2015 (1) TMI 1243 - AT - Income Tax

Tribunal cancels penalty for alleged income concealment, citing debatable issue of long-term capital gains

DCIT, Central Circle-2, New Delhi Versus M/s. A.T. Invofin India P. Ltd.

The Tribunal upheld the CIT(A)'s decision to cancel the penalty imposed under Section 158BFA(2) of the Income Tax Act. The Tribunal found that there was ... Levy of penalty imposed u/s 158 BFA(2) - CIT(A) deleted the penalty levy - Held that:- Return of income was not filed within due date prescribed u/s 139(1) and in the meanwhile since there was a search, long term capital gain was rightly assessed as undisclosed income within the meaning of Section 158BB(1)(c) of the Act. However, to hold that the assessee has concealed particulars of income and penalty u/s 158BFA(2) is to imposed on facts of this case is unjustified. The penalty u/s 158BFA is not automatic and the assessee did not have any intention to conceal the said capital gain for the purpose of taxation. The reason for us to hold that the assessee did have any intention to conceal the capital gains is evident from the undisputed fact that the investment of the impugned shares were duly reflected in the financial statement of the assessee in the year of purchase and the sale consideration/gain received during the A.Y. 1999-2000 was deposited in the Bank account which was duly disclosed to the Income Tax Department. Further, the unaudited P&L account and balance sheet which were seized in the course of search contained the recording of the transaction of the sale of the shares and resulting capital gains. Further, whether long term capital gains can be treated as “undisclosed income” is debatable issue. The Hon’ble jurisdiction High Court has held in the case of CIT Vs. H.B. Leasing and Finance Co. Ltd. (2011 (2) TMI 434 - Delhi High Court ) that the issue can be said to be debatable when substantial question of law has been admitted and when quantum proceeding is debatable, the penalty cannot be imposed. - Decided in favour of assessee. Issues Involved:1. Justification of CIT(A) in cancelling the penalty levied under Section 158BFA(2) of the Income Tax Act.Issue-wise Detailed Analysis:1. Justification of CIT(A) in Cancelling the Penalty Levied under Section 158BFA(2) of the Income Tax Act:The solitary issue for consideration is whether the CIT(A) was justified in cancelling the penalty of Rs. 5,72,226/- imposed under Section 158BFA(2) of the I.T. Act. The Department's appeal challenges the CIT(A)'s order dated 01.02.2013, pertaining to the Block Period 01.04.1989 to 13.01.2000.Facts of the Case: A search operation under Section 132 was conducted on 13.01.2000 in the Shyam Telecom Group, during which documents related to the assessee for A.Y. 1999-2000 were seized. It was found that the assessee earned long-term capital gains of Rs. 18,94,080/-, declared in the return filed on 31.03.2000. Since the return was filed after the due date under Section 139(1), the capital gains were assessed as 'undisclosed income' under Section 158BB(1)(c). The CIT(A) and subsequently the Tribunal initially ruled in favor of the assessee, but the High Court later reversed this decision, treating the capital gains as 'undisclosed income' due to the late filing of the return.Penalty Proceedings: Following the High Court's decision, the Assessing Officer imposed a penalty of Rs. 5,72,226/- under Section 158BFA. The assessee appealed against this penalty, and the CIT(A) allowed the appeal, stating that assessment and penalty proceedings are distinct. The CIT(A) emphasized that the mere addition in assessment cannot be the sole ground for penalty imposition. The AO must prove that the assessee concealed income or furnished inaccurate particulars deliberately.CIT(A)'s Findings: The CIT(A) highlighted several factors:- The investment in shares and the sale proceeds were recorded in the financial accounts and the declared bank account.- The unaudited profit and loss account and balance sheet found during the search contained the transaction details.- The return for A.Y. 1999-2000, though filed late, was within the time allowed under Section 139(4), and the capital gains were declared.The CIT(A) concluded that these facts did not warrant a penalty under Section 158BFA(2). The AO should not presume guilt but must provide primary evidence of concealment. The CIT(A) also noted that the penalty provision is not automatic, and the word 'may' in Section 158BFA(2) implies discretion.Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, agreeing that the penalty was unjustified. The Tribunal noted that the investment and sale of shares were duly recorded, and the capital gains were declared in the return filed within the extended time. The Tribunal emphasized that the penalty under Section 158BFA is not automatic and requires evidence of intent to conceal income. The Tribunal also considered that the issue of treating long-term capital gains as 'undisclosed income' is debatable, as evidenced by the differing decisions of the Tribunal and the High Court, and the pending SLP before the Supreme Court.The Tribunal cited the jurisdictional High Court's rulings in CIT Vs. H.B. Leasing and Finance Co. Ltd. and CIT Vs. Devsons Logistics (P) Ltd., which held that when an issue is debatable, penalty cannot be imposed. The Tribunal concluded that the penalty was not warranted and upheld the CIT(A)'s order, dismissing the Revenue's appeal.Conclusion: The Tribunal found that the CIT(A) was justified in cancelling the penalty imposed under Section 158BFA(2) of the I.T. Act, as the facts did not support an intention to conceal income, and the issue was debatable. The appeal of the Revenue was dismissed.The order was pronounced in the open court on 13th January, 2015.