2025 (1) TMI 279 - AT - Income Tax

Penalty levied u/s 271(1)(c) - chargeability of Short-Term Capital Gains (STCG) on sales of shares of an entity - HELD THAT - The assessee has earned Long Term Capital Gains as well as Short Term Capital Gains (STCG) on these transactions. Initially, an assessment was framed wherein STCG was computed at Rs. 52.10 Crores raising tax demand of Rs. 479.08 Lacs. The order was rectified and the STCG were recomputed and corresponding tax demand was reduced to Rs. 283.75 Lacs in rectification order passed u/s 154 on 31-03-2016. The matter reached up-to Tribunal wherein the matter was restored back to the file of AO for re-computation of capital gains since there was error in the computation of STCG. Pursuant to the same, another assessment order was passed on 31-12-2018 wherein STCG has been re-computed at Rs. 40.33 Crores and finally, tax demand of Rs. 1.45 Crores has been raised against the assessee which has thus attained finality. The primary liability to compute correct taxes was on assessee and the assessee could not absolve himself by shifting this burden to the remitter banker. Even otherwise if this argument was to be accepted, it would be pertinent to note that the assessee has never reflected aforesaid transactions in Income Tax Returns. Even assuming that the banker had deducted due taxes, still the assessee was obligated to reflect this income in the return of income. Having not done so, the argument thus raised by Ld. AR could not be accepted. We order so. Though it has been submitted that the assessee has settled the final tax liability and paid due taxes forthwith as finally determined by Ld. AO, no evidence thereof has been adduced before us to support the same - CIT(A) has deleted the penalty merely by extracting observations of Hon ble Supreme Court in the case of Hindustan Steels Ltd 1969 (8) TMI 31 - SUPREME COURT - The arguments as well as case laws being put before us by revenue as well as by AR have nowhere been considered by first appellate authority. No finding has been rendered on the alternative submissions made by the assessee. We deem it fit to set aside the impugned order and restore the issue of levy of penalty back to the file of Ld. CIT(A) for de novo adjudication.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the penalty imposed under Section 271(1)(c) of the Income Tax Act for concealment of income and furnishing inaccurate particulars was justified.
Whether the assessee's belief that no tax liability existed due to the NRE account status and TDS deductions was bona fide.
Whether the responsibility for computing and remitting the correct tax liability lay with the assessee or the remitter banker.
Whether the deletion of the penalty by the CIT(A) was appropriate given the facts and circumstances of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Penalty under Section 271(1)(c)

Relevant legal framework and precedents: Section 271(1)(c) of the Income Tax Act deals with penalties for concealment of income or furnishing inaccurate particulars. The precedent set by the Supreme Court in Hindustan Steel Ltd. v. State of Missa was considered, which allows for non-imposition of penalties in cases of technical or venial breaches.
Court's interpretation and reasoning: The court examined whether the non-disclosure of income was due to a bona fide belief or an intention to conceal income. The assessee argued that the omission was a bona fide mistake, relying on the TDS deducted by the bank.
Key evidence and findings: The assessee did not disclose the capital gains in both the original and reassessment returns, leading to the imposition of the penalty. The assessee's defense was based on the assumption that the bank's TDS covered the tax liability.
Application of law to facts: The court noted that despite TDS deductions, the assessee was obligated to report the income in tax returns. The omission of this duty constituted concealment.
Treatment of competing arguments: The court considered the CIT(A)'s reliance on the Hindustan Steel precedent and the assessee's bona fide belief argument. However, it emphasized the assessee's primary responsibility to disclose income.
Conclusions: The court found that the penalty was justified as the assessee failed to report the income, and the responsibility could not be shifted to the bank.

Issue 2: Bona Fide Belief of No Tax Liability

Relevant legal framework and precedents: The court considered the assessee's claim of a bona fide belief based on residential status and TDS deductions.
Court's interpretation and reasoning: The court rejected the argument that the bank's TDS deductions absolved the assessee from reporting the income.
Key evidence and findings: The court noted that the assessee did not include the transactions in tax returns, despite being aware of the capital gains.
Application of law to facts: The court applied the principle that ignorance of law is not an excuse and emphasized the assessee's duty to report all taxable income.
Treatment of competing arguments: The court acknowledged the assessee's position but found it insufficient to negate the penalty.
Conclusions: The court concluded that the bona fide belief argument did not hold, as the assessee failed to fulfill the statutory obligation to report income.

Issue 3: Responsibility for Tax Computation and Remittance

Relevant legal framework and precedents: The court examined the roles of the assessee and the banker in tax computation and remittance.
Court's interpretation and reasoning: The court clarified that the primary responsibility for accurate tax reporting lies with the assessee, not the banker.
Key evidence and findings: The court found that the banker deducted TDS, but the assessee did not report the income, leading to a tax shortfall.
Application of law to facts: The court applied the law to establish that the assessee could not shift the burden of tax computation to the banker.
Treatment of competing arguments: The court dismissed the argument that the banker was responsible for final tax liability computation.
Conclusions: The court concluded that the assessee was responsible for reporting and paying the correct tax, irrespective of the bank's TDS deductions.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The primary liability to compute correct taxes was on assessee and the assessee could not absolve himself by shifting this burden to the remitter banker."
Core principles established: The responsibility to report and pay taxes lies with the assessee, and TDS deductions by a banker do not absolve this duty.
Final determinations on each issue: The court upheld the penalty under Section 271(1)(c) and rejected the arguments of bona fide belief and shifting responsibility to the banker. The matter was remanded to the CIT(A) for further consideration, except for the argument already addressed by the court.

The judgment emphasizes the taxpayer's obligation to accurately report income and clarifies the limited role of TDS in absolving tax liability. The decision to remand the case indicates the need for further examination of the penalty's appropriateness, considering all arguments and developments. The appeal was allowed for statistical purposes, and the assessee was directed to substantiate its case before the CIT(A).

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