MAINTENA NCE OF COMPUTER SYSTEMS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER TOOK NOTE OF A NOTE APPENDED TO THE COMPUTATION OF INCOME WHICH INDICATED THAT THE AMOUNT OF RS 2.60 CRORES RECEIVED BY THE ASSESSEE, ON SALE OF TRANSFER O F INTELLECTUAL PROPERTY BY WAY OF EXPERTISE AND KNOWHOW IN THE BUSINESS RELATING TO GIS (GLOBAL INFORMATION SYSTEM) FROM ITS SUBSIDIARY, NAMELY GLOBAL IP TECHNOLOGY LTD, WAS EXEMPT FROM TAX - AND THE DETAILED REASONS OF SUCH A CLAIM. THE ASSESSING OFFICER THEN EXAMINED THE MOU ENTERED INTO BETWEEN THE ASSESSEE AND ITS SUBSIDIARY, I.E. GLOBAL IP TECHNOLOGY LTD, AND CONCLUDED THAT THE ASSESSEE COMPANY HAS ALLOWED TO USE RIGHT TO TECHNOLOGY, ALONG WITH THE TRADE NAME, TO ITS SUBSIDIARY COMPANY AND THEREFORE , THE CONSIDERATION RECEIVED BY THE ASSESSEE COMPANY IS AKIN TO TRANSFER OF TRADE NAME AND BRAND NAME, ASSOCIATED WITH BUSINESS, AND RIGHT TO CARRY ON THE BUSINESS . HE THUS CONCLUDED THAT RECEIPT IN QUESTION IS TAXABLE UNDER SECTION 555(2)(A). AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. A FURTHER APPEAL BEFORE A COORDINATE BENCH OF THIS TRIBUNAL DID NOT YIELD SUCCESS EITHER. THE MATTER IS RIGHT NOW PENDING BEFORE HON BLE HIGH COURT. HON BLE HIGH COURT HAS ADM ITTED THE APPEAL AGAINST THE DECISION OF THE TRIBUNAL, CONFIRMING THE STAND OF THE ASSESSING OFFICER AND THE CIT(A), ON THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW: - (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS R IGHT IN L AW IN NEITHER SENDING THE MATTER BACK TO THE ASSESSING OFFICER OR C . I . T . (APPEALS) TO DECIDE THE ISSUE AFTER CONSIDERING THE SALE AGREEMENT OF 08.08.2003 NOR ITSELF DECIDING THE MA TT ER BY REFERRING TO THE SALE AGREEMENT OF 08.08.2003 AN D INSTEAD COMMITTING THE SAME MISTAKE WHICH THE LOWER AUTHORITY HAD COMMITTED VIZ. D ECIDING THE MATTER BY CONSIDERING MOU OF 26.03.2003 ONLY? I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 3 OF 12 ( II ) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE RECEIPT OF RS.2,60,0 0,000/ - FOR TRANSFER OF TECHNOLOGY WAS THE REVENUE RECEIPT AND NOT NON TAXABLE CAPITAL RECEIPT ? [ 3 ] IN THE MEANTIME, HOWEVER, THE ASSESSING OFFICER HAS ALSO IMPOSED THE PENALTY UNDER SECTION 271(1)(C). WHILE DOING SO, THE ASSESS ING OFFICER OBSERVED AS FOLLOWS 6. I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE. THE ASSESSEE, ON MERITS, REITERATED AND RELIED UPON VARIOUS SUBMISSION MADE ON THE ISSUE AT HAND DURING THE COURSE OF ASSESSMENT/ APPELLATE PROCEEDINGS FOR THE YEAR UNDER REFERENCE ON THE MERI TS OF THE CLAIM OF THE COMPANY FOR EXEMPTION OF RS . 2.60 CRORES. AFTER CONSIDERING ITS SUBMISSION, THE ADDITION WAS MADE IN THE ASS ESSMENT. FURTHER, THE ID. CIT [ APPEALS] HAD CONFIRMED THE ADDITION AFTER CONSIDERING THE SUBMISSION MADE BEFORE HIM BY THE ASS ESSEE. THEREFORE, NO FURTHER DISCUSSION IS MADE ON THIS ACCOUNT. IT WAS THE NEXT CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD MADE COMPLETE DISCLOSURE OF THE ISSUE AT HAND IN THE R ETURN OF INCOME. T HERE WAS NO FURNISHING OF INACCURATE PARTICULARS. THE ADDITION WAS MADE ONLY ON ACCOUNT OF DIFFERENCE OF OPINION AN D ON SUCH ADDITIONS/DISALLOWANCES PENALTY CANN O T BE LEVIED U/S.271(L)(C) . IT WAS FURTHER STATED THAT PENALTY IS NOT LEVIABLE ON DEBATABLE ISSUES. THE CONTENTION OF THE ASSESSEE IS NOT ACC EPTABLE. IN THIS CASE, THE ASSESSEE HAS CLAIMED THE SUM OF RS . 2.60 CRORES RECEIVED FROM ITS ASSOCIATE CONCERN GIPL ON ACCOUNT OF TRANSFER OF EXPERTISE AND KNOW - HOW IN THE BUSINESS RELATING TO G IS NOT LIABLE TO CAPITAL GAINS TAX IN VIEW OF THE DECISION OF THE APEX COURT IN THE CA SE OF B.C. SRINIVASAN SETTY [SUPRA] THEREBY TREATING IT AS A CAPITAL RECEIPT NOT CHARGEABLE TO CAPITAL GAINS TAX. WHEREAS IN THE ASSESSMENT, THE ASSESSING OFFICER, AFTER EXAMINATION OF THE MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE AND ITS SUBSIDIARY GIPL AND NOTED THAT AS PER PARA 7 OF THE MOU, THE ASSESSEE HAD RETA INED THE RIGHT TO CARRY ON THE G IS RELATED BUSINESS AND EVEN THE TRADE NAME OF ORG HAD NOT BEEN COMPLETELY TRANSFERRED TO THE SUBSIDIARY CO MPANY. ONLY THE RIGHT TO USE THE TECHNOLOGY AND TRADE NAME 'ORG - GIS' HAD BEEN CONFERRED ON THE TRANSFEREE. IT WAS, THEREFORE, HELD THAT THERE WAS NO TRANSFER OF CAPITA! ASSET AND HENCE THE RECEIPT OF RS.2.60 CRORES AMOUNTED TO REVENUE - RECENT , WHICH WAS TAXABLE. HE FURTHER HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS AKIN TO TRANSFER OF TRADE MARK OR BRAND NAME ASSOCIATED WITH THE BUSINESS AND RIGHT TO CARRY ON THE SAID BUSINESS. THEREFORE, THE SAID RECEIPT IF I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 4 OF 12 TREATED AS CAPITA L WAS IN LIEU OF TRANSFER OF BRAND NAME I.E. ORG AND RIGHT TO CARRY G IS BUSINESS. HE HELD, IN THAT CASE, THE SAID RECEIPT WAS SQUARELY COVERED BY THE PROVISIONS OF SECTION 55(2)(A) OF THE INCOME - TAX ACT FOR COMPUTING THE CAPITAL GAIN FOR WHICH THE COST OF ACQUISITION WAS NIL. HENCE, THE RECEIPT WAS CAPITAL GAIN IN THE HANDS OF THE COMPANY. ON BOTH THE GROUNDS, HE HELD THAT THE RECEIPT BECOMES TAXABLE IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE DECISION OF ASSESSING OFFICER HAS BEEN UP HELD BY THE ID. CIT [APPEALS]. FROM THE ABOVE, IT CAN VERY WELL SEEN THAT THE ASSESSEE HAS CLAIMED THE RECEIPT OF RS.2,60 CRORES RECEIVED FROM ITS SUBSIDIARY COMPANY GIPL ON ACCOUNT OF TRANSFER OF EXPERTISE AND KNOW - HOW IN THE BUSINESS RELATING TO GEOGRAPH IC INFORMATION SYSTEM AS NOT LIABLE TO ANY CAPITAL GAINS TAX IN VIEW OF THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF B.C. SRINIVASAN SETTY [SUPRA], WHEREAS THE SAME WAS TAXABLE AS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE AS HELD BY THE ASSESSI NG OFFICER AS WELL AS THE ID. CIT [APPEALS]. IT IS, THEREFORE, APPARENTLY SEEN THAT THE ASSESSEE HAS CLAIMED THE SAID RECEIPT AS CAPITAL RECEIPT NOT LIABLE TO CAPITAL GAINS TAX ON THE PRETEXT OF THE DECISION OF THE APEX COURT AMOUNTS TO FILING OF INACCURAT E PARTICULARS OF INCOME. THE DECISION OF THE HON. SUPREME COURT IS NOT AT ALL APPLICABLE TO THE FACTS OF THIS CASE. FURTHER, AS STATED HEREINABOVE THAT THE ISSUE IS NOT AT ALL A DEBATABLE ONE. THEREFORE, THE CASE LAWS RELIED UPON BY IT ARE OF NO HELP TO T HE ASSESSEE IN ANY MANNER. IT WAS FURTHER STATED THAT THE IN THIS CASE THE ASSESSEE HAS RETURNED A L OSS AND THE INCOME WAS ALSO FINALLY ASSESSED AT LOSS AFTER GIVING EFFECT TO THE ID. CIT [APPEALS]'S ORDER AND, THUS, THERE IS MOTIVE TO EVADE TAXES BY CON CEALING THE INCOME OR BY FURNISHING INACCURATE PARTICULARS OF I NCOM E. THIS IS ALSO NOT CORRECT. AS PER EXPLANATION 4[A] , IN ANY CASE WHERE THE AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FUR NISHED HAS THE EFFECT OF REDUCING THE LOSS DECLARED IN THE RETURN OR CONVERT IN THAT LOSS INTO INCOME, MEANS THE TAX THAT WOULD HAVE BEEN CHARGE ON THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED HAD SUCH INCOME BEEN THE TOTAL INCOME. IN VIEW THIS EXPLANATION, PENALTY U/S. 271(L)(C) LEVIABLE EVEN IF THE TOTAL INCOME RETURNED AS WELL AS FINALLY ASSESSED IS A LOSS. FURTHER, THE HON. SUPREME COURT IN THE CASE OF GOLD COIN HEALTH FOODS (PVT.) LT D. [218 CTR 559] HAS HELD THAT PENALTY IS LEVIABLE EVEN IN A LOSS CASE. THIS CONTENTION OF TH E ASSESSEE IS ALSO, THEREFORE, REJECTED. CLAUSE (C) OF SUB - SECTION (1) OF SECTION 271 PROVIDES FOR PENALTY IN CASE WHERE THE ASSESSING OFFICER IS SATISFIED THAT AN Y PERSON 'HAS CONCEALED PARTICU LARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME'. BY WAY OF DEEMING PROVISIONS IN EXPLANATION 1 TO SUB - SECTION 1, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME SHALL BE DEEMED TO REPRESE NT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THUS, ANY VARIATION BETWEEN THE RETURNED AND ASSESSED INCOME SHALL BE I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 5 OF 12 DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THUS, ANY VARIATION BETWE EN THE RETURNED AND ASSED INCOME SHAL L BE D EEMED TO BE THE RESULT OF CONCEALMENT / FURNISHING OF INACCURATE PARTICULARS OF INCOME. EXPLANATION 1 STATES A RULE OF LAW THAT IN EVERY CASE OF ADDITION TO THE RETURNED INCOME, THER E IS A PRESUMPTIO N OF CONCEALMENT . THIS PRESUMPTION IS REBUTTABLE. THE ONUS OF REBUTTING SUCH PRESUMPTION IS ON THE TAX PAYER. THE PRESUMPTION CAN BE REBUTTED BY OFFERING A PLAUSIBLE EXPLANATION. WHERE NO EXPLANATION IS OFFE RED, THE ASSESSEE WOULD BE LIABLE FOR PENALTY. IN THE INSTANT CASE, NO PLAUSIBLE REPLY COULD BE OFFERED BY THE ASSESSEE BY ADDUCING ANY CORROBORATIVE EVIDENCE. THE SAME AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS O F INCOME. IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS [294 ITR], THE APEX COURT HAS HELD THAT THERE IS NO NECESSITY OF MENS REA IN PENALTY PROCEEDINGS U/S. 271(L)(C). THE PENALTY IS AGAINST CIVIL WRONG AND NOT AGAINST CRIMINAL OFFENCE, THEREFORE, THE DEPARTMENT DID NOT HAVE TO PROVE POSITI VE ACT OF CONCEALMENT. THE CASE LAWS RELIED UPON BY THE ASSESSEE IS OF NO HELP TO THE ASSESSEE. IN THESE CIRCUMSTANCES, IT IS HELD THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME AND ALSO FURNISHED INACCURATE PARTICULARS IN RESPECT OF THE IN COME AS STATED ABOVE. AS PER EXPLANATION 1 TO SECTION 271(1), WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME OF ANY PERSON, ADDITIONS ARE MADE BECAUSE OF THE FOLLOWING TWO REASONS, THE AMOUNT SO ADDED SHALL BE DEEMED TO BE THE IN COME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED: [A] SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER [APPEALS] OR COMMISSIONER TO BE FALSE; OR [B] SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM/ IN THESE CIRCUMSTANCES AN D THAT THE ASSESSEE HAS FAILED TO OFFER ANY PLAUSIBLE EXPLANATION, I AM SATISFIED THAT THE ASSESSEE HAS WILLFULLY, KNOWINGLY AND WITHOUT REASONABLE CAUSE FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND, THUS, TRI E D TO CONCEAL THE INCOME SO AS TO EVADE P AYMENT OF TAX THEREON. THUS, EXPLANATION 1 TO SECTION 271 OF THE INCOME - TAX ACT, 1961 IS CLEARLY APPLICABLE TO THE CASE OF THE ASSESSEE FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CONCEALING THE INCOME FOR WHICH IT IS LIABLE TO FOR PENALTY U/S.271( L)(C) OF THE INCOME - TAX ACT, 1961. I, THEREFORE, LEVY A 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.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 6 OF 12 [ 4 ] THE STAND SO TAKEN BY THE A SSESSING OFFICER WAS CONFIRMED BY THE CIT(A). APART FROM HOLDING THAT THE ASSESSEE S EXPLANATION, ON MERITS, WAS WHOLLY UNACCEPTABLE, THE CIT(A) ALSO HELD THAT MERE DISCLOSURE OF RELATED FACTS IN THE INCOME TAX RETURN CANNOT COME TO THE RESCUE OF THE ASSESSEE. ON THIS POINT, HIS OBSER VATIONS ARE AS FOLLOWS: - 5.2.10 HOWEVER, CERTAIN OBSERVATIONS OF HON'BLE ITAT IN THE CASE OF KANBAY SOFTWARE INDIA LTD. (SUPRA) NEEDS MENTIONING WHICH APPARENTLY ARE RELIED UPON BY THE APPELLANT. IN PARA 63 IT HAS BEEN OBSERVED BY THE ITAT THAT THERE CANN OT BE ANY CONCEALMENT OF PARTICULARS OF INCOME ON THE ISSUES OF LEGAL INTERPRETATIONS. IN PARA 60 OF THE ORDER, THE TRIBUNAL HAS OBSERVED THAT EXPRESSION CONCEALMENT OF INCOME IN ITS NATURAL SENSE AND GRAMMATICAL MEANING IMPLIES AN INCOME IS BEING HIDDEN, CAMOUF LAGE OR COVERED UP SO AS IT CAN NOT BE SEEN, FOUND OR OBSERVED. THE APPELLANT HAS S OUGHT TO INTERPRET THE ABOVE OBSERVATION OF THE TR IBUNAL TO MEAN THAT ONCE A MENTION IS MADE OF ANY JUDICIAL DECISION, PENALTY UNDER SECTION 271(1 )(C) OF THE ACT CANNOT BE IMPOSED BECAUSE THIS INVOLVED DIFFERENT LEGAL INTERPRETATIONS. SUCH INTERPRETATION OF HON'BLE TRIBUNAL'S DECISION IS CONTRARY TO THE REAL FINDING OF THE TRIBUNAL FOR TWO REASONS. FIRSTLY, THE ABOVE OBSERVATION OF THE TRIBUNAL IS MADE WITHIN THE CONTEX T OF THE PECULIAR FACTS OF THE CASE BEFORE THE HON'BLE BENCH. SECONDLY, IF THIS OBSERVATION IS TAKEN AS A PROPOSITION OF LAW THAT ANY DISCLOSURE MADE IN THE RETURN OF INCOME OR CITING A CASE LAW IS SUFFICIENT TO GET THE ASSESSEE OUT OF THE PURVIEW OF THE P ROVISIONS 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 THE AIM TO FIT THEM WITH THE RATIO OF PRE IDENTIFIED CASE LAW CANNOT BE ELEVATED TO THE STATUS OF HONEST DIFFERENCE OF OPINION ON LEGAL INTERPRETATION. IT HAS TO BE UNDERSTOOD THAT CONCEALMENT CAN TAKE VARIOUS FORMS AND MISREPRESENTATION OF THE FACTS KNOWINGLY ALSO LEADS TO THE CONCEALMENT OF REAL INCOME BECAUSE IT CAMOUFLAGE S THE REAL INCOME AND CREATES SMOKE SCREEN BEHIND WHICH THE TAXABILITY IS CONCEALED. A DISCLOSURE WHICH DELIBERATELY SHROUDS OR CAMOUFLAGES THE TAXABILITY OF THE INCOME WOULD ALSO LEAD TO THE SAME CONSEQUENCES AS IF INCOME IS CONCEALED. THUS, THE ARGUMENT THAT THE DISCLOSURE MADE IN THE RETURN IS SUFFICIENT TO THROW PROTECTIVE AMOUR AGAINST THE PROVISIONS OF SECTION 271(I)(C) I S FALLACIOUS. T HIS IS ALSO INCONSISTENT WITH THE OBSERVATION OF THE HIGHER JUDICIAL FORUM, THE HON'BLE GUJARAT HIGH COURT IN THE CAS E OF CIT VS VIDHYAGAURI NATWARLAL & OTHERS (238 ITR 91). THE OBSERVATION OF THE HONORABLE GUJARAT HIGH COURT IS REPRODUCED HEREUNDER AS THE SCHEME OF SEC.271(1)(C) CANNOT BE EXPLAINED IN A BETTER WAY. THE PROCESS OF ENQUIRY INTO THE CORRECTNESS, TRUTHFUL NESS OR ACCURACY OF PARTICULARS FURNISHED BY THE ASSESSEE CANNOT BE DOSED AT THE I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 7 OF 12 THRESHOLD BY LOOKING AT THE RETURN. THAT WOULD NEGATIVE AND RENDER OTIOSE THE VE R Y PROVISIONS OF THE STATUTE. [ 5 ] THE CIT(A) THUS CONFIRMED THE IMPUGNED PENALTY. THE ASSES SEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US . [6 ] WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. [ 7 ] WE HAVE NOTED THAT, AS RIGHTLY POINTED BY MR . SHAH, THE ASSESSEE HAS MADE A LEGAL CLAIM IN A VERY FAIR AND TRANSPARENT MANNER, AND THE CONDUCT OF THE ASSESSEE CANNOT BE FAULTED. WHETHER A CLAIM IS ACCEPTABLE IN THE QUANTUM ASSESSMENT PROCEEDINGS OR NOT IS ALTOGETHER A DIFFERENT MATTER BUT JUST BECAUSE THE CLAIM OF THE ASSESSEE DOES NOT MERIT ACCEPTANCE, SUCH A FACT ALONE CANNOT BE DECISIVE OF WHETHER OR NOT PENALTY UNDER SECTION 271(1)(C) MUST ALSO BE IMPOSED IN RESPECT OF THE DISALLOWANCE OF CLAIM, OR ELSE THE PENALTY PROCEEDINGS, FOR ALL PRAC TICAL PURPOSE, BECOME A COROLLARY OF QUANTUM DISALLOWANCES. THAT S NOT THE SCHEME OF THE 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 INDEPEN DENT 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 THE INADMISSIBILITY OF A CLAIM, BUT EXPLANATION FOR A CLAIM HAVING BEEN MADE, WHICH IS CRUCIAL IN THE PENALTY PROCEEDINGS. ONE HAS TO EXAMINE EXPLANATION OF THE ASSESSEE, IN A FAIR AND OBJECTIVE MANNER AND INDEPENDENT OF DECISION ON MERITS IN THE ASSESSMENT PROCEEDINGS, AND THEN TAKE A CALL WHETHER OR NOT SUCH AN EXPLANATION IS AN ACCEPTABLE EXPLANATIO N OR NOT. IN CIT VS. NATHULAL AGARWALA & SONS [(1985) 153 I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 8 OF 12 ITR 292 (PAT) (FB)] FULL BENCH OF HON'BLE PATNA HIGH COURT HAD, INTER ALIA, OBSERVED AS FOLLOWS : 'AS TO THE NATURE OF THE EXPLANATION TO BE RENDERED BY THE ASSESSEE, IT SEEMS PLAIN ON PRINCIPLE TH AT IT IS NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLANATION IS GIVEN, THE BURDEN PLACED UPON HIM WOULD BE DISCHARGED AND THE PRESUMPTION REBUTTED. IT IS NOT THE LAW AND PERHAPS HARDLY CAN BE THAT ANY AND EVERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. IN MY VIEW, THE EXPLANATION OF THE ASSESSEE FOR THE PURPOSE OF AVOIDANCE OF PENALTY MUST BE AN ACCEPTABLE EXPLANATION. HE MAY NOT PROVE WHAT HE ASSERTS TO THE HILT POSITIVELY BUT AS A MATTER OF FACT MATERIALS MUST BE BROUGHT ON THE RECOR D TO SHOW THAT WHAT HE SAYS IS REASONABLY VALID.' [ 8 ] THE ABOVE VIEWS WERE APPROVED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MUSSADILAL RAM BHAROSE (L987) 165 ITR 14 (SC). REFERRING TO THE JUDGMENT OF HON'BLE PATNA HIGH COURT, THEIR LORDSHIPS O BSERVED : THE PATNA HIGH COURT EMPHASISED THAT AS TO THE NATURE OF THE EXPLANATION TO BE RENDERED BY THE ASSESSEE, IT WAS PLAIN ON PRINCIPLE THAT IT WAS NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLANATION WAS GIVEN, THE BURDEN PLACED UPO N HIM WOULD BE DISCHARGED AND THE PRESUMPTION REBUTTED. WE AGREE. WE FURTHER AGREE THAT IT IS NOT THE LAW THAT ANY AND EVERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. IT MUST BE ACCEPTABLE EXPLANATION, ACCEPTABLE TO A FACT - FINDING BODY. [9 ] CLEARLY, THEREFORE, IT IS NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLANATION IS OFFERED, THE BURDEN PLACED WOULD BE DISCHARGED AND THE PRESUMPTION REBUTTED. THE EXPLANATION OFFERED BY THE ASSESSEE SHOULD BE AN ACCEPTABLE EXPLANATION WHICH ESSENTI ALLY IMPLIES THAT THE EXPLANATION SHOULD NOT BE TOTALLY OPPOSED TO THE HUMAN PROBABILITIES. I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 9 OF 12 [ 10 ] WHEN IN THE LIGHT OF THIS LEGAL POSITION, WE TURN TO THE EXPLANATION GIVEN BY THE ASSESSEE, WE FIN D THAT THE EXPLANATION OF THE ASSESSEE CANNOT BE REJECTED A S IMPROBABLE OR WHOLLY CONTRARY TO THE LAW. HON BLE JURISDICTIONAL HIGH COURT HAS ADMITTED AN APPEAL AND THE MATTER IS PENDING BEFORE THEIR LORDSHIPS. WE HAVE ALSO NOTED THAT IT I S AN ADMITTED POSITION THAT THE AGREEMENT DATED 8.8.2003 HAS NOT BEEN CONSIDE RED BY THE AUTHORITIES BELOW AT ALL, AND THAT, THE COORDINATE BENCH, VIDE ORDER DATED 28 TH FEBRUARY 2014, ADMITTED THIS POSITION AND YET DECLINED TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE COULD NOT POINT OUT ANY PREJUDICE WHICH WAS CAUSED TO THE ASSESSEE BY NOT CONSIDERING THE AGREEMENT DATED 8.8.2003 . THE ASSESSEE S CLAIM THAT IT HAS TRANSFERRED CERTAIN INTELLECTUAL PROPERTIES, SUCH AS EXPERTISE AND KNOW HOW, IN RESPECT OF GIS BUSINESS, WHICH WERE SELF GENE RATED 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 A RIGHT TO USE, RATHER THAN OUTRIGHT TRANSFER, WHICH HAS BEEN GIVEN TO THE SUBSIDIARY. UNDER THESE CIRCU MSTANCES, IN OUR CONSIDERED VIEW, THE CLAIM OF THE ASSESSEE CANNOT BE HELD TO A WHOLLY UNACCEPTABLE CLAIM. [ 1 1] WHAT IS EVEN MORE IMPORTANT IS THAT THE CLAIM HAS BEEN MADE IN A VERY FAIR AND TRANSPARENT MANNER. IN THE COMPUTATION OF INCOME, A COPY OF WHIC H WAS PLACED BEFORE US AT PAGE 73 OF THE PAPER - BOOK, THE ASSESSEE HAS MADE THE FOLLOWING DISCLOSURE: THE ASSESSEE COMPANY HAS WITH EFFECT FROM MARCH 1, 2003 TRANSFERRED THE EXPERTISE AND KNOW - HOW IN THE BUSINESS RELATING TO GEOGRAPHIC INFORMATION SYSTEM ( GIS) TO IT S WHOLLY OWNED SUBSIDIARY VIZ. GLOBAL IP TECHNOLOGY PVT. LTD., A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 A ND HAVING ITS REGISTERED OFFICE IN NEW DELHI AT A CONSIDERATION OF RS. 2,60,00,000 PURSUANT TO THE MEMORANDUM OF UN DERTAKING EXECUTED ON MARCH 26, 2003 BETWEEN BOTH THE PARTIES. THE COMPANY CLAIMS I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 10 OF 12 THAT IT IS NOT LIABLE TO ANY CAPITAL GAINS T A X IN VIEW OF DECISION OF S UPREME COURT IN THE C AS E OF CIT V/S B.C. SRINIVASAN SETTY [(1981) 128 ITR 294 (SC). [1 2 ] ON THIS ISS UE, I.E . MAKING A LEGAL CLAIM IN A FAIR AND TRANSPARENT MANNER, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF KANBAY SOFTWARE INDIA LTD . V S . DCIT [(2009) 119 ITD 153 (PUNE)] HAS OBSERVED AS FOLLOWS : 60. THE EXPRESSION CONCEALMENT OF INCOME HAS NOT BEEN DEFINED IN THE ACT, BUT THE NATURAL MEANINGS OF THE EXPRESSION CONCEALMENT ARE TO KEEP FROM BEING SEEN, FOUND, OBSERVED, OR DISCOVERED . IT WOULD, THEREFORE, FOLLOW THAT THE EXPRESSION CONCEALMENT OF INCOME, IN ITS NATURAL SENSE AND GRAMMATICAL ME ANING, IMPLIES AN INCOME IS BEING HIDDEN, CAMOUFLAGED OR COVERED UP SO AS IT CANNOT BE SEEN, FOUND, OBSERVED OR DISCOVERED. THAT IS CERTAINLY NOT THE SITUATION BEFORE US. THE ASSESSEE HAS MADE A CLAIM, AND THAT TOO BY REVISED RETURN WHICH VIRTUALLY ENSURED THAT THE FACT OF ASSESSEE HAVING MADE THIS CLAIM CANNOT REMAIN UNNOTICED BY THE AO, AND HAS GIVEN SPECIFIC JUSTIFICATION AND ALL THE SUPPORTING DETAILS FOR THE SAME. BY NO STRETCH OF LOGIC, THIS SITUATION CAN BE TREATED AS A SITUATION IN WHICH ANY INCOME IS CONCEALED BY THE ASSESSEE. CONCEALMENT OF AN INCOME BY AN ASSESSEE CANNOT BE A PASSIVE SITUATION ANYWAY; IT IMPLIES THAT THE PERSON CONCEALING THE INCOME IS HIDING, COVERING UP OR CAMOUFLAGING AN INCOME SOMETHING WHICH ESSENTIALLY REQUIRES A CONSCIOUS E FFORT. ON THE CONTRARY, THIS IS A SITUATION IN WHICH THE ASSESSEE HAS ACTED IN VERY TRANSPARENT AND STRAIGHTFORWARD MANNER. THERE CANNOT BE ANY CONCEALMENT OF INCOME IN SUCH A SITUATION. 61. THE EXPRESSION FURNISHING OF INACCURATE PARTICULARS OF INCOME H AS ALSO NOT BEEN DEFINED IN THE ACT. THE EXPRESSION INACCURATE REFERS TO NOT IN CONFORMITY WITH THE FACT OR TRUTH AND THAT IS THE MEANING WHICH, IN OUR CONSIDERED VIEW, IS RELEVANT IN THE CONTEXT OF FURNISHING OF INACCURATE PARTICULARS . THE EXPRESSIO N PARTICULARS REFERS TO FACTS, DETAILS, SPECIFICS, OR INFORMATION ABOUT SOMEONE OR SOMETHING . THEREFORE, THE PLAIN MEANING OF THE EXPRESSION FURNISHING OF INACCURATE PARTICULARS OF INCOME IMPLIES FURNISHING OF DETAILS OR INFORMATION ABOUT INCOMES WHI CH ARE NOT IN CONFORMITY WITH THE FACTS OR TRUTH. THE DETAILS OR INFORMATION ABOUT INCOME DEAL WITH THE FACTUAL DETAILS OF INCOME AND THIS CANNOT BE EXTENDED TO AREAS WHICH ARE SUBJECTIVE SUCH AS THE STATUS OF TAXABILITY OF AN INCOME, ADMISSIBILITY OF A DE DUCTION AND INTERPRETATION OF LAW. THE FURNISHING OF INACCURATE INFORMATION THUS RELATES TO FURNISHING OF FACTUALLY CORRECT (SIC - INCORRECT) DETAILS AND INFORMATION ABOUT INCOME. IN THE PRESENT CASE, HOWEVER, WHAT HAS BEEN TREATED AS FURNISHING OF INACCURAT E PARTICULARS IS MAKING OF A CLAIM WHICH WAS NOT ADMITTED BY THE AO - I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 11 OF 12 AN ACTION NOT CONTESTED BY THE ASSESSEE. THE ADMISSION OR REJECTION OF A CLAIM IS A SUBJECTIVE EXERCISE AND WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO WITH FURNISHING OF INA CCURATE PARTICULARS OF INCOME. THE AUTHORITIES BELOW HAVE APPARENTLY PROCEEDED TO TREAT ASSESSEE S MAKING AN INCORRECT CLAIM OF INCOME AS FURNISHING OF INACCURATE PARTICULARS. WHAT IS A CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM IS A MATTER OF PERCEPTION . IN OUR CONSIDERED VIEW, RAISING A 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 INTERPRE TATION OF LAW CAN NEVER BE A FACTUAL ASPECT. JUST BECAUSE AN AO DOES NOT ACCEPT AN INTERPRETATION, SUCH AN INTERPRETATION IS NOT RENDERED INCORRECT. EVEN THE JUDGMENTS OF HON BLE SUPREME COURT ARE REVERSED BY THE LARGER BENCHES OF HON BLE SUPREME COURT. TH E DEVELOPMENT OF LAW IS A DYNAMIC PROCESS WHICH IS AFFECTED BY THE INNUMERABLE FACTORS, AND IT IS ALWAYS AN ONGOING EXERCISE. IN SUCH CIRCUMSTANCES, A BONA FIDE LEGAL CLAIM BY THE ASSESSEE BEING VISITED WITH PENAL CONSEQUENCES ONLY BECAUSE IT HAS NOT BEEN ACCEPTED THUS FAR BY THE TAX AUTHORITIES OR JUDICIAL AUTHORITIES IS AN ABSURDITY. IN ANY EVENT, AS WE HAVE NOTED ABOVE, THE CONNOTATIONS OF EXPRESSION PARTICULARS OF INCOME DO NOT EXTEND TO THE ISSUES OF INTERPRETATION OF LAW AND AS SUCH MAKING A CLAIM, WHICH IS FOUND TO BE UNACCEPTABLE IN LAW, CANNOT BE TREATED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THIS VIEW OF THE MATTER, THE CASE OF THE ASSESSEE CANNOT BE SAID TO BE A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME , IN ITS NATU RAL SENSE, EITHER . [1 3 ] OF COURSE, EVEN WHEN ASSESSEE MAKES A CLAIM IN TRANSPARENT MANNER BUT SUCH A CASE IS BASED ON PATENTLY INADMISSIBLE LEGAL POSITION OR DISTORTION OF FACTS, THE PENALTY COULD NEVERTHELESS BE LEVIABLE BUT THAT IS NOT THE CASE HERE. A S REGARDS THE CIT VS VIDYAGAURI NATVERLAL & ORS . [(1999] 238 ITR 91 (GUJ)] RELIED UPON BY THE LEARNED CIT(A), THAT WAS A CASE IN DISCLOSURE, ON A FACTUAL ASPECT, WAS FALSE TO THE KNOWLEDGE OF THE ASSESSEE, AND IT WAS IN THIS CONTEXT THAT THEIR LORDSHIPS HA D OBSERVED THAT DISCLOSURE WHICH HAS BEEN MADE IN ANY PART OF THE RETURN WHICH IS INCORRECT OR FALSE TO THE KNOWLEDGE OF THE ASSESSEE AND IF THAT FACT IS ESTABLISHED, SUCH DISCLOSURE CANNOT TAKE IT OUT FROM THE PURVIEW OF THE ACT OF CONCEALMENT OF PARTICU LARS FOR THE PURPOSE OF LEVY OF PENALTY . IT IS AN EXCEPTION TO THE RULE THAT I.T.A. NO.1618 /AHD/201 0 ASSESSMENT YEAR: 200 3 - 04 PAGE 12 OF 12 NORMALLY WHEN THE ASSESSEE MAKES A TRANSPARENT CLAIM THAT THE PENALTY CANNOT BE IMPOSED. THE FACTS OF THE PRESENT CASE DO NOT FALL IN THIS CATEGORY OF EXCEPTIONS. [1 4 ] IN VIEW O F THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED PENALTY OF RS . 9 5 ,55,000 / - DESERVES TO BE DELETED AS IT WAS NOT A FIT CASE FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT . W E, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED PENALTY. [1 5 ] IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 19 TH DAY OF OCTOBER , 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 19 TH DAY OF OCTOBER , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME T AX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD