Income Tax Appellate Tribunal - Pune
Chandak Krishnagopal Motilal., ... vs Department Of Income Tax on 25 November, 2014
INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri G.S. Pannu, Accountant Member
And Shri R.S. Padvekar, Judicial Member
ITA No. 2465/PN/2012
(Assessment Year : 2006-07)
ITO, Ward-1, Ahmednagar .. Appellant
Vs.
Shri Chandak Krishnagopal Motilal,
3303, Adate Bazar,
Ahmednagar .. Respondent
PAN No.ABAPC7514Q
Assessee by : Shri S.N. Doshi
Department by : Shri P.S. Naik
ORDER
PER R.S. PADVEKAR, JM :
This appeal is filed by the Revenue challenging the order of the Ld.CIT(A)-I, Pune dated 30-07-2012 for the A.Y. 2006-07. The revenue has taken the following effective ground :
"On the above facts and in the circumstances of the case and in law, the Ld.CIT(A)-I, Pune has erred in deleting the penalty of Rs.1,57,82,879/- u/s.271(1)(c) of the Income Tax Act, 1961".
2. Facts which are revealed from the record are as under. The assessee is an individual and filed the return of income for the A.Y. 2006-07 declaring total income of Rs.6,27,99,405/-. The assessee's case was selected for scrutiny and assessment was completed u/s.143(3) of the Act determining income at Rs.6,27,99,400/- but the only difference was the head under which the assessee had declared income, i.e. capital gain, was not accepted by the 2 Assessing Officer and he treated the entire capital gain, Long term capital gain of Rs.1,53,11,448/- and Short term capital gain of Rs.4,73,30,889/- which was on the sale of shares as the business income of the assessee. The assessee challenged the assessment order before the Ld.CIT(A) but as the assessee has not paid the tax on returned income the Ld.CIT(A) dismissed the appeal filed by the assessee. The assessee challenged the order passed by the Ld.CIT(A) before the Tribunal by filing the appeal being ITA No.1721/PN/2012 and vide order dated 28-10-2013 the matter was set-aside to the file of the Ld.CIT(A). The operative part of the Tribunal is as under :
"9. We have carefully considered the rival submissions. It is quite clear from perusal of Section 249(4)(a) of the Act that unless assessee pays the tax due on the income returned by him, CIT(A) is not vested with any power to entertain the appeal. In the present case, at the time of filing of appeal before the CIT(A), assessee had not paid the tax due on the income returned by him and thus no fault can be found with the order of the CIT(A) in dismissing the appeal of the assessee in-limine. However, the position sought to be canvassed by the assessee is that after the order of the CIT(A), he has paid the requisite tax due on the income returned by him and therefore the CIT(A) ought to entertain and admit assessee's appeal for adjudication on merits. The Revenue has opposed the said prayer on the ground that payment of admitted tax subsequent to the order of the CIT(A) dismissing the appeal, cannot be a ground for setting- aside the order of the CIT(A). On this aspect, in our view, the judgement of the Hon'ble Karnataka High Court in the case of K. Satish Kumar Singh (supra) clearly covers the controversy. As per the Hon'ble High Court, after the dismissal of the appeal by the CIT(A) on account of a default under Section 249(4)(a) of the Act, if the assessee pays the admitted tax, the CIT(A) ought to recall the earlier order dismissing the appeal in-limine and to consider the appeal on merits.
10. Considering the judgement of the Hon'ble Karnataka High Court in the case of K. Satish Kumar Singh (supra), we deem it fit and proper to set-aside the impugned order of the CIT(A) with directions to consider the plea of the assessee of having paid the tax due on the returned income and upon his being satisfied that the requirement of Section 249(4)(a) of the Act has been complied with, he shall admit and dispose-off the appeal on merits. Needless to say the CIT(A) shall allow a reasonable opportunity to the assessee of being heard 3 and thereafter he shall pass an appropriate order in accordance with law."
2.1 As the Ld.CIT(A) dismissed the assessee's appeal applying the provisions of section 294(4)(a), the Assessing Officer passed the penalty order levying penalty of Rs.1,57,82,879/-. The operative part of the penalty order in which the Assessing Officer has given the reasons are as under :
"5. Before levying the penalty u/s.271(l)(c), Assessing Office has to arrive at a conclusion that there is a concealment of income or that there is a furnishing of inaccurate particulars of income or that case of assessee is covered by deeming fiction covered by one of the explanations appended to u/s.271(l)(c). In this context, the decision of Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors (306 ITR 277) is very much relevant. In the said decision, their lordships have held that even in absence of 'mens-rea', penalty can be imposed. Therefore, in the case of assessee, controversy of proving that mens rea has been established does not rest with department. Their lordships observed that penalty u/s.271(l)(c) is a civil liability in contra-distinction with prosecution u/s.276C which is a criminal liability. A plain reading of the above judgment shows that only impact of civil liability is that mens rea or intention of the assessee need not be proved and Apex Court further observed 'willful concealment is not an essential ingredient for attracting civil liability'.
5.1 The assessee's case falls under the category of furnishing inaccurate particulars of income. Hence, it is discussed in detail :
The expression 'furnishing inaccurate particulars of income' has not been defined in the Act. The expression refers to 'not in conformity with the facts or truth" and i.e. meaning which is relevant in the context of furnishing of inaccurate particulars. The expression 'particulars' refers to 'facts, details, specifications or information' about someone or something, hence plain meaning of expression 'furnishing of inaccurate particulars of income' implies furnishing of details or information only about income derived in conformity with facts or truth.
6.2 That takes us to fundamental question as to what is statutory obligation of an assessee when filing the return of income. The provisions of section 139(1) r.w.
rule 12 states that "every person shall furnish return of income and so furnished return is correct and complete. The provisions of section 2(13) and 2(14) relate with what is meant by business and what is a capital asset. In 4 the case of assessee, whether share transactions can be classified under subsection 13 or 14 of section 2 of Income-tax Act. The high volume, regularity, frequency and systematic organized manner of share transactions lead to only conclusion that these transactions can be classified within meaning of section 2(13) and not under section 2(14). Hence, the return of income furnished u/s. 139(1) of Income-tax Act was not giving correct classification of income. Therefore, the assessee had willfully attempted to furnish return of income so as to avoid the tax liability. The assessee has failed to discharge his civil obligation u/s.139(1), hence liable to be penalized u/s.271(l)(c) of Income-tax Act.
6.3 The ITAT, "A" Bench, Pune in the case of Kanbbay Software India (P) Ltd vs. DCIT vide its order dated 28th April , 2009 TTJ (Pune) 721 was of the opinion that the law as on today rests on the Supreme Court judgement in the case of Dharmendra Textile Processors and penalty u/s.271(1)(c) will be leviable since it is not necessary for tax authorities to establish 'mens-rea' of the assessee. In the said decision, it also referred what is meant by furnishing of inaccurate particulars of income which has been reproduced herein above. It further went on to elaborate that furnishing inaccurate particulars of income in its natural sense are to be viewed with the opening words employed in the deeming fiction. These read "where in respect of any facts, material to the computation of total income of any person under this Act. In the present case, there is no dispute about the assessed income, however as discussed in detail, the classification of share transactions under the head capital gain do not fall strictly under that head. In the assessment proceedings, the AO concluded that the share transactions were entered with an intention to earn profit. The intention of earning the dividend which is main criteria for investment as an capital asset is missing in the case of assessee, hence the classification made by assessee as capital gain is untenable, hence rejected. Further as described above, the CIT(A) has upheld the treatment given by A.O. Therefore, I am of considered view that the facts of the case warrant levy of penalty u/s.271(1)(c).
6.4 In light of above discussion, judicial pronouncements and case laws discussed, it is established beyond shadow of doubt that the assessee failed to discharge the onus cast upon him of furnishing correct particulars in return of income within meaning of section 139 in respect of short term capital gain and long term capital gain. Having been failed to furnish the correct particulars of income, the assessee can be said to have furnished inaccurate particulars of income within the meaning of section 271(1)(c) of Income-tax Act. Therefore, I am satisfied that this is a fit case for levy of penalty in terms of provisions of section 274 r.w.s.explanation (1) to section 271(1)(c). I therefore, levy a minimum penalty of Rs.1,57,82,879/- (Rupees one crore fifty seven lakhs eighty two thousand eight hundred seventy nine only) for the above default as against maximum penalty leviable at Rs.4,73,48,637/-.
53. The assessee challenged the penalty order before the Ld.CIT(A) and Ld.CIT(A) deleted the entire penalty. The operative part of the finding of the Ld.CIT(A) is as under :
"4.3. I have carefully considered the facts of the case and the law as are apparent from the record. It is apparent from the materials available on record that the penalty u/s 271(1)(c) has been levied by the Assessing Officer by holding that the appellant filed inaccurate particulars of income in respect of claim made for assessment of income earned on sale of shares, claimed to be held as investment under the head 'Capital Gains', whereas he was fully aware that the activity is of the nature of business. As per the Assessing Officer, making a claim which the appellant knew is not allowable in law, the appellant has to be held that it has filed inaccurate particulars of income. The appellant on the other hand has claimed that the Assessing Officer has erred in coming to this conclusion. According to the appellant, the claim of the appellant was as per law and in the facts of this case the penalty cannot be levied only because the AO had a different view on this issue. It was also stated that the quantum appeal was dismissed on technical reasons and therefore it cannot be said that the view of the AO has been approved by the Ld. CIT(A) while dismissing the quantum appeal. Therefore, for the decisions quoted supra, the appellant has claimed that penalty cannot be levied u/s 271(1)(c) of the IT. Act. I have carefully considered the materials available on record. From the I perusal of the assessment order, placed on record, it is evident that the appellant has claimed the income earned on sale of shares of Rs.6,27,97,405/- under the head 'Capital Gains' as STCG and LTCG. However, the AO after considering the frequency, quantum and regularity etc. of the transactions concluded that the aforesaid income is of the nature of business. The appeal filed by the appellant was dismissed by the Ld. CIT(A) for violation of sec. 249(4). Therefore the claim of the appellant that AO's finding has not been approved is correct. On careful Consideration of the facts relating to taxation of share transactions under the head 'business' as against the claim of the appellant of its assessment under the head 'Capital Gain', it is apparent that the issue is quite subjective. The AO has not brought on record any fact or evidence which could show that the appellant has concealed the income or has filed inaccurate particulars of income. The particulars of income filed by the appellant has been accepted to be correct in the assessment order as well as in the penalty order. The difference of opinion lies only in respect of head of income under which share transaction is required to be assessed. Therefore, it is apparent that the penalty is not leviable under the main provisions of the sec.271(1)(c) of the IT. Act. Even if Explanation-1 is examined, it can be noted that the appellant has given the explanation in respect of the claim for assessment of share transaction under the head 'Capital Gains'. Therefore, it cannot be said that the appellant had no explanation for making this claim. Furthermore, the claim made also cannot be said to be false or unsubstantiated in the facts of this case. The regularity of transactions, the frequency, etc. are parameters which on overall consideration can lead to a conclusion whether it would be more appropriate to assess the income arising out of share transactions under the head 'business' or 'capital gains'. There are examples available which shows that the view has been 6 changed at different stages of appeal. In such circumstances, it is difficult to hold that the penalty can be levied in this case u/s 271(1)(c) of the IT. Act. The AO has placed reliance on the judgment of Dharmendra Textile Processors 306 ITR 277 and Kanbay Software India Pvt. Ltd. vs. DCIT, 2009 TTJ Pune 721 etc. On careful consideration, it is noted that the AO has incorrectly applied these laws. In fact the decision of Dharmendra Textile Processors can be seen to have been further explained by the Hon'ble Supreme Court on such issues in the case of Reliance Petro Products Ltd. The decision of Kanbay Software India Pvt. Ltd., is in fact in favour of the assessee. In the facts of this case it can be seen that the appellant is correct in claiming that the issue is debatable and therefore, for making such a claim, it cannot be held that inaccurate particulars have been filed. I have carefully examined the facts and found that the claim has been clearly made and all the .material facts were available on record before the Assessing Officer and only "/because the claim is debatable, it is not correct to hold that inaccurate particulars have been filed. The decision of the Supreme Court given in the case of Reliance Petro Products Ltd. 322 ITR 128 (SC) and CIT Vs. Kanbay Software India Pvt. Ltd., relied upon by the appellant are directly applicable and are in favour of the assessee. For the aforesaid reasons, Grounds No. 1 to 2 are allowed."
Being aggrieved the Revenue is in appeal before us.
4. We have heard the rival submissions of the parties and perused the record. In this case as per the facts on record, the assessee is engaged in the share transactions.
The assessee filed his return of income declaring gain/profit on the share of transactions under the head capital gain to the extent of Rs.6,27,99,405/-, i.e. Long term capital gain of Rs.1,53,11,448/- and Short term capital gain of Rs.4,73,30,889/-. For the reasons given in the assessment order, the Assessing Officer declined to accept the plea of the assessee that the entire share transactions are in the nature of 'investment' and assessee is not engaged in any sort of organised 'business activity'.
The Assessing Officer also rejected the head under which the assessee has declared gain/profit, i.e. capital gain and brought to tax the entire profit/gain on the share transactions under the head 'business income' that resulted 7 into raising the heavy demand against the assessee. The assessee challenged the assessment order before the Ld.CIT(A) but as the assessee could not pay the due tax, the Ld.CIT(A) dismissed the appeal filed by the assessee applying the provisions of section 294(4)(a) of the Act.
When the matter reached before the Tribunal the Tribunal remitted the matter back to the Ld.CIT(A).
4.1 Now the short issue before us is whether the assessee has filed inaccurate particulars of income.
Admittedly, in the present case, except change of the head, there is no addition of single penny. The Ld.CIT(A) was of the opinion that mere change of head cannot be said to filing of the inaccurate particulars of income.
4.2 In the case of Reliance Petroproducts Pvt. Ltd., 323 ITR 128 (SC) it is held as under :
"A glance at this provision would suggest that in order to be covered, 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. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of 8 imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:-
"13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist."
Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed 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. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment ofparticulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential 9 ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). However, it must be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled.
We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:-
"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript".
We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. 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 claim made in the Return cannot amount to the inaccurate particulars."
4.3 We find that on the facts of this case, the Assessing Officer was not justified at all for levying the penalty merely because he is having different opinion on the plea of the assessee in respect of the head under which the income is to be assessed. Merely because the legal claim made by the assessee is rejected by the Assessing Officer that will not attract the penalty. In our opinion, the 10 Ld.CIT(A) has rightly deleted the penalty and no interference is called for. We accordingly confirm the order of the Ld.CIT(A).
5. In the result, Revenue's appeal is dismissed.
Pronounced in the open court on 25-11-2014.
Sd/- Sd/-
(G.S.PANNU) (R.S. PADVEKAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune Dated: 25th November, 2014
satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-I, Pune
4. CIT-I, Pune
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Assistant Registrar,
ITAT, Pune Benches, Pune