Amit Jain, , New Delhi vs Assessee

Shri Amit Jain, vs ACIT, 7/33, Ansari Road, Circle-30(1), Daryaganj, New Delhi. New Delhi. (PAN: AAEPJ3715H) (Appellant) (Respondent) Appellant by: S/Shri Rakesh Gupta, Adv., Ashwani Taneja,Adv., A.Anand, Adv. Respondent by: Shri P. Daskanunjna DR Date of Hearing: 22.01.2015

PER CHANDRAMOHAN GARG, J.M.

This appeal has been preferred by the assessee against the order of

the CIT(A)-XXV, New Delhi dated 20.4.2010 in Appeal No. 22/08-09 for AY

2005-06 by which the CIT(A) dismissing the first appeal of the asessee

upheld the penalty order dated 25.04.2008 imposing the penalty u/s

271(1)( c) of the Income Tax Act, 1961.

2. The assessee has raised following grounds in this appeal:-

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ITA NO.2874/DEL/2010 ASSTT.YEAR: 2005-06

"1. That the learned Assessing Officer erred in imposing penalty u/s 271 (1)(c) of the Act amounting to RS.5,49,601/-, without initiating the same in accordance with the provisions of the law, as the reading of the Assessment Order does not prove that the Assessing Officer was prima facie satisfied during the course of assessment proceedings with regard to the assessee furnished inaccurate particulars of income of RS.9,23,180/-, i.e., (Rs.1 ,04,72,423/-

minus Rs.95,49,243/-) and therefore the Assessing Officer was not having jurisdiction to impose penalty as held by Honorable Delhi High Court in the case of Madhushree Gupta 317 ITR 107.

2. Without prejudice to the above ground, the learned CIT(Appeals) erred in upholding penalty u/s 271(1)(c) of the Act amounting to RS.5,49,601/-, without appreciating the facts of the case in proper perspective. The learned CIT(Appeals) failed to appreciate that the appellant made simply calculation error with respect to the computation of "Short Term Capital Gain" on sale of shares due to change in the provision of law w.e.f. 1st October, 2004 relevant to the Assessment year under appeal. That the learned CIT(Appeals) failed to appreciate that sale of personal effects like furniture is not taxable under the Income Tax Act and due to ignorance of law, the appellant offered the same for tax and both the lower authorities also considered the said exempted income for the purpose of calculation of penalty.

3. That the Orders of the Assessing Officer & CIT(Appeals) are not based on the facts of the case & as per law and hence penalty sustained by the CIT(Appeals) is totally illegal and the orders of both the Authorities are liable to be quashed."

3. Briefly stated the facts giving rise to this appeal are that the appellant filed

a return of income on 31.3.2006 i.e. last day of the relevant assessment year,

declaring the income of Rs.95,49,243/- on account of short term capital gain and

long term capital gain at Rs.38,55,115/-. The short term capital gain was

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chargeable to tax at 10% and long term capital gain was claimed as exempt

income of the assessee. During the course of the assessment proceedings when

the AO sought the details of purchase and sale of shares on which said capital

gain had been claimed, the assessee filed revised return on 27.2.2007 declaring

income at Rs.1,04,72,423/- and paid additional tax of Rs. 8 lakh. The AO

assessed the income as per revised return and also initiated proceedings u/s

271(1)(c) of the Act against the assessee for furnishing of inaccurate particulars

of its income. After considering the reply of the assessee dated 2.4.2008, the

AO held that the assessee had wilfully concealed its income by filing inaccurate

particulars in the original return of income. The AO further held that the

assessee filed revised return when details were called and in this situation, the

assessee would have gotten away with suppressed income and the AO finally

held that the explanation offered during the penalty proceedings was not

bonafide and, thus, the AO levied penalty amounting to Rs.16,48,803 u/s

271(1)( c) of the Act.

4. Being aggrieved by the above penalty order, the assessee preferred an

appeal before the CIT(A) which was also dismissed by passing the impugned

order. The CIT(A) held that the assessee has merely claimed clerical,

accounting/arithmetical mistake and failed to provide any explanation to

substantiate the same. Therefore, in absence of satisfactory, bonafide

explanation from the assessee in terms of Explanation 1 to section 271(1)( c) of

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the Act, the action of the AO in imposing penalty for furnishing of inaccurate

particulars of income was found to be justified. Now, the empty handed assesee

is before this Tribunal with the grounds as reproduced hereinabove.

5. We have heard arguments of both the sides and carefully perused the

record placed before us, inter alia legal propositions and citations as relied by

both the parties.

6. Ld. Counsel of the assessee placed reliance on the decision of Hon'ble

Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs CIT

(2012) 348 ITR 306 (SC), the decision of Hon'ble Jurisdictional High Court of

Delhi dated 7.10.2013 in ITA 481/2013 CIT vs Arvind Nagpal and decision of

ITAT Delhi Á' Bench dated 31.8.2012 in ITA No. 297/D/2012 for AY 2006-07.

Ld. counsel of the assessee submitted that the only effective issue in the present

appeal is against the levy of penalty of Rs. 5,49,601 u/s 271(1)(c) of the Act as

imposed by the AO on the ground that the assessee furnished inaccurate

particulars of its income inasmuch as income originally offered in the return

was to the tune of Rs.95,49,243/- as against the assessed income of

Rs.1,04,72,423. Ld. counsel further submitted that the AO computed the

difference between the tax on returned income and tax on assessed income and

penalty was accordingly imposed which was confirmed by the CIT(A) by

passing the impugned order. Ld. Counsel vehemently contended that the

assessee, an individual, who was not assisted initially by any professional

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advice filed a revised return correcting the tax payable on short term capital

gain on shares, reclassifying certain short term capital gain attracting 30% tax

rate instead of 10% tax rate originally calculated and upward revising the figure

of long term capital gain and making some other changes in the quantum of

bank interest and dividend income and declaring exempt income on sale of

personal effects as taxable. Ld. counsel has specially drawn our attention

towards this fact that the AO finalised the assessment at the income declared by

the assessee in the revised return and this fact has also not been disputed by the

ld. DR. Ld. Counsel of the assessee submitted that the assessee filed his return

declaring an aggregate short term capital gain of Rs. 95 lakh and paid tax

@10% but subsequently with professional assistance and detailed working, the

assessee has re-classified short term capital gain according to which short term

capital gain attracting 10% tax rate was of Rs.83 lakh and short term capital

gain was to be taxed @30%. Ld. Counsel strenuously contended that all these

errors in quantum proceedings and its reclassification with professional and

specialised assistance was bona fide in view of changed regime of concessional

tax introduced from the middle of the year and the bonafide of the assessee is

evident in the original return. Ld. Counsel has further drawn our attention

towards paper book of the assessee and submitted that the assessee filed detailed

submissions before the CIT(A) explaining his bona fide. Ld. Counsel also

placed additional argument that the assessee cannot be said to have furnished

inaccurate particulars of income to the extent of Rs.95 lakh which was offered 5 ITA NO.2874/DEL/2010 ASSTT.YEAR: 2005-06

to tax in the original return of income as short term capital gain on shares and

therefore, there is no question of imposing any penalty merely for the reason

that the short term capital gain did not contain a portion attracting tax rate of

30%. Ld. Counsel has further drawn our attention towards Form No.2D and

submitted that there is no particular of income which can be said to have been

furnished inaccurately. Thus, there is no question of levying of penalty on the

assessee.

7. Replying to the above, ld. DR supporting the impugned order as well as

the penalty order submitted that there was no merit in the explanation of the

assessee because the assessee escaped from penalty only on submission of a

bonafide explanation in terms of Explanation 1 attached to section 271(1)( c) of

the Act to the satisfaction of the AO. Ld. DR further submitted that the CIT(A)

was quite justified in holding that the assessee has merely claimed

clerical/accounting/arithmetical mistake and failed to provide any explanation to

substantiate the same, therefore, in absence of any satisfactory and bonafide

explanation, the AO had a point to impose penalty for furnishing of inaccurate

particulars of income.

8. On careful consideration of above rival submissions of both the parties, at

the outset, we respectfully take cognizance of the decision of Hon'ble

Jurisdictional High Court of Delhi in the case of CIT vs Arvind Nagpal(supra)

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wherein their lordships referring to the decision of Hon'ble Supreme Court in

the case of Price Waterhouse Coopers Pvt. Ltd. vs CIT (supra) have held thus:-

"19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income.

20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars."

9. Coming to the factual matrix of the present case, we note that the ld. DR

has not disputed this fact that originally the assessee filed his return of income

declaring short term capital gain on shares of Rs.95,49,243/- and long term

capital gain on shares of Rs.38,55,115/- and subsequently, the assessee filed

revised return declaring income of Rs.1,04,72,423 which was accepted by the

AO for the purpose of taxation. This fact has also been noted by the CIT(A) in

the impugned order para 3 at page 2.

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10. We further observe that as per ratio of the decision of Hon'ble

Jurisdictional High Court of Delhi in the case of CIT vs Arvind Nagpal (supra)

wherein it has been held that the calibre and expertise of the assessee has little

or nothing to do with the inadvertent error. Their lordships further held that the

assessee should have been careful. But the absence of due care in a case such as

the present does not mean that the assessee is guilty of either furnishing

inaccurate particulars of attempting to conceal its income. In the present case,

the assessee re-classified the income in the revised return which was filed under

professional advice. From Paper Book page no. 1 and 2 of the assessee, we

observe that the original return was filed showing short term capital gain from

shares amounting to Rs.95,49,243 and paying tax at 10% and long term capital

gain on shares was shown at Rs.38,55,115/- and another long term capital gain

on the sale of plot was initially indexed from the day when previous owners

held the ownership. Subsequently, the revised return (PB page 3 to 5) showing

short term capital gain attracting 10% tax rate of Rs.83,41,776 and long term

capital gain on shares at Rs.43,75,765/- and benefit of indexation in terms of

long term capital gain on the plot from the date on which assessee held it

without sale of furniture and bank interest, dividend etc. being meted out at

different amount and different treatment.

11. From paper book page no. 9 to 13, we observe that the assessee during

penalty proceedings submitted reply dated 19.3.08 and submitted a detailed

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explanation to the situation of inadvertent mistake cropping in the original

return of income and its rectification by way of filing a revised return. Ld.

Counsel of the assessee has drawn our attention towards para 5 of reply dated

19.3.08 (supra) and submitted that by no stretch of imagination it can be held

that explanation offered by the assessee was not bonafide and in this situation,

the assessee cannot be held guilty of filing of inaccurate particulars of its

income or concealment of income.

12. At this juncture, respectfully following the decision of Hon'ble High

Court in the case of Arvind Nagpal (supra), we are inclined to hold that in the

present case, the assessee filed its return of income as an individual without any

professional assistance. Subsequently, the assessee filed a revised return

reclassifying the income and the AO assessed the income of the assessee at the

income declared in the revised return filed on 27.2.2007. The detailed

explanation submitted by the assessee on 2.4.2008 (Paper Book page 9 to 13)

clarify entire facts and circumstances in which original return of income and

revised return of income were filed. We further note that during the course of

assessment proceedings, the assessee submitted detailed justification and

reasons for filing the revised return which were placed on record. We further

note that the reasons offered by the assessee during penalty proceedings on the

same line cannot be held as an afterthought and these submissions support the

existence of bona fide reasons and cause for filing the revised return. We

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further note that the assessment stood framed on the revised return figure itself

which also support the bona fide intention of the assessee. Under the facts and

circumstances as noted above, it cannot be validly held that either the assessee

furnished inaccurate particulars of its income or the assessee has concealed

particulars of its income and thus, penalty u/s 271(1)( c) cannot be imposed.

13. In the instant case, the AO erred in imposing penalty u/s 271(1)(c) of the

Act. We further observe that the CIT(A) also erred in upholding the penalty

because the CIT(A) ignored this fact that the assessee simply made

reclassification wihtout aid of professional in respect of computation of short

term capital gain on sale of shares. We also note that there was a change in the

taxation provisions w.e.f. 1.10.2004 relevant to the assessment year under

consideration and hence, in this situation, return originally filed by the assessee

without professional and expert consultation which was subsequently

substituted by filing revised return and the AO completed the assessment on the

same figure as per revised return of income, therefore, penalty imposed by the

AO and upheld by the CIT(A) is not sustainable in view of Explanation 1

attached to section 271(1)( c) of the Act.

14. On the basis of foregoing discussion, we reach to a logical conclusion

that the assessee filed detailed submissions during assessment proceedings

which prompted him to file a revised return with the assignment of expert and

professional. The assessee also reiterated this explanation and submission

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during penalty proceedings which cannot be held as afterthought and on the

other hand, the same supports the bona fide of the assessee. In this situation, it

cannot be held that the assessee has concealed particulars of his income or

furnished particulars of such income and Explanation 1 to section 271(1)(c) of

the Act does not support the action of the revenue authorities for imposing

penalty on the assessee. Finally, we hold that the AO imposed penalty on the

wrong premise which was upheld by the CIT(A) in ignoring the detailed

explanation and submissions of the assessee filed during quantum proceedings.

The revenue authorities also ignored this important fact that the AO completed

assessment proceedings at the same income which was filed by the assessee in

the revised return and the AO has not brought out any fact to support this

allegation that either the assessee has concealed the particulars of his income or

has furnished inaccurate particulars of such income. Accordingly, ground no. 1,

2 and 3 of the assessee are allowed and penalty is hereby cancelled and the AO

is directed to delete the penalty.

15. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 23.2.2015.

Sd/- Sd/-

(PRAMOD KUMAR) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 23rd February, 2015 'GS'

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Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt. Registrar

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