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2015 (5) TMI 927 - ITAT AHMEDABAD

2015 (5) TMI 927 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - inaccurate particulars of income by the assessee relating to capital gains - CIT(A) deleted penalty levy - Held that:- During the course of assessment, the Assessing Officer observed that the assessee has credited profits on sales of shares directly to capital reserve and not credited the same to the profit and loss account. The assessee though included the capital gain derived from sale of shares in the normal computation but not .....

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l gain earned by the assessee was found by the Assessing Officer and the addition to the book profit was made because of difference in the opinion in respect of presentation of such capital gain whether such capital gain should have been credited in the profit and loss account or directly to capital reserve in the balance-sheet.

The assessee was of the opinion that such capital gain could have been directly credited to capital reserve account in the balance-sheet, whereas as per the A .....

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ur of assesse. - ITA Nos. 1478 & 1479/Ahd/2011 - Dated:- 8-5-2015 - Shri N. S. Saini And Shri Kul Bharat,JJ. For the Petitioner : Shri Vimalendu Verma, CIT-DR For the Respondent : Shri M.K. Patel, AR ORDER Per Shri N. S. Saini, Accountant Member: These are the appeals filed by the Revenue against a consolidated order of the Commissioner of Income Tax (Appeals), Valsad dated 08.03.2011 passed in the Assessment Years 2003-04 and 2004-05. 2. The common ground of appeal taken in both these appeals b .....

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r companies and earned profit of ₹ 2,43,97,05,781/- on 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 ₹ 2,43,97,05,781/-. Similarly, in Assessment Year 2004-05, the assessee sold 55,97,429 share .....

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ng Officer while determining the book profit of the assessee u/s 115JB of the Act, added a sum of ₹ 2,43,97,05,781/- in Assessment Year 2003-04 and ₹ 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 Assessing Officer was confirmed in appeal by the CIT(A). 4. Thereafter, the Assessing Officer levied penalty of ₹ 19,21,28,225/- in Assessment Year 2003-04 and ₹ 18,14,25,199/- in Assessment Year 2004-05 u/s 271(1 .....

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ccurate particulars of income. In addition to these two situations, penalty can also be imposed, inter alia, when assessee is deemed to have concealed particulars of income under Explanation 1 to Section 271(1)(c). This Explanation provides that the assessee will be deemed to have concealed particulars of income where in respect of any facts material to the computation of the total income of any person under this Act, (i) when the assessee fails to provide an Explanation, (ii) when the assessee .....

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by the assessee in the proceeding but all that is necessary to be examined here is whether making such a claim or incorrect MAT computation can be said to concealment of income or furnishing of inaccurate particulars. 7.16 The expression 'concealment of income' has not been defined in the Act, but the natural meanings of the expression 'concealment are to keep from being seen, found, be served, or discovered'. It would, therefore, follow that the expression concealment of income .....

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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 w .....

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particulars of income has also not been defined in the Act. The expression 'inaccurate refers to 'not in conformity with the fact or truth' and that is the meaning which, in our considered view, is relevant in the context of 'furnishing of inaccurate particulars'. The expression 'particulars refers to 'facts, details, specifics or information about someone or something'. Therefore, the plain meaning of the expression 'furnishing of inaccurate particulars of i .....

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sent case, however, what has been treated as furnishing of inaccurate particulars, in the opinion of the AO, is the Capital Gains resulting on sale of shares received as gift was credited directly to Capital Reserve and not routing through P&L a/c. thereby not considered for computation of income under MAT. There were variance in the findings of AO in the assessment orders and the findings of the ld. CIT(A) with regards to the sales proceeds on the shares received in gifts by the assesses. T .....

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. This facts absolutely tells the story that the noninclusion of C.G. in the computation of income under MAT is a perception and not a definite. The assessee had a bonafied belief that the said amount was the resultant proceeds on sale of shares received on gift and thereby not includable 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 .....

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omething 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 legal claim by the a .....

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of 'furnishing of inaccurate particulars of income', in its natural sense, either. 7.18 In the present case, as pointed above, there is no dispute that all the relevant facts material to the computation of total income are duly furnished by the assessee and no deficiencies in furnishing of such facts are pointed out by the AO. There is thus no cause of action for deeming fiction being triggered by the conduct of the assessee. 7.19 Be that as it may, even assuming that deeming fiction un .....

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(c) when the assessee provides an Explanation which he fails to substantiate and he fails to prove that the explanation was bonaflde and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee 7.20 In the instant case (a) is not satisfied as the assessee has filed an explanation to the effect that he was of the bonaflde view that the assessee had a bonafied belief that the said amount was the resultant proceeds on sale of shares .....

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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 ret .....

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on objectively and unless he finds the same against the human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, the Assessing Officer ought to accept the same. It cannot always be feasible to prove the claim of bonafides to the hilt, nor, in our considered view, the assessee can be expected to do so. The assessee's explanation regarding bonafides of the claim does not suffer from any apparent inconsistencies or factual errors and it is quite .....

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e could not be said to have concealed the particulars of income or furnished inaccurate particulars of income. Under the scheme of Section 271(1)(c), therefore, it was not a fit case for the imposition of penalty. 6. The Departmental Representative has filed written submissions which read as under:- BEFORE THE HON'BLE 'D' BENCH ITAT-AHMEDABAD NAME OF THE CASE Bilakhia Holding PL ITA NUMBER 1478&1479/ahd-2011 AY 2003-04, 2004-05 Date of hearing 17-03-2015 Hon'ble Members, Subj .....

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erence of opinion as contended by the assessee company. The AO has very categorically held in the body of the assessment order that the profit on sale of such shares has to be included in the book profit and such finding has been confirmed by the first appellate authority. 3. During the course of assessment proceedings, it was noticed that the assessee company had sold 86,25,000 shares for ₹ 2,43,95,00,000 of Bilag Industries P. Ltd. on 05.04.02 and also of other companies and has earned t .....

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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. .....

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ilakhia Family arrangement which prohibit the Bilakhia Holding P. Ltd. to distribute the profit earned on sale of shares as dividend among the share holders. All the three Yunus, Anjum and Zakir have equal share holding in Bilakhia Holdings P. Ltd. The distribution of dividend out of profit earned on sale of shares does not violate the intention behind the arrangement. The relevant clause of the arrangement deed reads: "6. To avoid any future disputes, differences and disagreements which ma .....

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ther business but the fact is that the profit on sale of shares is available to the company. Therefore, capital receipt i.e. profit on investment which are available for distribution among the share holders as dividend are required to be passed through profit and loss account. Otherwise it will be against the Provision of the Companies Act for preparation of Schedule VI of Part II. 7. Assessee had intended by not making the entry of transfer of profit on sale of shares from Profit and loss accou .....

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company did not reflect the correct net profit of the assessee company as 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 .....

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e 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 of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate particulars of income and would have caused loss to the revenue. This fact is reinforced by the fact that the assessee has paid the .....

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sessee in its return were found to be incorrect and erroneous or false and as the assessee had furnished all the details of its expenditure as well as income its return, which details, themselves were not found to be inaccurate nor could be viewed as the concealment of income on its part. In such circumstances, the Hon'ble Court held that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in ou .....

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ared 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 and Part III of Schedule VI of the Companies Act, 1956. In the present case, the stand of .....

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romoters 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' .....

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sons for relying penalty given in page no. 8 as under - Had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filing inaccurate particulars of income. The assessee took chance with the department. Had the revenue not deleted the inaccurate particulars of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate particulars of income and would have caused loss to the revenue. Our Arguments 1. CIT(A)'s finding and th .....

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ccounts cannot amount to a qualification. 5. The Apex court has clearly held in the case of Apollo Tyres Ltd reported in 255 ITR 273 that the A.O. has no power of scrutinizing or re-computing the net profit of the company adopted by the company in its annual general meeting. The decision of Hon'ble Apex court has been followed by several high courts and Supreme Court itself in several cases. 6. The decision in the case of Veekaylal (Bom)-249 ITR 597 relied upon by the AO is no longer good la .....

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shares have been received by the company pursuant to the family arrangement has been upheld. This indicates that this is a capital receipt in the hands of the company and not a revenue receipt. The treatment of the same in the accounts is based on the current accounting 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 .....

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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 mentioned anywhere as to how the app .....

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roducts Pvt Ltd, [2010] 322 ITR 158 (SC), wherein the Hon ble Apex Court held as under:- Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c) . A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to .....

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ection 40A(7) of the Act indicated that the assessee made a computation error in its return of income. The contents of the tax audit report suggested that there was no question of the assessee concealing its income or of the assessee furnishing any inaccurate particulars. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. All that had happened was that through a bona fide and inadvertent error, th .....

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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 .....

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the AO to contend that the P&L a/c has not been prepared in accordance with the provisions of the Companies Act, 1956 and make addition towards book profits under section 115JB ii) Appollo Tyres Ltd vs. CIT, [2002] 255 ITR 273 (SC), wherein the Hon ble Apex Court held as under:- While assessing a company for income-tax under s. 115J the correctness of the P&L a/c prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance .....

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f the Companies Act, 1956, for the rates prescribed in the IT Rules which have been consistently applied by the assessee company. iv) CIT vs. Rubamin P. Ltd., [2009] 312 ITR 18 (Guj), wherein the Hon ble High Court held as under:- Assessee is entitled to change the method of depreciation from straight line method to WDV method and claim extra depreciation for current year as also arrears of past years for purpose of computing book profit under s. 115J. 10. We have heard rival submissions and per .....

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ourse of assessment, the Assessing Officer observed that the assessee has credited profits on sales of shares directly to capital reserve and not credited the same to the profit and loss account. The assessee though included the capital gain derived from sale of shares in the normal computation but not included the same while computing book profit u/s 115JB of the Act; therefore, in the opinion of the Assessing Officer, noninclusion of the capital gain while computing book profit u/s 115JB amoun .....

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ofit 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 o .....

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