DCIT-14(1)(1), MUMBAI vs. HINDUSTAN DIAMOND COMPANY PVT. LTD., MUMBAI
Facts
The assessee treated the sale of a depreciated asset as long-term capital gain and paid tax accordingly. The Assessing Officer (AO) treated it as short-term capital gain, leading to a higher tax liability. The AO also levied a penalty under Section 270A of the Income-tax Act, 1961, for under-reporting of income.
Held
The Tribunal held that for penalty to be levied under Section 270A for misreporting, there must first be under-reporting of income as defined in Section 270A(2). The assessee's case did not fall under any of the clauses of Section 270A(2), thus there was no under-reporting of income, and consequently, no misreporting.
Key Issues
Whether the penalty levied under Section 270A for under-reporting of income due to misreporting was justified when the conditions for under-reporting were not met.
Sections Cited
270A, 143(3), 115JB, 115JC, 139(1), 115BAA, 112, 54E, 50, 48, 49
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRIAMARJIT SINGH & SHRI ANIKESH BANERJEE
PER ANIKESH BANERJEE, J.M:
Instant appeal of the revenue was filed against the order of theLearned National Faceless Appeal Centre (NFAC), Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2020-21,date of order17.11.2023.The impugned order was emanated from the order of the Learned Assessment Unit, Income-tax Department (in short, ‘the A.O.’) passed U/s 270A of the Act.
2 ITA No.166/Mum/2024 Hindustan Diamond Company Pvt Ltd 1. The Revenue has taken the following grounds of appeal: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting penalty levied u/s. 270A of the Act by stating that it is not a case of under reporting as per section 2 70A(2) of Act, ignoring the fact that it is a case of under reporting in consequence of misreporting u/s.270A(B) and 270A(9)(a) of the Act, 2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 3. The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.”
The brief fact of the case is that the assessee has filed the return of income declaring the sale of depreciated asset as long-term capital gain (in short LTCG) instead of Short-Term Capital Gain (in short STCG) and offered tax @22.88%. During the assessment U/s 143(3), the Ld.AO treated this gain as a STCG and levied the tax under normal rate @31.20%. So the difference of tax was 10.40% related to tax declared by the assessee and assessed tax. Finally, the AO levied the penalty @200% on difference of tax amount by invoking Section 270A(8) & 270A(9) of the Act which is amount to Rs.8,32,77,864/-. The aggrieved assessee filed an appeal before the ld.CIT(A). the ld.CIT(A) quashed the penalty order by finding the lacunae in imposition of penalty under section 270A. Being aggrieved, the revenue is in appeal before us. 3. Both the parties have argued together, and matter heard. 4. We heard the rival submissions and considered the documents available in the record. During the hearing before the bench, ld.DR vehemently argued and fully relied on the order of the Ld.AO. The Ld.AR for assessee argued both the legal and factual aspect and first invited our attention in the appeal order. The relevant part of the appeal order is reproduced as below: -
3 ITA No.166/Mum/2024 Hindustan Diamond Company Pvt Ltd “5.4. On a combined reading of section 270A(8) and 270A(9), it is clear that at the very instance to come under the purview of misreporting, it must be under-reporting of income as defined u/s 2?OA(2) of the Act, in the first place."if there's no under- reporting of income at all, then neither the penalty can be levied for under-reporting of income nor for misreporting of income. Further, if the case falls under "under-reporting of income" as defined in section 270A(2), then such under-reporting must fall under the list given in section 270A(9) of the Act in order to treat the same as under-reporting as a consequence of mis-reporting. 5.5. Hence, it is pertinent to refer to sub section (2) of section 270A of the Act which mentions the scenarios under which a person shall be considered to have under- reporting of income; the relevant extract of the same and whether the present case fits into such scenarios is detailed is as under:- (2) A person shall be considered to have under-reported his income, if - Provisions of the Act Fact in case of the Appellant / Appellant’s response (a) the income assessed is The income assessed as per order u/s greater than the income 143(3) and income determined u/s 143(1) determined in the return is same; hence this clause is not processed under clause (a) applicable to the Appellant. of sub-section (1) of The only dispute in this assessment section 143; was what rate capital gain is chargeable to tax whether as short term or at rate applicable to long term.
(b) the income assessed is The appellant has furnished the return on greater than the maximum 09/11/2020 which is well within the time amount not chargeable to limit as prescribed u/s 139(1) of the tax, where no return of Income Tax Act, 1961; hence this clause is income has been furnished not applicable to the Appellant. or where return has been furnished for the first time under section 148; (c) the income reassessed is This is the original assessment u/s 143(3), greater than the income hence this clause is not applicable to the assessed or reassessed Appellant. immediately before such reassessment.
4 ITA No.166/Mum/2024 Hindustan Diamond Company Pvt Ltd (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC as the case may be, is greater than the deemed total income determined in the return processed under The provision of section 115JB is not clause (a) of sub-section applicable as the appellant has opted for (1) of section 143; taxation under new regime of section (e) the amount of deemed 115BAA; hence clause (d), © and (f) are total income assessed as not applicable to the captioned per the provisions of appellant. section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment. (g) the income assessed or The returned income and the assessed reassessed has the effect income, both are positive; hence, this of reducing the loss or clause is not applicable to the Appellant. converting such loss into income.
5.6. From the above, it is clear that the case of appellant does not fit into any of the above clauses of section 270A(2) and thus it cannot be called that the appellant had under-reported its income. Since, there is no under-reporting of income as per section
5 ITA No.166/Mum/2024 Hindustan Diamond Company Pvt Ltd 270A(2); the question that the appellant has under-reported income inconsequence of misreporting of income does not arise. Thus, the AO has erred in levying the penalty u/s 270A of the Act treating that the appellant has under-reported income inconsequence of misreporting of income. Hence, the AO is directed to cancel the penalty levied u/s 270A of the Act. 5.7. In result, the appeal of the appellant is ALLOWED.”
During the argument, the ld.AR mentioned that the assessee sold the depreciable block of assets and treated it as a long-term capital asset and computed tax @22.88% u/s 112 of the Act as LTCG. The fact is that the tax will be levied @25.168% by treating this transfer as a STCG. The Ld.AR in argument relied on the order of Hon’ble Supreme Court in the case of CIT, Panaji vs V.S. Dempo Company Ltd (2016) 74 taxmann.com 15 (SC). The depreciable assets, if it’s holding more than 3 years, the nature of the asset will be treated as,long term capital asset and cannot be treated as short term capital asset and cannot be excluded from the exemption u/s 54E of the Act. The same issue is duly relied on by the order of the co-ordinate bench of ITAT, Mumbai Bench “E” in the case of M/s. Smita Conductors Ltd vs DCIT Range 3(3), Mumbai ITA No.4004/Mum/2011 date of pronouncement 17/09/2013. Respectfully following this order, the Co- ordinate bench followed the order of the Hon’ble Apex Court and explained that section 50 is related to the capital gain in respect of depreciable assets is a deeming provision and tax is calculated as short term capital gain. For the purpose of sections 48 & 49 of the Act, which are related to computation of capital gain. Therefore, the deeming provision was only limited to provision of computation of capital gain. The ld.AR also relied on the order of Hon’ble High
6 ITA No.166/Mum/2024 Hindustan Diamond Company Pvt Ltd Court at Calcutta in the case of PCIT, Kolkata vs Eveready Industries Ltd ITAT/233/2018 IA no.GA/2/2018 (Old No.GA/2095/2018), date of order 30/11/2021held that the application of section 270A(9) is not fit for the assessee. The ld. AR argued that the assessee is in liquidation and has not challenged the merit of the case before any of the authority and paid the tax. So, the calculation of penalty @200% on difference of tax amount Rs.8,32,77,864/- is fully erroneous. The correct figure will be Rs.,1,83,21,130/- which is duly considered by the ld.CIT(A) in impugned appeal order. But the first argument of the ld.AR was fully related to the legal issue for application of section 270A for the assessee. The observation of the Hon’ble Apex Court in the case of V.S. Dempo Company Ltd(supra) is respectfully followed by the bench. We respectfully relied on the order of Eveready Industries Ltd(supra) and find that the order of the ld.CIT(A) is fully justified. We find no reason to interfere in the impugned appeal order related to deletion of penalty u/s 270A. Accordingly, the ground of the revenue is rejected. 8. In the result, appeal of the revenue bearing ITA 166/Mum/2024 is dismissed. Order pronounced in the open court on 29th day of July, 2024. Sd/- sd/- (AMARJIT SINGH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 29/07/2024 Pavanan
7 ITA No.166/Mum/2024 Hindustan Diamond Company Pvt Ltd Copy of the Order forwarded to: अपील र्थी/The Appellant , 1. प्रदिव िी/ The Respondent. 2. आयकरआयुक्त CIT 3. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, 4. Mumbai ग र्डफ इल/Guard file. 5.
BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai
