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Income Tax Appellate Tribunal, “E ” BENCH, MUMBAI
Before: SHRI RAJENDRA & SHRI C.N. PRASAD
zआयकर अपील�य अ�धकरण, मुंबई �यायपीठ , मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL “E ” BENCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER आयकर अपील सं /I.TA No.7092/Mum/2013 (�नधा�रण वष� / Assessment Year:2002-03 M/s. SKF India Ltd., The ACIT-4(3), बनाम/ (Formerly known as SKF Aayakar Bhavan, Vs. Bearings India Ltd) Mumbai-400 020 Mahatama Gandhi Memorial Bldg., Netaji Subhash Road, Mumbai-400 002 Appellant Respondent आयकर अपील सं /I.TA No.3558/Mum/2012 (�नधा�रण वष� / Assessment Year:2005-06 M/s. SKF India Ltd., The ACIT-4(3), बनाम/ (Formerly known as SKF Aayakar Bhavan, Vs. Bearings India Ltd) Mumbai-400 020 Mahatama Gandhi Memorial Bldg., Netaji Subhash Road, Mumbai-400 002 आयकर अपील सं /I.TA No.7093/Mum/2013 (�नधा�रण वष� / Assessment Year:2004-05 M/s. SKF India Ltd., The ACIT-4(3), बनाम/ (Formerly known as SKF Aayakar Bhavan, Vs. Bearings India Ltd) Mumbai-400 020 Mahatama Gandhi Memorial Bldg., Netaji Subhash Road, Mumbai-400 002 आयकर अपील सं /I.TA No.6989/Mum/2013 (�नधा�रण वष� / Assessment Year:2004-05
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The ACIT-4(3), M/s. SKF India Ltd., बनाम/ Aayakar Bhavan, (Formerly known as SKF Vs. Mumbai-400 020 Bearings India Ltd) Mahatama Gandhi Memorial Bldg., Netaji Subhash Road, Mumbai-400 002
�थायी लेखा सं./जीआइआर सं./PAN/GIR No.AAACS 0684H .. (अपीलाथ� /Appellant) (��यथ� / Respondent) अपीलाथ� ओर से/ Assessee by: Shri Milin Thakore Shri Kailash Gaikwad ��यथ� क� ओर से/Revenue by:
सुनवाई क� तार�ख / Date of Hearing :11.07.2016 घोषणा क� तार�ख /Date of Pronouncement :29.07.2016 PER C.N. PRASAD, JM O R D E R These appeals are filed by the assessee and the Revenue against the order of the Ld. CIT(A)-8, Mumbai dated 19.09.2013 pertaining to assessment year 2002-03 to 2005-06.
In all these appeals of the assessee , the assessee is challenging the order of the Ld. CIT(A) in confirming levy of penalty u/s. 271(1)(c) of the Act.
Brief facts are that in all these three Assessment Years assessee has sold flats on which it had claimed Long Term Capital Gains and offered to tax at 20%. In the Annexure to computation of income, the assessee has given the reason for claiming Long Term Capital Gains on sale of flats as under: “The capital gains in respect of sale of the above flat have been treated as Long Term Capital Gains and accordingly offered for tax at 20% as per Sec. 112(1)(b). The company relies on the decision of the
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Gauhati High Court in the case of CIT Vs Assam Petroleum Industries (P) Ltd (262 ITR 587) which has observed that Sec. 50 only provides that if the depreciation has been allowed under the Act of the capital asset, then the assessee’s computation of capital gain would not be u/s. 48 and 49 of the I.T. Act and it would be with modification as provided u/s. 50 and that section 50 does not state that depreciation asset shall be treated as short term capital asset. The assessee contends that the specialty attached to Sec. 50 is to be restricted only to the method of computing the capital gain and not for determining the nature of capital gain.
In the course of assessment proceedings, the assessee in response to the queries of Assessing Officer as to why profit on sale of flat should not be taxed as Short Term Capital Gains as against the claim of the assessee as Long Term Capital Gain, the assessee stated that capital gains computed as per Sec. 50C of the Act in respect of sale of residential buildings are treated as Long Term Capital Gains for the reason that Sec. 2(29B) defines Long Term Capital Gains as the capital gain arising from the transfer of a Long Term Capital asset. Section 2(29A) defines Long Term Capital asset as a capital asset which is not a short term capital asset. In view of Sec. 2(42A), Short Term capital asset means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer are Long Term Capital Gains.
4.1.During the previous year ended 31st March, 2005, a flat in Pemino Apartment was sold, which was acquired vide agreement dated 14th March, 1989. Thus, the said residential building was held by the company for more than thirty six months before its transfer/sale, hence it was Long Term Capital asset and accordingly, gain on its transfer, computed as per provisions of Sec.50 is Long Term Capital Gain. It was further contended that the estimation of treating/deeming any capital gain arising on transfer
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of a depreciable asset as short term capital gain u/s. 50, is only for the purpose of Sec. 48 & 49 and therefore, it cannot be extended to other provisions of the Income-tax Act, as if it is so extended, it would amount to extending the deeming provisions beyond its legitimate field. The assessee placing reliance on the decision of Gauhati High Court in the case of CIT Vs Assam Petroleum Industries (P) Ltd. (262 ITR 587) submitted that Sec. 50 is to be restricted to only for the method of computing the capital gain and not for determining the nature of capital gain, therefore the assessee submitted that in view of this decision, capital gains was computed as per provisions of Sec. 50, have been treated as Long Term Capital Gain and accordingly taxed at 20% as per Sec. 112(1)(b) of the Act.
However, the Assessing Officer rejecting the contentions of the assessee computed the profit on sale of the flat as Short Term Capital Gain and taxed accordingly. According to the Assessing Officer, the decision of the Gauhati High Court does not lay down any law as to the rate of taxation on the Short Term Capital Gain arising as profit u/s. 50 i.e. whether Sec. 112(1)(b) would or would not apply. According to the Assessing Officer Sec. 112 is again an independent charging Section which would apply to Long Term Capital Gain and once the statute has created a legal fiction to treat capital gains on depreciable asset as Short Term Capital Gain that legal fiction could not take any different form for the charging section.
The assessee preferred an appeal before the Ld. CIT(A) and Tribunal. The Tribunal in ITA No. 6461/M/09 dated 24.2.2012 following its earlier order for the Assessment Year 2001-02 to 2004-05 sustained the order of the Assessing Officer in treating the capital gains for sale of flats as Short Term capital gain as against the claim of the assessee that it is Long Term Capital gain taxable @ 20%. The Assessing Officer initiated the penalty
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proceedings for all these Assessment Years and required the assessee to explain as to why penalty u/s. 271(1)(c) should not be levied for the wrong claim of Long Term Capital gain. The assessee submitted its reply stating that it had made full disclosure of the claim for Long Term Capital gain on the sale of flat by way of note to the computation of income and the claim was made relying on the Gauhati High Court decision. In its reply, the assessee submitted before the Assessing Officer as under:
“Taxability of Short-term capital Gain u/s. 50- The-facts and Iegal position taken by the assessee in the return of income was disclosed in notes annexed to computation of total income which is reproduced below:
"The capital gain in respect of the sale of above flat have been treated as long term capital gains and accordingly offered to tax at 20% as per section 112(1)(b). The company relies on the decision of Gauhati High Court in the case of CIT vs Assam Petroleum Industries (P) Ltd (262 ITR 587) which has observed that section 50 only provides that if the depreciation has been allowed under the Act on the capital asset, then the assesse's computation of capital gain would not be under section 48 and 49 of the Income-tax Act and it would be with modification as provided under section 50 and that section 50 does not state that depreciable assets shall be treated as short term capital assets." .
The assessee contends that specialty attached to section 50 is to be restricted only to the method of computing the capital gain and not for determining the nature of capital assets. " .
The fact that assessee has disclosed the facts and legal position along with the computation of total income is also recognized by the assessing officer at Para 7 of the assessment order dated December 26, 2008. .
Since all the necessary facts and legal position has been disclosed in the information filed along with the return of income, there cannot be said to have been concealment or filing of inaccurate facts by the assessee company”.
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The assessee further contended that the claim was made based on the judicial decisions and therefore It cannot give rise to penalty u/s. 271(1)(c) of the Act. Assessee placed reliance on the following decisions in support of its contentions.
Vanaik Investors Ltd. Vs ITO 5 SOT 591 (Del) 2. Vijay I. Sheth Vs ITO 63 TTJ 488 (Ahd.) 3. ITO Vs Budge Budge Co. Ltd. 100 ITD 387 (Kol.)
Therefore, it was contended that non acceptance of the claim by the department does not bring the assessee within the purview of Sec. 271(1)(c) of the Act. The assessee also relied on the decision of Apex Court in the case of CIT Vs Reliance Petroproducts Pvt. Ltd. (322 ITR 158) wherein it was held that a claim which may not be sustainable in law does not tantamount to furnishing inaccurate particulars of income. Placing reliance on the decision of the Pune Bench in the case of Kanbay Software India Pvt. Ltd Vs ACIT (31 SOT 153) it was contended that raising a legal claim even if it is ultimately found to be legally unacceptable by the tax authorities, cannot amount to furnishing inaccurate particulars of income. Therefore, the assessee contended that it has neither concealed particulars of income nor it has furnished inaccurate particulars of such income and hence no penalty should be levied u/s. 271(1)(c) of the Act. However, the Assessing Officer passed order u/s. 271(1)(c) imposing penalty u/s. 271(1)(c) of the Act holding that assessee has deliberately chose to make a claim on the basis of a case law which is not applicable in its case. The Assessing Officer held that assessee has filed inaccurate particulars of income by making an incorrect claim which has resulted in reducing its tax liability.
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The Ld. Counsel for the assessee reiterated the submissions made before the authorities below. The Ld. Counsel for the assessee submits that assessee has made full disclosure in the return of income regarding the computation of capital gains and a note was also appended to the computation of income which clearly proves the stand of the assessee why assessee has made claim in respect of sale of property as Long Term Capital Gains thereby attracting tax at 20%. The stand taken by the assessee is a legal contention and the Ld. Counsel for the assessee submits that infact the contention of the assessee was accepted by the Tribunal in Smita Conductors Ltd. Vs DCIT in ITA No. 4004 of 2011 dated 17.9.2013 after deciding the appeal by the Tribunal in assessee’s case. He submits that in this case it was held that for the purpose of computation of capital gain, the flat has to be treated as Short term capital gain u/s. 50 of the Act but for the purpose of applicability of tax rate it has to be treated as Long term capital gain if held for more than 3 years. While coming to such conclusion, the Tribunal considered the decision of the Bombay High Court in the case of CIT Vs Ace Builders (P). Ltd., (281 ITR 410) and also the decision of the Mumbai Bench in the case of Manali Investments Vs ACIT (139 TTJ 411). Therefore, the Ld. Counsel for the assessee vehemently submits that the legal contention raised by the assessee has been accepted in one of the decision of the Tribunal holding that for tax purposes the property which was held for more than 3 years should be considered as Long term capital gain. Therefore, the Ld. Counsel for the assessee submits that there are two views possible and ultimately the legal contention taken by the assessee was not proved to be completely baseless since in one of the decisions, the contention of the assessee was accepted therefore it is a bonafide legal contention taken by the assessee by making complete disclosure and
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therefore no penalty for either concealment or for furnishing of inaccurate particulars can be levied.
We have heard the rival contentions, perused the orders of the authorities below and the decisions relied on. The assessee in this case while computing the income for all these Assessment Year reported profit on sale of flat under the head ‘Income from Long term capital gains’ though the asset was depreciable asset. The annexure to computation of income, the assessee has given a note as to why it is claiming the profit on sale of flat under the head Long term capital gains attracting tax at 20%. Apparently, the claim was made based on the decision of Gauhati High Court in the case of CIT Vs Assam Petroleum Industries Pvt. Ltd., (262 ITR 587). The contention of the assessee that even in the case of depreciable asset, if the asset is held for more than 3 years, the sale proceeds have to be assessed on Long term capital gains based on the observation of the Hon’ble High Court that Sec. 50 only provides that the depreciation has been allowed under the Act on the capital asset then the assessee’s computation of capital asset would not be u/s. 48 & 49 of the Act and it would be with modification as provided u/s. 50 and that Sec. 50 does not state that depreciable asset shall be treated as Short Term capital asset. The assessee contended that the specialty attached to Sec. 50 is to be restricted only to the method of computing the capital gain and not for determining the nature of capital gain. The contentions were not accepted by the Assessing Officer and he computed the Short term capital gain and penalty was levied u/s. 271(1)(c) of the Act for concealment of income. The stand of the assessee was rejected by the First appellate authority as well as the Tribunal. The assessee contends that there is a full disclosure made and a legal contention was raised based on certain legal pronouncements and the legal contention of the assessee was infact
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accepted in one of the decisions by the Tribunal in the case of Smita Conductors Ltd (supra).
We have perused the decision of the Tribunal in the case of Smita Conductors Ltd. (supra) wherein it was held as under:
“2.5 The assessee has also raised an additional ground that for the purpose of application of tax rate, the capital gain in case of the assessee has to be assessed as long term capital gain as the flat had been held by the assessee for more than three years. It has been argued that provisions of section 50 deeming the capital gain as short term capital gain is only for the purposes of section 48 and 49 which relate to computation of capital gain. The deeming provisions has, therefore, to be restricted only to computation of capital gain and for the purpose of other provisions of the Act, the capital gain has to be treated as long term capital gain. The view canvassed by the learned AR is supported by the judgment of Hon’ble High Court of Bombay in case of Ace Builders P. Ltd. (Supra) in which it has been held that for the purpose of other provisions of the Act such as section 54EC the capital gain has to be treated as long term capital gain, if the asset is held for more than three years. The same view has been taken by the Mumbai bench of Tribunal in case of Manali Investments Vs. Assistant Commissioner of Income Tax (139 TTJ 411) in which it has been held that the prescriptions of section 50 are to be extended only to the stage of computation of capital gain and, therefore, capital gain resulting from transfer of depreciable asset which was held for more than three years would retain the character of long term capital gain for the purpose of all other provisions of the Act. In this case the Ld. AR for the assessee submitted that flat had been held for 15 to 20 years which is supported by the fact that cost of the flat as shown in the balance sheet was only Rs. 1,30,000/-. Therefore, if the flat is held for more than three years the M/s Smita Conductors Ltd - 6 - tax rate has to be applied as provided in section 112 of the IT Act applicable in respect of capital gain arising from transfer of long term capital asset. 2.6 We, therefore, held that, for the purpose of computation of capital gain, the flat has to be treated as short term capital gain u/s 50 of the IT Act, but for the purpose of applicability of tax rate it has to be treated as long term capital gain if held for more than three years. We accordingly direct the AO to compute the capital gain from the sale of flat and apply the appropriate tax rate after necessary verification in the light of observations made in this order”.
On a reading from the order of the Co-ordinate Bench of the Tribunal, we find that the legal contention as raised by the assessee is accepted in this case which is almost similar to the contention raised by the assessee.
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Therefore, it cannot be said that the legal contention raised by the assessee is totally false and a wrong claim simply because by making a claim which is not sustainable in law, cannot lead to concealment of income or furnishing of inaccurate particulars of income. The contention raised by the assessee is also one of the possible views and the issue is highly debatable. It is only a difference of opinion. Thus, we hold that there is no concealment of income by the assessee by making a legal claim which is otherwise completely disclosed in the return of income by way of a note. Hence, we direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act for all these three Assessment Years.
ITA No. 6989/M/2013 – A.Y. 2004-05 – Revenue’s appeal
This appeal is filed by the Revenue against the order of the Ld. CIT(A)-8, Mumbai dated 19.9.20-13 pertaining to assessment year 2004- 05.
The grounds raised by the Revenue read as under: “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the penalty levied u/s. 271(1)(c) of the I.T. Act, 1961 on account of claim of deduction u/s. 80HHC.
On the facts and in the circumstances of the case and in law, the impugned order of the Ld. CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored.
Both the Counsels agreed that the Revenue effect in this appeal is less than 10 lakhs.
Before going into the merits of the case, we consider CBDT’s latest instructions vide Circular No.21/2015 dated 10/12/2015, the relevant portion of which read as under:-
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“ Circular No. 21/2015 F No 279/Misc. 142/2007-ITJ (Pt) Government of India Ministry of Finance Department of Revenue Central Board Direct Taxes
New Delhi the 10th December, 2015
Subject: Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal and High Courts and SLP before Supreme Court - measures for reducing litigation - Reg –
Reference is invited to Board's instruction No 5/2014 dated 10.07.2014 wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Appellate Tribunal and High Courts and SLP before the Supreme Court were specified.
In supersession of the above instruction, it has been decided by the Board that departmental appeals may be filed on merits before Appellate Tribunal and High Courts and SLP before the Supreme Court keeping in view the monetary limits and conditions specified below.
Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder: -
S. Appeals in Income-tax Monetary Limit No matters (in Rs) 1. Before Appellate Tribunal 10,00,000/- 2. Before High Court 20,00,000/- 3. Before Supreme Court 25,00,000/-
It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.”
It is further clarified by the Board in its circular that these instructions will apply retrospectively to pending appeals and appeals to be
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filed henceforth in High Courts and Tribunals. It is also made clear that pending appeals below the monitory limits fixed in para-3 above may be withdrawn or not pressed.
In the case in hand, the total demand as per CIT(A)’s order is less than the amount of Rs. 10,00,000/-, which is below the monetary limits as mentioned in CBDT Circular dated 10.12.2015 (supra). Following the same, this appeal of the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed and the appeals filed by the assessee are allowed.
Order pronounced in the court on 29th July, 2016. Sd/- Sd/- (RAJENDRA) (C.N. PRASAD ) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated 29th July, 2016 व.�न.स./ Rj , Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- 4. आयकर आयु�त / CIT 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai