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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI G.S. PANNU & SHRI SAKTIJIT DEYShri Rutuja Pawar
The captioned appeal by the assessee is against the order dated 09.09.2014 of learned Commissioner (Appeals)–14, Mumbai confirming penalty imposed of `14,58,613/– under section 271(1)(c) of the Act for A.Y. 2010–11.
2 M/s. Aakruit Investments Ltd.
Briefly the facts are, the assessee a company filed its return of income for the impugned assessment year on 15.10.2010 declaring Nil income. In the course of assessment proceedings the Assessing Officer noticed that while computing income under the normal provisions assessee has claimed exemption of long term capital gain of `94,90,810/– under section 10(38) of the Income Tax Act, 1961. Further, While computing book profit under section 115JB the assessee has also reduced long term capital gain, thereby, not offering any income under the said provision. The Assessing Officer was of the view that in terms of proviso to section 10(38) of the Act, the assessee was required to compute book profit under section 115JB by including the long term capital gain. He, therefore, called upon the assessee to explain the reason for not including long term capital gain while computing book profit. As observed by the Assessing Officer, the assessee did not offer any plausible explanation to justify his claim. Ultimately, the Assessing Officer proceeded to compute book profit under section 115 JB of the Act after including the long term capital gain which resulted in determination of revised book profit at `94,40,974/– and tax liability of `14,58,630/–. As it appears, the assessee accepted the book profit determined by the Assessing Officer. Be that as it may, on the basis of addition made to the book profit, the Assessing Officer initiated proceedings for imposition of penalty under 3 M/s. Aakruit Investments Ltd.
section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income by the assessee and issued a show cause notice under section 274 of the Act. In response to the show cause notice it was submitted by the assessee that non inclusion of long term capital gain while computing book profit was under a bona fide belief that it is exempt from tax. The Assessing Officer, however, did not find the explanation of the assessee convincing. Ultimately, the Assessing Officer concluded that by not including long term capital gain for computing the book profit under section 115JB, the assessee has furnished inaccurate particulars of income. He further observed, even after the assessee was made aware of the fact that long term capital gain has to be included for computing book profit, the assessee chose to stick to his earlier explanation. Thus, the Assessing Officer imposed penalty of `14,58,630/– under section 271(1)(c) of the Act. Being aggrieved by the penalty imposed, assessee preferred an appeal before the Commissioner (Appeals). However, learned Commissioner (Appeals) upheld the penalty imposed on the reasoning that assessee has failed to establish its bona fide for non inclusion of long term capital gain in books profit.
The learned Authorised Representative submitted, in the return of income as well accompanying statements the assessee has made full disclosure of facts relating to share transaction and the long term
4 M/s. Aakruit Investments Ltd. capital gain derived there from. He submitted, since, long term capital gain from sale of equity shares is exempt under section 10(38) of the Act the assessee claimed exemption under the said provision while computing income both under the normal provision as well as book profit under section 115JB of the Act. He submitted, non offering of long term capital gains while computing the book profit is a bona fide error by the assessee. He submitted, duty of the assessee is to place all primary facts necessary for his assessment before the Assessing Officer. He submitted, the assessee has fully discharged such duty by furnishing all material facts relating to accrual of long term capital gain while computing its income under the normal provisions as well as under section 115JB in the return of income filed for the impugned assessment year. He submitted, the assessee has never made any claim of deduction/exemption while computing book profit. He submitted, it is merely an error in computation of income as a result of omission. He submitted, there is no error in furnishing particulars of income. Therefore, imposition of penalty alleging furnishing of inaccurate particulars of income is legally unsustainable. He submitted, since, the assessee was under a bona fide belief that income from long term capital gain arising from sale of share is exempt from taxation, he did not offer such income both under the normal provisions as well as while computing book profit, though, all particulars relating to those
5 M/s. Aakruit Investments Ltd. income were furnished in the return of income. He submitted, such omission on the part of the assessee being due to a bona fide and inadvertent error penalty should not be imposed. In support of such contention he relied upon the decision of the Hon'ble Supreme Court in the case of Price Waterhouse Coopers P. Ltd. v/s. CIT 348 ITR 306. He also relied upon the following decisions: – i. CIT v/s Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). ii. UOI v/s Rajasthan Spinning & Weaving Mills Civil Appeal no. 3527 of 2009 (SC). iii. Dilip N. Shroff v/s JCIT 291 ITR 519 (SC) iv. CIT v/s S.M. Construction, of 2013 (Bom) v. CIT v/s Dalmia Dychem Industries Ltd. (2015) 279 CTR 133 (Bom) vi. Anoopgarh Kraya Vikraya Shahakari Samiti Ltd. v/s ACIT (2015) 374 ITR 558 (Raj.)
The learned Departmental Representative justifying the imposition of penalty submitted, the assessee by not including long term capital gain in the book profit offered in the return of income has made a wrong claim. He submitted, even after the Assessing Officer pointed out the error/omission on the part of the assessee in the notices issued under section 142(1) and 143(2), the assessee continued with its claim of exemption. He submitted, to demonstrate that the non inclusion of long term capital gains in books profit was 6 M/s. Aakruit Investments Ltd.
due to a bona fide mistake the assessee should have come forward and offered it as income once the Assessing Officer brought it to the notice of the assessee. He submitted, by not doing so, the assessee has compelled the Department to conclude that the claim of the assessee was not bona fide. Therefore it amounts to furnishing of inaccurate particulars of income. In support of his contention learned Departmental Representative relied upon the decision of the Hon'ble Bombay High Court in the case of Samson Maritime Ltd. v/s. CIT vide judgement dated 9th March, 2017 in Income Tax Appeal no. 1718 of 2014.
We have considered rival submissions and perused the materials on record in the light of the decisions relied upon by both parties. Undisputedly, in the present case the Assessing Officer has imposed penalty under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income by the assessee with regard to computation of book profit under section 115JB. Assessee’s explanation all along has been, non inclusion of long term capital gain from sale of equity shares while computing the books profit under section 115JB was due to a bona fide belief that such income is exempt. Thus, the default committed by the assessee is due to an inadvertent mistake/omission in computation of income. It is trite law that the basis for imposition of penalty under section 271(1)(c),
7 M/s. Aakruit Investments Ltd. either for furnishing inaccurate particulars of income or concealing particulars of income, is the information disclosed by the assessee in the return of income filed for a particular assessment year. Keeping in view the aforesaid legal position we are to examine whether the assessee can be charged with the offence of furnishing inaccurate particulars of income. Undisputedly, the assessee in the relevant previous year has earned long term capital gain of `94,90,810/– from sale of equity shares. While computing its income under the normal provisions as well as under section 115JB of the Act assessee has reduced the long term capital gain by treating it as exempt under section 10(38) of the Act. Though, assessee’s claim of exemption from capital gain under section 10(38) is appropriate in so far as it relates to computation of income under the normal provisions of the Act, however, such claim is not allowable with regard to computation of book profit under section 115JB. Therefore, to that extent assessee’s claim was not correct. However, the issue before us is, whether such a claim made by the assessee amounts to furnishing of inaccurate particulars of income. A perusal of the return of income filed by assessee for the impugned assessment year, a copy of which is submitted in the paper book, and computation of income accompanying such return clearly indicate that the assessee has disclosed full particulars relating sale of equity shares and the long
8 M/s. Aakruit Investments Ltd. term capital gain derived therefrom. Further, a perusal of the assessment order also reveals that the information relating to earning of long term capital gain from sale of equity shares by the assessee and non inclusion of the same for computing book profit under section 115JB came to the notice of the Assessing Officer from the statement of total income filed by the assessee along with the return of income and not from any other source. Thus, the aforesaid facts would make it clear that the assessee has furnished full particulars of the income derived from sale of equity shares. Though, it may be a fact that long term capital gain from sale of shares is not exempt for computing book profit under section 115JB, however, such exemption claimed by the assessee appears to be for the reason that assessee was under a bona fide belief that, since, long term capital gain as per section 10(38) is exempt from taxation under the normal provisions of the Act, the same would also apply for computing book profit. The explanation of the assessee that non inclusion of long term capital gain for computing book profit was due to bona fide reasons cannot be brushed aside lightly. In any case of the matter, the factual matrix clearly reveals that the assessee has made full disclosure of facts relating to earning of long term capital gain from sale of equity shares in the return of income as well as in the computation of income. Non inclusion of long term capital gains by computing book
9 M/s. Aakruit Investments Ltd. profit under section 115JB , in our view, is a mere computational error due to a bona fide belief entertained by the assessee that such income is exempt from taxation. That being the case, the ratio laid down by the Hon'ble Supreme Court in the case of Pricewaterhouse Cooper Pvt. Ltd. (supra) will clearly apply to the facts of assessee’s case. Even, the other decisions cited by learned Authorised Representative also support this view. As far as the decision relied upon by the learned Departmental Representative is concerned, on careful reading of said judgement we find it to be factually distinguishable, since, in that case the assessee has claimed deduction of an item of expenditure/loss which did not relate to non– tonnage income. Subsequently, after issuance of notice under section 142(1) and 143(2) assessee came forward to offer such income. Whereas, in the facts of the present case the assessee has furnished full particulars of long term capital gain derived from sale of equity shares. It is also a fact that under normal provision long term capital gains from sale of equity share is exempt from taxation. Therefore, assessee’s explanation that it excluded long term capital gain from sale of equity shares while computing book profit under section 115JB entertaining a belief that it is also exempt from taxation, appears to be plausible. Therefore, in our considered opinion, the assessee cannot be charged with the offence of furnishing inaccurate
10 M/s. Aakruit Investments Ltd. particulars of income so as to levy penalty under section 271(1)(c) of the Act. Accordingly, we delete the penalty imposed under section 271(1)(c) of the Act.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 03.11.2017