Advent Computer Services Ltd, Chennai V. ACIT, Company Ward 1(1), Chennai

ITA 222/CHNY/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3664 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 17-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Cost of acquisition; Capital Gains

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI , . , & BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.222/CHNY/2018 ( / ASSESSMENT YEAR: 2007-08) M/S. ADVENT COMPUTER SERVICES LTD., C/O.M/S. ANIL NAIR ASSOCIATES CASA BLANCA, 1 ST FLOOR,11,CASA MAJOR ROAD. EGMORE, CHENNAI-600 008. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY WARD-1(1), CHENNAI-600 034. PAN:AACEA 0326L ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR,ADVOCATE /RESPONDENT BY : MR. AR.V.SREENIVASAN , ADDL.CIT /DATE OF HEARING : 27.10.2020 /DATE OF PRONOUNCEMENT : 10 .11.2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-4, CHENNAI DATED 28.11.2017 AND PERTAINS TO ASSESSMEN T YEAR 2007- 08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT BY THE ASSESSING OFFICER. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE APPRECIATED THAT OMISSION OF INCLUSION OF CAPITAL GAIN ON 2 ITA NO.222/CHNY/2018 TRANSFER OF SHARES THAT TOO ARISING OUT OF A BO OK ADJUSTMENT WAS PURELY INADVERTENT AND ACCIDENTAL AND NOT DE LIBERATE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE APPRECIATED THAT APPELLANT HAD NO INTENTION AND NO INCENTIVE TO CONCEAL THE CAPITAL GAIN ON TRANSFER OF SHARES I NASMUCH AS THE APPELLANT HAD HUGE CARRIED FORWARD LOSS AND CONSEQUENTLY THERE WAS NO TAX IMPACT. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE CONSIDERED FROM THE BEHAVIOUR AND CONDUCT OF THE A PPELLANT DURING AND AFTER ASSESSMENT PROCEEDINGS THAT OMISS ION WAS PURELY INADVERTENT AND NOT DELIBERATE OR BY NEGLECT . 5. THE STATUTORY PROCESS FOR LEVY OF PENALTY HAS N OT BEEN SATISFIED AND THAT THE NOTICE FOR LEVY OF PENAL TY IS VOID AB INITIO. 6 . THE LEVY OF PENALTY OUGHT TO BE CANCELLED ON TH E GROUND THAT NOTICE DATED 30.11.2009 SEEKING SHOW CAUSE U/S.274 R.W.S 271 OF THE ACT IS FUNDAMENTALLY DEFECTIVE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED ITS RETURN OF INCOME ON 28.10.2007 DECLARING TOTAL LOSS AT RS .8,12,979/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEES INVESTMENTS HAVE CO ME DOWN FROM 25 LAKHS AS ON 31.03.2006 TO NIL AS ON 31.03.2007 , BUT THE ASSESSEE HAS NOT ADMITTED ANY CAPITAL GAINS ON TRAN SFER OF INVESTMENTS, THEREFORE CALLED UPON THE ASSESSEE TO EXPLAIN AND FILE NECESSARY DETAILS IN RESPECT OF REDUCTION IN VALUE OF INVESTMENTS. IN RESPONSE, THE ASSESSEE STATED THAT IT HAS TRANSFE RRED ITS 3 ITA NO.222/CHNY/2018 INVESTMENTS TO MR. ARIF B.REHMAN, FOUNDER / DIRECTO R OF M/S. ITHEORIES BUSINESS FACTORY INDIA PVT. LTD., TO SET TLE ITS OUTSTANDING LIABILITY OF RS.50,94,386/- IN PURSUANT TO THE ORDE R PASSED BY THE HONBLE HIGH COURT OF MADRAS. THE ASSESSING OFFICER BY TAKING NOTE OF THE ABOVE FACTS WAS OF THE OPINION THAT THE ASS ESSEE OUGHT TO HAVE COMPUTED CAPITAL GAIN FROM TRANSFER OF SHARES, AND HENCE, COMPUTED LONG TERM CAPITAL GAIN OF RS.23,91,261/- A FTER REDUCING INDEXED COST OF ACQUISITION OF SALE OF RS.27,03,125 /-. SUBSEQUENTLY, PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT WAS IN ITIATED AND CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY PENAL TY SHALL NOT BE LEVIED FOR CONCEALMENT OF INCOME. IN RESPONSE, TH E ASSESSEE CONTENDED THAT IT HAS NEITHER CONCEALED PARTICULARS OF INCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME, BUT OMI TTED TO INCLUDE LONG TERM CAPITAL GAIN IN THE RETURN OF INCOME FOR THE YEAR BY INADVERTENT MISTAKE AND HENCE THE SAME CANNOT BE C ONSIDERED AS CONCEALMENT OF INCOME TO LEVY PENALTY U/S. 271(1)(C ) OF THE ACT. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLAN ATION OF THE ASSESSEE AND ACCORDING TO HIM, THE ASSESSEE HAS CO NCEALED THE PARTICULARS OF INCOME IN RESPECT OF LONG TERM CAPI TAL GAIN DERIVED FROM TRANSFER OF SHARES, EVEN THOUGH THE SAID TRANS ACTIONS GENERATE 4 ITA NO.222/CHNY/2018 LONG TERM CAPITAL GAIN . THE ASSESSING OFFICER FURT HER REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UOI VS. DHARMENDRA TEXTILES (2008) (306 ITR 277) OBSERVED THAT PENALTY U/S.271(1)(C) IS A CIVIL LIABILITY AND WILFUL CONCE ALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING SUCH LIABILITY , ACCORDINGLY REJECTED THE EXPLANATION FURNISHED BY THE ASSESSEE AND LEVIE D PENALTY OF RS.5,36,600/- WHICH IS AT 100% OF THE TAX SOUGHT TO BE EVADED. 4. BEING AGGRIEVED BY THE PENALTY ORDER, THE ASSES SEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). BEFORE THE LEA RNED CIT(A), THE ASSESSEE REITERATED ITS ARGUMENTS TAKEN BEFORE THE ASSESSING OFFICER ALONG WITH CERTAIN JUDICIAL PRECEDENTS, IN CLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. PRICE WATERHOUSE COOPERS PVT. LTD. VS. CIT (2012) 348 ITR 306. THE LEARNED CIT(A), AFTER CONSIDERING THE RELEVANT FACTS AND ALSO BY FO LLOWING CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF JCIT VS. SAHELI LEASING & IN DUSTRIES LTD. IN CIVIL APPEAL NO.4278 OF 2010 ARISING OUT OF SLP(C) NO. 5241 OF 2007 HELD THAT THE CONTENTION OF THE ASSESSEE THAT IT HAS INADVERTENTLY MISSED OUT TO REFLECT THE AMOUNT OF CAPITAL GAINS IN 5 ITA NO.222/CHNY/2018 THE RELEVANT RETURN OF INCOME IS NOT FOUND TENABLE . FURTHER, THERE HAS BEEN SERIES OF EVENTS WHICH ULTIMATELY RESULTED IN TRANSFER OF THE IMPUGNED SHARES TO MR. ARIF B.REHMAN AND FURTHER TH E SAME HAS RESULTED INTO LONG TERM CAPITAL GAIN. ALTHOUGH T HE ASSESSEE IS AWARE OF TRANSFER OF SHARES, BUT FAILED TO REPORT T HE SAID TRANSACTION IN THE RETURN OF INCOME FILED FOR THE RELEVANT YE AR AND HENCE THE ARGUMENTS OF THE ASSESSEE THAT IT HAD INADVERTENTLY OMITTED TO INCLUDE THE LONG TERM CAPITAL GAIN DERIVED FROM TRA NSFER OF SHARES CANNOT BE ACCEPTED. THE LEARNED CIT(A) HAS ALSO NEG ATED ANOTHER ARGUMENTS TAKEN BY THE ASSESSEE THAT WHEN THERE IS NO DEMAND OF TAX CONSEQUENT TO DETERMINATION OF CAPITAL GAINS AFTER ADJUSTMENT OF CARRIED FORWARD LOSS, PENALTY U/S.271(1)(C) OF THE ACT CANNOT BE IMPOSED BY HOLDING THAT EVEN IF THE RETURNED INCOME IS IN LOSS, THE PENALTY FOR CONCEALMENT OF INCOME CAN BE LEVIED AND THIS WAS SUPPORTED BY THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF JCIT VS. SAHELI LEASING & INDUSTRIES LTD. (SUP RA). THE LEARNED CIT(A) ALSO DISTINGUISHED THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF M/S. PRICE WATERHOUSE COOPERS PVT. L TD. VS. CIT (SUPRA) AND HELD THAT FACTS OF THOSE CASE ARE ENTI RELY DIFFERENT, WHERE THE ASSESSEE HAS REPORTED THE PAYMENT OF GRAT UITY IN THE TAX 6 ITA NO.222/CHNY/2018 AUDIT REPORT BUT OMITTED TO ADD BACK IN THE STATEM ENT OF TOTAL INCOME. UNDER THOSE FACTS, THE HONBLE COURT CAME T O A CONCLUSION THAT BECAUSE OF HUMAN ERROR ON THE PART OF THE ASSE SSEE, THE RELEVANT DISALLOWANCES WAS NOT ADDED BACK TO THE TO TAL INCOME. IN THIS CASE, THERE HAS BEEN SERIES OF EVENTS INCLUDIN G ORDER OF THE HONBLE HIGH COURT BEFORE THE SHARES COULD BE TRANS FERRED TO ANOTHER PERSON AND HENCE ARGUMENTS OF THE ASSESSEE THAT THERE IS NO ELEMENT OF DELIBERATE CONCEALMENT OF INCOME CANN OT BE ACCEPTED AND ACCORDINGLY CONFIRMED THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S.271(1)(C) OF THE ACT. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US . 5. LEARNED A.R FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT OMISSION OF INCLUSIO N OF CAPITAL GAIN ON TRANSFER OF SHARES, THAT TOO ARISING OUT OF BOOK ADJUSTMENT WAS PURELY INADVERTENT AND ACCIDENTAL AND THE SAME CANN OT BE CONSIDERED AS DELIBERATE CONCEALMENT OF PARTICULARS OF INCOME . THE LEARNED A.R FURTHER SUBMITTED THAT THE ASSESSEE NE VER HAD AN INTENTION AND NO INCENTIVE TO CONCEAL THE CAPITAL G AINS INASMUCH AS THE ASSESSEE HAD HUGE CARRIED FORWARD LOSS AND CON SEQUENTLY 7 ITA NO.222/CHNY/2018 THERE WAS NO TAX IMPACT, EVEN IF THE CAPITAL GAIN IS REPORTED ON TRANSFER OF SHARES. THE LEARNED A.R FURTHER SUBMITT ED THAT THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE BEHAVIO R AND CONDUCT OF THE ASSESSEE DURING AND AFTER THE ASSESSMENT PRO CEEDINGS THAT OMISSION WAS PURELY INADVERTENT AND NOT DELIBERATE OR BY NEGLECT. 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTING T HE ORDER OF THE LEARNED CIT(A) SUBMITTED THAT MENS REA IS NOT ESSENTIAL FOR CIVIL LIABILITY AND FURTHER PENALTY PROCEEDINGS U/S.271( 1)(C) OF THE ACT IS CIVIL LIABILITY AND THE ELEMENT OF WILFUL CONCEAL MENT IS NOT REQUIRED TO BE LOOKED INTO FOR LEVY OF PENALTY. HE FURTHER A RGUED THAT WHAT IS TO BE SEEN IS WHETHER THERE IS CONCEALMENT OF INCOME W HICH RESULTED IN ENHANCEMENT OF RETURNED INCOME OR REDUCTION OF RETU RNED LOSS. ONCE THERE IS AN ELEMENT OF INCREASE IN INCOME OR REDUC TION IN LOSS, AS PER EXPLANATION 4(A), PENALTY U/S.271(1)(C) OF THE ACT CAN BE LEVIED. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD ALONG WITH CASE LAWS CITED BY BOTH PARTIE S AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT ASSESSEE HAS NOT REPORTED CAPITAL GAIN DERIVED F ROM TRANSFER OF 8 ITA NO.222/CHNY/2018 EQUITY SHARES IN PURSUANT TO THE DIRECTION OF THE H ONBLE HIGH COURT OF MADRAS FOR AMALGAMATION OF M/S. I THEORIES BUSI NESS FACTORY INDIA PVT. LTD., WITH THE ASSESSEE COMPANY, EVEN TH OUGH THE SAID TRANSACTIONS RESULTED INTO LONG TERM CAPITAL GAIN OF RS.23,91,261/-. THE CONTENTION OF THE ASSESSEE IS THAT BECAUSE OF BOOK ADJUSTMENT THERE BEING NO MONETARY CONSIDERATION FOR TRANSFER OF SHARES, AND HENCE, IT WAS INADVERTENTLY OMITTED TO INCLUDE LO NG TERM CAPITAL GAIN DERIVED FROM TRANSFER OF SHARES IN THE RETURN OF INCOME FILED FOR RELEVANT YEAR AND SUCH A MISTAKE IS PURELY HUMAN ERROR WITHOUT ANY DELIBERATE ATTEMPT TO EVADE PAYMENT OF TAXES WHICH IS EVIDENT FROM THE FACT THAT EVEN AFTER COMPUTATION OF LONG TERM CAPITAL GAIN, THE ASSESSED INCOME FOR THE YEAR WAS NIL. WE HAVE GONE THROUGH THE ARGUMENTS OF THE ASSESSEE IN LIGHT OF THE FAC TS BROUGHT OUT BY THE AUTHORITIES INCLUDING LEARNED CIT(A) AND FOUN D THAT THE ASSESSEE HAS TRANSFERRED ITS INVESTMENTS IN SHAR ES IN PURSUANT TO THE DIRECTIONS OF THE HON'BLE HIGH COURT OF MADRAS FOR AMALGAMATION OF M/S. ITHEORIES BUSINESS FACTORY IND IA PVT. LTD., WITH THE ASSESSEE COMPANY TO SETTLE THE OUTSTAN DING DUES PAYABLE TO MR. ARIF B.REHMAN FOR RS.50,94,386/-. THE SAID TRANSACTION IS A BOOK ADJUSTMENT WITHOUT THERE BE ING ANY MONETARY 9 ITA NO.222/CHNY/2018 CONSIDERATION FOR TRANSFER OF EQUITY SHARES. FROM T HE ABOVE, ONE CAN INFER THAT EXPLANATION FURNISHED BY THE ASSESSEE TH AT BY INADVERTENT MISTAKE AND HUMAN ERROR, THE CAPITAL GAIN DERIVED FROM TRANSFER OF EQUITY SHARES HAS NOT BEEN REPORTED IN THE RETURN O F INCOME FILED FOR THE RELEVANT YEAR APPEARS TO BE BONAFIDE. HAD IT BEEN THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS RECEI VED CONSIDERATION FOR TRANSFER OF EQUITY SHARES AND YET NOT REP ORTED CAPITAL GAIN FROM TRANSFER OF SHARES IN THE RETURN OF INCOME, T HEN OBVIOUSLY EXPLANATION FURNISHED BY THE ASSESSEE CANNOT BE HE LD TO BE BONAFIDE. IT IS QUITE POSSIBLE WHEN A TRANSACTION IS SETTLED BY BOOK ADJUSTMENT THAT TOO ON THE DIRECTION OF HON'BLE HIG H COURT, THERE IS EVERY POSSIBILITY TO HAVE AN UNDERSTANDING THAT PAR TICULAR TRANSACTION CANNOT LEAD TO TAX. MOREOVER, IN THE INSTANT CASE, EVEN AFTER COMPUTATION OF LONG TERM CAPITAL GAIN FROM TR ANSFER OF EQUITY SHARES THE ASSESSED INCOME FOR THE IMPUGNED YEAR RE SULTS INTO NET LOSS. THUS, FROM THE ABOVE, WE ARE OF THE CONSIDE RED VIEW THAT THERE IS NO DELIBERATE ATTEMPT FROM THE ASSESSEE TO CONCEAL PARTICULARS OF INCOME OR EVADE PAYMENT OF TAXES. T HEREFORE, THE EXPLANATION FURNISHED BY THE ASSESSEE THAT IT WAS BY INADVERTENT MISTAKE OMITTED TO INCLUDE LONG TERM CAPITAL GAIN D ERIVED FROM 10 ITA NO.222/CHNY/2018 TRANSFER OF SHARES IN THE RETURN OF INCOME IS BON AFIDE AND FOR THIS LIABILITY CANNOT BE FASTENED U/S.271(1)(C) OF THE ACT. THE LEARNED CIT(A) WITHOUT APPRECIATING THESE FACTS SIMPLY CONF IRMED THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S.271(1)(C) OF T HE ACT. HENCE, WE REVERSE THE FINDINGS OF THE LEARNED CIT(A) AND DIRE CT THE ASSESSING OFFICER TO DELETE THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2020 SD/- SD/- ( ) ( . ) (MAHAVIR SINGH) (G . MANJUNATHA ) / VICE-PRESIDENT $ / ACCOUNTANT MEMBER & /CHENNAI, ' /DATED 10 TH NOVEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .