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Facts
The assessee filed its return of income for AY 2014-15, which was initially accepted. However, the case was reopened under Section 147 of the Income Tax Act due to the claim of exemption under Section 10(38) for certain transactions related to debt mutual funds. The Assessing Officer (AO) initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars.
Held
The Tribunal held that the assessee had inadvertently claimed exemption under Section 10(38) for transactions that should have resulted in a capital loss. All transactions were disclosed, and there was no concealment of income. The penalty was initiated for claiming a wrong exemption, which is not equivalent to furnishing inaccurate particulars as per the Supreme Court ruling in CIT vs. Reliance Petro products Limited.
Key Issues
Whether penalty under Section 271(1)(c) is leviable for inadvertently claiming wrong exemption when all particulars were disclosed and no income had escaped assessment.
Sections Cited
10(38), 147, 271(1)(c), 152(2)
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 02.05.2023 and pertains to assessment year 2014-15.
At the outset, we find that there is a delay of 294 days in appeal filed by the assessee, for which petition for condonation
:-2-: ITA. No: 984/Chny/2024 of delay along with reasons for delay has been filed. After considering the petition filed by the assessee and also hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the assessee for adjudication.
The assessee has raised the following grounds of appeal: “1. The order of the NAFC/Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case.
2. The NAFC/Commissioner of Income tax (Appeals) erred in confirming the levy of penalty u/s.271(1)(c) of Rs.24,65,583/. 2.1 Wrong claim only: The NAFC/Commissioner of Income tax (Appeals) ought to have appreciated that the appellant at the time of filling the return of income have inadvertently claimed the capital gain on sale of debt fund in respect of 10 transactions as exempt u/s 10(38) instead of claiming it as loss. The 10 mutual funds resulted in a loss only and the loss has not been claimed in the return filed u/s 148 by the assessee. Reliance placed on bonafide/inadvertent error, penalty not leviable as per PwC vs CIT (348 itr 306 SC) 2.2 All transactions disclosed in ITR: The NAFC/CIT(A) ought to have appreciated that all the transactions were disclosed while filing the return of income. There is no concealment of particulars of income/inaccurate particulars for S.271 (1 )(c) to be invoked but only a wrong claim. Reliance placed on CIT vs. Reliance Petroproducts(322 itr158 SC) 2.3 No variation between returned &assessed income as per S.147 Order: The NAFC/CIT(A) ought to have appreciated that it is settled by various decisions that when there
:-3-: ITA. No: 984/Chny/2024 is no variation between returned and assessed income penalty u/s 271 (1)(c) is not in accordance with law. 2.4 Explanation 2 to S.147 does not apply as loss claim was not made: The NAFC/CIT(A) ought to have appreciated that the AO accepted the returned income as the assessed income in the 148 proceedings and hence Explanation 2 to S. 147 will not apply and hence there is no income escaping assessment under S.147 in the first place. 2.5 Reopening is bad in law as per S.152(2): Without prejudice, the NAFC/CIT(A) ought to have appreciated that the reopening itself is bad as per S.152(2) given that he has been assessed on an amount not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account. 2.6 This on reopening there was no reduction of taxable income nor was there any carry forwarded loss were reduced. Merely eligible capital loss was not claimed on the mistaken impression that it is exempt. Hence there was no escapement of income.
3. The Appellant craves leave to file additional grounds of appeal at the time of hearing.”
4. The brief facts of the case are that, the assessee is an individual and for the Assessment year 2014-15 filed his return of income admitting an income of Rs.1,48,56,617/-. The Order u/s.143(3) of the Act was passed on 22.11.2016 admitting the return of income. Initially, on merits, notice u/s.147 was issued on the appellant in respect of claim u/s.10(38) (being exemption from long-term capital gains by selling equity shares of an equity-oriented mutual fund) of Rs.1,60,97,683/-. The :-4-: ITA. No: 984/Chny/2024 assessment was reopened u/s.147 stating out of the total claim u/s.10(38) claim of Rs.1,60,97,683/-, 11 transactions amounting to Rs.65,52,232/- did not pertain to the debt mutual funds and hence have to be disallowed and added back to income.
4.1 The assessee submitted that it had inadvertently wrongly claimed u/s.10(38) in respect of 10 transactions being transactions related to 10 debt mutual funds but in fact the assessee was eligible for indexation on these funds and if the indexation benefit is worked out (as submitted by Appellant in page 14 of paperback) it would result in a Capital Loss of Rs.38,57,504/- which it ought to have claimed. Hence there is no income escaping assessment. Further, the 11th transaction pertains to Reliance Liquidity Fund - Treasury Plan-Retail option on which Appellant earned short term capital gains and offered it to tax of Rs.13,24,121/- so this cannot be subject matter of dispute. The AO on merits u/s.147 passed Order dated 27.09.2021 considering the assessee's submissions and accepted the assessee's Return of Income. Hence, on merits there was no addition to income as assessed in the Assessment
:-5-: ITA. No: 984/Chny/2024 u/s.143(3) r.w.s.147 of the Act. However, the AO vide his order dated 05.01.2022 Levied penalty u/s.271(1)(c) amounting to Rs.24,65,583/- claiming that the assessee had furnished inaccurate particulars.
The assessee aggrieved by the penalty order of the AO, filed an appeal to the ld.CIT(A) and the ld.CIT(A) has also upheld the AO's penalty order. Hence, the assessee filed an appeal before us.
The Ld.AR stated that there is no dispute in facts of the case by the AO or the CIT(A) in the penalty proceedings. Further, it is pointed out that the Order on merits u/s.147 r.w.s 144 of the Act dated 27.09.2021 (Page No.26 of the Paper book) clearly accepts the assessee's contentions as follows:- "5. The Assessee furnished his reply on 11.09.2021, in response to the notice dated 05.09.2021 vide his reply, he has accepted that he has wrongly claimed exemption u/s.10(38) amounting to Rs.65,52,232/- on the above mentioned funds and sale of 10 out of 11 of these funds resulted in loss after indexation and on one he has declared STGG in his return of income. As the Assessee has not furnished any supporting document viz AMC/ Mutual Fund/ R&TA to corroborate his contention, so show cause notice issued to the Assessee on 16.09.2021 for computation by 20.09.2021, show causing the Assessee as to why after disallowance of exemption of Rs.65,52,2321- claimed uls.10(38) may not be treated as his income and added back to his income.
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5.1 The Assessee furnished his reply on 21.09.2021. He has furnished brokers statement from The Allegro Capital Advisors Pvt Ltd with respect to the mutual fund and his reply explaining the transactions. The reply of the Assessee has been perused. In view of the reply/documents furnished by the Assessee, the return income of the Assessee is accepted and assessed. The reassessed income is the same as the originally assessed income u/s.143(3). Penalty uls.271(1)(c) is hereby initiated for furnishing inaccurate particulars of income as the Assessee has claimed wrong exemption u/s.10(38)." (emphasis added) 2. On lower authorities' orders: a. In the penalty order u/s.271(1)(c) dated 05.01.2022, the AO's only contention is that the Assessee had furnished inaccurate particulars to claim u/s.10(38). b. The CIT(A) dated 05.01.2022 on the penalty u/s.271(1)(c) also held on the basis that the assessee had furnished inaccurate particulars in claiming wrong exemption u/s.10(38).
Further, the CIT(A) relies on irrelevant decisions such as DCJT vs. Raj Lalwani 132 /TD 109 (ITAT Delhi) where the issue was the explanation of assessee was not supported by any material on record which is not at all the case here as the entire details of the transactions were submitted in the Schedules along with the Return of Income itself. The CIT(A) also quotes CIT vs. Chemiequip Ltd (265 TR 265 Born) and Aditya Chemicals (194 CTR 241) where in the HC's have upheld penalty where returned loss is reduced under Explanation 4(b) to S.271(1)(c) which reads as follows:
:-7-: ITA. No: 984/Chny/2024
"Section 271(1)(c) Explanation 4(b) where in any case the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, the amount of tax sought to be evaded shall be determined in accordance with the formula specified in clause (a) with the modification that the amount to be determined for item (A- B) in that formula shall be the amount of tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;"
This above Explanation 4 is prima facie not applicable to the instant case where the returned loss is NOT reduced by the reassessment. In fact, the returned income of assessee was accepted by the AO (after the assessee pointed out it could have actually claimed Capital Loss instead on indexation). Further, the CIT(A) also quotes Brij Mohan vs CIT (120 /TR 1) where it holds that law operating on date on which wrongful act is committed determines penalty, but this ruling has no relevance to the present facts whatsoever.
Further, the ld.AR argued that the case on legal contentions as detailed below: a. Firstly, it is submitted that there is no income escaping assessment and hence there is no question of penalty being levied. In fact, Section 152(2) provides that an Assessee can claim that the reopening be dropped if he can show that he has been :-8-: ITA. No: 984/Chny/2024 assessed on an income or a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account or the assessment or computation has been properly made. In this case, even if the computation has been properly made, then there would be no escapement of income and hence reopening should have been dropped and consequently no penalty can be imposed on the reassessment order. b. Secondly, it is now well settled law by the Hon'ble Supreme Court in CIT Vs Reliance Petro products Limited reported in 322 ITR 158 that "making inaccurate claim in law cannot tantamount to furnishing inaccurate particulars."
In the said case, the Assessee claim of deduction of interest expenditure which was not accepted by the Revenue and the Supreme Court held that the mere making of claim not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding income of the Assessee and deleted the penalty u/s.271(1)(c). In doing so, the Supreme Court has held as following: "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 :
:-9-: ITA. No: 984/Chny/2024 "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 s. 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.
It was tried to be suggested that s.14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the AO had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under s.271 (1 )(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under s.271(1)(c). That is clearly not the intendment of the legislature.
11. In this behalf the observations of this Court made in Sree Krishna Electricals vs. State of Tamil Nadu &Anr. (2009) 23 VST
:-10-: ITA. No: 984/Chny/2024 249 (SC) as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales-tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its return.
12. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed." (emphasis supplied)
8.1 In this context, the ld.AR submitted that the assessee’s Income Tax Return along with Computation of Income (Page No.1 and 2 of the Paper book), more specifically Schedule - 9 Capital gains from SIT Paid Shares/ Units (Page 6 of Paper Book) clearly shows ALL the mutual funds transactions which are the subject matter of the dispute (In Pages 8 and 9 of the Paper book these specific 10 transactions are also highlighted). Thus, all the details of capital gain transactions in dispute are very much part of the Return of Income along with the Schedules.
:-11-: ITA. No: 984/Chny/2024 8.2 The Ld.AR further argued that only the claim u/s.10(38) of exemption from capital gains for some transactions was rejected but the facts and particulars about investments have not been found inaccurate. Thus, in short, all the particulars have been submitted though some legal claims may have been incorrect and hence Reliance Petro products supra is squarely applicable to the instant case and the penalty ought to be deleted.
Per contra, the ld.DR relied on the orders of the AO and that of the Ld.CIT(A) and prayed for dismissing the appeal of the assessee.
10. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities. The assessee is an individual filed his return of income and the case was selected for scrutiny and passed an order on 22.11.2016 u/s.143(3) of the Act by accepting the return of income of Rs.1,48,38,670/-. Subsequently, the case was reopened u/s.147 for the reason that the some of the equity-oriented funds were not covered u/s.10(38) to claim the :-12-: ITA. No: 984/Chny/2024 exemption. The assessee submitted that it had inadvertently claimed exemption u/s.10(38) in respect of 10 transactions being transactions related to 10 debt mutual funds but in fact the assessee was eligible for indexation on these funds and if the indexation benefit is worked out (as submitted by Appellant in page 14 of paperback) it would result in a Capital Loss of Rs.38,57,504/- which it ought to have claimed. Hence there is no income escaping assessment. Further, the 11th transaction pertains to Reliance Liquidity Fund - Treasury Plan-Retail option on which assessee earned short term capital gains and offered it to tax of Rs.13,24,121/- so this cannot be subject matter of dispute. The AO was convinced with the submission and accepted the return of income as assessed income. However, the penalty u/s.271(1)(c) was initiated for furnishing inaccurate particulars of Income by claiming wrong exemption u/s.10(38) and confirmed the penalty of Rs.24,65,583/-, which has been confirmed by the ld.CIT(A).
We note that the assessee’s return of income was accepted by the AO in two assessment orders without any additions. Hence, it is admitted fact that the AO has not found
:-13-: ITA. No: 984/Chny/2024 any mistake / errors in the income declared / offered by the assessee. In this case, even if the computation has been properly made, then there would be no escapement of income and hence reopening should have been dropped and consequently no penalty can be imposed on the reassessment order. Therefore, the action of the AO and that of the ld.CIT(A) cannot be countenanced.
Further, we find that the assessee’s reliance on the decision of the Hon'ble Supreme Court in CIT Vs Reliance Petro products Limited (supra) that "making inaccurate claim in law cannot tantamount to furnishing inaccurate particulars" is applicable to the present case as all the details of capital gain transactions in dispute are very much part of the Return of Income along with the Schedules.
In the facts and circumstances of the case, we are of the considered opinion that, the penalty u/s.271(1)(c) is not warranted and hence we are inclined to delete the same.
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