2010 (3) TMI 803 - AT - Income Tax

Penalty - Revised return - LTCG on sale of shares of M/s. Maruti Comforts and Inn Pvt. Ltd. was declared by the assessee at Rs. 52, 89, 898 and after setting off Short Term Capital Loss of Rs. 17, 92, 461 a sum of Rs. 34, 97, 437 was offered to tax as LTCG - AO on verification found that the cost of acquisition of shares was taken by the assessee at a higher amount of Rs. 210 per share as against the actual cost of acquisition of Rs. 40 per share - assessee has not only failed to substantiate his explanation as regards the higher cost of acquisition of shares claimed wrongly by him while computing the LTCG but has also failed to show that the mistake committed by him while making the said wrong claim was bonafide - Decided against the assessee Penalty u/s 271(1)(c) - held that - the assessee has not only failed to substantiate his explanation as regards the higher cost of acquisition of shares claimed wrongly by him while computing the LTCG but has also failed to show that the mistake committed by him while making the said wrong claim was bona fide. Moreover as already observed by us. even all the particulars relating to the said claim were not fully furnished by the assessee in the return of income originally filed. - Penalty confirmed - decided against the assessee.

Summary

Issues Involved:
1. Understatement of Long Term Capital Gain (LTCG) due to incorrect cost of acquisition of shares.
2. Imposition of penalty under section 271(1)(c) of the Income-tax Act for furnishing inaccurate particulars of income.

Detailed Analysis:

1. Understatement of Long Term Capital Gain (LTCG):

Facts and Findings:
- The assessee filed a return declaring total income of Rs. 79,23,200, including LTCG on the sale of shares of M/s. Maruti Comforts and Inn Pvt. Ltd. at Rs. 52,89,898, after setting off Short Term Capital Loss.
- The Assessing Officer (AO) found discrepancies in the cost of acquisition of shares. The assessee had claimed Rs. 2,24,99,960 as the cost for 1,05,140 shares sold, while the AO determined it should be Rs. 42,05,600 based on the purchase agreements.
- The AO noted that the Memorandum of Agreement (MOA) specified the cost of shares at Rs. 40 each, and additional funds infused by the assessee were for clearing institutional loans, not part of the share acquisition cost.
- The assessee revised the LTCG to Rs. 2,27,21,351 after the AO's findings, which was adopted for assessment.

Assessee's Argument:
- The assessee contended that the cost of acquisition was taken as Rs. 210 per share based on a bona fide belief that the total investment of Rs. 8.61 crores (including funds for liabilities) should be considered.
- The mistake was claimed to be bona fide, corrected immediately upon detection by the AO.

Tribunal's Observation:
- The Tribunal found no merit in the assessee's claim of a bona fide mistake, noting that the MOA and accounting records clearly differentiated between the cost of shares and additional funds for liabilities.
- The Tribunal concluded that the mistake was not bona fide and that the assessee failed to substantiate the explanation or provide full particulars in the original return.

2. Imposition of Penalty under Section 271(1)(c):

Facts and Findings:
- The AO initiated penalty proceedings under section 271(1)(c) for understating LTCG and wrongly claiming expenses.
- The assessee argued that the revised computation of income was filed to avoid litigation and that the mistake was bona fide.

CIT(A) Decision:
- The CIT(A) upheld the penalty, stating that the cost of shares was explicitly stated in the MOA, and the excess amount paid was reflected as loans in the books, indicating the assessee was aware of the correct cost.
- The CIT(A) noted that the revised statement was filed only after the AO's queries, not voluntarily.

Tribunal's Decision:
- The Tribunal upheld the penalty, agreeing with the CIT(A) that the mistake was not bona fide and that the revised computation was filed only after detection by the AO.
- The Tribunal distinguished the case from precedents like Suresh Chandra Mittal, noting that the explanation in the present case was not bona fide and the revised statement was not a revised return but a revised computation adopted by the AO.

Separate Judgment for HUF Case:
- In the case of Mr. Ravindranath S. Doddi (HUF), the Tribunal found similar facts and upheld the penalty for understatement of LTCG.
- However, the Tribunal directed the AO to recompute and restrict the penalty attributable to LTCG declared in the succeeding year (assessment year 2007-08), as it was voluntarily declared without detection by the AO.

Conclusion:
- The appeals were dismissed, and the penalties under section 271(1)(c) were upheld for both the individual and HUF cases, except for the portion attributable to LTCG declared in the succeeding year for the HUF case.