THE COMMISSIONER OF INCOME TAX ROHTAK vs. STOCK HOME INDIA LTD ROHTAK

This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 05.04.2013 passed by the Income Tax Appellate Tribunal, Delhi Bench “G”, New Delhi (hereinafter referred to as “the Tribunal”) for the assessment year 2007-08, claiming the following substantial questions of law:- “a. Whether Hon'ble ITAT is justified in law in deleting the penalty u/s 271(1)(c) of the Act imposed by the Assessing Officer as the assessee filed the return of income without computing the correct tax liability u/s 115JB Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh -2- r.w.s. 10(38) of the Act and thus failed in disclosing the true and correct tax liability u/s 115JB of the Act; the Hon'ble ITAT failed to appreciate the fact that the assessee company filed revised computation of income only after detection of concealment by the Assessing Officer? b. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is justified in law applicable in the instant case?

Briefly the facts as pleaded in the instant appeal may be noticed. The assessee was deriving income under the head “Business and Profession” by trading in share and also from investment in shares. The assessee filed its return of income for the assessment year 2007-08 on 30.9.2007 declaring a total income of ` 1,53,56,681/-. The total tax computed by the assessee in the computation of income was ` 30,42,878/- During the course of assessment proceedings, the Assessing Officer noted that the assessee was liable to pay tax under the provisions of Section 115JB of the Act. Further, Form No. 29B required to be filed under Section 115JB(4) of the Act was not filed. The assessee claimed exemption under Section 10(38) of the Act on the long term capital gains on sale of securities/shares. As per proviso to Section 10(38) of the Act, the profit on long term capital gain was to be added while computing the book profit and tax liability under Section Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh -3- 115JB of the Act. The case was selected for scrutiny. During the course of assessment proceedings, the assessee filed revised computation of income and Form No.29B on 4.12.2009. The book profit of the assessee was computed at ` 4,77,25,617/- and the tax liability under Section 115JB of the Act was computed at ` 47,72,562/- (10% of the book profit). The Assessing Officer vide order dated 18.12.2009 (Annexure A-I) framed assessment and initiated penalty proceedings under Section 271(1)(c) of the Act. The assessee did not challenge the assessment order in appeal. Thereafter, a penalty of ` 13,58,452/- was imposed upon the assessee vide order dated 28.6.2010 (Annexure A-II). Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”] who vide order dated 10.3.2011 (Annexure A-III) allowed the appeal and deleted the penalty imposed by the Assessing Officer. The said order of the CIT(A) was challenged by the revenue by way of appeal before the Tribunal. The Tribunal vide order dated 5.4.2013 (Annexure A-IV) upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal by the revenue.

Learned counsel for the appellant submitted that the CIT(A) as well as the Tribunal had erred in deleting the penalty. According to the learned counsel, proviso to Section 10(38) of the Act which was inserted w.e.f. 1.4.2007, the long term capital gains on shares was to be added while computing the book profit as per the provisions of Section 115JB of the Act. The assessee had filed revised computation only after the concealment was detected by the Assessing Officer on issuance of notice under Section 142(1) and 143(2) of the Act. It was urged that the reliance of the Tribunal on the decision of the Apex Court in CIT v. Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh -4- Reliance Petro Products Ltd. 230 CTR 320 (SC) was misplaced.

On the other hand, learned counsel for the assessee besides supporting the order passed by the Tribunal submitted that Finance Act of 2006 amended w.e.f. 1.4.2007 whereby proviso was inserted for the first time which was made relevant for the assessment year in question. It was under bonafide belief, unaware of the amendment whereby proviso was inserted, the long term capital gains on the shares was not taken into consideration while determining the book profits under Section 115JB of the Act. It was stoutly argued that the Tribunal has rightly placed reliance upon Reliance Petro Products Ltd's case (supra) and deleted the penalty.

After hearing learned counsel for the parties, we find considerable force in the submissions made by the learned counsel for the respondent. The Tribunal while deleting the penalty had noticed as under:- “4. Having gone through the orders of the authorities below we find that during the course of assessment proceedings, the AO observed that the assessee was liable under the provisions of section 115JB and that the assessee has not filed form No. 29B which is required to be filed u/s 115JB(4) of the Act. The assessee had claimed long term capital gains on the sale of securities/shares as exempt u/s 10(38), the profit on long term capital gain is to be added while computing the book profit and tax liability u/s 115JB. The A.O. issued show cause notice in this regard to the assessee. The assessee thereafter Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh -5- revised the computation of income. The AO initiated penalty proceedings u/s 271(1)(c) of the Act and levied penalty of Rs.13,58,452/- with this finding that the assessee had filed revised computation of income only after detection of concealment of facts. The Ld. CIT(A) has deleted the penalty accepting the contention of the assessee that it had neither concealed the particulars of income nor furnished inaccurate particulars of income and relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Ltd. 230 CTR 320 (SC) and of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. SSP Pvt. Ltd., 35 ITR 349 (P&H). The explanation of the assessee before the Ld. CIT (A) remained that proviso to section 10(38) of the Act was inserted w.e.f. 01.04.2007 and prior to that long term capital gain on shares was not to be considered for applicability of MAT provisions. When this amendment came to the knowledge of the assessee, it immediately obtained the auditors report in the Form No. 29B and filed the same along with revised computation of income. It was accordingly argued that assessee had neither concealed the particulars of income nor furnished inaccurate particulars of income so as to attract the provisions of section 271(1)(C) of the Act. We do not have any reason to doubt bonafide of the assessee in the above explanation. It Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh -6- The ground is accordingly rejected.”

It was not disputed that vide Finance Act, 2006 proviso was inserted in Section 10(38) of the Act w.e.f. 1.4.2007 and prior to the insertion of the aforesaid proviso under Section 10(38) of the Act, the long time capital gains on shares was not required to be included while determining the book profits under Section 115JB of the Act. The said proviso reads thus:- Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh -7- “Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.”

According to it, the long term capital gains on shares is to be included while determining the book profits. It was for the first time that for the assessment year 2007-08 onwards, the aforesaid provision became applicable. The plea of the assessee regarding the bonafides has been accepted by the Tribunal. There is nothing to doubt the veracity of the aforesaid findings recorded by the Tribunal.

In view of the above, no question of law much less a substantial question of law arises in this appeal for consideration of this Court. Accordingly, finding no merit in the appeal, the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE January 28, 2014 (ANITA CHAUDHRY) gbs JUDGE Singh Gurbachan 2014.03.03 10:20 integrity of this document High Court Chandigarh