SUNANDA V AGARWAL,MUMBAI vs. ITO 21(2)(4), MUMBAI

सुनवाई क" तार"ख /Date of Hearing : 03-08-2016 घोषणा क" तार"ख /Date of Pronouncement : 24-10-2016 आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

ITA 5834/Mum/2013 2

1. The learned Commissioner of Income Tax (Appeals) erred in levying penalty u/s. 271 (1)(c) of Rs. 81,030/- and while doing so he amongst others failed to appreciate that: a. The appellant had neither concealed the particulars of his income nor had he furnished any inaccurate particulars of income; b. The details and particulars of the long term capital gains earned on the transfer of shares of Ranbaxy Laboratories Ltd. was entirely disclosed; c. The appellant was under a bonafide belief that the gain arising on transfer of shares of Ranbaxy Laboratories Ltd. was exempt u/s. 10(38) of the Act. d. Merely because the appellant had inadvertently committed an error in claiming exemption of capital gain on transfer of shares of Ranbaxy Laboratories Ltd., it could not be said that the appellant had concealed the particulars of income or had furnished inaccurate particulars of income.

Penalty proceedings were initiated against the assessee u/s 271(1)(c) of the Act and notice u/s. 274 of the Act was issued to the assessee by the AO , but the assessee neither appeared before the A.O. nor any explanation was offered ITA 5834/Mum/2013 3 by the assessee before the AO in penalty proceedings u/s. 271(1)(c) of the Act read with Section 274 of the Act. The A.O. accordingly came to the conclusion that the assessee did not have any explanation to offer w.r.t. penalty proceedings initiated against the assessee u/s 271(1)(c) of the Act read with Section 274 of the Act and had furnished inaccurate particulars of income whereby she had concealed her true income in the return of income filed with the Revenue. The A.O. held that the assessee has wrongly claimed exemption of Rs. 3,95,769/- u/s 10(38) of the Act in the return of income filed with the Revenue , whereby exemption from tax u/s 10(38) of the Act was claimed with respect to Long Term capital gains on sale of shares on which STT was not paid and hence, the assessee is liable for penalty u/s 271(1)(c) of the Act and taking a lenient view, the A.O. levied minimum penalty @ 100% of the tax sought to be evaded of Rs. 81,030/-, vide order of penalty dated 29.05.2012 passed u/s 271(1)(c ) of the Act by the AO.

4. Aggrieved by the penalty order dated 29.05.2012 passed by the A.O. u/s. 271(1)(c) of the Act, the assessee filed her first appeal before the ld. CIT(A).

4. Before the ld. CIT(A) the assessee submitted that rectification application u/s 154 of the Act was filed before the A.O. wherein it was contended that as per proviso to section 112(1) of the Act capital gains earned by the assessee would be chargeable to tax @ 10% as against tax charged @ 20% by the A.O. and further the A.O. has not considered the cost of acquisition in respect of such 537 shares of Ranbaxy Laboratories Limited whose sale was effected under buyback option and the STT was not paid. The assessee relied on the following judicial decisions:-

- M/s Doral Trading Pvt. Ltd. v. DCIT – ITA No. 6280/Mum/2011. - Asia Attractive Dividend Stock Fund v. DDIT (IT) – ITA No. 3908/Mum/2012. ITA 5834/Mum/2013 4 - ACIT v. Amit Bajaj – ITA No. 7707/Mum/2010. The assessee contended that the penalty proceedings may be dropped or to reduce the penalty levied u/s 271(1)(c) of the Act on account of computational error in applying higher tax rate of 20% instead of 10% as also not providing deduction of cost of acquisition of shares while calculating long term capital gains , in working out the penalty.

The ld. CIT(A) considered the contentions of the assessee and observed that the assessee has earned long term capital gain on sale of 537 shares of Ranbaxy Laboratories Ltd. wherein total sale consideration was Rs. 3,95,769/- which was sold under an buyback option and STT was not paid on the same by the assessee. Thus, the long term capital gain earned by the assessee is not exempt u/s 10(38) of the Act. The ld. CIT(A) observed that the present issue is covered by the decision of ITAT in the case of Asia Management Consultancy Pvt. Ltd. decided on 13th April, 2011 and not by the decision in the case of Doral Trading Pvt. Ltd. (supra) and Asia Attractive Dividend Stock Fund v. DDIT(supra) relied on by the assessee. The ld. CIT(A) held that the assessee has claimed long term capital gain earned by her as exempt u/s 10(38) of the Act under buyback option and as there was no STT paid on such transaction, the long term capital gain earned by the assessee is chargeable to tax and hence the assessee has furnished inaccurate particulars of income by claiming the long term capital gains earned by the assessee on sale of shares under buyback scheme on which STT was not paid as exempt u/s 10(38) of the Act. Thus, the ld. CIT(A) held that the case of the assessee is covered by the Explanation 1 of section 271(1((c) of the Act and the levy of penalty by the A.O. is justified vide appellate orders dated 28.08.2013. ITA 5834/Mum/2013 5

5. Aggrieved by the appellate order dated 28.08.2013 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal.

The ld. Counsel submitted that the above case laws clearly shows that no penalty is leviable as the facts are identical.

ITA 5834/Mum/2013 6

6. The ld. D.R. relied on the order of the ld. CIT(A) and also relied on the judicial decisions in the case of Union of India & Ors v. Dharmendra Textile Processors & Ors, (2008) 306 ITR 277 (SC) , Mak Data Private Limited v. CIT

(2013) 358 ITR 593(SC) and CIT v. Zoom Communication Private Limited

(2010) 327 ITR 510(Del. HC) .

“2. In this appeal by the Revenue for assessment year 2008-09, although several questions have been formulated in the memo of appeal, the basic dispute is whether the Tribunal was justified in deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961 levied upon the respondent - assessee by the assessing officer.

3. The respondent - assessee had originally filed its return of income claiming a refund of Rs. 4.32 crores. This was on the basis of computing its tax payable on the short-term capital gain at the rate of 10% under Section 111A of the Income Tax Act, 1961 ('Act' for short). However, the respondent - assessee on its own realized its mistake in claiming refund and by a letter dated 23rd November 2010 brought it to the notice of the assessing officer. The respondent - assessee pointed that the tax payable on the capital gains was at the rate of 30% at which rate even the advance tax had been paid. Consequent thereto, the respondent - ITA 5834/Mum/2013 8 assessee filed revised computation on the basis of tax being payable at the rate of 30%. The assessing officer completed the assessment without granting the claim for refund. However, penalty under Section 271(1)(c) of the Act was levied upon the respondent - assessee by the assessing officer. The Commissioner of Income Tax (A) upheld the order of the assessing officer levying penalty.

In our considered view based on above detailed reasoning and discussions, it is an inadvertent and bonafide mistake made by the assessee while filing return of income with the Revenue wherein long term capital gains earned on sale of shares under Buyback scheme wherein no STT was paid was claimed exempt u/s. 10(38) of the Act, and the assessee explanation offered thereto is a bona-fide whereby the assessee claimed it to be inadvertent and bonafide mistake was under an impression that long term capital gains earned on sale of shares is exempt from tax u/s 10(38) of the Act albeit no STT was paid , while complete particulars were filed in the return of income filed with the Revenue claiming exemption u/s 10(38) of the Act on long term capital gains earned on sale of shares. It is an inadvertent bona-fide mistake and as such ITA 5834/Mum/2013 9 the penalty is not sustainable in the eye of law and the same is hereby ordered to be deleted as the assessee has come forward with an explanation which is a bona-fide explanation which takes it out of provisions of Section 271(1)(c) read with explanation 1 to Section 271(1)(c) of the Act. Merely because a claim is made by the assessee which is not accepted by the AO to be sustainable in law penalty is not leviable automatically more so when all the details were duly furnished by the assessee in the return of income filed with the Revenue and the particulars of income filed by the assessee were not inaccurate. The assessee has rightly placed reliance on decision of Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts Private Limited (2010) 322 ITR 158(SC) and decision of Hon’ble Supreme Court in the case of Price Waterhouse Coopers Private Limited(supra). Hence, in view of our foregoing detailed discussions and reasoning, we order deletion of penalty of Rs.81,030/- levied on the assessee by the AO u/s 271(1)(c) of the Act which was sustained by learned CIT(A) in the first appeal by setting aside the orders of the authorities below imposing penalty on the assessee u/s 271(1)(c) of the Act. We order accordingly.