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TMI Blog2012 (11) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings AO inquired about the reduction in 'stock in trade' as seen from Schedule-7 of the Act. After issuing a questionnaire dated 6.10.2008, assessee vide letter dated 10.10.2008 offered a net income of Rs. 2,98,97,272/- comprising long term capital gain arising on sale of shares of Mumbai SEZ (MISEZ), long term capital gain chargeable under section 45(2) arising in the conversion of shares of Pipava Shipyard Ltd (PSL) which was sold during the year and against this capital gain, claimed loss of equal amount arising on sale of 'stock in trade' of PSL as business loss and further business loss of Rs. 34,75,32,880/- which arose out of the expenditure incurred on LNG project abandoned during the year. These amounts were taken to Capital Reserves in books of account. AO examined assessee's contentions and the capital gain working as admitted by assessee was brought to tax. The working is as under: Particulars Long Term Capital Gain Amount (Rs.) Short Term Capital Gain amount (Rs.) Total Amount (Rs.) MISEZ shares 39,40,54,501 Nil 39,40,54,501 PSL shares 68,94,15,179 14,62,49,910 83,56,65,089 Total 103,34,69,680 14,62,49,910 122,97,19,590 As against the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revised return is filed in time and as a result total income admitted finally is NIL. 14.1 During the assessment proceedings the A.O. noticed that the appellant company has not offered the following income: Particulars Long Term Capital Amount (Rs.) Short Term Capital Gain Amount (Rs.) Total Amount (Rs.) MISEZ shares 39,40,54,501 Nil 39,40,54,501 PSL Shares 68,94,15,179 14,62,49,910 83,56,65,089 Total 103,34,69,680 14,62,49,910 1,22,97,19,590 14.2 The A.O. initiated penalty proceedings u/s.271(1)(c) and in the penalty proceedings, the A.O. has held that the appellant has concealed the particulars of income and furnished inaccurate particulars of income and levied penalty u/s.271(1)(c) of the I.T. Act. The penalty was quantified by the A.O. on the basis of the above mentioned incomes which were not offered by the appellant in the return of income. 14.3 The appellant vehemently 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence it was not shown in the return of income is also not acceptable because the facts related to capital gains should have been furnished in Schedule 2, whereas the business loss should have been considered in Schedule 1 and the appellant failed to do so both. 3. The appellant's contention that it furnished the details of the above mentioned incomes on its own before the detection of the A.O. also could not be accepted. It is seen that the return is filed on 30.11.06 and notice u/s. 143(2) was issued on 22-10-07. The appellant company could have disclosed these facts immediately after receipt of this notice taking guidance from the CBDT Circular No. 9 dated 10-10-06. The appellant failed to do so. The A.O. again issued a notice u/s. 142(1) dated 6-10-2008 along with a questionnaire. Question No. 7 of the questionnaire read as follows: "7. As per Schedule 7 of the Accounts it is seen that stock in trade as on 31-3-2005 is Rs. 425,43,92,500/-while as on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished." From the above extracts, it is very clear that penalty u/s. 271(1)(c) is based on "the amount of tax sought to be evaded" and Explanation 4 defines the "amount of tax sought to be evaded". In this case, it is seen that there is no reduction in the loss declared in the return or converting the loss into income. It is also seen that there is no reduction in the carried forward of loss declared in the return. In view of this, I hold that Explanation 4(a) is not applicable. Obviously Explanation 4(b) is not applicable in this case. So certainly Explanation 4(c) is only applicable in this case. In this case, total income assessed is Long Term Capital gains of Rs. 4,43,14,513/-. If the Long Term Capital gains for which particulars have been concealed is Rs. 108,34,69,680/- and 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) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verted as stock in trade, there arose both the capital gain and capital loss. The aggregate capital gain was computed at Rs. 83,56,65,089/- and at the same time the business loss worked out to Rs. 86,51,35,470/-. 8. With reference to the loss on LNG project it was submitted that assessee is in the project development has decided to abandon the LNG project due to un-viability and the entire amount was written off into the books of account. 9. Referring to the balance sheet of the assessee company, it was submitted that assessee has taken these transactions to capital reserve. The note No. 4 to the schedule forming part of the balance sheet as on 31/03/2006 is as under: "4. Notes on Capital Reserve: During the year, the company has sold part of investment in Mumbai Integrated Special Economic Zone Projects. The project being infrastructure compliant, the net resultant gains arising on account of this is directly transferred to Capital Reserve. The company also, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted that AO did not unearth any concealment, made a routine query on seeing the balance sheet figures. Assessee voluntarily offered the income so as to settle the issue as the approval from the Board was still pending by the time this inquiry was started. He also referred to various detailed statements made before the CIT(A) including the case law to submit that assessee was for bona fide reasons could not offer the income when the returns were filed. Subsequently it voluntarily offered the income and therefore, penalty under section 271(1)(c) cannot be levied on the ultimate assessed income as was done by the CIT(A) as the ultimate determined income also had certain adhoc disallowances. 12. The learned DR however, relied on the orders of AO to submit that assessee had enough opportunity to file revised return and referred to the show cause notice issued on 6.10.2008 asking for details of reduction in stock in trade, then only assessee has offered 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by AO not only include the above amounts but also disallowances in the shape of depreciation at Rs. 11,78,495/-, expenses at Rs. 30.00 lakhs and under section 14A Rs. 99,43,676/-. Thus the total income was determined at Rs. 4,43,14,513/-. Assessee also filed revised Profit & Loss A/c reworking the Profit & Loss A/c to substantiate its claim. Therefore, even though proceedings under section 271(1)(c) were initiated and levied on the gross amount by AO, we agree with the reasoning of the CIT(A) that if at all a penalty is to be levied under section 271(1)(c) r.w. Explanation-4, the amount for consideration can only be Rs. 4,43,14,513/- on which he confirmed the penalty. 14. The A.O. has taken a view that the Explanation 4(a) of section 271(1)(c) is applicable and considered the entire capital gain offered, before setting of losses as concealed income. The CIT(A) held that it is a case covered by Explanation 4(c) of Section 271(1)(c). Section 271(1)(iii) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t originally claimed but, offered along with the capital gain on MISEZ shares. Therefore the net amount, if at all anything can be considered as concealment can only be the amount offered by assessee (Rs. 2,98,97,370/-). The other amounts which are disallowances in the computation of income cannot be considered for levy of penalty under section 271(1)(c) even though returned income and the assessed income are different. Out of two major amounts of disallowance, one was expenses of Rs. 30/- lakhs disallowed on adhoc basis. This amount cannot be a basis for levy of penalty as it was adhoc disallowance. Therefore, penalty levied on this amount cannot be sustained. The other amount is disallowance under section 14A to the extent of Rs. 97,43,676/-. This is also computed on the basis of the provisions of section 14A, even though assessee contended that no such disallowance was warranted. Be that as it may, the disallowances under section 14A was considered by the Hon'ble Supreme Court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3G). The assessee was in possession of various letters and correspondence between ATS and Central Government as well as other correspondence to prove that there is all possibility that ATS will be granted registration as infrastructure company which in turn make the assessee eligible for claiming exemption under s. 10(23G). From the numerous correspondences in possession of assessee, assessee can be said to be under the bonafide belief that approval will be granted by the Central Govt. It is a different fact that till date the approval has not been rejected also. ATS was pursuing the matter vigorously for which all the queries raised by the Central Govt. were sought to e complied with from time to time. Thus even the claim of ATS was not a bogus or unwarranted claim. In such a situation if assessee believed the word of ATS and claimed exemption under section 10(23G), no mala fide can be ascribed to assessee. It is settled law that merely because additions are made, penalty 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 substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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