DANIEL MEASUREMENT SOLUTIONS PVT.LTD.,BARODA vs. THE DY.CIT, CIRCLE-1(1),, BARODA

Since, the penalty has been imposed on the basis of the quantum proceedings, the appeals arising in the quantum proceedings as well as in the penalty proceedings have been heard together and are being disposed of by this common order.

We shall first take the appeal of the assessee in quantum proceedings in ITA No. 2716/Ahd/2011 for adjudication purposes.

As per the ground of appeal, the assessee, in essence, has challenged the action of the Revenue in subjecting the receipt of Rs.88,07,635/- to taxation received in lieu of books value of certain assets transferable to the assessee owing to the process of demerger. In short, whereas the assessee has treated the aforesaid amount received in lieu of assets to be transferred to assessee as a result of demerger as capital receipt, the Revenue has treated the aforesaid amounts as revenue receipt and brought the same to be chargeable income of the assessee.

Briefly stated, the assessee, a company, is engaged in the business of design and marketing of gas and liquid measurement and analytic products etc. The return filed by the assessee was subjected to scrutiny assessment. In the course of the assessment proceedings, on verification of accounts, it was found by the AO that in the demerger scheme, the assessee company was entitled to receive certain assets, which was not actually received by the company. These assets were not eventually transferred to the assessee company as originally

Aggrieved, the assessee preferred appeal before the CIT(A).

Before the CIT(A), the assessee reiterated that it has come into existence upon a scheme of demerger approved by the Hon’ble Gujarat High Court. As per the scheme of demerger, all the assets and liabilities pertaining to metering division of AST were to be transferred to the assessee company but while carrying out actual process of transfer of the assets and liabilities, certain assets of that company were not transferred. Similarly, certain liabilities, which were to be discharged by AST, were transferred to the assessee company instead. The aggregate amount of such assets and liabilities stands at Rs.1,00,71,502/-. The assessee company has received the aforesaid sum being the value of the assets now transferred and the excess liabilities transferred. It was claimed by the Assessee before the CIT(A) that the receipt is of capital nature in the hands of the assessee company. The CIT(A), however, observed that consideration received in lieu of non-transfer of assets in the form of stock in trade,

Aggrieved by the addition of Rs.88,07,635/- as confirmed by the CIT(A), the assessee preferred appeal before the Tribunal.

The learned AR for the assessee submitted that the controversy revolves around the determination of nature of receipts for non- transfer of assets agreed to be transferred by AST as a result of demerger. The learned AR reiterated the submissions made before the CIT(A) and pointed out that out of total assets and liabilities to be acquired pursuant to the scheme of demerger (against which the assessee has issued fully paid equity shares to the shareholder of AST), the assessee has not received certain assets, for which, it received the consideration determined at book value. The amount so received is, thus, a capital receipt. When pointed out to the AR for the assessee by the bench that most of the assets are revenue in character, the learned AR submitted that as regard inventory of Rs.26,54,931/- not transferred by the promoter company AST, the assessee has accounted for the same as per Schedule 17 under the head ‘cost of sales’. As regards consideration received towards non transfer of car amounting to Rs.13,15,351/-, the learned AR submitted that it is clearly in the nature of fixed assets, sale of which will give rise to capital receipt. The learned AR accordingly submitted that the Revenue Authorities have not appreciated the facts in perspective.

The learned DR, in defense, relied upon the order of the CIT(A).

We have carefully considered the rival submissions and perused the orders of the authorities below and documents referred in the course of hearing as per Rule 18(6) of the ITAT Rules, 1963. The controversy essentially involves with respect to the nature of receipt by the assessee (formed as a result of demerger) from the parent company for non transfer of assets. From a bare glance of the items not transferred (which gave rise to the receipt of consideration in lieu thereof), we observe that all the items are of revenue nature except receipt against the book value of car. As regards claim of the assessee that a stock not transferred by the parent company forms part of the cost of sales, we find the argument to be fallacious. The Schedule 17 referred to in this regard in facts shows that stock not transferred has been excluded from the inventory. The receipts hardly are against the capital items except for car, as noted above. We thus do not find any infirmity in the findings of the CIT(A) in this regard except to the extent of Rs.13,15,351/- received in connection with non-transfer of car to the assessee company. Consequently, the assessee gets part relief to the extent of Rs.13,15,351/- out of relief claimed of Rs.88,07,635/-.

In the result, the appeal of the Assessee in ITA No.2716/Ahd/2011 is partly allowed.

We shall now turn to the penalty appeal in ITA No. 2331/Ahd/2014.

The assessee has simultaneously challenged the action of the CIT(A) for endorsing penalty of Rs.30 Lakhs as levied by the AO

Defending the action of the assessee, the learned AR for the assessee submitted that without prejudice to the challenge of quantum additions, all the relevant facts concerning the issue with full particulars were disclosed in the financial statement by way of ‘note’ as well as in the course of assessment proceedings. No inaccuracy with regard to furnishing of particulars has been alleged nor could have been. It was further contended that issue is highly debatable as it concerns nature of receipt of consideration as to whether it is capital in nature (not liable for tax) or revenue which is susceptible to tax. The learned AR submitted that the penalty under s. 271(1)(c) of the Act cannot be imposed in such circumstances, notwithstanding the outcome in the quantum proceedings. The learned AR relied upon the decision of Hon’ble Supreme Court in the case Reliance Petroproducts 322 ITR 158 (SC) where the meaning of ‘furnishing of inaccurate particulars of income’ has been explained. The learned AR also relied upon the decision of Hon’ble Gujarat High Court’s decision in case of Sarabhai Chemical (P) Ltd. [2002] 257 ITR 355 (Guj.) and submitted that the action of the assessee is in the realm of bonafide and therefore, provisions of Section 271(1)(c) of the Act are not attracted.

The learned DR relied upon the respective orders of the AO and CIT(A) concerning penalty imposed.

We have carefully considered the rival submissions. The penalty has been imposed by the Revenue on non consideration of certain receipts by the assessee as revenue item. We find in this regard that one of the items considered to be revenue by the AO is found to be

In the result, the penalty appeal of the Assessee in ITA No. 2331/Ahd/2014 is allowed.

In the combined result, the appeal of the Assessee in ITA No.2716/Ahd/2011 is partly allowed whereas in ITA No. 2331/Ahd/2014 is allowed.