Mistake indetermining the rate of tax cannot be consider as consealment of income

IN THE INCOME TAX APPELLATE TRIBUNAL “A ” BENCH, MUMBAI

BEFORE SHRI P.M.JAGTAP, AM & SHRI AMIT SHUKLA, JM

ITA No.7707/Mum/2010

Assessment Year: 2006-2007)

The ACIT, 18(1), Mumbai

(Appellant)

Vs.

Shri Amit Bajaj, 13/14, Adarsh Nagar, Worli, Mumbai-400 025.

(Respondent)

PAN No.AAHPB 0258 J

Appellant by: Ms. Anu Krishna

Respondent by: Mr. N.H.Dutia

Date of Hearing: 31st July, 2012

Date of Pronouncement: 3rd August, 2012

O R D E R

PER AMIT SHUKLA (J.M.):

This appeal has been filed by the department against the order dated 18-8-2010, passed by the CIT(A)-29, Mumbai in relation to the proceeding under Section 271(1)(c) on the following grounds of appeal :-

“1. The order of the CIT(A) is opposed to law and facts of the case.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in accepting the explanation of the assessee as regards to lower tax rate of 10% for Capital gain as against higher tax rate of 20% as bonafide and consequently erred in deleting the penalty levied U/s 271(1)(c) of the I.T.Act 1961 of `.12,19,488/-.”

2. Brief facts of the case are that the assessee has declared long term capital gains of `.1,28,258,902/- out of which long term capital gain, of `.3,75,902/- pertained to listed shares. The entire LTCG was claimed as exempt under section 10(38) including the capital gain of `.1,24,50,000/- pertaining to sale of unlisted shares. The assessee had accordingly offered tax at the rate of 10% without taking the benefit of indexation. During the course of the assessment proceedings, the assessee was required by the Assessing Officer as to why the long term capital gain should not be taxed at the rate of 20% instead of 10% as most of the shares were unlisted. The assessee thereafter revised the computation of long term capital gain at `.1,22,65,695/- after taking the benefit of indexation and admitted that due to the bonafide mistake, the tax was paid at the rate of 10% instead of 20%. The relevant explanation before the Assessing Officer at the time of assessment proceedings were as under:-

“the assessee has earned a long term capital gain of `.1,24,50,000/- on sale of shares of a Private Ltd. Co. The assessee had disclosed this income under the head of “income from long term capital gain” in the return of income filed. The assessee was under the impression that if cost of inflation is not taken into consideration the rate of tax payable is 10% as against 20% if the cost of inflation is taken into consideration, and according the assessee has calculated income tax and paid the same before filing of return of income. As the rates of income tax on long term capital against are change frequently. It was a case of Bona fide mistake rather than a deliberate mistake on the part of the assessee.”

2.1 Accordingly, the revised computation of income was accepted by the Assessing Officer. However, in the penalty proceedings, the Assessing Officer observed that the assessee was in clear knowledge of different tax treatment of listed as well as unlisted shares for the purpose of section 112, and therefore assessee is liable for penalty under Section 271(1)(c) and imposed the penalty of `.12,08,139/-. He also imposed penalty on the disallowance of short term capital loss of `.1,13,486/- on the sale of shares of Torrent Pharma Ltd. as the assessee has sold these shares within a month, wherein the company has issued bonus shares on these shares, and therefore, the loss of `.1,13,486/- has to be adjusted under Section 94(8). Accordingly, penalty was levied on this wrong claim of loss.

3. In the first appeal, learned CIT(A) deleted the penalty on the ground that there is neither a concealment of income nor furnishing of any inaccurate particulars as the assessee has disclosed all the particulars of income. The only dispute relates to levy of tax at the rate of 20%, which cannot be the reason for levying penalty under Section 271(1)(c). The relevant observation of the CIT(A) are reproduced hereunder :-

“6. I have carefully considered the facts of the case, arguments of the Assessing Officer and the written submissions of the Authorised Representative of the appellant. The appellant has furnished all particulars of transaction in shares which has resulted in long term capital gain. It has categorically disclosed in the computation of income that long term capital gain amounting to `.1,24,50,000/- is on sale of unlisted shares. There is neither concealment nor furnishing of inaccurate particulars. Only thing that appellant has claimed in the computation is that tax payable on the long term capital gain of unlisted shares at 10%. Even at the “tax payable” part it has been clearly mentioned that 10 is calculated on the gains relating to “unlisted shares”. The mistake of the appellant is only calculation of tax. The mistake in calculation of tax would not attract penalty u/s. 271(1)(c). The appellant has stated that he was under the impression that if the cost inflation index is not taken into consideration the tax rate applicable would be 10%. I find that there is no concealment of income or gain and nor even filing of inaccurate particulars. In the case of Reliance Petroproducts Pvt. Ltd.(2010) 322 ITR 158 (SC) the Apex Court has held that making an incorrect claim would not amount to furnishing of inaccurate particulars and inaccurate claim has to be on the basis of income disclosed in the return of income. In this case the income disclosed has not been changed. Mere making a claim which is not sustainable in law will not amount to furnishing of inaccurate particulars of income. The Apex Court has considered the decision of Dilip N Shroff 291 ITR 519 (SC) and the Dharmendra Textile Processors 306 ITR 277 (SC) before deciding the issue.”

4. Learned Senior DR submitted that the assessee was fully aware of the provisions of Section 112, which clearly provides that rate of 10% shall be allowed on the long term capital gain in respect of listed shares only. The action of the assessee is in violation of statutory provisions, hence, same amounts to furnishing of inaccurate particulars of income. She submitted that details in return of income has no relevance as the claim of 10% itself was false. Therefore, penalty has rightly been levied by the Assessing Officer. Further, with regard to disallowance of loss of short term capital gain she submitted that, it was again in violation of Section 94(8), which is a very specific provision.

4.1 On the other hand, learned counsel for the assessee submitted that there is no concealment of income as the assessee has duly shown the long term capital gain in the return of income and has also paid the taxes. However, it was purely due to bonafide mistake that rate of tax at 10% was paid on unlisted shares. Thus, it cannot be a case of concealment of income. Similarly, he submitted that claim of short term capital loss was also made due to bonafide mistake. The explanation before the CIT(A) on this score (i.e. claim of short term capital loss) was under:-

“The learned Deputy Commissioner of Income Tax has disallowed the short term capital loss on sale of shares of Torrent Pharma Ltd. u/s.94(8) of the I.T.Act, 1961. The appellant has purchased 400 shares of Torrent Pharma Ltd. on 07-02-2006 @ `.492.20 per share and sold the same on 07-03-2006 whereby incurred a short term capital loss of `.1,13,486/-. This loss was shown by the appellant in computation of income. The said company has issued 200 bonus shares on 20-02-2006. The same were shown in the statement of investment and valued at Nil value. The provision of Sec.55(2)(aa)(iia) of the Income Tax Act, 1961 clearly state that the Bonus shares are to be valued at Nil price for the purpose of investment. The policy of the appellant is to value the investment on FIFO basis. Accordingly the appellant has valued the shares at Nil value and shown the short term capital loss on the sale of original shares while computing the income. There was no intention on the part of the appellant to hire or show inaccurate particulars of income.”

5. We have carefully considered the rival submissions and also perused the material on record. From the facts, it is fairly borne out that the assessee has furnished all the particulars of transaction in shares including that of listed and unlisted shares, which were subject matter of long term capital gains. Thus, prima facie, there is neither concealment of income nor furnishing of any inaccurate particulars of income. The only issue is with regard to payment of tax as per Section 112. Such a mistake of calculation on facts cannot amount to furnishing of inaccurate particulars or incorrect claim. Similarly, in the case of disallowance of short term capital loss, the entire particulars and details have been furnished in the return of income. The assessee has actually incurred the short term capital loss since the company had issued 200 bonus shares on 20-02-2006. The same was shown in the statement of investment valued at Nil value as per the provision of Section 55(2)(aa)(iia). Since in view of the provisions of Section 94(8), which provides that in case of bonus shares, the loss, if any arising, on account of such purchase of sales of bonus shares, shall be ignored. Here in this case the claim of loss was wholly due to the bonafide mistake, which is evident from the explanation given by the assessee. Mere making of any incorrect claim, which is not sustainable in law, will not amount to furnishing of inaccurate particulars of income. This view has now been upheld by the Hon’ble Supreme Court in the case of M/s Reliance Petro Products Pvt. Ltd., reported in (2010) 322 ITR 158 (SC), wherein their Lordships have observed and held as under :-

“A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, no exact or correct, not according to the truth or erroneous. 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 a 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. In view of the aforesaid decision of the Hon’ble Apex Court and the facts of the case, we do not find any reason to deviate from the finding given by the CIT(A) and accordingly the penalty deleted by the CIT(A) is affirmed and the grounds raised by the Department is dismissed.

7. In the result, the appeal of the department is dismissed.

Order pronounced in the open court on 3rd August, 2012.

                                                      Sd/-                         Sd/-

                                            (P.M.JAGTAP)   (AMIT SHUKLA)

                                ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai;

Dated 3rd / August/2012

pkm/PS

Copy of the Order forwarded to :

1. The Appellant

2. The Respondent.

3. The CIT (A)-

4. CIT

5. DR, ITAT, Mumbai

6. Guard file.

//True Copy//

BY ORDER,

(Dy./Asstt. Registrar)

ITAT, Mumbai