TaxTMI 
TaxTMI 
2010 (8) TMI 457
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....eing the case, there would be no question of inviting penalty u/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 appellant, therefore, the penalty which cannot be the subject matter of penalty u/s 271(1)( c). 3. For that the authorities below has relied on a decision of apex court, no longer a good law due to subsequent pronouncement by the apex court. 4. For the claim of exemption u/s 47(v) of the Act was not made an intend of avoiding or evading the tax liability but it was due to ignorance of accountant the claim was made." 2. The only issue involved in this appeal is as to whether the learned CIT(A) was justified in law and on facts in confirming the penalty amounting to Rs.34,95,718 levied u/s 271(1)(c ) of the Act by the AO in the Asstt. Year 2006-07. 3. The relevant facts, in brief, are discussed below: 3.1 The assessee filed e-return declaring total income at Rs.1,70,809 on 30.11.2006. The case was selected for scrutiny and notice u/s 143(2) was issued to the assessee on 5.10.07, which was served upon the assessee. In response to th....
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....hole of the share capital of the assessee was not being held by M/s Paharpur Cooling Towers Ltd. but the share capital of the assessee company was held by other 13 persons besides Paharpur Cooling Towers Ltd. The AO, therefore, asked the assessee to show cause as to why the benefit of Section 47(v), as claimed by the assessee, should not be denied. The assessee was asked to furnish a reply to show cause notice. 3.4 After taking into account the provisions of Section 47(v), the AO observed that M/s Paharpur Cooling Towers Ltd. was not holding whole of the share capital of the assessee company as required u/s 47(v) of the Act in order to treat the transaction to be not in the nature of a transfer within the meaning of Section 45 of the Act. The AO collected the copy of the balance sheet of M/s Paharpur Cooling Tower Ltd. and find that investment of Paharpur Cooling Ltd. in the equity shares of the assessee company was only to the extent of 1704190 shares out of total shares of 17,70,000 shares. The assessee vide reply dated 1.12.2008 submitted that entire capital of the assessee company was held by the holding company M/s Paharpur Cooling towers Ltd. along with their directors and....
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....ubmitted that it is not the case where something was discovered or detected by the department, which was not shown or declared in the return of income, as the information relating to short-term capital gain was very much given or furnished in the return of income itself. It was further submitted that mere because the assessee has accepted the addition and has not preferred any appeal against the assessment order, it cannot be said that assessee's claim was false with a malafide intention to evade payment of tax so as to levy penalty u/s 271(1)(c) upon the assessee. 3.8 The aforesaid explanation of the assessee was considered by the AO, but he found the same to be not satisfactory for the reasons given as under: "The assessee's contention that it was under bona fide belief that the short term capital gain arising to the company on transfer of fixed assets to the holding company is not subject to tax by virtue of provisions of Section 47(v) of the Income tax Act is also not correct. The fact that the whole of share capital was not held by M/s Paharpur Cooling Towers Ltd. must have been in the knowledge of the assessee. The assessee which claims to have a good track record must ....
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....ase laws cited by the assessee in its submission have also been gone through and it was found that ratios of those judgments are not applicable to the case of the assessee c0mapny as the facts in those cases were quite distinguishable from this case. The Hon'ble Supreme Court in the case of UOI & Ors. vs Dharmendra Textile Processors & Others in 305 ITR 277 has upheld that for attracting civil liability of penalty a willful concealment is not essential. It has also been held in the said case that there is no implied required of mens rea or culpable mental status. As the penalty is imposable is governed by the provisions of Income-tax Act which no doubt do not require mens rea on the part of assessee as pre-condition for imposition of penalty. In view of above discussion, undersigned holds that the assessee has concealed income and furnished inaccurate particulars of its income to the tune of Rs. 1,03,85,379." 4. Being aggrieved with the AO's order levying penalty u/s 271(1)( c), the assessee preferred an appeal before the first appellate authority i.e. CIT(A). 5. Before the CIT(A), the assessee submitted that mere because the assessee's claim has been not accepted is....
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....e holding company, and (iii) The holding company is an Indian company. The above conditions should be satisfied cumulatively and are not alternative. If all the aforementioned conditions are satisfied only then an assessee is entitled to claim the benefit of section 47(v) and transfer of capital asset from subsidiary to holding company would be exempt from capital gain tax. Admittedly, the appellant company does not satisfy all the above conditions. The appellant company was well aware about the holding pattern of its holding company. The plea that the computation was made by the accountant is of no help as final accounts and return of income is verified and signed by the directors of the company. Every citizen is presumed to known the law. In the case of a corporate entity, this presumption becomes stronger as it has its own company secretary and auditors. Therefore, the submission that computation was made by the accountant cannot of any help in absolving responsibility of the appellant company. 4.2 The appellant has not preferred any appeal against the assessment order and accepted the addition made by the AO. Thus, the assessment order has attai....
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....s indicates that the section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 271(1)(c)." 4.6 Hon'ble Supreme Court in the case of CIT vs Anwar Ali (1970) 76 ITR 696 has held as under: "Section 271 is penal in character in the sense that its consequences are intended to be an effective deterrent which will put a stop to parties which the legislature considers to be against the public interest." 4.7 Hon'ble Supreme Court in the case of CIT vs Atul Mohan Buindal (2009) 225 CTR (SC) 248 has held that penalty u/s 271(1)(c) is neither criminal nor quasi criminal but a civil liability, albeit a strict liability. Such liability being civil in nature, mens rea is not essential - Explanation appended to section 271(1)(c) indicates element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. Dilip N. Shroff has been held to be not laying down good law. In view of the above legal position on the issue, the contention of ld. AR ....
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....ion 45 of the Income-tax Act, 1961. The above facts has also been reiterated in the Note below the depreciation chart forming part of the Tax Audit report signed by the auditors, namely, Gupta, Garg and Aggarwal, Chartered Accountants, and the auditor's opinion that the short term capital gain of Rs.1,03,85,379 has not been considered in the income-tax return in view of the provisions contained in Section 47(v) of the Act. The learned counsel for the assessee further pointed out that in the income-tax return filed voluntarily by the assessee company, the assessee claimed the short term capital gain of Rs.1,03,85,379 as exempted in view of the auditor's opinion set out in the audited accounts and auditors report as well as Tax Audit report given by auditors u/s 44AB of the Act. It was thus contended that the assessee claimed the short term capital gain to be exempted under the bonafide and legal advise given by the tax auditors, as would be clear from the Notes given in the Annual Accounts audit report as well as Tax Audit Report filed along with the return of income. 9. It was further contended by the learned counsel for the assessee that details about holding pattern of shares ....
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....erefore, reiterated the AO's as well as CIT(A)'s order in levying penalty u/s 271(1)(c ) of the Act. 11. We have given our thoughtful consideration to the rival contentions of both the parties and have carefully perused the material on record. 12. In the present case, the AO has levied penalty for the reason that the assessee has failed to substantiate its claim of treating the transaction to be covered by Section 47(v) of the Act inasmuch as it was well known to the assessee that transferee company was not holding the whole share capital of the assessee company, and, therefore, the assessee has made a wrong claim making itself liable for penal provisions of the Act. The AO further stated that there was an animus on the part of the assessee to set off a wrong claim just to avoid payment of legitimate tax, which is otherwise due and payable on the assessee's true income. The AO was also of the view that in the light of the decision of Hon'ble Supreme Court in the case of UOI & Ors. Vs Dharmendra Textiles Processors (2008) 306 ITR 277 (SC), willful concealment is not essential for attracting civil liability....
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....d that his explanation is shown to be bonafide and all the facts relating to the same and material to the computation of total income was disclosed by him. This position has been summarized by various decisions of the courts from time to time and has been recently summarized by the Hon'ble High Court of Delhi in the case of CIT vs Zoom Communication P. Ltd. reported in (2010) 40 DTR (Del) 249, order being dated May 24, 2010. The position of law, thus, emerges is that so long as the assessee has not concealed any material fact, or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s 271(1)(c ) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiate the explanation offered by him or the explanation offered by him, even if not substantiated, is found to be bonafide. In other words, if the explanation is neither substantiated nor shown to be bonafide, Explanation 1 to Section 271(1)(c ) would come into play and the assessee will be liable to penalty leviable u/s 271(1)(c ) of the Act in respect of the additions or disallowances made by the AO in the assessment. 14. ....
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....is clear that auditor has not considered the short term capital gain of Rs.1,03,85,379/- as income in the income-tax return filed by the assessee in view of the provisions of Section 47(v) of the Act. In other words, the tax auditor was of the opinion that the short term capital gain arising to assessee company on transfer of plant and machinery to its holding company is not a transfer within the meaning of Section 45 of the Act as the case is covered by the provisions of Section contained in Section 47(v) of the Act. In the audited annual accounts under the Company's Act, under the head "Notes to Accounts" at Item 21(iv), the auditor has stated that the assessee company has transferred plant and machinery to its holding company for a total consideration of Rs.1,55,29,500/- as per the valuation certificate of a chartered engineer and the difference of Rs.62,25,421/- between the WDV Rs.2,17,54,921 and sale consideration of Rs.1,55,29,500/- has been charged to profit and loss account as loss on sale of fixed assets, and, however, short term capital gain of Rs.1,03,85,379/- arising on account of said transfer, being difference between sale consideration and WDV as per Income-tax Act, ....
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.... the holding company i.e. transferee is an Indian company. In the present case, it is not in dispute that the capital asset has been transferred by the assessee company, being a subsidiary company, to its holding company. The share capital of the assessee company to the extent of 99.66% is held by the holding company to which the capital assets were transferred. The balance share capital to the extent of 0.36% were held by the directors of holding company and their relatives. The auditor in the annual audit report has given an opinion that any loss or gain arising from the transaction of sale on fixed assets by the assessee company to its holding company shall be covered by Section 47(v) of the Act, and as such any gain arising therefrom shall not be chargeable to tax u/s 45 of the Act. The observation made in the annual audit report under Companies Act is at the stage at which the accounts were first audited under the Companies Act. The assessee has to file its return of income as per provisions contained in the Income-tax Act. However, in the present case, the Tax Consultant, who is also the Tax Auditor of the assessee company, in its tax audit report u/s 44AB, has also given an ....
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....the assessee so as to attract penalty provisions contained in Section 271(1)(c ) of the Act. 18. In the case of Yogesh R. Desai vs ACIT (supra), ITAT has taken a view that where the claim of deduction was made on the basis of advise of the tax consultant supported by tax audit report, there was no concealment or furnishing of inaccurate particulars on the part of the assessee and, therefore, penalty u/s 271(1)(c ) cannot be levied merely because the claim of deduction is disallowed in assessment proceedings. In this decision, the coordinate bench of the Tribunal has considered the following decisions: 1. Anantharam Veerasinghaiah & Co. vs CIT (1980) 16 CTR (SC) 189 : (1980) 123 ITR 457 (SC) 2. Glorious Realty (P) Ltd. Vs ITO (2009) 29 SOT 292 (Mumbai) 3. Kanbay Software India (P) Ltd. Vs DCIT (2009) 122 TTJ (Pune)721: (2009) 22 DTR (Pune)(Trib) 481 : (2009) 119 ITD 153 (Pune) 4. T. Ashok Pai vs CIT (2007) 210 CTR (SC) 259 : (2007) 292 ITR 11 (SC) 5. Union of India vs Dharmendra Textile Processors & Ors. (2008) 219 CTR (SC) 617: (2008) 14 DTR (SC) 114 : (2008) 306 ITR 277 (SC) 6. Union of India vs Rajasthan Spinning & Weaving Mills (2009) 23 DTR (SC) 158 The ....
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....ort from the judgment of Hon'ble Rajasthan High Court in Chandra Pal Bagga vs ITAT &Anr (2003) 182 CTR (Raj) 185 : (2003) 261 ITR 67 (Raj) wherein it has been held "when the assessee has disclosed the transaction which is the basis for capital gains tax, but that cannot be a case of penalty u/s 271(1)(c ) of the IT Act, 1961. If it has claimed any exemption after disclosing the relevant basic facts and under ignorance of the provisions of the Act of 1961, and not offered and under ignorance exemption after disclosing the relevant basic facts and under ignorance of the provisions of the Act of 1961 and offered that amount for tax in such cases, penalty should not be imposed". In this view of the matter and keeping in view the ratio of decisions relied on by the learned counsel for the assessee the penalty imposed by the AO and sustained by the learned CIT(A) is deleted. The grounds taken by the assessee are, therefore, allowed." 19. Similarly, in the present case, all the details and complete particulars regarding transfer of fixed assets of assessee company to its holding company and as to why the short term capital gain arising from said transfer has not been offered to tax has....
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....n, even if not substantiated, is found to be bona fide. In the present case, the assessee's explanation is found to be bonafide and all the material fact or factual opinion given by the assessee have not been found to be incorrect and, therefore, the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts P. Ltd. (supra) will squarely apply to the present case. 21. Now, we shall deal with a decision of Hon'ble jurisdictional High Court of Delhi in the case of CIT vs Escorts Finance Ltd. (2009) 226 CTR (Del) 105 where assessee's claim of deduction u/s 35D was not found to be based on a bonafide error and, therefore, penalty was upheld. In that case, the claim u/s 35D was not at all maintainable even by any stretch of imagination inasmuch as assessee was a finance company, who claimed deduction u/s 35D of the Act, though deduction u/s 35D is only applicable to industrial company. Therefore, no bonafide advise could be given to finance company to claim deduction u/s 35D of the Act, and in that situation, penalty was upheld. However, in the present case, only one of the conditions that holding company must hold whole share capital of assessee company is no....
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....by the assessee before the AO. Though, there was a loss as per book value, the assessee has disclosed in the audit report that there was a short term capital gain on the basis of WDV as per Income-tax Act. In other words, as against the loss on sale of assets recognized in the books of accounts, the assessee worked out the short term capital gain voluntarily after adopting the WDV of assets as per Income-tax Act, which was lower than book value recorded in the books. Therefore, the fact that there would be a short term capital gain as against loss shown in the books has been duly disclosed by the assessee in the audit report itself, and thus, it is not a case where assessee has concealed any material fact or the factual opinion relating to the transfer of fixed assets by assessee company to its holding company. The assessee has claimed the amount as exempted as per advise given by the Tax Consultant and that could be a bonafide basis on which the claim was made. Therefore, as discussed above, the assessee has been able to discharge its burden that lay upon it under Explanation 1 to Section 271(1)(c ) of the Act. As a result thereof, no penalty u/s 271(1)(c) is leviable. 23....