2017 (12) TMI 999 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Held that - In the instant case, it could be seen from the aforesaid facts, the assessee had bonafide doubt and belief as to in which year the capital gains had to be offered ie. in Asst Years 2006-07, 2007-08 or in 2010-11. This confusion gets further strengthened by the act of the AO by trying to levy capital gains in Asst Years 2006-07 and 2007-08 in the search assessments for which show cause notices were issued by the AO. Even though the cash component got surfaced only pursuant to the search, the year of taxability of capital gains was in dispute between the assessee and the revenue. Moreover, the assessee had offered the entire cash component in the revised return and the assessment for the Asst Year 2010-11 was framed by the AO u/s 143(3) of the Act on 31.3.2013 accepting the same. There was absolutely no concealment of income or furnishing of inaccurate particulars of income by the assessee for the Asst Year 2010- 11 , for which penalty u/s 271(1)(c) of the Act has been levied by the ld AO. Hence we hold that the facts before the Hon ble Delhi High Court are squarely distinguishable from the facts of the instant case. Hence the decision relied upon by the ld DR does not advance the case of the revenue. In view of the aforesaid facts and findings and by placing reliance on the decision of the Hon ble Jurisdictional High Court in the case of Durga Kamal Rice Mills 2003 (4) TMI 26 - CALCUTTA High Court we hold that the revenue had not made out any case for levying the penalty u/s 271(1)(c) of the Act for the Asst Year 2010-11. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Justification of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Determination of the actual sale consideration for the purpose of reckoning capital gains.
3. Validity and implications of the revised return filed by the assessee.
4. Year of taxability of the capital gains from the sale of shares.
5. Treatment of cash component received on sale of shares.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the penalty levied under section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed by the Assessing Officer (AO) on the grounds that the assessee did not disclose the cash component of ?7,40,90,000/- in the original return filed on 15.09.2010 but disclosed it only in the revised return filed on 27.12.2010. The AO argued that the assessee disclosed the cash component only after the issuance of notice under section 142(1) of the Act, suggesting a malafide intent to evade tax. However, the tribunal found that the assessee had paid the entire taxes due on the capital gains transaction before filing the original return, indicating no intention to conceal income.

2. Determination of the Actual Sale Consideration:
The tribunal examined whether the sale consideration for the purpose of reckoning capital gains should be ?16.51 crores as contended by the revenue or ?14.01 crores as claimed by the assessee. The revenue argued that the sale consideration remained the same throughout the transaction and that the liability to pay compensation of ?2.5 crores was an intervening liability rather than a reduction in sale consideration. The tribunal, however, accepted the assessee's contention that the sale consideration was reduced to ?14.01 crores as per the compromise decree dated 25.05.2009.

3. Validity and Implications of the Revised Return:
The tribunal noted that the assessee filed a revised return within the due date prescribed under section 139(5) of the Act, declaring the cash component as 'income from other sources'. The tribunal found that the assessee had a bonafide belief regarding the year in which the capital gains should be offered, which led to the filing of the revised return. The tribunal emphasized that the assessee had paid the entire taxes due on the capital gains before filing the original return, demonstrating no intention to conceal income.

4. Year of Taxability of the Capital Gains:
The tribunal held that the capital gains liability arose only in the Assessment Year (AY) 2010-11, pursuant to the final compromise settlement reached on 25.05.2009, as decreed by the court. The tribunal rejected the revenue's contention that the capital gains should be taxed in AYs 2006-07 and 2007-08, as no transfer of shares had taken place during those years. The tribunal concluded that the cash component of ?7,40,90,000/- was part of the share sale consideration and should be assessed as capital gains in AY 2010-11.

5. Treatment of Cash Component Received on Sale of Shares:
The tribunal found that the cash component received by the assessee was part of the share sale consideration and should be treated as such for the purpose of computing capital gains. The tribunal noted that the assessee had offered the cash component in the revised return and paid the entire taxes due thereon. The tribunal held that there was no concealment of income or furnishing of inaccurate particulars of income by the assessee for AY 2010-11, and therefore, the penalty under section 271(1)(c) was not justified.

Conclusion:
The tribunal allowed the appeal of the assessee, holding that the revenue had not made out a case for levying the penalty under section 271(1)(c) of the Act for AY 2010-11. The tribunal emphasized the bonafide conduct of the assessee and the absence of any intention to conceal income. The tribunal's decision was based on a detailed examination of the facts and circumstances of the case, as well as relevant legal precedents.

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