TMI Blog2012 (11) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that the capital gains arising on sale of MISEZ shares are exempt from taxation as the application under section 10(23G) was pending with CBDT. The argument of the learned DR that the provision itself was withdrawn from 1/4/2007 cannot be accepted as relevant provisions was applicable for the year under consideration and assessee did make an application in time which was pending by the time the return was filed. In fact the application is still pending as no decision has been taken as yet by CBDT. Since the entire amount of capital gain ultimately brought to tax was arising out of sale of shares in MISEZ alone, there is a bona fide belief on the part of assessee in not offering capital gains. Therefore, section 271(1)(c) cannot be attracted and accordingly allowing the grounds of assessee. The order of AO does not indicate whether this loss was set off in earlier years or still available for set off. There is no mention about the carry forward losses. However, after setting off to the capital gain, as net computation under the head business was a loss, the total income determined at Rs. 4,43,14,513/- was only arising out of the long term capital gain, out of which if the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,34,69,680 14,62,49,910 122,97,19,590 As against the capital gains arrived at, the following business loss was also accepted: S.No Particulars Amount (Rs.) 1 Income from STT based Trading in shares and future options 5,49,96,744 2 Loss on Non-STT based trading in shares of PSL (86,51,35,470) 3 Loss arising out of abandoned LNG Project (34,75,32,880) AO also made certain disallowances such as depreciation, expenditure and also amount under section 14A and accordingly assessee's total income was determined at Rs. 4,43,15,513/- as against Rs. 2,98,97,272/- admitted by assessee vide letter dated 10-10-2008. AO initiated penalty proceedings under section 271(1)(c) in respect of a capital gain arising on sale of MISEZ shares and PSL shares. Vide the order dated 29.6.2009, AO considered the issue of various capital gains brought to tax and taking the amount of concealed income at Rs. 122,97,19,590/- (both LTCG and STCG brought to tax) levied penalty of Rs. 29,23,58,316/-. 3. Before the CIT(A) assessee contended that there is neither concealment nor furnishing of inac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly contends that it has not concealed any particulars of income nor it had furnished any inaccurate particulars of income. As far as the capital gains arising from the sale of MISEZ shares, the appellant company contends that it made an application to the CBDT for approval u/s. 10(23G) and the application was pending on the date of filing the return of income and hence the above said income was not offered to taxation in the return of income. 14.4 As far as the capital gains arising from the sale of PSL shares, the appellant contends that the fact of converting the PSL shares into stock in trade was available in the records for asst. year 2005-06 and there is huge business loss arising from the abandoning from the LNG project and it will offset the capital gains from the sale of shares of PSL shares and there will be a net loss and hence the same were not offered to tax in the return of income. The appellant also relied on the fact that the appellant company filed a letter dated 10-10-2008 and offered the same as income during the assessment proceedings. The appellant contends that the company itself furnished the full details to the A.O. before the detection of the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31-3-2006 it is Rs. 281,25,00,00, 150/- (share of Pipava Shipyard Ltd.]. Please explain how the stock in trade deficit of Rs. 144.19 crores relating to the share of Pipava Shipyard Ltd. has been accounted for. Please give a detail explanation along with necessary and relevant documents for the deficit, failing which the same will be brought to tax as per law." After receipt of this Question No.7, the appellant has filed the letter dated 10-10-2008. In view of the above stated facts, I am quite convinced that the disclosure made in the letter dated 10-10-2008 is after the detection of the facts by the A.O. The A.O. has very elaborately discussed this issue in page nos. 12 to 15 of the penalty order. I am in full agreement with the A.O.'s views. In view of the above stated facts, I am fully convinced that the appellant has concealed the particulars of income and I hold that the penalty is leviable under section 271(1)(c) of the I.T. Act. Now the next question to be decided is what will be the quantum of penalty leviable. The A.O. has taken a view that the Explanation 4(a) of section 271(1)(c) is applicable. The appellant contends that it's case is covered by Explanation 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d if this is reduced, there will be no positive income. In view of these facts, the tax on the total income of Rs. 4,43,14,513/- will be the amount of tax sought to be evaded as per Explanation 4(c) to section 27 1(1) of the I.T. Act. The A.O. has charged 100% of tax sought to be evaded. I direct the A.O. to take tax on Long Term Capital gain of Rs. 4,43, 14,513/- as tax sought to be evaded and levy 100% of that amount as penalty under section 271(1)(c). The grounds raised by the appellant are accordingly disposed". 4. Since the CIT(A) reduced the quantum of penalty on the income determined as concealed, both assessee and the Revenue are aggrieved. All the grounds raised in both the appeals are with reference to the levy of penalty under section 271(1)(c). 5. The learned Counsel referring to the facts in the order submitted that assessee at the time of filing electronic return did not state the capital gains arising out of various transactions, even though in assessment year 2005-06 the fact of converting shares of PSL as stock in trade was intimated. He then referred to the circumstances in which these amounts were undisclosed in the return, item-wise. 6. With reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, during the year sold part of its holding in Pipava Shipyard Ltd, held as stock in trade and the difference between the conversion price and sale price has been adjusted in Capital Reserve. Further, the net loss on account of Pipava LNG transaction is also adjusted in Capital Reserve Account". 10. It was submitted further that as far as capital gain on MISEZ is concerned, assessee was under the bonafide impression that the capital gain was exempt from taxation as they sought permission under section 10(23G). With reference to the capital gain/loss on sale of PSL shares, it was submitted that there was no effect on the tax computation as the gain was equal to loss, as the shares were sold at face value of Rs. 10/- only, the valuation of which was accepted by AO. With reference to the LNG project assessee having incurred heavy expenditure wrote off to capital reserve and did not claim it as revenue expenditure. It was further submitted that consequent to the details called for by AO why there was reduction in stock in trade, assessee sought legal advise and since the permission from CBDT was pending, pending as of now even, assessee chose to offer the capital gain on MISEZ and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered the income which ultimately was brought to tax. It was further submitted that the Revenue is also in appeal in excluding the amount of capital gain brought to tax. He relied on the order of AO and requested for restoration of penalty originally levied by AO. It was his submission that assessee has not filed any voluntary return and Explanation that assessee made application under section 10(23) cannot be accepted as the provisions were withdrawn after 1/04/2007. Even though it was submitted that note on capital reserve was given in the balance sheet, there were no details of any of working of gains/losses and further when assessee converted the shares of PSL from investment to stock in trade in assessment year 2005-06, it is aware that assessee has to offer capital gain when it sold the shares. In view of this, he pleaded for confirming the penalty on the entire capital gain not offered to tax. 13. We have considered the issue and examined the facts. Assessee has filed electronic return offering Nil income under the head business and capital gain (nil) but offered small amount of Rs. 36,168/- (other sources) as total income. It filed a revised return admitting nil income cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) reads as follows: "(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits.'' Explanation 4 to section 271 reads as follows: "Explanation 4.-For the purposes of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded', a. in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; b. in any case to which Explanation 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158, wherein furnishing of 'inaccurate particulars' was examined and cancellation of penalty was upheld. Therefore, disallowance under section 14A also does not call for penalty keeping the principles laid down by the above judgment of the Hon'ble Supreme Court. The other one is disallowance of depreciation which also does not call for levy of penalty. 17. That leaves us with the net amount offered as capital gain on the sale of MISEZ shares. As explained by assessee, the income could not be offered as assessee sought approval under section 10(23G) as early as of 24.08.2005 which was followed with reminder letter (copy of which is placed at page No. 208 of the paper book) addressed to the CCIT on 17.01.2006. Since the application was made in form No. 56E, it is natural that the Board will either accept or reject the application in a reasonable period of time. As on 1st Nov.2006 assessee has not been communicated by the result of the application, even though it was following it up. Therefore, there is a bonafide plea that the capital gain arising out of the transactions could not be subjected to tax and acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not automatic. Since the claim of assessee was bona fide, it is not either a case of concealment of particulars of income or furnishing of inaccurate particulars of income. Assessee has been able to substantiate as to on what basis it was claiming exemption under section 10(23G). This explanation furnished is not found to be false. Therefore, Expln.1 to section 271(1)(c) is also not attracted. In such a situation penalty is not leviable. T-Ashok Pai v. CIT [2007] 210 CTR (SC) 259, K.C. Builders Anr. v. Asstt. CIT [2004] 186 CTR (SC) 721; [2004] 265 ITR 562 (SC) and CIT v. International Audio Visual [2007] 208 CTR (Del) 328: [2007] 288 ITR 570 (Del.) relied on". 19. Since the entire amount of capital gain ultimately brought to tax was arising out of sale of shares in MISEZ alone, we are of the opinion that there is a bona fide belief on the part of assessee in not offering capital gains. Therefore, in our opinion section 271(1)(c) cannot be attracted and accordingly allowing the grounds of assessee, we modify the order of the CIT(A) and delete the penalty so confirmed by the CIT(A). 20. As discussed above in the course of the order, the Revenue contention that only capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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