Income Tax Appellate Tribunal - Delhi
Rekha Lalwani, New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D' DELHI
BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL
ITA No. 1442(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Shri Lekh Raj Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: AAEPL6027K
C.O. No. 144(Del)/2010
(Arising out of ITA No. 1442(Del)/2010)
Assessment year: 2006-07
Shri Lekh Raj Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
ITA No. 1443(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Smt. Sheelu Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: ACBPL3749R
C.O. No. 145(Del)/2010
(Arising out of ITA No. 1443(Del)/2010)
Assessment year: 2006-07
Smt. Sheelu Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
2 ITA Nos. 1442 to 1448(Del)/2010&
C.O.Nos. 144 to 150(Del)/2010
ITA No. 1444(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Ms. Madhu Raj Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: AAEPL5473E
C.O. No. 146(Del)/2010
(Arising out of ITA No. 1444(Del)/2010)
Assessment year: 2006-07
Ms. Madhu Raj Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
ITA No. 1445(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Ms. Kanta Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: AAFPL5470H
C.O. No. 147(Del)/2010
(Arising out of ITA No. 1445(Del)/2010)
Assessment year: 2006-07
Ms. Kanta Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
ITA No. 1446(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Ms. Meera Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: AAFPL6033R
3 ITA Nos. 1442 to 1448(Del)/2010&
C.O.Nos. 144 to 150(Del)/2010
C.O. No. 148(Del)/2010
(Arising out of ITA No. 1446(Del)/2010)
Assessment year: 2006-07
Ms. Meera Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
ITA No. 1447(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Ms. Rekha Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: AAFPL6034J
C.O. No. 19(Del)/2010
(Arising out of ITA No. 1447(Del)/2010)
Assessment year: 2006-07
Ms. Rekha Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
ITA No. 1448(Del)/2010
Assessment year: 2006-07
Deputy Commissioner of Ms. Rajni Lalwani,
Income-tax, Circle 33(1), Vs. R-649, New Rajinder Nagar,
New Delhi. New Delhi.
PAN: AAEPL5471G
AND
4 ITA Nos. 1442 to 1448(Del)/2010&
C.O.Nos. 144 to 150(Del)/2010
C.O. No. 150(Del)/2010
(Arising out of ITA No. 1448(Del)/2010)
Assessment year: 2006-07
Ms. Rajni Lalwani, Deputy Commissioner of
R-649, New Rajinder Nagar, Vs. Income-tax, Circle 33(1),
New Delhi. New Delhi.
(Appellant) (Respondent)
Department by : Shri K Ravi Ramachandaran, Sr. DR
Assessee by : Shri Rajesh Jain, C.A
ORDER
PER BENCH These appeals and the cross objections, pertaining to members of a family, involve common grounds. Therefore, these appeals were argued in a consolidated manner by the ld. DR and the ld. counsel for the assessee. Accordingly, a consolidated order is passed. 1.1 The appeals and the objections were argued with reference to the facts of the case of Ms. Madhu Lalwani. Therefore, while passing the order the facts of this case are narrated in detail. It is the common ground of both the parties that facts of all the cases are identical.
2. The facts are that the assessee filed her return on 14.8.2006 declaring total income of Rs. 1,11,52,993/-. The return was processed u/s 5 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 143(1), accepting the return of income, and refund of Rs. 3,87,960/- was granted to her on 8.5.2007. Thereafter, the case was selected for scrutiny by issuing a notice u/s 143(2).
2.1 The point in dispute is regarding the taxability of capital gains arising on sale of 2,50,000 shares of Indocare Pharmaceuticals Ltd., purchased by the assessee on 25.2.2004 and sold on 21.10.2005. The shares were purchased for a sum of Rs. 16,65,227/- and sold for Rs. 50.00 lakh. In the statement of income, the assessee claimed the capital gains of Rs. 33,34,973/- to be exempt u/s 10(38) of the Income-tax Act, 1961. She was required to furnish the purchase and sale agreements. The sale bill was submitted on 6.8.2008 vide letter of the same date in which information on two other points was also submitted. The purchase bill was submitted on 11.8.2008 vide letter of the same date in which information regarding one more point was furnished. Thereafter, the assessee submitted a letter dated 29.8.2008, in which it is stated that the sale agreement was on "spot basis". The share was listed on Ahmedabad Stock Exchange. She held the shares in demat form with a depository. In the relevant period, the Ahmedabad Stock Exchange (ASE) was not in operation for more than a year and, therefore, the 6 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 shares were sold on "spot basis". The accountant, by mistake, has treated the gains to be exempt u/s 10(38) at the time of preparing income-tax return, without paying to the attention to the effect that the securities transaction tax (the STT) had not been paid on the sale- transaction and the shares were not sold on the exchange. The gains attracted tax @ 10%. The AO completed assessment on 2.12.2008 in which, it is inter-alia mentioned that in view of earlier discussion, the amount of Rs. 33,34,973/-is treated as income of the assessee from capital gains arising out of the transaction of listed securities, as mentioned in proviso to section 112 of the Act. It is further mentioned that penalty u/s 271(1)(c) has been initiated on this point separately. 2.2 The penalty proceedings were completed on 24.6.2009 and minimum penalty of Rs. 3,74,184/- was levied. In the penalty proceedings, it was inter-alia submitted that in the course of assessment proceedings, the assessee came to know that the claim of exemption u/s 10(38) was a mistake as the shares were not sold through the ASE as it had stopped functioning. Therefore, the gains were offered for taxation. It was further submitted that looking to the conduct of the assessee, who is not aware of the technical provisions of the law, the penalty may 7 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 not be levied. It was also submitted that penalty proceedings are quasi- criminal in nature. Therefore, it is imperative to prove that the assessee has concealed income. Such is not the case here. The moment the assessee came to know about the mistake, all facts were furnished and explanation was also tendered. The tax due on assessed income has also been paid. Further submissions were made to the effect that the total income of the assessee as per return was Rs. 1,11,52,993/- and tax of Rs. 35,49,541/- was payable. Such an assessee will not furnish inaccurate particulars of income for saving tax of Rs. 3,35,000/- only. The mistake was committed by the accountant, who claimed the gains to be exempt without understanding the provisions of the Act. Therefore, no conscious effort can be attributed to the assessee to evade tax and it is only a case of bona fide error. The AO did not accept this explanation. It is mentioned that the assessee came forward with documentary evidence of purchase and sale only when she was required to do so by the AO. If the case was not selected for scrutiny or the evidence not called for in support of exemption u/s 10(38), the assessee would have gotten away without paying tax on capital gains. The plea regarding lack of knowledge of ignorance of law was not accepted on the ground that she is being assisted by professional accountants. Coming to the mens rea, 8 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 reliance was placed on the decision of Hon'ble Supreme Court in the case of Union of India Vs. Dharmendra Textile Processors, (2008) 306 ITR 277. A part of the judgment as indicated below, was reproduced in the order:
"....Explanation appended to section 271(1)(c) of the I.T.Act entirely indicates the element of strict liability on the assessee for concealment for giving inaccurate particulars while filing return. The judgment in Dilip Shroff case (supra) has not considered the affect and relevance of section 276C of the IT Act. Object behind enactment of section 271(1)(c) read with explanation indicates that the said section has been enacted to provide for a remedy for loss of revenue. Penalty under that provision is a civil liability willful concealment is not an essential ingredient for attracting civil liability, as is the case matter of prosecution u/s 276...."
2.3 Thus, as mentioned earlier, minimum penalty of Rs. 3,74,184/- was levied.
3. Aggrieved by this order, the assessee moved an appeal before the CIT(Appeals)-XXVI, New Delhi. He disposed off the appeal on 27.1.2010 in appeal no. 53/09-10, in which the levy of the penalty was deleted. The finding of the ld. CIT(A) is that the assessee pointed out the mistake suo motu in letter dated 29.8.2008. She has also paid tax. The explanation is that the accountant of the assessee, who is common to 9 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 all family members, had inadvertently and without knowing the implications thereof, failed to inform the chartered accountant about the facts of "spot sale" and non-payment STT. He found this explanation to be plausible. Paragraph no. 5 of his order, containing the aforesaid findings, is reproduced below:-
"I have carefully considered the facts of the case and the judicial precedents relied upon by the counsel. I find that the facts of the case are undisputed. The ld. AO in the assessment order has mentioned that during the assessment proceedings he had asked the appellant to furnish the details vide letter dated 29.8.2008, the appellant suo moto had pointed out the mistake which crept in while filing the return and offered the impugned long term capital gains for taxation, which was claimed as exempt in the return, in view of proviso to section 112 of the IT Act. The appellant has come forward to indicate the error and had paid taxes thereon, even before the mistake could be detected by the department. The explanation behind occurrence of this error given was that the accountant of the appellant, who is common to all family members, had inadvertently and without knowing the implications thereof, failed to inform the Chartered Accountant of the appellant about the fact of non-payment of STT. I find this explanation as plausible one, as same mistake was committed in respect of all family members, 7 in number, which could be possible due to the fact that they had one common accountant, who was not aware of the implications of payment or not of STT on the tax liability of the appellant and other family members in view of provisions of proviso to section 112 of the IT Act, 1961. Therefore, in view of the decision of the Gujarat High Court in the case of CIT Vs. West Inn Limited dated 25.11.2009, the mistake on the part of the appellant is held as bona fide as appellant may not have been well verse on 10 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 about the complex provisions of the proviso to section 112 of the IT Act, 1961 and had relied on the advice rendered by the Accountant, who himself was not aware of these provisions."
4. Before us, the ld. DR submitted that a notice and a questionnaire were issued to the assessee. The AO requested the assessee to furnish "broker notes" regarding purchase and sale of shares and unique ID of the assessee. In response to this questionnaire, the assessee filed the bill of sale on 6.8.2008 and bill of purchase on 11.8.2008. Some discussion took place on 11.8.2008. Thereafter, the assessee surrendered capital gain for taxation on 29.8.2008. Therefore, it was argued that the surrender of income for taxation was not voluntary. Once purchase and sale bills had been requisitioned by the AO, the assessee had no alternative but to offer capital gains for taxation. However, this was done on third hearing and not immediately on receipt of the questionnaire. In such circumstances, the surrender cannot be considered to be voluntary at all.
4.1 Coming to the nature of penalty proceedings, reliance has been placed on the decision of Hon'ble Supreme Court in the case of Dharmendra Textile Processors (supra), in which it has been held that the 11 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 proceedings are civil in nature and the levy is to compensate the revenue for the default of the assessees. Further, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Zoom Communication P. Ltd., (2010) 327 ITR 510, in which it has been held that the plea of inadvertence cannot be accepted unless it is explained as to who committed the mistake and what were the circumstances in which the mistake was committed. It is also mentioned in the judgment that a large number of returns are accepted u/s 143(1) and only a few cases are selected for scrutiny. In such a scenario acceptance of plea of oversight would exonerate a large number of assessees from payment of legitimate tax even when the claim was actuated by a mala fide intention. Reliance has also been placed on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Escorts Finance Ltd., (2010) 328 ITR 44. In this case, the assessee claimed deduction u/s 35D on the basis of representation made in the prospectus. However, in the case of assessment, such a claim was found to be untenable as a finance company is not entitled to the aforesaid deduction at all. The Hon'ble Court mentioned about the decision in the case of Dharmendra Textile Processor (supra) regarding nature of penalty proceedings. It is further mentioned that deduction u/s 35D was not at all applicable to the case of 12 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 the assessee. The assessee had obtained technical assistance from chartered accountant at the time of filing the return. Therefore, it was held that it is not a case of bona fide error on the part of the assessee.
5. In reply, the ld. counsel submitted that this is a case of bona fide error, which was rectified before the AO by filing letter dated 29.8.2008, in which circumstances leading to the error have been mentioned. On a query from the Bench, it was submitted that the tax on capital gains was paid on 30.1.2009 after receipt of the assessment order. The assessee had not filed any revised return to rectify the error but offered the income for taxation through the aforesaid letter. In these circumstances, it is argued that penalty cannot be levied on the assessee. 5.1 In order to support the aforesaid contention, reliance has been placed on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products P. Ltd. (2010) 322 ITR 158. In this case, a sum of Rs. 28,77,242/- was disallowed under the provisions of section 14A. The admitted position was that all facts regarding the issue were available in the return of income. The Hon'ble Court referred to the meaning of the word "inaccurate" in Webster's dictionary to mean "not 13 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 accurate, not exact or correct; not according to truth; erroneous; as a inaccurate statement, copy of transcript". It was mentioned that since all the details furnished in the return of income were found to be correct, the assessee cannot be charged for furnishing inaccurate particulars of income. Merely because the assessee had claimed the expenditure, which was not found to be acceptable, that by itself would not attract the penalty provision.
5.2 The learned counsel raised one more issue regarding non-recording of satisfaction in the assessment order for initiating penalty proceedings. In this connection, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India & Another (2009) 317 ITR 107. The court came to the conclusion that the provision contained in section 271(1B) is not ultra-vires Article 14 of the constitution. The position of law in pre and post amended period is similar that the AO will have to arrive at a prima facie satisfaction in the assessment that the assessee has concealed income or furnished inaccurate particulars of income. The prima facie satisfaction should be discernible from the order although penalty can be levied only after hearing the assessee. The initiation of penalty proceedings 14 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 cannot be set aside only on the ground that the assessment order states "penalty proceedings are initiated separately" as otherwise it conforms to para-meters set out above.
5.3 In rejoinder, the ld. DR submitted that the aforesaid decision supports the case of revenue. He also relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. ECS Ltd. (2010) 194 Taxman
311. In this case, the claim regarding deduction u/s 80O was under
dispute. The AO discussed the legal position and held that the expenses incurred had to be deducted from the income earned in foreign exchange.
According to him, the assessee not only interpreted the law wrongly but also did not furnish details of expenditure attributable to earning income in foreign exchange. Therefore, he calculated the deduction admissible under the provision and observed that penalty u/s 271(1)(c) has been initiated. The penalty was also levied. The Hon'ble Court mentioned that the AO had been influenced by the consideration that not only the assessee had interpreted the law wrongly, but also did not furnish the details of expenditure attributable to earning in foreign exchange, because of which penalty proceedings were initiated. Thus, his prima facie satisfaction about non-furnishing of particulars was clearly discernible.15 ITA Nos. 1442 to 1448(Del)/2010&
C.O.Nos. 144 to 150(Del)/2010
6. We have considered the facts of the case and submissions made before us. We may deal with the preliminary issue at the outset. The decision in the case of Ms. Madhushree Gupta and ECS Ltd. is that the prima facie satisfaction of the AO should be discernible from the assessment order. The initiation cannot be cancelled merely because the AO has used the word "penalty proceedings are initiated separately".
Coming to the facts of this case, the AO gave a finding that the assessee was asked to submit proof of purchase and sale of shares, in response to which purchase note and sale notes were filed. Thereafter, the assessee offered capital gains for taxation on 29.8.2008 by filing a letter to that effect. In the concluding paragraph, following observations are made:-
"In view of the above discussion the amount of Rs. 33,34,973/- is treated as the income of the assessee from capital gains arising out of transaction of listed securities as mentioned in the proviso to section 112 of the Income-tax Act, 1961. Penalty u/s 271(1)(c) has been initiated on this point separately."
6.1 Thus, it transpires that the claim of the assessee has been rejected by treating the amount of Rs. 33,34,973/- as income liable to be taxed under the head "capital gains" and penalty proceedings have been 16 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 initiated on this issue. According to our humble opinion, this amounts to recording a prima facie satisfaction that the assessee furnished inaccurate particulars of income. Since we are basing our decision on the decision of jurisdictional High Court in two cases rendered after the amendment, we do not find it necessary to deal with pre and post amendment orders of the Tribunal, on which the assessee has relied upon.
7. Coming to the merits of the case, the facts are that the assessee claimed capital gains of Rs. 33,34,973/- to be exempt from taxation u/s 10(38) of the Act. The AO requested the assessee to furnish purchase and sale bills to verify the contention. The sale bill was filed on 6.8.2008 and the purchase bill was filed on 11.8.2008. The capital gain was surrendered for taxation on 29.8.2008. No revised return was filed. Tax has been paid after receipt of the assessment order. The explanation of the assessee is that the error occurred due to the accountant who did not properly interpret the relevant provision of the Act. No affidavit has been filed from the accountant in support of this explanation. 7.1 In the case of Reliance Petro Products (supra), the decision is that if all facts have been furnished correctly in the return of income on the 17 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 basis of which a claim is made, then, mere rejection of the claim does not lead to inference of penalty. The facts of this case are distinguishable because all the facts have not been shown in the return of income i.e., it is no where mentioned that the transactions were "spot transactions". It may be mentioned that there is a gap of about 19 months between purchase and sale of 2,50,000 shares and both the transactions involve significant amounts. The bills show that the STT was not paid on either occasion. The details were also furnished in two different letters and surrender was made on the third occasion. The decision in the case of Zoom Communication P. Ltd. (supra) supports the case of the revenue. In this case also, the plea of inadvertence was taken but it was not explained who committed the inadvertence and what were the circumstances in which the inadvertence was committed. The court gave a finding that acceptance of such a plea will lead to leakage of substantial revenue where the claims are made even mala-fidely but the cases are not picked up for scrutiny. In both the cases patently false claims have been made. The assessee has furnished some explanation which is not found to be bona fide by us. The case of the revenue also finds support from the decision in the case of Escorts Finance Ltd. In this case, the claim was made on the basis of chartered accountant's 18 ITA Nos. 1442 to 1448(Del)/2010& C.O.Nos. 144 to 150(Del)/2010 certificate furnished in the prospectus. Yet, the court found that since the claim was prima facie inadmissible, the explanation of the assessee is not bona fide. In this case, the claim is not supported by any evidence. The explanation is also not based on any affidavit or declaration from the accountant. The case of ECS Ltd. (supra) also supports the case of the revenue. In this case, wrong claim was made u/s 80O and the particulars of expenses were not furnished. We have held that that a false claim has been made. The claim is not supported by any material on record and explanation is also not supported by any material on record except a bland argument. In such circumstances, we are not able to persuade ourselves to agree with the findings of the ld. CIT(Appeals) that the surrender was made prior to detection by the department and the explanation is bona fide.
8. The cross objections of the assessee is in respect of non-recording of the satisfaction, which has been disposed off by us already against the assessee and in favour of the revenue.
19 ITA Nos. 1442 to 1448(Del)/2010&
C.O.Nos. 144 to 150(Del)/2010
9. Admittedly facts of all other cases are similar to the facts of this case. Accordingly, the order is made applicable to all the appeals and the cross objections.
10. In the result, all the appeals are allowed and the all cross objections are dismissed.
This order was pronounced in the open court on 28 January, 2011.
Sd/- sd/- (C.L. Sethi) (K.G.Bansal) Judicial Member Accountant Member Date of order: 28 January, 2011. SP Satia Copy of the order forwarded to:
Assessees: Sh. Lekh Raj Lalwani etc., all resident of R-649, New Rajinder Nagar, New Delhi.
Dy. CIT, Circle 33(1), New Delhi.
CIT(A) CIT The DR, ITAT, New Delhi. Assistant Registrar.