2016 (12) TMI 1139 - AT - Income Tax

Penalty u/s 271(1)(c) - long term capital gains earned on sale of shares under Buyback scheme wherein no STT was paid was claimed exempt u/s. 10(38) - Held that - It is an inadvertent and bonafide mistake made by the assessee while filing return of income with the Revenue wherein long term capital gains earned on sale of shares under Buyback scheme wherein no STT was paid was claimed exempt u/s. 10(38) of the Act, and the assessee explanation offered thereto is a bona-fide whereby the assessee claimed it to be inadvertent and bonafide mistake was under an impression that long term capital gains earned on sale of shares is exempt from tax u/s 10(38) albeit no STT was paid, while complete particulars were filed in the return of income filed with the Revenue claiming exemption u/s 10(38) of the Act on long term capital gains earned on sale of shares. It is an inadvertent bona-fide mistake and as such the penalty is not sustainable in the eye of law and the same is hereby ordered to be deleted as the assessee has come forward with an explanation which is a bona-fide explanation which takes it out of provisions of Section 271(1)(c) read with explanation 1 to Section 271(1)(c) of the Act. Merely because a claim is made by the assessee which is not accepted by the AO to be sustainable in law penalty is not leviable automatically more so when all the details were duly furnished by the assessee in the return of income filed with the Revenue and the particulars of income filed by the assessee were not inaccurate. - Decided against assessee.

Issues Involved:
1. Whether the penalty under Section 271(1)(c) of the Income-tax Act, 1961 was justified.
2. Whether the assessee concealed particulars of income or furnished inaccurate particulars.
3. Whether the claim of exemption under Section 10(38) for long-term capital gains on shares was bona fide.
4. Whether the penalty should be reduced due to computational errors.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The primary issue was whether the penalty imposed under Section 271(1)(c) was justified. The assessee had declared long-term capital gains from the sale of shares and claimed exemption under Section 10(38). However, since Securities Transaction Tax (STT) was not paid, the Assessing Officer (AO) disallowed the exemption and initiated penalty proceedings. The AO concluded that the assessee furnished inaccurate particulars of income and levied a penalty of ?81,030, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Concealment or Inaccurate Particulars of Income:
The assessee argued that there was no concealment or furnishing of inaccurate particulars. The details of the long-term capital gains were fully disclosed. The error was claimed to be inadvertent, made under the bona fide belief that the gains were exempt under Section 10(38). The CIT(A), however, held that the assessee furnished inaccurate particulars by claiming the exemption and justified the penalty under Explanation 1 of Section 271(1)(c).

3. Bona Fide Claim of Exemption:
The Tribunal examined whether the claim of exemption was a bona fide mistake. The assessee's counsel argued that the mistake was inadvertent and upon realization, the assessee surrendered the amount and paid due taxes with interest. The Tribunal found that the assessee had provided complete particulars in the return and the claim was made under a bona fide belief. The Tribunal referenced several judicial decisions, including Doral Trading Pvt. Ltd. v. DCIT and Virtuous Capital Limited v. ACIT, which supported the view that bona fide mistakes do not warrant penalties.

4. Reduction of Penalty Due to Computational Errors:
The assessee also contended that the penalty should be reduced due to computational errors by the AO, who applied a 20% tax rate instead of 10% and did not consider the cost of acquisition. The Tribunal noted that the assessee's explanation was bona fide and the mistake was inadvertent. The Tribunal emphasized the principle from the Supreme Court's decision in CIT v. Reliance Petroproducts Private Limited, stating that merely making a claim that is not sustainable does not automatically lead to a penalty if the particulars are not inaccurate.

Conclusion:
The Tribunal concluded that the penalty was not sustainable as the assessee's mistake was bona fide and inadvertent. The explanation provided by the assessee was found to be reasonable and genuine. The Tribunal ordered the deletion of the penalty of ?81,030 imposed by the AO and upheld by the CIT(A). The appeal filed by the assessee was allowed, and the penalty was set aside.

Order:
The appeal filed by the assessee for the assessment year 2009-10 was allowed, and the penalty levied under Section 271(1)(c) was deleted. The order was pronounced in the open court on 24th October 2016.

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