2020 (11) TMI 341 - AT - Income Tax

Penalty u/s. 271(1)(c) - omission of inclusion of capital gain on transfer of shares that too arising out of a book adjustment - HELD THAT - Explanation furnished by the assessee that by inadvertent mistake and human error, the capital gain derived from transfer of equity shares has not been reported in the return of income filed for the relevant year appears to be bonafide. Had it been the case of the AO that the assessee has received consideration for transfer of equity shares and yet not reported capital gain from transfer of shares in the return of income, then obviously explanation furnished by the assessee cannot be held to be bonafide. It is quite possible when a transaction is settled by book adjustment that too on the direction of Hon'ble High Court, there is every possibility to have an understanding that particular transaction cannot lead to tax. Moreover, in the instant case, even after computation of long term capital gain from transfer of equity shares the assessed income for the impugned year results into net loss. There is no deliberate attempt from the assessee to conceal particulars of income or evade payment of taxes. Therefore, the explanation furnished by the assessee that it was by inadvertent mistake omitted to include long term capital gain derived from transfer of shares in the return of income is bonafide and for this liability cannot be fastened u/s.271(1)(c) of the Act. The learned CIT(A) without appreciating these facts simply confirmed the penalty levied by the Assessing Officer u/s.271(1)(c) - Decided in favour of assessee.

Issues:
1. Confirmation of penalty under section 271(1)(c) by the Commissioner of Income Tax (Appeals).
2. Consideration of inadvertent omission of capital gain on transfer of shares.
3. Assessment of deliberate concealment of income by the assessee.
4. Interpretation of penalty provisions under section 271(1)(c) of the Act.
5. Applicability of judicial precedents in determining penalty for concealment of income.

Issue 1: Confirmation of Penalty under Section 271(1)(c)
The assessee appealed against the penalty levied under section 271(1)(c) by the Assessing Officer. The Commissioner of Income Tax (Appeals) confirmed the penalty, citing that the omission to report capital gains from the transfer of shares was not inadvertent. The Commissioner relied on the decision in the case of JCIT Vs. Saheli Leasing & Industries Ltd. to support the imposition of the penalty.

Issue 2: Inadvertent Omission of Capital Gain
The assessee argued that the omission of capital gain on the transfer of shares was inadvertent, as it arose from a book adjustment without monetary consideration. The assessee contended that there was no deliberate attempt to conceal income, especially considering the assessed income for the year was nil even after computing the capital gain. The Tribunal found the explanation provided by the assessee to be bonafide, given the circumstances of the transaction and the absence of tax impact.

Issue 3: Deliberate Concealment of Income
The Assessing Officer alleged that the assessee deliberately concealed the particulars of income by not reporting the capital gains from the share transfer. However, the Tribunal disagreed, stating that the transaction was settled through a book adjustment directed by the High Court, leading to a genuine oversight in reporting the capital gain. The Tribunal found no evidence of deliberate concealment or tax evasion.

Issue 4: Interpretation of Penalty Provisions
The Tribunal analyzed the penalty provisions under section 271(1)(c) of the Act and emphasized that mens rea is not essential for civil liability. It highlighted that the focus should be on whether there was a concealment of income resulting in an increase in income or reduction in loss, as per Explanation 4(a) of the Act.

Issue 5: Applicability of Judicial Precedents
The Tribunal considered various judicial precedents, including the decision in the case of M/s. Price Waterhouse Coopers Pvt. Ltd. vs. CIT, to assess the penalty for concealment of income. It differentiated the facts of previous cases to conclude that the inadvertent omission of capital gain in the present case did not amount to deliberate concealment, warranting the reversal of the penalty.

In conclusion, the Tribunal allowed the appeal filed by the assessee, overturning the penalty levied under section 271(1)(c) of the Act. The Tribunal found the omission of capital gain to be inadvertent and not indicative of deliberate concealment, considering the circumstances of the transaction and the absence of tax impact on the assessed income.

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