2018 (3) TMI 1585 - AT - Income Tax

Penalty u/s 271(1)(c) - claim of set off long term capital gains in the return of income filed pursuant to notice u/s.148 - assessee withdrew the claim - Held that - In the original return of income, the assessee made this legal claim of set off of long term capital gains against long term capital loss arising from the sale of shares of Dotex International Limited to its 100% holding company NSE Limited which was hit by provisions of Section 47(v) of the Act as it will not constitute transfer which claim stood withdrawn by the assessee itself, but every legal claim which is filed and which is not allowed by the Revenue does not automatically lead to the levy of penalty u/s 271(1)(c) rather in the instant case on coming to know of the inadmissibility of the said claim of set off by virtue of Section 47(v), the assessee itself disallowed the said claim before being confronted by the Revenue while filing return of income in pursuance to notice u/s 148. The decision of the Hon ble Supreme Court in the case of Reliance Petroproducts Private Limited (2010 (3) TMI 80 - SUPREME COURT) is applicable and in fact the assessee voluntarily withdrew the said claim in the return of income filed and hence no penalty is exigible u/s 271(1)(c) under these circumstances as explanation offered is genuine and bonafide . No penalty u/s 271(1)(c) is exigible in this case - Decided in favour of assessee

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Furnishing inaccurate particulars of income and concealing income.
3. Validity of penalty order under section 271(1)(c) being time-barred.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The assessee appealed against the penalty of ?1,29,880/- under section 271(1)(c) confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) held that the appellant furnished inaccurate particulars of income by claiming a set-off of long-term capital loss which was later offered as long-term capital gain in the return filed in response to notice under section 148. The assessee argued that the error in the original return was a bona fide human error, rectified suo-moto before receiving any communication from the Assessing Officer (AO). The CIT(A) rejected this explanation, inferring contumacious conduct and mens rea, leading to the confirmation of the penalty.

2. Furnishing Inaccurate Particulars of Income and Concealing Income:
The assessee, engaged in software development and consultancy, filed its original return for AY 2005-06 declaring an income of ?5,76,54,770/-. The assessment was completed under section 143(3) with an assessed income of ?8,22,78,960/-. The case was reopened under section 147, and the assessee filed a revised return withdrawing the set-off of long-term capital gain of ?5,13,908/- against the long-term capital loss of ?6,47,13,206/- on the sale of shares to its holding company, NSE, which was not considered a transfer under section 47(v). The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. The assessee contended that the revised return was filed voluntarily and before any detection by the AO, arguing no concealment or inaccurate particulars were furnished. The AO, however, imposed the penalty, citing precedents where penalties were upheld despite revised returns being filed.

3. Validity of Penalty Order under Section 271(1)(c) Being Time-Barred:
The assessee argued that the penalty order was time-barred under section 275, as it was not completed within the stipulated time frame. The CIT(A) dismissed this argument, stating that the penalty proceedings were initiated within the permissible period, considering the appeal against the order under section 147 read with section 143(3) was still pending.

Tribunal's Decision:
The Tribunal noted that the assessee withdrew the claim of set-off of long-term capital gain against long-term capital loss in the revised return filed in response to the notice under section 148, before the reasons for reopening were communicated. The Tribunal found that the assessee's conduct was bona fide, and the error in the original return was a genuine mistake. Citing the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., the Tribunal held that every disallowed claim does not attract penalty under section 271(1)(c). The Tribunal concluded that no penalty was exigible as the explanation offered by the assessee was genuine and bona fide. Consequently, the penalty of ?1,29,880/- was deleted, and the appeal was allowed.

Conclusion:
The Tribunal allowed the appeal, deleting the penalty under section 271(1)(c) on the grounds of the assessee's bona fide conduct and genuine mistake in the original return, which was rectified voluntarily before any detection by the AO. The penalty order was also found to be within the permissible time frame, dismissing the argument of it being time-barred.

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