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2010 (8) TMI 457 - AT - Income TaxPenalty u/s 271(1)(c) - concealment of income - Held that Though, there was a loss as per book value, the assessee has disclosed in the audit report that there was a short term capital gain on the basis of WDV as per Income-tax Act. In other words, as against the loss on sale of assets recognized in the books of accounts, the assessee worked out the short term capital gain voluntarily after adopting the WDV of assets as per Income-tax Act, which was lower than book value recorded in the books. Therefore, the fact that there would be a short term capital gain as against loss shown in the books has been duly disclosed by the assessee in the audit report itself, and thus, it is not a case where assessee has concealed any material fact or the factual opinion relating to the transfer of fixed assets by assessee company to its holding company. The assessee has claimed the amount as exempted as per advise given by the Tax Consultant and that could be a bonafide basis on which the claim was made. The assessee was totally dependent upon his tax consultant and the accountant, and on the basis that the assessee made the claim in the return of income. Therefore, it is a case where a bonafide claim was made on the basis of advise of accountant or tax consultant, which would absolve the assessee from penalty leviable u/s 271(1)(c) of the Act. - penalty not to be levied.
Issues Involved:
1. Justification of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961 for the Assessment Year 2006-07. Detailed Analysis: Issue 1: Justification of Penalty Levied under Section 271(1)(c) of the Income-tax Act, 1961 Background: The assessee filed an e-return declaring total income of Rs.1,70,809 on 30.11.2006. During scrutiny, it was found that the assessee company transferred its plant and machinery to its holding company for Rs.1,55,29,500, with a written down value of Rs.51,44,121, resulting in a short-term capital gain of Rs.1,03,85,379, which was not shown as income in the return. The assessee claimed this transaction was exempt under Section 47(v) of the Act, which was denied by the AO. Assessment Proceedings: The AO observed that the holding company did not hold the entire share capital of the assessee company, as required by Section 47(v). The AO found that only 99.64% of the shares were held by the holding company, with the remaining shares held by directors and their relatives. Consequently, the AO added Rs.1,03,85,379 as short-term capital gain and initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. Penalty Proceedings: The AO rejected the assessee's explanation that the omission was due to a bona fide belief and ignorance of the accountant. The AO held that the assessee deliberately furnished inaccurate particulars to evade tax, and levied a penalty of Rs.34,95,718 under Section 271(1)(c). CIT(A) Proceedings: The assessee argued that the claim was made in good faith based on the accountant's advice and was fully disclosed in the audit report and return of income. However, the CIT(A) upheld the penalty, stating that the assessee was aware of the shareholding pattern and the legal requirements of Section 47(v). The CIT(A) emphasized that ignorance of law is no excuse and the claim was not bona fide. ITAT Proceedings: The ITAT analyzed the facts and legal provisions, noting that the assessee's claim was based on the advice of the tax auditor, who opined that the transaction was exempt under Section 47(v). The ITAT found that the assessee disclosed all relevant particulars and acted on a plausible interpretation of the law. The ITAT referred to various judicial precedents, including the Supreme Court's decision in Reliance Petroproducts P. Ltd., which held that penalty under Section 271(1)(c) is not warranted if the claim is bona fide and all facts are disclosed. Conclusion: The ITAT concluded that the assessee's explanation was bona fide and all material facts were disclosed. Therefore, the penalty under Section 271(1)(c) was not justified. The ITAT set aside the orders of the lower authorities and cancelled the penalty. Final Order: The appeal filed by the assessee was allowed, and the penalty levied under Section 271(1)(c) was cancelled. The order was pronounced in the open court on 31st August, 2010.
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