ITO (IT), WARD 2(1), CHENNAI, CHENNAI vs. ROHITKUMAR NEMCHAND PIPARIA, CHENNAI

The CIT(A) has further held that the facts of the case show that the assessee was under the bonafide belief that there was no tax liability to be discharged by him on account of his residential status, NRE accounts and TDS deductions made by the Abu Dhabi Commercial Bank Ltd. In this regard, the following are placed for the consideration of the Hon’ble ITAT: The intention behind the legislation of the provisions of the Act relating to TDS is "TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments by the persons making such payments" as advance payment of taxes due. Further, the persons receiving the income are liable to pay the relevant income tax on the amounts received under the relevant heads of income. The idea behind the Tax Deducted at Source provisions is only to make sure that income tax is deducted in advance from the payments being made to the payee and there is no escapement of income in the hands of the receiver and in order to file the return of income to claim credit of the TDS available in his account. The recipient of income is under obligation to disclose the actual taxable income and claim the amount of TDS adjusted against the final tax liability. In this case, the deductor cannot be held responsible for the default in payment of taxes but it is the deductee, i.e., assessee, who has defaulted in disclosing the actual income and failed to pay the relevant taxes due. Hence, the intention to conceal the particulars of income is present in this case.

1.2 The Ld. CIT-DR advanced argument to support levy of impugned penalty. The Ld. AR also advanced arguments supporting the impugned order deleting the penalty. The written submissions have also been filed by both the sides which have duly been considered. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Proceedings before lower authorities 2.1 The material facts leading to imposition of penalty are that the assessee’s case was reopened and an assessment was framed against the assessee u/s 143(3) r.w.s. 147 on 25-02-2016 wherein the issue of chargeability of Short-Term Capital Gains (STCG) on sales of shares of an entity by the name M/s Rajesh Exports Ltd. was identified. The case was reopened pursuant to receipt of information from investigation wing that the assessee entered into high value share transactions for Rs.155 Crores but the income was not reported in the Income Tax return. The assessee filed various replies and submissions during the course of assessment proceedings. After due consideration, Ld. AO assessed Short-Term Capital Gains (STCG) which reached up-to the level of Tribunal. By the order of Tribunal, the assessment was restored back to the file of Ld. AO for re-computation of capital gains since there was error in the computation of STCG. Pursuant to the same, another assessment order was passed on 31-12-2018. The Ld. AO finally determined Short Term Capital Gains of Rs.40.33 Crores and raised certain demand against the assessee. This assessment has reached finality. 2.2 Against quantum addition, penalty proceedings were initiated against the assessee and the assessee was show-caused. The assessee assailed the same on the ground that the assessee had purchased the shares through Ventura Securities Ltd., Mumbai utilizing the funds lying in the assessee’s equity portfolio investment account (NRE Account) which was managed by the Mumbai branch of Abu Dhabi Commercial Bank Ltd. (Bank). The assessee was under the impression that any profit / dividend or other income realized from NRE account would be fully exempt to tax and therefore these transactions were not reflected in the return of income.

2.3 The Ld. AO rejected the explanation on the ground that the fact of gains came to light only from the information as available with the department. The assessee did not disclose the transaction either in regular return or in return filed in reassessment proceedings. Such non- disclosure amount to concealment of income. Had the case not been reopened, entire gains would have escaped the tax liability thereby avoiding payment of tax of Rs.456.94 Lacs. Considering the same, Ld. AO levied penalty of Rs.456.94 Lacs. 2.4 During appellate proceedings, the assessee submitted that there was no concealment as the responsibility to deduct and remit the due taxes lay with the Banker who remitted the share sale proceeds to the assessee. The assessee assumed that since the due taxes were deducted by the said bank, the income was not be included in the return of income. The assessee made out a case of bona-fide mistake. It was also stated that once the assessee was made aware about the short- deduction of TDS, the assessee paid the differential tax and settled the dues. The assessee did not make any attempt to willfully or deliberately conceal any particulars of income. In the alternative, the assessee submitted that Ld. AO erred in ignoring the TDS amount of Rs.353.59 Lacs and therefore the penalty, at the most, could be levied for additional tax demand of Rs.103.35 Lacs only. 2.5 The Ld. CIT(A) considering the decision of Hon’ble Supreme Court in the case of Hindustan Steel Ltd. (83 ITR 26) observed that the assessee was under bona-fide belief that there was no tax liability to be discharged by him on account of his residential status, NRE account and the TDS made by the bank. The intention to conceal income by furnishing inaccurate particulars of income was not established and therefore, the impugned penalty was deleted. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 3. The Ld. CIT-DR, in the written submissions, has argued that the gains were not reflected either in regular return of income nor in return of income filed during reassessment proceedings. This is despite the fact that the case was reopened to examine the issue of capital gains on transfer of shares. As a recipient of income, it was the obligation of the assessee to disclose actual taxable income and claim the TDS against final tax liability. The deductor could not be held responsible for default in payment of tax but it is the assessee who failed to report the correct income. The Ld. CIT-DR, referred to the decision of Hon’ble High Court of Madras in the case of Gangotri Textiles Limited (276 Taxman 356) as confirmed by Hon’ble Supreme Court (reported as 286 Taxman 357). The Ld. CIT-DR submitted that the above case law is on similar facts and involve imposition of concealment penalty arising out of failure of the assessee to report capital gains through 'inadvertence'. It has further been submitted that the decision of Hindustan Steels Ltd. (supra) as relied upon by Ld. CIT(A) has duly been considered in this decision. The Ld. CIT-DR also referred to the provisions of Sec.191 which, inter-alia, provide that in the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee directly. Thus, the assessee has defaulted in meeting his statutory liability in reporting correct income and paying correct amount of tax which certainly make him liable for penalty u/s 271(1)(c). The Ld. CIT-DR further submitted that after the omission of words 'deliberately' from section 271(1)(c) of the Act, the intention of the assessee is not to be proved by the revenue. As concluded by Hon'ble Supreme Court in the case of Dharmendra Textiles (306 ITR 277), penalty u/s.271 (1) (c) is a civil liability.