MOHA NARENDRA GANDHI ,HYDERABAD vs. INCOME TAX OFFICER, WARD-12(5), HYDERABAD

Brief facts of the case are that the assessee, an employee of M/s.Rais Arif Meman, Bangalore, filed her return of income for the A.Y 2015-16 electronically on 31.08.2015, declaring an income of Rs.3,63,600/- comprising of salary, LTCG and income from other sources. The case was selected to scrutiny under CASS on the ground of “large deduction claimed u/s 54B, 54C, 54D, 54G and 54GA”. The AO observed that the assessee had received 2000 shares as gift from her father which she has sold during the year and has earned capital gain therefrom but has claimed part of the capital gain as exempt u/s 54EC and the balance of capital gain has been deposited into the capital gain a/c. The assessee had claimed indexation cost of acquisition at of 2019 Moha Narendra Gandhi Hyderabad.

Further, with regard to interest income earned by the assessee, the AO noticed that though the assessee has earned Savings Bank interest of Rs.1,62,629/-, the assessee had offered only Rs.47,094/- to tax as income from other sources. When confronted, the assessee offered the balance of interest income also to tax and paid the taxes thereon. Thereafter, the assessee did not prefer any appeal to the CIT (A) and thus the assessment order has become final.

Meanwhile the AO initiated the penalty proceedings u/s 271(1)(c) and levied the minimum penalty of 100% of taxes sought to be evaded. Accordingly, the penalty order dated 3.5.2018 was passed, against which the assessee preferred an appeal to the CIT (A), who confirmed the order and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal: “1) The Learned Commissioner (Appeals) erred in confirming the penalty levied by the Assessing Officer. 2) The Learned Commissioner (Appeals) did not appreciate the fact that the assessee has realized the mistake in calculation of Capital Gains even before receipt of any Shown Cause Notice from the Assessing Officer and offered to pay tax. 3) The Learned Commissioner (Appeals) failed to appreciate the fact that calculation of Capital Gains is a cumbersome process, the assessee was not aware of the cost of shares, she accepted the mistake voluntarily and paid the amount of demand raised by the Assessing Officer. of 2019 Moha Narendra Gandhi Hyderabad.

The learned Counsel for the assessee submitted that the assessee has declared LTCG on sale of shares and has also claimed the cost of acquisition which was after indexation. He submitted that u/s 55(2) of the Act and the explanation (b)(ii) thereunder, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49 and the capital asset became the property of the previous owner before 1st of April, 2001 means the cost of the asset to previous owner or the RMV of the asset are 1-4-2001 at the option of the assessee. It was submitted that the assessee’s father had acquired the shares prior to 1-4-2001 on which bonus shares were also allotted to him for which he incurred the cost of acquisition and thereafter 2000 shares were gifted to the assessee. Thus, these shares were acquired prior to 1.4.2001, the cost of acquisition to the assessee’s father is the cost of indexation to the assessee and the cost of indexation also had to be allowed. He submitted that by mistake or for whatever reasons, the assessee had withdrawn the claim of cost of acquisition during the assessment proceedings and had offered the entire gains to tax and the question of furnishing of inaccurate particulars does not arise. of 2019 Moha Narendra Gandhi Hyderabad.

As far as the interest income is concerned the assessee stated that by mistake, the assessee had offered only a part of the income and during the assessment proceedings the assessee had voluntarily offered the balance of interest income also to tax. Therefore, according to him, it is a clear case of withdrawal of the eligible claim for which the assessee cannot be faulted and penalty u/s 271(1)(c) could not have been levied.

The learned DR, however, supported the orders of the authorities below and submitted that when the assessee has acquired the shares, there was no cost to the assessee and therefore, the assessee ought not to have claimed the cost of acquisition in her return of income and by making such a claim, she has furnished inaccurate particulars of income. Thus, he prayed for confirmation of penalty levied u/s 271(1)(c) of the Act.

Having regard to the rival contentions and the material on record, I find that the assessee’s father had acquired the shares and after being allotted the bonus shares, the total number of his shares was 5220, and it was out of these 5220 shares, that the assessee has been gifted 2000 equity shares on 14.11.2014. Thus, the assessee has been allotted shares after allotment of bonus shares by her father and therefore, Explanation 2 of section 55(2) would definitely apply as the assessee has received the shares by way of gift. As per Explanation 2 of sub-section 2 of section 55, the cost of acquisition wherein an asset has been acquired u/s 49(1) of the Act, then the cost of asset to the previous owner has to be considered as cost of acquisition and therefore, I do not find that any incorrect claim has been made by the assessee by claiming of of 2019 Moha Narendra Gandhi Hyderabad.

As regards the second issue, I find that the assessee has earned interest income of Rs. 1,62,629/- the assessee has not offered the entire income to tax. This is certainly a case of furnishing of inaccurate particulars of income and the assessee has not explained as to why she did not report or offer the entire interest income to tax. Therefore, the penalty to the extent of interest income is confirmed.

In the result, assessee’s appeal is partly allowed.