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TMI Blog2010 (8) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the claim in the return of income. Therefore, it is a case where a bonafide claim was made on the basis of advise of accountant or tax consultant, which would absolve the assessee from penalty leviable u/s 271(1)(c) of the Act. - penalty not to be levied. - ITA NO. 2051/Del/2010 - - - Dated:- 31-8-2010 - C.L. Sethi, Judicial Member J. And A.K. Garodia, Accountant Member J. N.K. Poddar for the Appellant. Smt. Banita Devi Naorem for the Respondent. ORDER PER C.L. Sethi, Judicial Member. - In this appeal filed by the assessee against the order dated 12.2.2010 passed by the learned CIT(A) in the matter of an order of penalty u/s 271(1)(c ) of the Income-tax Act, 1961 (the Act) pertaining to the Asstt. Year 2006-07, the following grounds have been taken by the assessee,. 1. Whether the ld CIT(A) is right in law and on facts in confirming the order passed by ITO, Ward 14(1), New Delhi upholding the penalty levied u/s 271(1)(c) amounting to Rs.34,95,718 levied by the AO in respect of the disallowance of claim u/s 47(v) of the I.T. Act. Such action of the ld. CIT(A) is completely arbitrary, unjustified unwarranted and illegal. 2. For that there is no finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , M/s Paharpur Cooling Towers Ltd., alongwith directors and their relatives. It was further pointed out by the assessee that there was no change in the shareholding of the company for the past many years, and the shareholders pattern were same as on 31.3.2005 and 31.3.2006. The assessee submitted the list of the shareholders, which is as under: S. No. Shareholder s name Type of shares No. of shares Amount/share 1 Mrs. Sushila Narula Equity 250 10 2 Gopal Raj Swarup Equity 1250 10 3 Balbir Chand Kapoor Equity 310 10 4 Mahendra Swaroop Equity 1000 10 5 Vikram Swaroop Equity 1000 10 6 Gaurav Swaroop Equity 1000 10 7 Vimal Chandra Hoon Equity 630 10 8 Sumer Vaidhya Nath Aiyer Equity 120 10 9 M/s. Paharpur Colling Towers Ltd Equity 1704190 10 10 Ramesh Kumar Shukla Equity 50 10 11 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(17), 2(26) of the Act and Section 4(1) of the Companies Act and keeping in account the distinction between Section 47(iv) and 47(v), the AO rejected the assessee s claim, and brought the sum of Rs.1,03,85,379 to tax as short term capital gain on sale of plant and machinery by the assessee company. 3.5 Against this action of the AO, assessee did not prefer any appeal before the CIT(A), and, thus, the assessment order made by the AO had attained finality on this issue. 3.6 In the course of assessment proceedings, the AO initiated penalty proceedings u/s 271(1)(c ) of the Act by observing that the AO was satisfied that to the extent of the addition of Rs.1,03,85,379 the assessee had furnished inaccurate particulars or concealed its income. 3.7 In reply to the penalty notice issued u/s 271(1)(c ) of the Act by the AO, the assessee vide its letter dated 28.1.2009 submitted that assessee company neither furnished inaccurate particulars of income in its return nor concealed any income as the assessee was under bonafide belief that the short term capital gain arising to the assessee company on transfer of fixed assets to the holding company is not subject to tax by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id the imposition of tax thereon. This view is strengthened by the fact that even after affording sufficient opportunity to the assessee, it failed to furnish the reply to the show cause letter during the course of assessment proceedings. Thus, it becomes abundantly clear case where the assessee failed to substantiate its claim that the transaction with its holding company be not regarded as transfer as contemplated in section 47(v) of the Income-tax Act. If the assessee despite affording them an opportunity to prove the transactions relied on by them for claiming benefit failed to substantiate, then a case for imposition of penalty is certainly made out. In other words, in such circumstances it becomes a case of concealment of true income chargeable to tax. When a wrong claim is made to evade tax and the same is proved to be wrong, as admitted by the assessee itself, then in these circumstances, the assessee is liable for penal provisions of the Act. It is for the reason that it exhibits animus on the part of the assessee in concealing the true income and further exhibits an attempt on the part of the assessee to set up a wrong claim just to avoid payment of legitimate tax which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain arising on transfer of plant and machinery by assessee company to its holding company shall not be regarded as a transfer within the meaning of Section 47(v) of the Act inasmuch as the holding company along with its director s relatives and past employees of the company holds 100% of share capital of the assessee company. The details of the shareholding pattern of the assessee company filed before the AO were also pointed out. It was thus contended that it was a bonafide mistake of the accountant and not a malafide conduct of the assessee to avoid tax or evade the tax liability, and since all the relevant particulars were furnished in the return of income, the assessee has been able to discharge the burden that lay upon it u/s 271(1)( c) of the Act. 6. After considering the assessee s submissions and the penalty order passed by the AO along with the relevant facts and circumstances of the present case, the learned CIT(A) confirmed the penalty by observing and holding as under: 4. I have carefully considered the submission made by the appellant and perused the penalty order passed by the AO. 4.1 Section 47 of the Income tax Act deals with transactions not regarded as tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, are of no help to the appellant. On the contrary Hon ble Madras High Court in the case of CIT vs Tirupati Kumar Khemka (291 ITR 122) held that in economic offences the statutory liability to pay tax is a strict liability where the question of proving beyond the shadow of doubt the existences of bonafide belief does not arise. 4.4 Hon ble High Court of Punjab Haryana in the case of CIT vs Lal Chand Tirath Ram (1997) 225 ITR 675 has observed that to avoid burden of penalty, the assessee should produce cogent and reliable evidence . Similarly, Hon ble High Court of Kerala in the case of CIT vs Gates Foam and Rubber Co. (1973) 91 ITR 467 has held as under: The rights of an assessee to arrange the matters so as to reduce his tax liability to the minimum does not include a right to conceal his true income or to furnish inaccurate particulars of his income before the taxing authorities. 4.5 The jurisdictional High Court of Delhi in the case of CIT vs Escorts Finance Ltd. (2009) 226 CTR(Del) 105, has held that where deduction u/s 35D is claimed which was not admissible, is not a bonafide error and levy of penalty was upheld. Hon ble Supreme Court in Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is a fit case for levy of penalty u/s 271(1)(c ) of the I.T. Act, The AO was fully justified in levying penalty u/s 271(1)( c). I, therefore, uphold the order of the AO and confirm the penalty levied by him. Ground Nos. 1 to 8 are rejected. 7. Still aggrieved, the assessee is in appeal before us. 8. The learned counsel for the assessee has narrated the material facts giving rise to the penalty levied by the AO u/s 271(1)(c ) of the Act. After narrating material facts and the circumstances under which the assessee did not bring the shortterm capital gain on sale of fixed assets to holding company, to tax, the learned counsel for the assessee submitted that in para 4(i)(c ) of the auditor s report read with Notes on Accounts (iv) appearing as Schedule 21, forming part of the audit report, all the facts relating to transfer of plant and machinery by assessee company to its holding company for and aggregate consideration of Rs.1,55,29,500 as against the book value of Rs.2,17,54,921, resulting into a book loss of Rs.62,25,421, which has been charged to profit and loss account, has been fully and duly set out, and an opinion has been given by the auditor that the short term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable under the provisions of Section 47(v) of the Act, and, therefore, the question of levying penalty u/s 271(1)( c) does not arise. In this connection, the learned counsel for the assessee relied upon the decision of the Hon ble Supreme Court in the case of Reliance Petroproducts P. Ltd. (2010) 322 ITR 158 (SC) along with the following decisions: 1. Yogesh R. Desai vs ACIT, ITAT Mumbai (2010) 38 DTR(Mum)(Trib) 101. 2. T. Ashok Pai vs CIT (2007) 292 ITR 11 (SC). 3. Union of India vs Dharmendera Textiles (2008) , 306 ITR 277 (SC) 4. Union of India vs Rajasthan Spinning Weaving Mills,23 DTR (SC) 158. 10. The learned DR, on the other hand, submitted that since whole of the share capital of the assessee company was not held by the holding company i.e Paharpur Cooling Towers Ltd. as per requirement of Section 47(v)(a) of the Income-tax Act, the benefit of Section 47(v) was not prima facie available to the assessee company, and no person of common prudent knowledge would have made such a claim in the return of income when it was clear that only 99.64% of shares were only held by holding company making the case being not covered by Section 47(v) of the Act. It was, thus, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny person has concealed particulars of his income or has furnished inaccurate particulars of such income. Explanation 1 to Sub section (1) to Section 271 of the Act provides that where in respect of any facts material to the computation of the total income of any person, such person fails to offer an explanation or offers an explanation which is found to be false or he offers an explanation, which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of its total income, have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of clause (c ), be deemed to represent the income in respect of which particulars have been concealed. Thus, in the case of failure of the assessee to offer any explanation or explanation furnished by him being found false, penalty may be imposed on him. However, if the assessee offers an explanation, mere failure on his part to substantiate it will not be enough to warrant penalty, if the explanation is bonafide, and all the facts relating to the same were dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged to profit and loss account as a loss on sale of fixed assets. As a result of the said transfer of plant and machinery, the manufacturing and conversion activities of Sahibabad plant of the assessee company had ceased functioning w.e.f. October, 2005. In the Schedule 18 attached to and forming part of accounts, the assessee has given details of manufacturing and other expenses amounting to Rs.456.36 lacs, which include loss on sale of fixed assets amounting to Rs.62.25 lacs. The assessee got its accounts audited u/s 44AB of the Income-tax Act, 1961 and an audit report to that effect was furnished along with the return of income. In Annexure 2 to form No.3 CD of audit report, the assessee has furnished particulars of depreciation allowable as per the Income-tax Act. In the said Annexure 2, at the bottom, it has been mentioned and stated that during the year the company has transferred plant and machinery to its holding company for a total consideration of Rs.1,55,29,500/- for which the WDV as per the Income-tax Act is Rs.51,44,121/- and the difference of Rs.1,03,85,379/-, being short term capital gain has not been considered in the income-tax return in view of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of Section 45 of the Income-tax Act inasmuch as the assessee s case is covered by provisions contained in Section 47(v) of the Act. 15. Now, the question arises as to whether view of the auditor can be considered to be a bonafide basis upon which the assessee has made a claim in the return of income that short term capital gain arising on transfer of plant and machinery to its holding company is not taxable. In this connection, we find it appropriate to have a look to the provisions contained in Section 47(v) of the Act, which reads as under: 47. Nothing contained in Section 45 shall apply to the following transfers:- (i) to (iv) . (v) any transfer of a capital asset by a subsidiary company to the holding company, if (a) the whole of the share capital of the subsidiary company is held by the holding company, and (b) the holding company is an Indian company. 16. On perusal of the provisions of Section 47(v) of the Act, it is clear that this section grants exemption in case of transfer of a capital asset as between holding company and wholly owned subsidiary, where the transferee is an Indian company. It provides that nothing contained in Section 45 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y but the share capital was being by the holding company only to the extent of 99.64%. There is not much difference between 100% share capital and 99.64% capital, which is held by the holding company particularly in view of the fact that the balance 0.36% of share capital of assessee company were held by the directors of holding company and their relatives. Therefore, the view taken by the tax consultant could be a plausible one taken to advance the benefit of transfer of assets by subsidiary company to holding company within the meaning of Section 47(v) read with Section 45 of the Act after giving a liberal and wider meaning to Section 47(v) of the Act. The assessee has acted upon the advise given by the auditor in both annual tax report prepared under Companies Act as well as Tax Audit repot prepared under Income tax Act. It is not the case where an opinion was given only at the time of preparing the audit report under Companies Act but it is the case where the opinion was also given by the Tax consultant while preparing the return of income for the assessee. It is thus, a case where the assessee has acted upon the advice given by the tax auditor. 17. Now, the question arises a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Anantharam Veerasignhaiah Co. vs CIT (supra). In the instant case, we find that there is no dispute that the assessee has made the claim of deduction u/s80-O of Rs.14,12,642 on the basis of advice given by his tax consultant. This bona fide belief of the assessee was not controverted by the revenue even at this stage. It is also not the case of the revenue that the assessee has not disclosed complete particulars of his income or the claim made by the assessee is not supported by tax audit report. It is repeatedly held by the courts that when the facts are clearly disclosed in the return of income penalty cannot be levied. Merely because an amount is not allowed or taxed to income, it cannot be said that the assessee had field inaccurate particulars or concealed any income chargeable to tax. Even if some deduction or benefit is claimed by the assessee wrongly but bonafidely and no malafide can be attributed, the penalty would not be levied. This being so and keeping in view that the assessee s explanation that the claim of deduction under section 80-O of Rs.14,12,642 wasclaimed on the basis of advise of the taxconsultant supported by tax audit report was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on advise of the tax consultant, and all the particulars relating to the claim were duly and fully disclosed by the assessee voluntarily during the assessment proceedings. We are, therefore, of the view that though the penalty proceedings u/s 271(1)(c) is a civil liability and the revenue is not required to prove willful concealment on the part of the assessee, the assessee has been able to discharge its burden that lay upon it under the provisions of Explanation 1 to Section 271(1)(c) of the Act inasmuch as the assessee has been able to make out a case that the claim has been made bonafidely on the basis of legal advise and all the particulars thereto were duly and fully disclosed by the assessee, and, therefore, mere because the assessee s claim has been rejected under the provisions of law that by itself cannot be a basis to levy penalty u/s 271(1)(c) of the Act. 20. In this connection, we may rely upon the decision of Hon ble Supreme Court in the case of ACIT vs Reliance Petroproducts P. Ltd., where it has been held that so long as assessee has not concealed any material fact or the factual opinion given by him has not found to be incorrect, he will not be liable to impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by it could be claimed as revenue expenditure. It was also not the case of the assessee that deduction of income-tax paid by it was a debatable issue. No advise was claimed by the assessee even with respect to the amount claimed as deduction on account of certain equipment have not become useless and have not written off. It was also not the case of the assessee that it was under a bonafide belief that these two amounts can be claimed as revenue expenditure. In that case, the assessee, in fact, out rightly conceded before the AO that these amounts could not have been claimed as revenue deduction and the only plea taken by the assessee was that it was due to oversight. The Hon ble High Court did not accept the case of the assessee that the claim was made due to oversight in the absence of any legal advise given by any auditor or other tax expert that such claim could be made. However, in the present case, the assessee has been able to establish that the claim of exemption u/s 47(v) of the Act has been made on the basis of the legal advise given by the Tax Auditor/Tax Consultant. The assessee has also explained that the circumstances under which the assessee entertained a bonafid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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