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2016 (7) TMI 699 - ITAT MUMBAI

2016 (7) TMI 699 - ITAT MUMBAI - TMI - Penalty under section 271(1)(c) - outstanding capital gains tax - inaccurate particulars of income - whether assessee was under bonafide belief that there was no liability to capital gains tax? - Held that:- There was no intention of the assessee to evade tax. That full particulars were disclosed. The assessee had not declared capital gains under bonafide belief that it was not liable to pay any tax on this income. After considering the above submissions of .....

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enue : Shri Mallikarjun Utture, D. R. ORDER Per Sanjay Garg, Judicial Member The present appeal has been preferred by the Revenue against the order dated 18.02.2011 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2003-04. 2. The Revenue is aggrieved by the action of the Ld. CIT(A) in deleting the penalty levied by the Assessing Officer (hereinafter referred to as the AO) on the assessee under section 271(1)(c) of the Income Tax Act. .....

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ng one minor) on 1- 4-01 to carry on business at Borivali, Mumbai and Rajkot. Two partners namely Mr. Chimanlal J Minawala and Shri Kamlesh C Minawala retired from the firm with effect from 31-8-02 and Mrs. Asha V. Minawala was admitted to the benefits of partnership firm with effect from 1-9-2002. The retiring partners capital account in the assessee firm was settled by passing appropriate entries and distributing certain assets & liabilities. During the course of re-assessment proceedings, .....

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as STCG u/s 45(4) by relying on the decision of the Hon'ble Mumbai High Court in the case of M/s. AN. Naik Associates (265 ITR 346). 4. During the course of appellate proceedings, the assessee contended that there was no dissolution of firm and thereby sec 45(4) was not applicable. It was further contended that assessee transferred various assets and liabilities including the stock in trade and if the value of stock in trade is excluded from the net assets transferred, the balance was negat .....

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ded that there was only reconstitution of the firm during the year and not dissolution and that there was divergence of opinion between ITAT Jabalpur & Hon ble Mumbai High Court as to whether transfer of assets at the time of retirement would attract capital gains u/s 45(4). It was further contended that the assessee firm had disclosed all the primary facts including the details of partners who retired and the new partner admitted during the year and the particulars of assets (including good .....

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at even if it is presumed that cases of retirement are also covered u/s 45(4), in order to be charged to Capital Gains, the asset transferred must be a capital asset as defined u/s 2(14). Further it was contended that stock in trade was specifically excluded from the definition of capital asset u/s 2(14)(i). It was contended that the assessee did not hide any facts before the A.O. during the course of assessment proceedings and merely because there was difference of opinion regarding the liabili .....

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admitted before the Ld. CIT(A) that the STCG should be taxed at ₹ 34,39,642/- showed that the assessee did not make proper and true disclosure in the return of income. He held that the admission before the Ld. CIT(A) proveed the presence of mens rea and the assessee acted deliberately in defiance of law and was guilty of contumacious conduct and, therefore, imposed penalty. He further held that various decisions relied by the assessee were distinguishable on facts and by virtue of explanat .....

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the material facts necessary for completion of assessment. Below the Fixed Asset schedule, the appellant left note No.1 as below: "All the assets of Rajkot has been taken over by the retiring partners Mr Chimanlal J Minawala & Kamlesh C Minawala." The appellant also filed revised agreement covering retirement and admission of partners. This means that the appellant had disclosed the material facts and only did not offer capital gain u/s 45 (4) on the bonafide belief that there was .....

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ain. Merely based on the alternative claim of the appellant, the AO would not be justified in imposing penalty stating that the admission before the CIT(A) amounts to admission of his guilt and the appellant acted deliberately in defiance of law and is guilt of contumacious conduct. The above observation of the A O in the impugned order is totally unacceptable. The appellant contended before the CIT(A) that there was no liability to capital gain as there was no dissolution and further there was .....

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, and therefore, needs to be excluded while determining liability u/s 45(4) . This content ion was rejected by the Tribunal with the following observations: The capital asset transferred on retirement of a partner from the firm is the right as a partner. The firm settles such right by giving away assets of the firm which includes its stock-in-trade. The stock-in-trade in that event looses its character as stock in trade and becomes a capital asset which is used as a mode of settlement of the cla .....

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ring partner. For the aforesaid reasons, we confirm the order of CIT(A) and dismiss ground No.1(a)(d) raised by the assessee. From the above observation, it is seen that though the Hon'ble ITAT has upheld the CIT(A)'s order, the reasoning given are entirely different from the reasons given by the CIT(A). Thus from the above, it is seen that the appellant disclosed all the facts before the A.O. during the course of assessment proceedings and merely because the appellant did not admit the .....

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cation for not admitting the capital gains. The assessee cannot be expected to compute the total income as would be finally determined the AO, but the statutory obligation of the appellant is discharged if the facts relating to the computation are truly and correctly submitted before the A.O. in which case concealment penalty cannot be imposed. As rightly contended by the representative, the A.O. did not point out any fact which was withheld by the appellant from the knowledge of the AO or any f .....

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