2016 (3) TMI 869 - AT - Income Tax

Penalty u/s. 271(1)( c) - wrong claim of exemption towards long term capital gains on sale of shares of M/s. Vishal Retail Ltd - claim for exemption u/s. 10(38) - Held that - We find that the assessee was under bonafide belief that on off market share transaction of trading in listed company share, no capital gains would arise. We hold that this bonafide belief cannot be doubted in the facts of the case. We also hold that the assessee had duly come forward to rectify the mistake in not mentioning the long term capital on sale of listed company s shares on off market in his original return of income, and on noticing the same the assessee immediately filed revised computation of income during assessment proceedings and as entered in the order sheets by the ld.AO. Thus, the assessee offered the same voluntarily before detection by the department. We also find that the version of the ld.AO in his penalty order that assessee was confronted with the specific issue on taxability of long term capital gain on sale of shares of M/s. Vishal Retail Ltd is factually incorrect. The assessee had furnished the explanation to the assessee by filing a revised computation of income offering long term capital gains voluntarily. We also find that the assessee had also given explanation for not offering the same in the original return of income due to his bonafide belief. His bonafide explanation has not been found to be false by the ld. AO. From the above, it could be safely concluded that as per Explanation 1 to section 271 (1) ( c ) of the Act, no penalty could be imposed on the assessee in the facts of the case. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961 could be levied in the facts and circumstances of the case.

Detailed Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961

The primary issue in this appeal is whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961, could be levied on the assessee for the assessment year 2008-09. The assessee had filed a belated return of income and later sold 7,48,000 equity shares of M/s. Vishal Retail Ltd off-market, making a profit of Rs. 8,30,00,000/-. The assessee initially believed that the capital gains from these transactions were exempt under Section 10(38) of the Act, as the shares were of a listed company. However, since the transactions were off-market and no Securities Transaction Tax (STT) was paid, the gains were not exempt.

During the assessment proceedings, the assessee filed a revised computation of income, including the long-term capital gains from the sale of shares. The Assessing Officer (AO) felt that this offer was not voluntary and was made only after confrontation during the assessment proceedings, thereby warranting the initiation of penalty proceedings. The AO imposed a penalty of Rs. 94,03,900/- under Section 271(1)(c).

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty, appreciating the assessee's contention that the revised computation was filed voluntarily before any detection by the department. The revenue appealed this decision.

The Tribunal examined the facts and submissions from both parties. It was noted that the assessee had filed the revised computation voluntarily and before any specific confrontation by the AO. The Tribunal found that the assessee was under a bona fide belief that the capital gains were exempt and acted promptly upon realizing the mistake. The Tribunal also considered various judicial precedents, including decisions from the High Courts and the Supreme Court, which supported the view that penalty under Section 271(1)(c) should not be imposed for bona fide mistakes or inadvertent errors.

The Tribunal concluded that the assessee's explanation was bona fide and not found to be false by the AO. Therefore, as per Explanation 1 to Section 271(1)(c), no penalty could be imposed. The Tribunal upheld the CIT(A)'s order canceling the penalty and dismissed the revenue's appeal.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming that the penalty under Section 271(1)(c) was not warranted in this case due to the bona fide belief and voluntary disclosure by the assessee. The decision emphasized that penalties should not be imposed for inadvertent errors or bona fide mistakes.