Mere change in head of income not attracts concealment penalty

Brief of the Case

Bombay High Court held In the case of CIT vs. Shri. Hiralal Doshi that in the case of M/s. Bennett Coleman and Co. Ltd (Income Tax Appeal (L) No.2117 of 2012 rendered on 26th February, 2013, it was held that where complete disclosure of income had been made in the return of income and head of the income undergoes a change at the hands of the Assessing Officer would not by itself justify the imposition of penalty under Section 271(1) (c). In the present case, CIT (A) and the Tribunal concurrently held that the assessee had disclosed an amount of Rs.1.62 Crores in the original return by crediting the same to its capital account being Long Term Capital Gain on the sale of share. Thus, the assessee was under bonafide belief that the income from long term capital gain was exempt from tax. The assessee had not concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of income. Hence penalty u/s 271(1)(c) is not maintainable.

Facts of the Case

The Assessee filed a return of income on 31st October, 2006 declaring a total income of Rs.9.69/- lakhs. In its return of income, as filed an amount of Rs.1.62 Crores was credited to its capital account being Long Term Capital Gain on sale of shares. However, no income on account of the above was offered for taxation. Thereafter, on 5th October, 2007, during a course of survey, the assessee declared additional income of Rs. 5 Crores which included an amount of Rs.1.62 Crores for Assessment Year 2006-07 which had not been returned as income being long term capital gains in view of exemption claimed under Section 10(38).

Subsequently the assessee filed a revised return of income , wherein an amount of Rs.1.62 Crores was returned as part of income totally aggregating to Rs.1.72 Crores. On 25th November, 2008, the Assessing Officer completed the assessment proceedings under Section 143(3) determining a total income at Rs.1.74 Crores. The Assessment order also initiated penalty proceeding under Section 271(1) (c), for claiming incorrect exemption.

Contention of the Revenue

The ld counsels of the revenue submitted that the justification by the Assessee of having made the disclosure of Rs.1.62 Crores as business income when originally claimed as capital gain was for the purposes of buying peace is not available as held by the Apex Court in Mak Data P. Ltd v/s Commissioner of Income Tax-II(Civil Appeal No.9772 of 2013 rendered on 30th October, 2013. Further a change of head of income during the assessment proceeding would warrant penalty upon a defaulting assessee if the same has an impact on the tax payable.

He further submitted that the order of the CIT (A) was in breach of principles of natural justice in as much as no remand report was called for by the CIT(A) in respect of the fresh evidence led by the Respondent-assessee before him is not even mentioned in the memo of appeal.

Held by CIT (A)

CIT (A) deleted the penalty on the ground that the amount of Rs.1.62 Crores had been declared as capital gains in the original return of income. Besides inter-alia noting in the order that It is also pertinent to note that all details relating the transactions have been duly disclosed in the return of income. Further the order of the CIT (A) observes that during the course of proceeding before him sufficient evidence in the form of brokers note, copy of balance-sheet, copy of Demat account, evidence of payment for shares etc has been produced in support of the transaction for him to prima facie conclude that the amount of Rs.1.62 Crores appears to be attributable to Long Term Capital Gain.

Held by ITAT

ITAT upheld the findings of the CIT (A) holding the same to be reasonable. In particular, the impugned order records the fact that the assessee had disclosed its income of Rs.1.62 Crores but had claimed the same to be a capital gain which is exempt. The impugned order further holds that as the particulars of income had been disclosed in the return of income, the levy of penalty under Section 271(1) (c) was not justified. In support it places reliance upon the decision of the Apex Court in Commissioner of Income Tax v/s Reliance Petroleum Products Private Limited reported in 322 ITR 158.

Further it holds that mere change in head of income by the Assessing Officer from that claimed would not attract penalty. In support, reliance was placed upon the decision of this Court in Commissioner of Income Tax v/s M/s. Bennett Coleman and Co. Ltd (Income Tax Appeal (L) No.2117 of 2012 rendered on 26^th February, 2013. The impugned order also records the fact that the amount claimed as long term capital gain under Section 10(38) while filing its regular return of income on 31st October, 2006 was offered as part of business income during survey of proceeding only by to buy peace. In the circumstances, the impugned order upheld the deletion of penalty of the CIT (A).

Held by High Court

High Court held that the facts in the present case as found by the CIT (A) and the Tribunal is that the assessee had disclosed an amount of Rs.1.62 Crores in the original return by crediting the same to its capital account being Long Term Capital Gain on the sale of share. Thus, the Appellant was under bonafide belief that the income from long term capital gain was exempt from tax.

In the case of M/s. Bennett Coleman and Co. Ltd (Income Tax Appeal (L) No.2117 of 2012 rendered on 26th February, 2013, it was held that where complete disclosure of income had been made in the return of income and head of the income undergoes a change at the hands of the Assessing Officer would not by itself justify the imposition of penalty under Section 271(1)(c).

Further CIT (A) reaches a prima facie conclusion that the income could be regarded as long term capital gain. Once the aforesaid conclusion has been reached coupled with two further facts viz. the authorities have rendered a finding of fact that the assessee had not concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of income, the view taken to delete the penalty is a possible view.

In the present fact, the view taken by the CIT (A) as well as the Tribunal is a reasonable and possible view. Nothing has been shown to us to hold that the findings of the CIT (A) and Tribunal were perverse and/or arbitrary warranting any interference by this Court.

Accordingly appeals of the revenue dismissed.