2005 (8) TMI 588 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act.
2. Computation of capital gains on the sale of bonus shares.
3. Determination of the cost of acquisition for bonus shares.
4. Whether the assessee furnished inaccurate particulars of income.
5. Applicability of judicial precedents to the assessee's case.

Detailed Analysis:

1. Imposition of penalty under section 271(1)(c) of the Income-tax Act:
The primary issue in this case was the imposition of a penalty under section 271(1)(c) of the Income-tax Act for furnishing inaccurate particulars of income. The Assessing Officer (AO) imposed a penalty of Rs. 13,49,640, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] but contested by the assessee. The Tribunal had to determine whether the assessee's actions constituted furnishing inaccurate particulars of income.

2. Computation of capital gains on the sale of bonus shares:
The assessee sold 8,150 bonus shares of Vardhman Spinning & General Mills Ltd. and claimed that there was no cost of acquisition, thus no capital gain should be computed. The AO disagreed, computing a long-term capital gain of Rs. 39,12,000 on the sale of the bonus shares, rejecting the assessee's claim based on the Supreme Court's decision in B.C. Srinivasa Setty's case.

3. Determination of the cost of acquisition for bonus shares:
The AO and CIT(A) did not accept the assessee's claim that the cost of acquisition for the bonus shares was nil. They relied on the Delhi High Court's decision in the case of M/s. Dalmia Investment Company v. CIT, which dealt with capital gains on bonus shares, to reject the assessee's reliance on B.C. Srinivasa Setty's case. The Tribunal had to consider whether the assessee's interpretation was bona fide and whether the legal position was clear at the time of filing the return.

4. Whether the assessee furnished inaccurate particulars of income:
The Tribunal examined whether the assessee furnished inaccurate particulars of income by claiming that the bonus shares had no cost of acquisition. The assessee argued that their claim was based on a bona fide belief and judicial precedents, even though the claim was ultimately not accepted. The Tribunal noted that the assessee disclosed all relevant facts in the notes to the accounts and Schedule X of the Balance Sheet.

5. Applicability of judicial precedents to the assessee's case:
The Tribunal considered various judicial precedents, including the Supreme Court's decision in B.C. Srinivasa Setty's case, the Delhi High Court's decision in Escorts Farms (Ramgarh) Ltd. v. CIT, and the Calcutta High Court's decisions in Sutlej Cotton Mills Ltd. v. CIT and CIT v. Steel Group Ltd. The Tribunal noted that the legal position regarding the cost of acquisition for bonus shares was not well-settled at the time the assessee filed the return. The Tribunal concluded that the assessee's claim was based on a bona fide interpretation of the law and that the explanation offered by the assessee was bona fide.

Conclusion:
The Tribunal held that the assessee had disclosed all material facts and that the claim regarding the cost of acquisition of bonus shares was based on a bona fide interpretation of the law. The Tribunal found that the assessee did not furnish inaccurate particulars of income and had discharged the onus under Explanation 1 to section 271(1)(c). Consequently, the Tribunal directed that the penalty imposed be deleted, allowing the appeal of the assessee.