2010 (3) TMI 66 - HC - Income Tax

Penalty u/s 271(1)(c) bonafile belief advice by the counsel - In the return filed by the assessee-respondent, he claimed that the profit on the sale of shares was exempt under Section 10(36) of the Act. The Assessing Officer completed the assessment under Section 143(3) of the Act and it was held that the assessee-respondent had wrongly claimed the profit on sale of shares under Section 10(36) of the Act. The allegation was that he had concealed income to the extent of ₹ 35,21,650/-. While finalising the assessment, penalty proceedings under Section 271(1)(c) of the Act were also initiated and penalty @ 100%, amounting to ₹ 4,10,440/- was imposed. CIT(A) and ITAT dropped the penalty held that - We are not impressed with the argument of Mr. Sukant Gupta, learned counsel for the appellant-revenue, that the issue of bona fide belief based on the advise of the counsel should have been raised before the Assessing Officer and there was no scope for raising such an issue before the CIT (A) because it is an after thought. However, we do not find any merit in the aforesaid submission. It is not unknown that income tax returns are filed through the experts in the Income-tax laws and, therefore, the advise given by the learned counsel can be acted upon with bona fide belief to be correct. There is no rule of law that the aforesaid issue should have been pressed only before the Assessing Officer or there was any bar on the assessee-respondent not to raise this issue before the Appellate Authority penalty not to be imposed

Summary

Issues: Appeal under Section 260A of the Income-tax Act, 1961 against order by the Income Tax Appellate Tribunal, Chandigarh Bench 'B'; Claim of exemption under Section 10(36) of the Act; Application of Section 271(1)(c) regarding penalty; Bona fide belief based on counsel's advice; Acceptance of counsel's affidavit by CIT (A) and Tribunal.

Analysis:
The appellant-revenue filed an appeal under Section 260A of the Income-tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Chandigarh Bench 'B', affirming the decision of the Commissioner of Income Tax (Appeals), Karnal, for the assessment year 2004-05. The case involved the sale of shares resulting in long term and short term capital gains, with the assessee claiming exemption under Section 10(36) of the Act. The Assessing Officer alleged income concealment and imposed a penalty under Section 271(1)(c) of the Act.

The Commissioner of Income Tax (Appeals) concluded that Section 271(1)(c) would not apply, considering the counsel's advice to the assessee and the disclosure of all facts in the return. The CIT (A) relied on precedents and accepted the counsel's mistake, emphasizing that the assessee should not be penalized for the counsel's error made in good faith. The Tribunal upheld this decision, noting the accurate disclosure of income particulars relevant to capital gains and the assessee's reliance on counsel's advice.

The High Court found that the issue of bona fide belief based on counsel's advice was a question of fact, already decided by the CIT (A) based on the counsel's affidavit. The Court dismissed the argument that this issue should have been raised earlier, emphasizing that expert advice in tax matters is commonly relied upon by taxpayers. The Court held that as long as a possible view was taken by the lower forums, no substantial question of law could be raised under Section 260A of the Act, leading to the dismissal of the appeal.

In conclusion, the High Court dismissed the appeal, emphasizing the acceptance of the counsel's affidavit by the lower forums and the absence of intentional mistakes by the assessee. The Court highlighted the importance of expert advice in tax matters and the lack of legal requirement to raise certain issues before specific authorities. The decision rested on the factual determination of the bona fide belief based on counsel's advice and the absence of intentional wrongdoing by the assessee.

This judgment underscores the significance of expert advice in tax matters, the application of Section 271(1)(c) regarding penalties, and the acceptance of counsel's affidavit as evidence of bona fide belief. It clarifies the approach to raising legal issues before different authorities and the importance of factual determinations in assessing the taxpayer's intent and actions.