PRINCIPAL COMMISSINOER OF INCOME TAX 1 vs. PRAKASHCHANDRA S SONI HUF

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TAXAP/977/2018HC GujaratGJHC24045198201820 August 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that there was no error or infirmity in the findings of the CIT(Appeals) and consequently deleted the penalty under Section 271(1)(c). The reasoning was that the assessee, being a HUF proprietary concern, could not have envisaged the value of the trademark/goodwill as recorded by the partnership firm in its books of accounts. Therefore, the assessee could not be held liable for concealing particulars of its income. Furthermore, the AO had taxed the income under a different head than what was directed by the Tribunal. Based on these facts, the Tribunal concluded that it was not a case for the levy of penalty under Section 271(1)(c). The High Court saw no reason to interfere with the ITAT's order.

What were the facts?

The Revenue is in appeal against the Income-Tax Appellate Tribunal's (ITAT) order dated February 26, 2018. The appeal concerns the deletion of a penalty of Rs. 1,13,30,000 levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed on income arising from the transfer of trademark/goodwill, amounting to Rs. 5 crores, which was not disclosed in the assessee's return of income. The assessee is a Hindu Undivided Family (HUF) and a partner in a partnership business. The ITAT had previously held that the proportionate income falling to the assessee's hands would be taxed as capital gains, not business income.

What were the issues?

1. Whether the Appellate Tribunal has substantially erred in deleting the penalty under Section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs. 1,13,30,000, which was levied by the AO on income arising from the transfer of Trademark/Goodwill valued at Rs. 5 crores, which was not disclosed in the return of income? Assessee's Contention (as inferred from the ITAT's reasoning): The assessee argued that they could not have foreseen the value of the trademark/goodwill as recorded by the partnership firm in its books of accounts. Therefore, the assessee cannot be held liable for concealing particulars of its income. The AO also did not tax the income under the head directed by the Tribunal but under a different head. Revenue's Contention: The Revenue contended that the ITAT erred in deleting the penalty under Section 271(1)(c) on the undisclosed income from the transfer of trademark/goodwill.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 45,Section 48

AI-generated summary — verify with the full judgment below

C/TAXAP/977/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 977 of 2018 ========================================================== PRINCIPAL COMMISSINOER OF INCOME TAX 1 Versus PRAKASHCHANDRA S SONI HUF ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 20/08/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1.  Revenue is in appeal against the judgment of the   Income­tax   Appellate   Tribunal   dated 26.2.2018 raising following question for our consideration. “Whether   the   Appellate   Tribunal   has substantially   erred   in   deleting   the penalty   u/s.271(1)(c)   of   the   Act   of Rs.1,13,30,000/­ which was levied by the AO on the income arising from transfer of Trademark/Goodwill   amount   to   Rs.5   crores which was not disclosed in the return of income ?” 2.     Issue   pertains   to   penalty   under   Section 271(1)(c)  of  the  Income­tax  Act,   1961.  The respondent assessee is an H.U.F. and who is partner in the partnership business. Income Page 1 of 3

C/TAXAP/977/2018 ORDER relates   to   valuation   of   trademark   and goodwill.   The   Tribunal   held   that   the proportionate income falling at the hands of the assessee would be taxed as capital gain and   not   business   income.   Eventually   the question   of   imposing   penalty   arose.   While confirming   view   of   the   CIT   (Appeals),   the tribunal   under   the   context   of   penalty observed as under : “18. We   have   given   a   thoughtful consideration   to   the   orders   of   the authorities   below.   Insofar   as   the treatment   of   the   consideration   of   Rs.5 crores   is   concerned,   the   dispute   is settled   and   the   same   has   to   be   taxed u/s.45   of   the   Act.   Admittedly,   it   is   a fact that in spite of the findings of the Tribunal,   the   A.O.   Treated   the   same   as income   under   the   business   head.   The provisions   of   Section   45(3)   of   the   Act clearly  states  that  for  the  purposes  of Section   48,   the   amount   recorded   in   the books   of   accounts   as   the   value   of   the capital   assets   shall   be   deemed   to   the full  value of the consideration.  In our understanding   of   the   facts,   the   HUF proprietary   concern   could   not   have envisaged

the

value

the trademark/goodwill to be recorded by the partnership   firm   in   its   books   of accounts.  Therefore,  the assessee cannot be   held   liable   for   concealing   any particulars of the its income. Moreover, the A.O. Has not taxed he income in the head   of   income   as   directed   by   the Tribunal but has taxed the same under a different head of income. On these facts, we do not find this to be a case for the Page 2 of 3

C/TAXAP/977/2018 ORDER levy of penalty u/s.271(1)(c) of the Act and   therefore   there   is   no   error   or infirmity   in   the   findings   of   the   ld. CIT(A).   Appeal   filed   by   the   Revenue   is dismissed.” 3.  We see no reason to interfere. Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 3 of 3

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