2012 (6) TMI 134 - AT - Income Tax

Penalty levied u/s 271 1 c on capital gains on renunciation of right shares The Assessee took a stand that no part of the aforesaid receipt was taxable because the cost of acquisition of rights shares cannot be determined and therefore it was not possible to compute capital gain Held that - The return of income is the only document where the assessee can furnish his particulars of income, whereas the appellant company has not disclosed the receipt of premium received on renunciation of rights in its return of income nor in the computation of income accompanied with the return of income - the entire consideration received by the assessee company on renunciation of right shares was shown under the head Reserves & Surplus without mentioning the nature of its constituents and as to how the same was exempt As nothing was revealed in this regard by way of even a note to computation of total income chargeable to capital gains there is concealment or furnishing of inaccurate particulars on part of the assessee company. To reduce the afore said penalty levied u/s 271 1 c - Held that - AO has levied penalty which is @ 200 % of the tax sought to be evaded but while disposing off the appeal the ld CIT A has concluded that to levy penalty u/s 271 1 c @ 100 % of the tax sought to be evaded on capital gains on renunciation of right shares - As the penalty levied by the AO has already been brought down to 100%, which is the minimum penalty u/s 271 1 c of the Act no point to reduce it further against assessee.

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) of the Income Tax Act.
2. Determination of capital gains on renunciation of right shares.
3. Disclosure of income and furnishing of accurate particulars.

Issue-wise Detailed Analysis:

1. Levy of Penalty u/s 271(1)(c) of the Income Tax Act:

The primary issue in this case is whether the penalty levied under Section 271(1)(c) of the Income Tax Act for concealing income and furnishing inaccurate particulars is justified. The assessee argued that the issue was debatable and all relevant information had been provided. However, the AO and CIT(A) found that the assessee had not disclosed the nature of the premium received on renunciation of right shares in the return of income, thereby furnishing inaccurate particulars. The penalty was upheld by the CIT(A) but reduced to 100% of the tax sought to be evaded.

2. Determination of Capital Gains on Renunciation of Right Shares:

The assessee, a finance and investment company, had renounced 90,450 equity shares for a premium, which was transferred to the 'Reserve Account' in the balance sheet. The AO considered this receipt as taxable short-term capital gains. The assessee contended that the cost of acquisition of the rights shares could not be determined, relying on the Supreme Court decision in B.C. Srinivasa Shetty, and alternatively argued that there would be a capital loss based on the diminution in value of the original shares as per the Supreme Court decision in Miss Dhun Dadabhoy Kapadia. The AO rejected these arguments, and the CIT(A) confirmed the AO's findings based on information from the Bombay Stock Exchange.

3. Disclosure of Income and Furnishing of Accurate Particulars:

The assessee did not disclose the receipt of the premium on renunciation of right shares in the return of income or the computation of income. The balance sheet showed the amount under 'Reserves & Surplus' without specifying its nature. The Tribunal found that the assessee had failed to make a proper disclosure of material facts regarding the taxability of the capital gains on renunciation of right shares. The Tribunal held that the explanation provided by the assessee was not bona fide and that the mere mention in the balance sheet could not be considered a proper disclosure.

Conclusion:

The Tribunal concluded that the assessee had concealed particulars of income and furnished inaccurate particulars by not disclosing the premium received on renunciation of right shares in the return of income. The penalty levied by the AO, which was reduced to 100% of the tax sought to be evaded by the CIT(A), was upheld. The alternative plea for further reduction of the penalty was dismissed. The appeal filed by the assessee was ultimately dismissed.