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TMI Blog2011 (3) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI). As per the approval granted by the SEBI, the M/s. Fidelity Management & Research Company and its sub-accounts (the assessee was one of the sub-accounts) were allowed to invest in the Indian securities subject to the guidelines/directions/instructions issued by SEBI or Reserve Bank of India or the Government of India from time to time. The assessee filed its return showing 'NIL' income claiming that its income is in the nature of 'business income' while in the revised return, it claimed that its income is of the nature of 'capital gains'. The Assessing Officer observed that if the income is characterized as 'capital gains' under Article 13 of the Indo-USA DTAA, India has a right to tax the same if the income arises in India. However, if the income is characterized as 'business income', its taxability in India will depend on whether the assessee has a PE in India or not. Accordingly, it needs to be first ascertained what is the character of the income earned by the assessee in India, that is, whether it is business income or capital gains. The Assessing Officer after considering both the returns, guidelines issued by the Govt. Of India for Foreign Institutional Investors, prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of XYZ/ABC Equity Fund v. CIT [2001] 250 ITR 194/116 Taxman 719 (AAR - New Delhi). The assessee subsequently filed a revised return of income on 26-2-2007 prior to the issue of notice under section 143(2) reporting its income from such transactions under the head 'capital gains'. The revision was based on the advance ruling pronounced by the AAR in the appellant's sister funds case, Fidelity Northstar Fund, In re [2007] 288 ITR 641/158 Taxman 372 (AAR - New Delhi). The return of income was selected for scrutiny assessment and the assessment was completed treating the income of the assessee as income from capital gains. Relying on the decisions in Kanbay Software India (P.) Ltd. v. Dy. CIT [2009] 31 SOT 153 (Pune), Asstt. CIT v. VIP Industries Ltd. [2009] 30 SOT 254 (Mum.) and Gem Granites, Karnatka v. Dy. CIT [2009] 120 TTJ 992/31 SOT 21 (URO) (Mad.), it was submitted that the provisions of section 271(1)(c) being of a penal nature which require that some amount of culpable negligence or wilful omission on the part of the assessee must be established before penalty is imposed and existence of mens rea is essential for imposition of penalty. If the default flows from a bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue is in appeal before us taking following grounds of appeal :- "1. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in deleting the penalty under section 271(1)(c) of the Income-tax Act, 1961. 2. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer be restored." 7. At the time of hearing, the ld. D.R. submits that for the reasons discussed in the penalty order, the ld. CIT(A) was not justified in deleting the penalty imposed by the Assessing Officer He, therefore, submits that the penalty imposed by the Assessing Officer be sustained. 8. On the other hand, the ld. counsel for the assessee while reiterating the same submissions as submitted before the Assessing Officer and ld. CIT(A) placed on record the following factual matrix :- Appeal No. 1126/M/10 A.Y. 2006-07 Name of Fund Variable Insurance Product Fund III: Balanced Portfolio Original return as Business Income relying upon rulings of the AAR in the case of Fidelity Advisor Series VIII [2004] 271 ITR 1 and XYZ/ABC EQUITY FUND [2001] 250 ITR 194 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III (supra) and XYZ/ABC Equity Fund (supra). We further find that it is also not in dispute that the assessee has filed revised return voluntarily on 26-2-2007 showing income as capital gains Rs. 2,401,601 relying upon the latter ruling of the AAR in the case of Fidelity Northstar Fund (supra). We further find that the Assessing Officer on the basis of revised return filed by the assessee on 26-2-2007 has issued notice under section 143(2) on 13-7-2007. Thus it is clear that the said notice issued by the Assessing Officer under section 143(2) of the Act was not based on the original return filed by the assessee but the same was issued in pursuance to the revised return filed by the assessee on 26-2-2007. We further find that the assessment was also completed on the basis of the said revised return accepting the same income as disclosed by the assessee in the revised return amounting to Rs. 2,401,601 as income from short term capital gains. According to the Assessing Officer, there is concealment as the assessee in the original return has not included the income from short-term capital gains. However, the ld. CIT(A) held that the revised return filed by the assessee showing capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 277/174 Taxman 571 (SC) have observed and held (page 158 head notes) as under : "A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Products Fund III Balanced Portfolio (VIPAG), therefore, the same plea may be considered while deciding the above appeals. The ld. Counsel for the assessee in support of his submissions has also filed chart showing factual matrix which is reproduced as under :- "Appeal No. 1127/M/10 AY 2006-07 1128/M/10 AY 2006-07 1129/M/10 AY 2006-07 1130/M/10 AY 2006-07 Name of Fund Variable Insurance Product Fund II:Contra fund Portfolio Variable Insurance Product Fund II:Asset Manager Growth Portfolio Variable Insurance Product Fund IV:Capital Appreciation Portfolio Variable Insurance Product Fund IV:Financial Service Portfolio Original return as Business Income relying upon rulings of the AAR in the case of Fidelity Advisor Series VIII [2004] 271 ITR 1 and XYZ/ABC Equity Fund [2001] 250 ITR 194 - Date of filing 28th July, 2006 28th July, 2006 28th July, 2006 28th July, 2006 - Amount (in Rs.) Nil Nil Nil Nil Revised Return as capital gains relying upon rulings of the AAR in the case of Fidelity Northstar Fund [2007] 288 ITR 641 (AAR) - Date of filing 27 Feb. 2007 [21 Feb. 2007 as per A.O.] 28 Feb. 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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