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Facts
The assessee claimed a long-term capital loss of Rs. 9,83,137 on the slump sale of its business. The Assessing Officer (AO) disallowed the loss, treating the transaction as a slump exchange and a colourable device to evade tax. The AO levied a penalty under Section 271(1)(c) of Rs. 3,03,789 for furnishing inaccurate particulars.
Held
The Tribunal, relying on the Supreme Court decision in CIT vs. Reliance Petroproducts (P) Ltd., held that a mere claim of loss, even if not sustainable in law, does not amount to furnishing inaccurate particulars unless the details supplied are found to be factually incorrect. The Tribunal found no evidence of evasion of tax and that the assessee had not set off the loss in subsequent years.
Key Issues
Whether the penalty levied under section 271(1)(c) is justified when the assessee claimed a long-term capital loss that was disallowed, but there was no intent to evade tax.
Sections Cited
271(1)(c), 250, 143(2), 142(1), 47(xiv), 50B, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI AMARJIT SINGHSHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 03/07/2024 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the penalty order passed under section 271(1)(c) of the Act, for the assessment year 2013-14.
The sole ground raised by the assessee in its appeal is as follows: -
“1. On the circumstances and facts of the case and in law, as levied by CIT(A) erred in conforming the penalty of Rs. 3,03,789 u/s 271 (1) (c) of the Income Tax Act, 1961. As levied by the assessing officer on account of disallowed of long-term capital loss of Rs. 9,83,137 arise on account of slump sale as per slump sale agreement dated 02.04.2012.”
The brief facts of the case are that the assessee is an individual and was a proprietor of M/s Satish Enterprises, which was engaged in the business of trading in cable, wire and electric items. For the year under consideration, the assessee filed its return of income on 31/07/2013 declaring a total income of Rs. 51,97,020. The return filed by the assessee was selected for scrutiny assessment under CASS and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the year under consideration, the assessee’s business was taken over by a private limited company named M/s Satish Enterprise Private Limited with effect from 02/04/2012. During the assessment proceedings, it was observed that the assessee’s proprietary business was succeeded by M/s Satish Enterprise Private Limited in which the assessee is a 99.63% shareholder and claimed long-term capital loss amounting to Rs. 9,83,137. Accordingly, the assessee was asked to show cause as to why the transaction should not be considered a slump exchange instead of a slump sale. The assessee was also asked to show cause as to why the transaction should not be considered a non-transfer in light of the provisions of section 47(xiv) of the Act. The assessee was further asked to show cause as to why the capital loss should not be disallowed and why this transaction should not be considered a colourable device since the assessee is 99.63% shareholder and one of the directors of M/s Satish Enterprise Private Limited which indicates that the assessee was the decision maker in the company which took over the proprietary concern at less than net worth, which resulted in capital loss. In response, the assessee submitted that M/s Satish Enterprise Private Limited had purchased the business from the assessee’s proprietary concern for which consideration was paid as follows: –
Mode of Consideration Amount (in Rs.) Issue of 10 lakh equity share of Rs. 10 1,00,00,000 By cheque 4,47,00,000
The assessee further submitted that the transaction falls under section 50B and not under section 47(xiv) of the Act. It was submitted that it was a business purchase transaction as per the Business Purchase Agreement, which is a slump sale under section 50B of the Act. The assessee submitted Form 3CEA and the working of slump sale. The assessee further submitted that he had no capital gains in the year under consideration against which the loss can be adjusted and therefore there was no willful attempt to evade tax by claiming the loss on the transfer of business. The Assessing Officer (“AO”) vide order dated 22/03/2016 passed under section 143(3) of the Act disagreed with the submissions of the assessee and held that the assessee is only moving funds from the personal account to the company and from the company to proprietorship and the above funds are shown as loan (liabilities) and the balance sheet of M/s Satish Enterprise Private Limited.
Thus, it was held that it was an afterthought and hence clearly a colourable device. Accordingly, the AO held that the transaction carried out by the assessee cannot be considered a transfer and the loss claimed by the assessee cannot be allowed to be carried forward. The AO further held that the transaction cannot be treated as a slump sale as individual values were determined by M/s Satish Enterprise Private Limited and the assets and liabilities on the book values of the proprietary concern were shown and the balance is shown as a capital reserve on business acquisition in the books of M/s Satish Enterprise Private Limited. Accordingly, the AO held that the transaction carried out by the assessee should be considered a slump exchange in opposition to a slump sale and the loss claimed by the assessee cannot be allowed. In further appeal, the learned CIT(A) upheld the assessment order.
In the meanwhile, penalty proceedings under section 271(1)(c) of the Act were initiated and vide order dated 20/03/2020, the AO levied a penalty of Rs. 3,03,789, on the basis that the assessee has furnished inaccurate particulars of income by claiming long term capital loss of Rs. 9,83,137.
The learned CIT(A), vide separate impugned order, upheld the penalty levied under section 271(1)(c) of the Act. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. Ostensibly, in the present case, the addition resulting in the impugned penalty arises out of the disallowance of the long- term capital loss incurred by the assessee from the slump sale transaction.
During the assessment proceedings, it was noticed that the assessee’s proprietary concern was taken over by M/s Satish Enterprise Private Limited in which the assessee is a 99.63% shareholder and one of the directors. It was further found that part consideration was actually paid by M/s Satish Enterprise Private Limited by taking a loan from the assessee. Accordingly, the AO concluded that the assessee is only moving funds from the personal account to the company and from the company to the proprietorship and the above funds are shown as loans (liabilities) in the balance sheet of M/s Satish Enterprise Private Limited. The AO further alleged that the assessee is the decision maker and he has transferred his business unit in consideration less than the net worth and incurred capital loss. As a result, the AO made an addition of the long-term capital gains amounting to Rs.
9,83,137 to the total income of the assessee. On the other hand, as per the assessee, M/s Satish Enterprise Private Limited took over the proprietary concern of the assessee by way of slump sale with effect from 02/04/2012.
It is further the claim of the assessee that the loss of Rs. 9,83,137 was neither claimed by the assessee during the year under consideration nor the same was set off against its taxable income for the subsequent year. Thus, it is claimed that the assessee has not gained anything from the long-term capital loss which arose from the aforesaid transaction and there is no question of any tax sought to be evaded by the assessee in the present case. In this regard, the assessee has placed on record its income tax return for the subsequent years.From the perusal of the same, it is evident thatthe brought forward loss was not set off by the assessee. Thus, from the perusal of the evidence placed on record, it is evident that the very basis on which it was alleged that the entire transaction is an afterthought which is a trick to evade taxes and the long-term capital loss was added to the total income of the assessee is without any merits. Thus, we find that in the present case, the AO merely disagreed with the business transaction of the assessee whereby the proprietary concern was taken over by a company in which the assessee is a majority shareholder. Further, due to the long-term capital loss, which is the basis for the levy of the impugned penalty, there is no evasion of tax. We find that while examining the meaning of the term “particulars” in section 271(1)(c) of the Act, the Hon’ble Supreme Court in CIT v/s Reliance Petroproducts (P) Ltd.; [2010] 322 ITR 158 (SC) held that 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. The relevant findings of the Hon’ble Supreme Court, in the case cited supra, are as follows:–
“9. 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.”
Therefore, respectfully following the decision of the Hon’ble Supreme Courtin Reliance Petroproducts (P) Ltd. (supra), we are of the considered view that the levy of penalty under section 271(1)(c) of the Act in the facts of the present case is not justifiable, and accordingly the same is deleted. As a result, the impugned order is set aside and the sole ground raised by the assessee is allowed.
In the result, the appeal by the assessee is allowed.
Order pronounced in the open Court on 21/10/2024
Sd/-Sd/- S Sd/-d/- (AMARJIT SINGH) (SANDEEP SINGH KARHAIL) ACCOUNTANT MEMBER JUDICIAL MEMBER