2012 (9) TMI 967 - AT - Income Tax

Levy penalty u/s 271(1)(c) - applicable rate on capital gain - Held that - Assessee has committed an inadvertent error in the return of income to charge the tax @ 10% in stead of applicable rate of tax @ 30% on short term capital gains shown by the assessee as assessee has not paid STT on share transactions. Hence, assessee has not concealed its income or furnished wrong particulars of facts. Accordingly, provisions of section 271(1)(c) of the Act on the facts and in the circumstances of the case, are not applicable. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Applicability of tax rate on short-term capital gains.
3. Determination of whether the error in tax computation was clerical or intentional.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in this case was whether the penalty under section 271(1)(c) for furnishing inaccurate particulars of income was justified. The assessee argued that the error in applying the tax rate was a bona fide clerical mistake and not an intentional act to evade tax. The Tribunal noted that the assessee disclosed all facts correctly except for the tax rate application. The assessee corrected the mistake suo moto before the assessment was completed. The Tribunal relied on the Supreme Court's decision in Reliance Petro Products Pvt Ltd., which held that mere making of a claim which is not sustainable in law does not amount to furnishing inaccurate particulars. Therefore, the Tribunal concluded that the penalty was not justified and deleted it.

2. Applicability of Tax Rate on Short-term Capital Gains:
The assessee initially applied a 10% tax rate under section 111A for short-term capital gains, which was incorrect as the transactions were off-market and not subject to Securities Transaction Tax (STT). The correct applicable rate was 30% under section 115AD. The Tribunal observed that the error was rectified by the assessee during the assessment proceedings and before any concealment was detected by the Assessing Officer (AO). The Tribunal emphasized that the mistake was a clerical error and not an attempt to evade tax.

3. Determination of Whether the Error in Tax Computation was Clerical or Intentional:
The assessee contended that the error was clerical, arising from the aggregation of transaction data during the preparation of the tax return. The Tribunal noted that the assessee paid the correct advance tax at 30% but inadvertently claimed a 10% rate in the return. The Tribunal found that the assessee's actions were consistent with a bona fide clerical error rather than an intentional act to evade tax. The Tribunal also referred to various judicial precedents, including the Supreme Court's decision in Price Waterhouse Coopers Pvt Ltd., which supported the view that inadvertent and bona fide errors do not attract penalty under section 271(1)(c).

Conclusion:
The Tribunal concluded that the assessee had not furnished inaccurate particulars of income or concealed any income. The error in applying the tax rate was a bona fide clerical mistake, which was corrected by the assessee suo moto during the assessment proceedings. Therefore, the penalty under section 271(1)(c) was not justified and was deleted. The appeal filed by the assessee was allowed.