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ITAT refuses plea of ‘Wrong Legal Opinion’ of Assessee being director of a Company

It was the explanation of assessee that the legal opinion given by the Counsel that there is no capital gain on the STT paid transactions, was not accepted by AO stating that she is a promoter of a company and has a battery of legal advisors and her husband also has legal knowledge.

Smt. V. Sujatha Vs. ITO (ITAT Hyderabad)

It was the explanation of assessee that the legal opinion given by the Counsel that there is no capital gain on the STT paid transactions, was not accepted by AO stating that she is a promoter of a company and has a battery of legal advisors and her husband also has legal knowledge. The explanation for not offering interest income was that she was under the impression that the bank interest was exempt. On the third item of claim u/s. 54F, it was the submission that the investment made was only of capital gain but not net consideration and she got confused with provisions of Section 54 and 54F which had different parameters. AO did not accept.

Held by ITAT

I am of the opinion that penalty proceedings are not attracted on the claim made u/s. 54F. All the particulars regarding the claim was made and it was only the computational mistake which resulted in dis allowance of the claim to an extent of Rs. 20,41,230/-. Mere dis allowance of claim does not attract penalty u/s. 271(1)(c) either as concealment of income or furnishing of inaccurate particulars. Reliance is placed on the decision of the Supreme Court in the case of CIT Vs Reliance Petroproducts Limited [322 ITR 158]. Thus, the penalty u/s. 271(1)(c) on dis allowance of claim partly u/s. 54F cannot be considered for levying of penalty.

Coming to the other two amounts, the explanation of assessee is not bonafide. Assessee was already filing returns in earlier years and has incomes and investments. Assessee invested funds in Port Folio Management. As pointed by AO, she is also a promoter of a company. Thus, the reason of legal counsel opinion is not plausible in the given circumstances. The filing of revised return is not accompanied by payment of relevant tax, as can be seen from the order of AO, where there is no credit for any pre- paid Therefore, I am of the opinion that assessee has concealed the income which was brought to tax under the head ‘Short Term Capital Gain’ on Port Folio Management.

Like-wise, there is no valid reason for not offering the interest income earned in the bank accounts. The claim that bank interest is exempt is not acceptable. Being an income tax assessee earlier also, this reason advanced by assessee is not bonafide. Thus, to the extent of penalty on short term capital gains amount and interest income, the same is confirmed and penalty on the amount of dis allowance u/s. 54F is hereby deleted. AO is directed to re-workout the same accordingly.

Full Text of the ITAT Order is as follows:-

This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-9, Hyderabad, dated 28-01-2016, for the AY. 2008-09 on the penalty u/s. 271(1)(c) of the Income Tax Act [Act] levied and confirmed by Ld.CIT(A) at Rs. 7,01,591/-.

2. Condonation: The appeal was filed with a delay of 55 days. The delay is stated to be misplacement of order by servants, who received the order in her (assessee) absence. Considering the affidavit filed, the delay is condoned.

3. Briefly stated facts are that assessee had invested in Port Folio Management Scheme, which earned a gain of Rs. 19,47,391/-. Since STT was paid, assessee was advised that no capital gain has to be paid. At the time of scrutiny, assessee filed revised return admitting the income, but since the time for filing revised return of income was over, Assessing Officer (AO) lodged and added the same as income in the assessment. AO also found out that assessee did not offer interest income of Rs. 54,161/- earned in the bank a/c. Assessee claimed deduction u/s. 54F at Rs. 1,51,08,028/- being the entire Long Term Capital Gain. AO reworked out the deduction proportionately and restricted the same to Rs. 1,30,66,800/-thereby disallowing the claim to an extent of Rs. 20,41,230/-. All the above three amounts are considered for levy of penalty u/s. 271(1)(c) for concealment of income.

4. It was the explanation of assessee that the legal opinion given by the Counsel that there is no capital gain on the STT paid transactions, was not accepted by AO stating that she is a promoter of a company and has a battery of legal advisors and her husband also has legal knowledge. The explanation for not offering interest income was that she was under the impression that the bank interest was exempt. On the third item of claim u/s. 54F, it was the submission that the investment made was only of capital gain but not net consideration and she got confused with provisions of Section 54 and 54F which had different parameters. AO did not accept.

5. Before the Ld.CIT(A), the same submissions were made and relied on the case law. Ld.CIT(A) did not accept them and dismissed the contentions by stating as under:

“4.2 During the course of the appellate proceedings, the assessee submitted that she has misunderstood the provisions of the IT Act and upon knowing the legal stand she has filed the revised return and paid the taxes and therefore requested for dropping of the penalty proceedings. However; the contentions of the assessee are not acceptable as the non admission of short term capital gain of Rs. 19,47,391, the long term capital gain of Rs. 20,41,230/- and the interest Income of Rs. 54,161/- would not have come to light but for the scrutiny proceedings. Further it is seen from the file that it is only after the department questioned the assessee as per the details contained in AIR data that the assessee came forward with the disclosure. Further, she has also furnished inaccurate particulars with regard to the claim of exemption w/s 54F and has also not disclosed interest income in the return. Therefore, the assessee has clearly concealed the particulars of income by furnishing Inaccurate particulars. I place reliance on the following case laws:

1) Dayabhai Girdharbhai Vs. CIT (Born) 32 ITR 677.

2) CIT Vs Hagi P. Mohammed (Kar) 132 ITR623.

3) Commissioner of Income Tax (P&H) 92 ITR 487.

4) Sadri Prasad Om Prakash vs. CIT (P&H) 163 ITR 440.

5) R. Arulprakasam Vs PremaMalini Vasam, Income Tax Officer (Mod) 1631TR 487.

6) C. Agrwal Vs. CIT (Gauhati) 102 ITR 408.

7) CIT Vs. J.K.A. Subramania Chettiar (Mod) 110 ITR 602.

8) Ravi & Co. Vs ACIT (Mod) 271 ITR 286.

In all the above mentioned cases, it was held that penalty u/s 271 (1)(C) is attracted notwithstanding the fact that the assessee has corrected his return and was accepted by the department. It was further held that when the assessee discovers any omission or wrong statement in the origin Return, he cannot get rid of the penalty by merely filing Revised Return”.

6. Both the parties relied on respective contentions. After considering the same, I am of the opinion that penalty proceedings are not attracted on the claim made u/s. 54F. All the particulars regarding the claim was made and it was only the computational mistake which resulted in dis allowance of the claim to an extent of Rs. 20,41,230/-. Mere dis allowance of claim does not attract penalty u/s. 271(1)(c) either as concealment of income or furnishing of inaccurate particulars. Reliance is placed on the decision of the Supreme Court in the case of CIT Vs Reliance Petroproducts Limited [322 ITR 158]. Thus, the penalty u/s. 271(1)(c) on dis allowance of claim partly u/s. 54F cannot be considered for levying of penalty.

7. Coming to the other two amounts, the explanation of assessee is not bonafide. Assessee was already filing returns in earlier years and has incomes and investments. Assessee invested funds in Port Folio Management. As pointed by AO, she is also a promoter of a company. Thus, the reason of legal counsel opinion is not plausible in the given circumstances. The filing of revised return is not accompanied by payment of relevant tax, as can be seen from the order of AO, where there is no credit for any pre- paid Therefore, I am of the opinion that assessee has concealed the income which was brought to tax under the head ‘Short Term Capital Gain’ on Port Folio Management.

8. Like-wise, there is no valid reason for not offering the interest income earned in the bank accounts. The claim that bank interest is exempt is not acceptable. Being an income tax assessee earlier also, this reason advanced by assessee is not bonafide. Thus, to the extent of penalty on short term capital gains amount and interest income, the same is confirmed and penalty on the amount of dis allowance u/s. 54F is hereby deleted. AO is directed to re-workout the same accordingly.

9. In the result, appeal of assessee partly allowed.

Order pronounced in the open court on 29th November, 2017

Categories: Income Tax
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