ASST CIT 17(2), MUMBAI vs. JUMANA GOOLAM VAHANVATI, MUMBAI

The captioned appeal by revenue for Assessment Year [AY] 2011- 12 contest the order of Ld. Commissioner of Income-Tax (Appeals)-28 [CIT(A)], Mumbai, Appeal No.CIT(A)-28/IT-236/DCIT-12(2)/2014-15 dated 18/03/2016 qua deletion of penalty u/s 271(1)(C) for Rs.16,82,505/-. The quantum assessment for impugned AY was framed by Ld. Additional Commissioner of Income Tax-Range 12(2) u/s 143(3)

Brief facts leading to imposition of penalty are that during assessment proceedings it was noted that the assessee earned Short Term Capital Gain [STCG] of Rs.1,06,25,985/- on sale of shares of various companies and offered the same to tax at concessional rate of tax @15% in terms of provisions of Section 111A. However, upon perusal, it was found that STCG of Rs.108.90 Lacs was earned on sale of shares of an entity namely BSE Ltd., which were not listed shares and therefore, not eligible to be taxed at concessional rate u/s 111A. The assessee, while accepting the same, submitted that the said transaction was claimed u/s 111A due to inadvertent error under the impression that the shares were traded through recognized stock exchange and Securities Transaction Tax [STT] was paid on these transactions. Consequently penalty proceedings u/s 271(1)(c) were initiated in the quantum assessment order and the assessee has been saddled with impugned penalty of Rs.16,82,505/- on 23/09/2014.

Aggrieved, the assessee contested the same on various grounds with success before Ld. CIT(A) vide impugned order dated 18/03/2016 where Ld. CIT(A), after considering various submissions made by the assessee deleted the penalty by making following observation:- 5. DECISION: I have carefully considered the facts of the case, grounds of appeal and written submissions made before me. There are two grounds of appeal both ITA.No.3901/Mum/2016 Jumana Goolam Vahanvati Assessment Year 2011-12 related to levy of penalty and are therefore disposed together for the sake of convenience. 5.1 From the facts I find that the appellant claimed that the STCG arising from the sale of shares of BSE are to be charged at a lower rate of 15% u/s 111A on the grounds that the said transaction of sale has suffered STT. During scrutiny it was found that the shares of BSE are not listed on the stock exchange and therefore have not been sold through any recognized stock exchange but have been sold off market in physical form and that STT was never levied on the transaction. By virtue of these facts, the STCG fell out of the purview of sec 111A and became taxable at the normal rate applicable to STCG. The appellant accepted this position and paid the differential tax. I also find that from the computation of income filed before me that the transaction of sale of BSE shares appears at sl no 1 in the table of STCG and is titled “Sale of Shares Quantity 70000”. Other details of this particular transaction such as sale price, sale date, purchase price, purchase date etc have been clearly mentioned in the computation. However, in the computation the name of the share is not mentioned. However, there are 26 other transactions of sale of listed shares wherein full disclosure has been made in the computation itself such as name of scrip, quantity, sale price, sale date, cost price, purchase date etc. 5.2 During penalty proceedings, the AO held this action of the appellant at declaring the STCG at a lower rate of 15% as an inaccurate particular of income and levied penalty on the differential tax sought to be evaded. The appellant on the other hand sought to explain this as an inadvertent error which was not accepted by the AO. The dispute therefore is whether the claim of the appellant in the computation of income that the STCG on sale of BSE shares was taxable @15% u/s 111A is an inadvertent error or inaccurate particulars of income. I find that the quantum of STCG on the sale of BSE shares has been accepted by the AO. It is only the tax rate which is in question. I find that the facts of this are almost identical to those in the case of Bennette Coleman & Co ltd. The Hon’ble Bombay High Court has in its decision of Bennette Coleman & Co Ltd 33 taxmann.com 277 (Bom) held as under:- (head note) Section 271(1)(c) of the Income-tax Act,1961 – Penalty – For concealment of income [ Bona fide claim, disallowance of] – Assessment year 1999-2000 – Assessee claimed deduction of interest on tax free bonds – Assessing Officers asked assessee to give details of interest on tax free bonds – While preparing said details, assessee noticed that per cent Government of India Capital Index Bonds purchased during year had been categorized as tax free bonds and, therefore, interest earned on such bonds had escaped tax – Thereupon Assessing Officer levied penalty under section 271(1)(c) upon assessee – Tribunal after recorded a finding of fact that there was an inadvertent mistake on part of assessee in claiming interest received on Government of India Capital Index Bonds as interest received on tax free bonds, deleted penalty levied upon assessee – Whether since it was not contended by revenue that above finding of fact by Tribunal was perverse, order of Tribunal deserved to be upheld – Held, yes [ Para 2] [ In favor of assessee] Section 271(1)(c) of the Income-tax Act,1961 – Penalty – For concealment of income [ Bona fide claim, disallowance of] – Assessment year 1999-2000 – Assessee claimed premium received on redemption of debentures as income from Capital gains – Assessing Officer held that said premium was assessable to tax under head ‘ income from other sources’- Thereupon he also levied penalty under section 271(1)(c) on assessee – Tribunal deleted penalty on plea that there was only a change of head of income by Assessing Officer and it ITA.No.3901/Mum/2016 Jumana Goolam Vahanvati Assessment Year 2011-12 was not case of department that assessee had concealed any particulars of income or furnished inaccurate particulars of income by stating incorrect facts – Whether Tribunal was justified in cancelling penalty levied upon assessee – Held, yes [ Para 3] [ In favor of assessee] Decision: 2. So far as question (i) is concerned, the respondent- assessee has claimed deduction of interest on tax free bonds of Rs.5,60,11644/-. During the course of the assessment proceedings, the assessee was asked to give details of interest on tax free bonds. While preparing the said details, it was noticed that 6% Government of India capital Index Bonds purchased during the year had inadvertently been categorized as tax fee bonds and, therefore, interest of Rs.75,00,000/- earned on such bonds had also inadvertently escaped tax. The assessing officer levied penalty under Section 271(1)(c) of the Income Tax Act, 1961(the Act). The CIT(A) upheld the order of the Assessing Officer. On further appeal, the Tribunal in the impugned order records a finding of fact that by inadvertent mistake interest @6% on the Government of India Capital Index Bonds was shown as tax free bonds. The Tribunal concluded that there was no desire on the part of the respondent-assessee to hide or conceal the income so as to avoid payment of tax on interest from the bonds. In that view of the matter, the Tribunal deleted the penalty imposed upon the respondent- assessee under Section 271(1)(c) of the Act. In view of the fact that the decision of the Tribunal is based on finding of fact that there was an inadvertent mistake on the part of the assessee in including the interest received of 6% on the Government of India Capital Index Bonds as interest received on tax free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is perverse. In these circumstances, we see no reason to entertain the proposed question (i).

In the result, the appeal is allowed.