IT : Wrong claim made merely due to misinterpretation of amended provision won't attract concealment penalty
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[2013] 39 taxmann.com 173 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Assistant Commissioner of Income-tax
v.
M. Ravinder*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT Appeal Nos.1010 (Hyd.) of 2010 & 315 (Hyd.) of 2011
[ASSESSMENT YEARS 2005-06 & 2006-07]
[ASSESSMENT YEARS 2005-06 & 2006-07]
AUGUST 31, 2012
Section 271(1)(c), read with sections 48 and 94, of the Income-tax Act, 1961 - Penalty - Concealment of Income [Disallowance of claim, effect of] - Assessment years 2005-06 and 2006-07 - While computing short-term capital gains, assessee deducted securities transaction tax, interest paid to broker etc. - Assessing Officer relying upon provisions of sections 48 and 94 disallowed said deductions - On basis of above disallowance, penalty under section 271(1)(c) was also imposed - Whether since assessee furnished full details of shares on which dividend was received and loss which was set off, there was no concealment of any particulars of income - Held, yes - Whether claim of assessee could not be allowed because provisions of Act were amended with effect from 1-4-2005 and assessee had made a wrong claim in considering new amendments, there was a bona fide error on part of assessee and that could not be a reason for levy of penalty - Held, yes - Whether, therefore, penalty order was to be set aside - Held, yes [Paras 5 & 6] [In favour of assessee]
FACTS
| ■ | The assessee declared certain income which included long-term capital gains and short-term capital gains. He claimed securities transaction tax, interest paid to broker and loss on short-term capital gains from shares on which dividend was received while computing the short-term capital gains. | |
| ■ | The Assessing Officer added the securities transaction tax interest paid to broker and disallowance under section 94 being dividend received on shares attracting short-term capital gains of Rs. 41,95,162. With regard to the lapse of the assessee in claiming the loss on short-term capital gains on the shares in which dividend has been received by the assessee and which attracts disallowance under section 94, the Assessing Officer levied penalty under section 271(1)(c). | |
| ■ | The Commissioner (Appeals) deleted the penalty by holding that mere making of a claim by an assessee in his assessment which was not sustainable in law, by itself, would not amount to furnishing inaccurate particulars of income or concealment of income and such a claim made in the return could not be a reason for levy of penalty under section 271(1)(c). | |
| ■ | On second appeal : |
HELD
| ■ | It is an admitted fact that provisions of section 48 are amended with effect from 1-4-2005 as per which securities transaction tax is not allowable. Similarly, provisions of section 94(7)(b) are also introduced with effect from 1-4-2005 by the Finance (No. 2) Act, 2004. The assessee furnished full details of shares on which dividend was received and loss which was set off. [Para 4] | |
| ■ | As the assessee furnished the above information before the Assessing Officer, it cannot be said that the assessee has concealed any particulars of income. Now, the issue is limited to making a wrong claim by the assessee. The assessee explained that this is the first year of assessment after introduction of the above provisions and the claim made by the assessee, though inaccurate, was an inadvertent mistake which cannot be a reason for levy of penalty under section 271(1)(c). [Para 5] | |
| ■ | Mere making of a wrong claim by the assessee by itself shall not constitute concealment of income or furnishing inaccurate particulars of income. The Assessing Officer has to complete the assessment after verifying various claims of the assessee. It is very much necessary to verify the claim of the assessee and if it is a genuine claim it has to be allowed. The claim of the assessee could not be allowed because provisions of Act that were amended with effect from 1-4-2005 and the assessee had made a wrong claim in considering the new amendments, there was a bona fide error on the part of the assessee and that cannot be a reason for levy of penalty. More so, the assessee admitted the mistake in the course of assessment proceedings. Being so, there is a reasonable cause in this case. Accordingly, the order of Commissioner (Appeals) is to be confirmed. [Para 6] |
CASE REVIEW
CIT v. Honeywell Dace (India) Ltd. [2007] 292 ITR 169/[2006] 155 Taxman 530 (Delhi); CIT v. Mehta Engineers Ltd. [2008] 300 ITR 308 (Punj. & Har.); CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) and Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 6) followed.
CASES REFERRED TO
CIT v. Honeywell Dace (India) Ltd. [2007] 292 ITR 169/[2006] 155 Taxman 530 (Delhi) (para 5), CIT v. Mehta Engineers Ltd. [2008] 300 ITR 308 (Punj. & Har.) (para 5), CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 5) and Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 6).
M. Dayasagar for the Appellant. A.V. Raghuram for the Respondent.
ORDER
Chandra Poojari, Accountant Member - These two appeals by the Revenue are directed against different orders of the Commissioner of Income-tax (Appeals)-VI, Hyderabad, dated April 26, 2010 and November 15, 2010 for the assessment years 2005-06 and 2006-07.
2. The Revenue's grievance in these appeals is with regard to deletion of penalty by the Commissioner of Income-tax (Appeals) levied under section 271(1)(c) of the Income-tax Act, 1961.
3. The brief facts of the issue, relating to the assessment year 2005-06, are that the assessee is an individual deriving income from salary and other sources. For the assessment year 2005-06, he has filed return of income admitting an income of Rs. 3,23,47,200. This included long-term capital gain and short-term capital gains also. The Assessing Officer completed the assessment determining the income at Rs. 5,51,54,588. This includes securities transaction tax of Rs. 62,48,476 and disallowance under section 94 being dividends received on shares attracting short-term capital gain. During the penalty proceedings, the assessee submitted that this is the first year of assessment after introduction of provisions of taxing short-term capital gains at concessional rate wherein the securities transaction tax should not be considered. This mistake crept in inadvertently and the same continued in the subsequent year also. Therefore, the claim of securities transaction tax deduction is made by mistake and similar is the case of claim of loss in case of dividend stripping and hence accepted for addition. It was also submitted that all the facts relating to computation of income is before the Assessing Officer and there is no inaccuracy in the particulars inasmuch as the same details only are used to add back. However, the Assessing Officer, not accepting the submissions, levied penalty under section 271(1)(c) of Rs. 14,12,091 stating that claim of loss is agreed to be wrongly made. On appeal, the Commissioner of Income-tax (Appeals) deleted the penalty by holding that mere making of a claim by an assessee in his assessment which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income or concealment of income and such a claim made in the return cannot be a reason for levy of penalty under section 271(1)(c) of the Act. Against this, the Revenue is in appeal before us.
4. We have heard both the parties and perused material on record. In this case, the assessee claimed securities transaction tax, interest paid to broker and loss on short-term capital gains from shares on which dividend was received while computing the short-term capital gains. The Assessing Officer added the securities transaction tax of Rs. 50,10,730, interest paid to broker of Rs. 12,86,814 and disallowance under section 94 being dividend received on shares attracting short-term capital gains of Rs. 41,95,162. With regard to the lapse of the assessee in claiming the loss on short-term capital gains on the shares in which dividend has been received by the assessee and which attracts disallowance under section 94 of the 1961 Act, the Assessing Officer levied penalty under section 271(1)(c) of the Act. Thus there was a wrong claim of set-off of excess loss under short-term capital gains to the tune of Rs. 41,95,162 and the same was added to the income of the assessee and penalty under section 271(1)(c) of the Act was levied. This wrong claim was accepted by the assessee after being pointed out by the Assessing Officer. According to the Assessing Officer, the acceptance of wrong claim was not voluntary and it was done after it was pointed out by the Assessing Officer in the course of assessment proceedings. It is an admitted fact that provisions of section 48 are amended with effect from April 1, 2005 as per which securities transaction tax is not allowable. Similarly, provisions of section 94(7)(b) are also introduced with effect from April 1, 2005 by the Finance (No. 2) Act, 2004. The assessee furnished full details of shares on which dividend was received and loss which was set off. The details are as follows :
| Sl.No. | Name of scrip | Set-off or excess loss added back (Rs.) |
| 1. | Reliance Growth Fund | 1,08,366 |
| 2. | Balaji Tele Films | 7,49,145 |
| 3. | Godfrey Phillips | 30,273 |
| 4. | ONGC | 31,82,692 |
| 5. | Jindal Steel Vijayanagar | 1,24,686 |
| 6. | HPCL (short-term capital gains before 30.9.04) | 7,49,140 |
5. As the assessee furnished the above information before the Assessing Officer, it cannot be said that the assessee has concealed any particulars of income. Now, the issue is limited to making a wrong claim by the assessee. The assessee explained that this is the first year of assessment after introduction of the above provisions and the claim made by the assessee, though inaccurate, was an inadvertent mistake which cannot be a reason for levy of penalty under section 271(1)(c) of the Act. The assessee relied on the following case law :
| (a) | CIT v. Honeywell Dace (India) Ltd. [2007] 292 ITR 169 [2006] 155 Taxman 530 (Delhi) wherein, dismissing the appeal, it was held that the Commissioner and the Tribunal had concurrently come to the conclusion that the assessee had not furnished any incorrect particulars in the returns filed by it and that merely because the assessee had not been able to substantiate its claim for deduction of the amounts suffered towards losses, that was no ground for holding that the expenses were not genuine. There is, in our view, no error of law in that view to warrant interference by this Court. Since the assessee had on the findings recorded by the Commissioner and the Tribunal furnished all the particulars relating to the expenditure claimed in its profit and loss account and also loss on account of sale of shares, the deletion of penalty by the Commissioner and the Tribunal was legally justified. | |
| (b) | CIT v. Mehta Engineers Ltd. [2008] 300 ITR 308 (Punj. & Har.) wherein, dismissing the appeals, held that undisputedly, in this case, the assessee had only claimed certain expenditure incurred on the education of V on the basis of a written agreement, according to which, he was to serve the company for at least three years after finishing his studies abroad. It is neither the case of the Revenue nor was there any material available on record that the said agreement was a false and fabricated document. Moreover, there was no such finding recorded by any adjudicating authority. Penalty could not be imposed under section 271(1)(c). | |
| (c) | CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) wherein held that where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false. There is no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. |
6. We have gone through the above judgments. In our opinion, in view of the above judgments, mere making of a wrong claim by the assessee by itself shall not constitute concealment of income or furnishing inaccurate particulars of income. The Assessing Officer has to complete the assessment after verifying various claims of the assessee. It is very much necessary to verify the claim of the assessee and if it is a genuine claim it has to be allowed. The claim of the assessee could not be allowed because provisions of the Act that were amended with effect from April 1, 2005 and the assessee has made a wrong claim in considering the new amendments and in our opinion, there is a bona fide error on the part of the assessee and that cannot be a reason for levy of penalty. More so, the assessee admitted the mistake in the course of assessment proceedings. Being so, we are of the opinion that there is a reasonable cause in this case. The provisions of section 271(1)(c) of the Act give discretionary powers to the Assessing Officer to levy or not to levy penalty in the case of concealment of income or furnishing inaccurate particulars of income. In the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) it was held that penalty should not be imposed merely because it is lawful to do so. The Assessing Officer has to exercise his discretion judiciously. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In view of the above, we confirm the order of the Commissioner of Income-tax (Appeals).
7. The facts in ITA No. 315/Hyd/11 for the assessment year 2006-07 are similar to the facts in the assessment year 2005-06. Hence, the issue raised in this appeal by the Revenue is also dismissed.
8. In the result, both the appeals of the Revenue are dismissed.
USP *In favour of assessee.
Regards
Prarthana Jalan
__._,_.___
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