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TMI Blog2015 (5) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... sales of shares which were claimed to have been received as gift by way of family arrangement. The assessee did not show the profit on sale of shares in the profit and loss account but credited the same in the capital reserve account in the balance-sheet thereby reducing the book profit of the Assessment Year 2003-04 by the said amount of Rs. 2,43,97,05,781/-. Similarly, in Assessment Year 2004-05, the assessee sold 55,97,429 shares of Bilag Industries Pvt Ltd on 31.12.2003 and 25.03.2004 for Rs. 2,35,98,50,342/- and 2700 shares of Cadila and earned profit of Rs. 2,36,00,02,591/- which was claimed to have been received as gift by way of family arrangement. The assessee did not show the profit on sale of shares in the profit and loss account but credited the same in the capital reserve account in the balance-sheet thereby reducing the book profit of the Assessment Year 2004-05 to that extent. Therefore, the Assessing Officer while determining the book profit of the assessee u/s 115JB of the Act, added a sum of Rs. 2,43,97,05,781/- in Assessment Year 2003-04 and Rs. 2,36,00,02,591/- in Assessment Year 2004-05 to the book profits computed u/s 115JB of the Act. The action of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a claim first time in the A.Y. 2002-03 about the gift of shares by the share holders which was accepted by the department. The cases for the subsequent A.Ys, along with A.Y.2002-03 were re-opened. The family partition arrangements was given in the R/I filed. The sales proceeds of the shares received in gift were treated as LTCG and the investment in the tax saving Bonds for claiming benefit u/s 54EC was furnished in the return of income. The appellant virtually ensured that the fact of assessee's having made this claim cannot remain unnoticed by the Assessing Officer, and has given specific justification and all the supporting details for the same except the Capital Gains not shown in the MAT computation under bonaned belief. By no stretch of logic, this situation can be treated as a situation in which any income is concealed by the assessee. Concealment of an income by an income cannot be a passive situation anyway; it implies that the person concealing the income is hiding, covering up or camouflaging an income - -something which essentially requires a conscious effort. On the contrary, this is a situation in which the assessee has acted in very transparent and bonafied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludable in computation under MAT. All these facts are available in the return of income filed by the Appellant. The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. The AO have apparently proceeded to treat assessee's making an incorrect claim of income as furnishing of inaccurate particulars. What is a correct claim and what is an incorrect claim is a matter of perception. In my considered view, raising a legal claim, even if it is ultimately found to be legally unacceptable, cannot amount of furnishing of inaccurate particulars of income. 'Inaccurate', as noted above, is something factually incorrect and interpretation of law can never be a factual aspect. Just because an Assessing Officer does not accept an interpretation, such an interpretation is not rendered incorrect. Even the judgments of Hon'ble Supreme Court are reversed by the larger benches of Hon'ble Supreme Court. The development of law is a dynamic process which is affected by the innumerable factors, and it is always an ongoing exercise. In such circumstances, a bonafide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied, as the explanation of the assessee has not been found to be false. Needless to mention that the onus of proving that the explanation is false is on the AO and there is no finding in this direction at all. 7.21 As far as conditions in (c) above are concerned, even assuming that the assessee fails to substantiate the explanation, he has been able to demonstrate that the explanation is bonaflde and that the assessee in the income tax return itself has duly disclosed all the facts necessary for the same and necessary for computation of income. All the details and justification of claim have been set out in the return of income itself. There was a detailed note giving rationale and computation of income filed by the assessee. 7.22 In any event, when an explanation is offered by the assessee in discharge of the onus cast upon him by Explanation 1 to Section 271(1)(c), it is not for the Assessing Officer to ponder over what should have happened in ideal circumstances, and reject the explanation because what has actually happened is less than such an imaginary ideal situation; he is to consider the explanation objectively and unless he finds the same against the human probabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so of other companies and has earned the profit of Rs. 2,43,97,05,781/- on sale of shares which were claimed to have been received as gift by way of family arrangement. The assessee did not show any profit on sale of shares in profit and loss account prepared under the provisions of the Company Act, 1956. The same is credited to the capital reserve account in the balance sheet. In this way the company has reduced the book profit for the year under consideration. As per the provisions to section 115JB of the Act, book profit has to be computed on the basis of profit and loss account for the relevant assessment year in accordance with the provision of Part II of Schedule VI of the Companies Act, 1956. 4. In the Part-II of the Schedule VI of the Companies Act says that the company should disclose every material feature in respect of nonrecurring or transaction or exceptional nature. The company has to disclose the amount of income from investment as well as profit and loss on sale of investment in profit and loss account. Therefore, by not considering the figure of profit on sale of investment i.e. sale of share, the book profit declared by the assessee was required further modificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory auditors of the assessee company had qualified their report by their comments and explanation appended thereto. Since the assessee company has not prepared its profit and loss account for the A.Y. 2003-04 in accordance with the provisions of Part II & III of Schedule VI to the Companies Act as per the accounting standards, which are mandatory w.e.f. 31.10.1998 and form part of the companies Act, the said comments of the statutory auditors required to be taken into accounts and recalculate the book profit of the assessee company. The assessee company is obliged to include profit arising on sale of shares as part of its book profit of the profit and loss account. 9. The audit report u/s. 115JB in Form No. 29B does not contain the note on non-inclusion of profit earned on sale of shares as referred in clauses (a) to (f) of explanation (2) of section 115JB of the Act. In view of the above facts, the AO had rightly concluded that had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filling inaccurate particulars of income. The assessee took chance with the department. Had the revenue not detected the inaccurate particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and thereby attracted the provisions of section 271(1)(c) of the I. T. Act, 1961. Yours Sincerely Sd/- (VIMALENDU VERMA) CIT(DR)-IV, 'D' Bench Ahmedabad" 7. The Authorized Representative of the assessee has also filed written submissions which read as under:- "Facts of the case Shares of certain companies held by the promoters received by the company pursuant to a family arrangement (dated 16/02/2001) without any monetary consideration. The appellant company considered the same to be a capital receipt by way of a gift and credited the sale proceeds directly to the capital reserve. The accounting of such credits has been disclosed in Note No. M of the annual accounts. The AO considered such accounting treatment to be not in accordance with Part II & Part III to Schedule VI of the companies Act. The AO's observations have been given in Page No. 3 & 4 of the penalty order and are summarized as given in Page No. 7 & 8 of the penalty order as under:- 1. Notes to the accounts form part of auditor's qualification 2. Decision of Apex court in the case of Apollo Tyres Ltd 255 ITR 0273 supports the case of the revenue. 3. Capital gain should be included for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting principles that only revenue items are to be credited in the profit and loss account. 8. Appellant company had made full disclosure in its accounts which is not in dispute and family arrangement forms part of the assessment order. 9. CIT(A)'s finding that there is no concealment of income or filing of inaccurate particulars supports the case of the appellant. 10. The Honourable Gujarat HC has admitted the aforesaid substantial question of law relating to book profit for adjudication. (HC order is in Page No. 109 to 117 of PB- 1478/Ahd/2011 & Page No. 115 to 123 of the PB- 1479/Ahd/2011) 11. Mumbai HC in the case of Nayan Builders & Developers 368 ITR 722 has held that the admission of substantial question of law itself proves that the issue is debatable. 12.The Gujarat HC in the case of CIT V/s. Dharamshi B. Shah (reported in 366 ITR 140) has held that mere admission is not sufficient but other factors have to be considered. 13. In the case of the appellant company full disclosure coupled with CIT(A)'s findings are factors supportive of our case. The AO has merely stated that the addition has resulted owing to the case being selected for scrutiny. He has not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty on the assessee was not justified. iii) Sarabhai Chemicals Pvt. Ltd. vs. CIT, [2002] 257 ITR 355 (Guj), wherein the Hon'ble Gujarat High Court held as under:- Assessee having passed a resolution postponing the date of charging contractual interest on the deferred purchase consideration of its business undertaking and accordingly filed a 'Nil' estimate of advance tax it could not be said that the assessee had reason to believe that the estimate was untrue merely because on assessment the interest income was held to be accrued income and included in the assessable income; penalty under section 273(2)(a) was not leviable. 9. Further, he also argued that no adjustment to the profit and loss account prepared by the assessee and placed before the Annual General Meeting of the company can be made by the Assessing Officer. For this, he has relied upon the following decisions:- i) CIT vs. Adbhut Trading Co. P. Ltd, [2011] 338 ITR 94 (Bom) wherein the Hon'ble Bombay High Court held as under:- Once the accounts including the P&L a/c are certified by the authorities under the Companies Act it is not open to the AO to contend that the P&L a/c has not been prepared in accordance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B amounts to furnishing of inaccurate particulars of income by the assessee. 12. On appeal, the CIT(A) deleted the above levy of penalty by observing that the action of the assessee is neither amounting to furnishing of inaccurate particulars of income nor concealment of income and also nor deemed concealment of income. 13. Before us, the Departmental Representative mainly contended that the action of the assessee of crediting profit on sale of shares directly to capital reserve and not crediting to profit and loss account amounted to furnishing of inaccurate particulars of income as it consequently led to non-inclusion of capital gain for computing of book profit u/s 115JB of the Act. 14. On the other hand, the Authorized Representative of the assessee contended that the particulars in respect of capital gain earned by the assessee-company was duly disclosed in the return of income as well as in the audited financial statements. No particulars of income furnished was found to be inaccurate or incorrect. In the notes to the accounts which form part of financial statements, full disclosure in respect of capital gain earned was made. 15. We find that the Assessing Officer was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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