PALANI ANDAVAR HOLDINGS P. LTD, MUMBAI V. ITO WD 7(1) (3), MUMBAI

ITA 4792/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55046 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M KUBAL
• Keywords: Capital asset; Bonafide belief
• Section: 115JB; 10B; 12; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4792/MUM/2010 (ASSESSMENT YEAR: 2005-06) M/S. PALANI ANDAVAR HOLDINGS P. LTD. INCOME TAX OFF ICER - 7(1)(3) B/222, BHASKAR BHAVAN MUMBAI SIR BALCHANDRA ROAD, MATUNGA VS. MUMBAI 400019 PAN - AAACP 4779 J APPELLANT RESPONDENT APPELLANT BY: SHRI HARIDAS BHAT RESPONDENT BY: SHRI M. KUBAL DATE OF HEARING: 09.08.2011 DATE OF PRONOUNCEMENT: 30.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XIII, MUMBAI DATED 04.02.2010 CONFIRMING THE PENALTY LEVI ED UNDER SECTION 271(1)(C) BY THE A.O. 2. ASSESSEE HAS RAISED DETAILED GROUNDS CONTESTING LEV Y OF PENALTY AND ITS CONFIRMATION BY THE CIT(A). ASSESSEE IS AN INVESTME NT COMPANY AND FILED RETURN OF INCOME DECLARING LOSS OF ` 24,346/- WHILE OFFERING TAX ON SHORT TERM CAPITAL GAINS EARNED. ASSESSEE HAS LONG TERM CAPITA L GAINS OF ` 87,22,368/- EARNED AFTER 30.09.2004, WHICH WAS CLAIMED AS EXEMP T UNDER SECTION 10(38) OF THE I.T. ACT. IN THE COURSE OF ASSESSMENT PROCEE DINGS THE A.O. WAS OF THE VIEW THAT ASSESSEE SHOULD HAVE OFFERED INCOME UNDER SECTION 115JB AND INVOKING THE PROVISIONS PERTAINING TO NON-EXCLUSION OF INCOMES RELATING TO CLAUSE 10(23G), HE WAS OF THE OPINION THAT THE LONG TERM CAPITAL GAINS OF ` 87,22,368/- WAS NOT TO BE EXCLUDED FROM COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB. THEREFORE, AFTER ISSUING SHOW CAUSE NOTICE TO ASSESSEE AND CONSIDERING THE OBJECTIONS RAISED, BROUGHT THE SAME UNDER COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB AND LEVIED A TAX OF ` 9,29,055/- AS AGAINST ITA NO. 4792/MUM/2010 M/S. PALANI ANDAVAR HOLDINGS P. LTD. 2 ` 3,20,583/- OFFERED BY ASSESSEE ON SHORT TERM CAPITA L GAINS. THE DIFFERENCE OF THE AMOUNT WAS CONSIDERED FOR LEVY OF PENALTY AS ASSESSEE HAS NOT CONTESTED THE ISSUE OF INVOKING SECTION 115JB. 3. IT WAS ASSESSEES SUBMISSION THAT ASSESSEE WAS UND ER THE BONAFIDE BELIEF THAT THE AMOUNT WAS CLAIMED AS EXEMPT UNDER SECTION 10(38) AND NOT UNDER SECTION 10(23G) AND, THEREFORE, THERE IS NO N EED FOR OFFERING THE INCOME UNDER SECTION 115JB AS THE STATUTE INCLUDES ONLY THE AMOUNT CLAIMED UNDER CLAUSE 10(23G). IT WAS HIS SUBMISSION THAT SINCE THE LONG TERM CAPITAL GAIN WAS EXEMPT FROM COMPUTATION OF IN COME BY VIRTUE OF SECTION 10(38) THE SAME ALSO SHOULD BE EXCLUDED IN THE COMPUTATION UNDER SECTION 115JB. THE CIT(A), HOWEVER, DID NOT AGREE A ND CONFIRMED THE PENALTY STATING THAT ASSESSEE HAS FILED INCORRECT PARTICULA RS OF INCOME THEREBY CONCEALING INCOME. HE ALSO RELIED ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ATUL M OHAN BINDAL IN CIVIL APPEAL NO. 5769 OF 2009 WHEREIN IT WAS STATED THAT THE LIABILITY IS CIVIL LIABILITY AND PENALTY IS WARRANTED. 4. CONTESTING THE ABOVE ORDER OF THE CIT(A), IT WAS TH E SUBMISSION OF THE LEARNED COUNSEL THAT FOR THE ASSESSMENT YEAR UNDER QUESTION, I.E. AY 2005- 06 PROVISIONS OF SECTION 115JB DOES NOT EXCLUDES T HE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SEC.10 CLAUSE (23G) APPLIES, IF ANY WHEN SUCH AMOUNT IS CREDITED TO P & L ACCOUNT. HE SUBMITTED T HAT ASSESSEE HAD LONG TERM CAPITAL GAIN, WHICH WAS EXEMPT UNDER SECTION 1 0(38) AND ASSESSEE HAS A BONAFIDE BELIEF THAT THE PROVISIONS OF SECTION 10 (38) ARE EXCLUDED AT THE RELEVANT POINT OF TIME FROM THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB. THE LEARNED COUNSEL DREW THE ATTENTION TO TH E PROVISIONS OF SECTION 115JB AMENDED SUBSEQUENTLY BY WITHDRAWING THE WORDS OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (23G) THEREOF AND I NSERTING OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE 38 THEREOF W.E.F. 0 1.04.2007. THEREFORE, IT WAS HIS SUBMISSION THAT SINCE THE DEDUCTION WAS CLA IMED UNDER SECTION 10(38), THE SAME WAS TO BE EXCLUDED IN THE COMPUTAT ION UNDER SECTION 115JB. THEREFORE, ASSESSEE HAS NOT COMPUTED THE INC OME UNDER SECTION 115JB. IT WAS SUBMITTED THAT ASSESSEE WAS UNDER THE BONAFIDE BELIEF THAT IT WAS NOT COVERED BY PROVISIONS OF SECTION 115JB BUT WHEN THE A.O. ISSUED ITA NO. 4792/MUM/2010 M/S. PALANI ANDAVAR HOLDINGS P. LTD. 3 SHOW CAUSE NOTICE, ON THE ADVICE GIVEN THEN, ASSESS EE ACCEPTED EVEN THOUGH THE PROVISIONS DOES NOT REQUIRE IT TO DO SO. IT WAS SUBMITTED THAT JUST BECAUSE THE AMOUNTS WERE COVERED BOTH BY PROVISIONS OF SECTION 10(23G) AND 10(38), PENALTY CANNOT BE LEVIED AS ASSESSEE WA S UNDER THE BONAFIDE BELIEF THAT THE AMOUNTS ARE EXEMPT UNDER SECTION 10 (38). HE ALSO REFERRED TO THE ORDER OF THE A.O. WHEREIN THE SAID AMOUNT WAS E XEMPTED UNDER SECTION 10(38) IN REGULAR COMPUTATION. 5. THE LEARNED D.R., HOWEVER, SUBMITTED THAT PROVISION S OF SECTION 115JB DOES NOT EXCLUDE THE INCOMES EARNED AND CLAIMED UND ER SECTION 10(23G) AND ASSESSEES INCOMES OF LONG TERM CAPITAL GAIN ON SALE OF SHARES IVRCL INFRASTRUCTURES PROJECTS LTD. WERE ALSO EXEMPT UNDE R SECTION 10(23G). THEREFORE, A.O. WAS CORRECT IN INVOKING PROVISIONS OF SECTION 115JB. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS NOT COMPUTED IN COME UNDER SECTION 115JB IN THE RETURN FILED AND THEREFORE, A.O. WAS C ORRECT IN LEVYING PENALTY. 6. WE HAVE CONSIDERED THE ISSUE. ASSESSEE IS AN INVEST MENT COMPANY AND HAS SOLD SHARES IN IVRCL INFRASTRUCTURE PROJECT S LTD. THEREBY EARNING LONG TERM CAPITAL GAIN OF ` 87,22,368/-. ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10(38) AS PER THE PROVISIONS OF I.T. ACT. W HILE GRANTING DEDUCTION UNDER SECTION 10(38) A.O., HOWEVER, WAS OF THE VIEW THAT THE SAID IVRCL INFRASTRUCTURE PROJECTS LTD. BEING INFRASTRUCTURAL COMPANY, THE AMOUNT WAS ALSO COVERED BY PROVISIONS OF SECTION 10(23G). THER EFORE, THIS AMOUNT CANNOT BE EXCLUDED FOR COMPUTATION UNDER SECTION 115JB AND TO THAT EXTENT HE RECOMPUTED THE DEDUCTION AND LEVIED TAX UNDER SECTI ON 115JB. 7. THE ISSUE BOILS DOWN TO WHETHER THE SAID ACTION OF THE A.O. GIVES RISE TO PENALTY UNDER SECTION 271(1)(C). WE ARE OF THE O PINION THAT DOES NOT ATTRACT PENALTY PROCEEDINGS. THE REASON BEING THAT AT THE RELEVANT POINT OF TIME PROVISIONS OF SECTION 115JB WHILE COMPUTING BO OKS PROFIT AS PER EXPLANATION WAS AS UNDER: - 115JB EXPLANATION.FOR THE PURPOSES OF THIS SECTION, BOO K PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS IN CREASED BY (A). (B) ITA NO. 4792/MUM/2010 M/S. PALANI ANDAVAR HOLDINGS P. LTD. 4 (C) (D) (E) (F).. IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (F) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY (I) . (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 [(OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (23G) THEREOF)] OR SECTION 10A OR SECTION 10B OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR [(III) . (IV). (V). (VI).. (VII).. 8. AS CAN BE SEEN FROM THE ABOVE (II) OF EXPLANATION T O SECTION 115JB, THE AMOUNT TO BE REDUCED IS THE AMOUNT OF INCOME TO WHI CH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS (23G) THEREOF) OR ANY SUCH AMOUNT IS CREDITED TO THE P & L ACCOUNT. THERE IS N O DISPUTE WITH REFERENCE TO THE AMOUNT CREDITED TO THE P & L ACCOUNT OF LONG TERM CAPITAL GAIN OF ` 87,22,368/-. THERE IS ALSO NO DISPUTE THAT ASSESSEE HAS NOT CLAIMED DEDUCTION UNDER SECTION 10(23G). ASSESSEES CLAIM W AS WITH REFERENCE TO SECTION 10(38). AT THE RELEVANT POINT OF TIME PROVI SIONS OF SECTION 10(38) WAS ALSO PART OF SECTION 10 BY VIRTUE OF ITS INSERTION W.E.F 01.04.2005. PROVISIONS OF SECTION 10(38) ARE AS UNDER: - 10 .. ( 38 ) ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TE RM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND WHERE ( A ) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR U NIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO.2) ACT, 2004 COMES INTO FORCE; AND ( B ) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRAN SACTION TAX UNDER THAT CHAPTER. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, EQUITY ORIENTED FUND MEANS A FUND ITA NO. 4792/MUM/2010 M/S. PALANI ANDAVAR HOLDINGS P. LTD. 5 ( I ) WHERE THE INVESTIBLE FUNDS ARE INVESTED BY WAY OF EQUITY SHARES IN DOMESTIC COMPANIES TO THE EXTENT OF MORE THAN FIFTY PER CENT OF THE TOTAL PROCEEDS OF SUCH FUND; AND ( II ) WHICH HAS BEEN SET UP UNDER A SCHEME OF A MUTUAL FUND SPECIFIED UNDER CLAUSE ( 23D ) : PROVIDED THAT THE PERCENTAGE OF EQUITY SHAREHOLDING OF THE FUND SHALL BE COMPUTED WITH REFERENCE TO THE ANNUAL AVER AGE OF THE MONTHLY AVERAGES OF THE OPENING AND CLOSING FIGURES . ] 9. AT THE RELEVANT POINT OF TIME BOTH SECTION 10(23G) AND SECTION 10(38) ARE ON THE STATUTE AS PART OF SECTION 10. PROVISION S OF SECTION 115JB ONLY EXCLUDES INCOME CLAIMED UNDER SECTION 10(23G) BUT N OT 10(38). THE RELEVANT AMENDMENT TO THE PROVISIONS WAS BROUGHT OUT W.E.F. 01.04.2007 WHEREIN REFERENCE TO CLAUSE (23G) WAS OMITTED AND CLAUSE (3 8) WAS INSERTED THEREBY NOT EXCLUDING LONG TERM CAPITAL GAIN, CLAIMED AS EX EMPT UNDER SECTION 10(38), BECAME PART OF COMPUTATION OF BOOK PROFIT U NDER SECTION 115JB. HOWEVER, THIS AMENDMENT WAS EFFECTIVE FROM 01.04.20 07 AND NOT FOR THE RELEVANT ASSESSMENT YEAR. IN VIEW OF THIS, THERE CA N BE A BONAFIDE BELIEF THAT THE AMOUNT CLAIMED AS EXEMPT UNDER SECTION 10(38) W AS NOT TO BE INCLUDED WHILE COMPUTING INCOME UNDER SECTION 115JB. ASSESSE E ALSO HAD NOT CLAIMED THE DEDUCTION UNDER SECTION 10(23G) ON THIS AMOUNT. WHEN A.O. PROPOSED TO CONSIDER THE AMOUNT AS COVERED BY SECTI ON 10(23G) ALSO ASSESSEE HAS ACCEPTED AS TWO VIEWS ARE POSSIBLE. HO WEVER, THIS ACTION OF THE A.O. IN BRINGING TO TAX THE AMOUNT CLAIMED AS EXEMP T UNDER SECTION 10(38) TO BE INCLUDED AS AMOUNT COVERED BY 10(23G), IN OUR OPINION CANNOT LEAD TO A SITUATION FOR LEVY OF PENALTY UNDER SECTION 271(1 )(C). 10. THE ARGUMENT RAISED BY THE LEARNED D.R. WAS THAT AS SESSEE HAS ACCEPTED THE COMPUTATION THEREBY THERE WAS AN ADMISSION THAT COMPUTATION UNDER SECTION 115JB WAS NOT CORRECTLY MADE. THIS ARGUMENT CANNOT BE ACCEPTED AS ASSESSEE CAN CHALLENGE INCLUSION OF AN AMOUNT IN TH E ASSESSMENT AT THE TIME OF CONSIDERING PENALTY. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF JAINARAYAN BABULAL VS. CIT 170 ITR 339 HAS CONSIDERED SIMILAR ISSUE AND HELD THAT ASSESSEE CAN CHALLENGE INCLUSION OF AN AMOUNT EVEN THOUGH THE SAME WAS CONSIDERED FOR ASSESSMENT. THE FACTS IN THE ABOVE S AID CASE WAS THAT ASSESSEE, AN HUF CARRIED ON BUSINESS AND THE A.O. INCLUDED AN AMOUNT OF ` 24,600/-, CERTAIN CASH CREDITS, IN THE TOTAL INCOME OF THE AS SESSEE FOR A.Y. 1950-51 AND ITA NO. 4792/MUM/2010 M/S. PALANI ANDAVAR HOLDINGS P. LTD. 6 ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C). IT WA S THE CONTENTION THAT THE CREDITS WERE RECEIVED IN THE YEAR ENDING ON 31.03.1 949 AND RELEVANT ASSESSMENT YEAR FOR INCLUSION OF THE CREDITS WAS A. Y. 1949-50. THE HON'BLE BOMBAY HIGH COURT ACCEPTED THE CONTENTION AND HELD THAT NO PENALTY COULD BE IMPOSED FOR NON-DECLARING OF THAT INCOME IN A.Y. 19 50-51, WHICH WAS ACTUALLY ASSESSABLE IN A.Y. 1949-50 BUT ACCEPTED IN A.Y. 195 0-51. RESPECTFULLY FOLLOWING THE ABOVE PRINCIPLE, WE ARE OF THE OPINIO N THAT JUST BECAUSE ASSESSEE ACCEPTED THE CONTENTIONS RAISED BY THE A.O. AND OFF ERED TAX ON THE AMOUNT HE IS NOT PRECLUDED IN CONTESTING THAT THE AMOUNT IS N OT TAXABLE. CONSIDERING THE PROVISIONS OF SECTION 115JB AVAILABLE AT THE RELEVA NT POINT OF TIME, THE AMOUNT COULD HAVE BEEN EXCLUDED UNDER SECTION 10(38) AS WE LL. THEREFORE, WE ARE OF THE OPINION THAT PENALTY UNDER SECTION 271(1)(C) IS NOT WARRANTED ON THE FACTS OF THIS CASE. ASSESSEES CONTENTIONS ARE ACCEPTED AND GROUNDS ARE ALLOWED. 11. BOTH THE PARTIES HAVE RELIED ON VARIOUS JUDICIAL PR INCIPLES WHICH WE DO NOT INTEND TO REPEAT HERE. SUFFICE TO SAY THAT THE ISSUE WAS DECIDED ON THE FACTS OF THE CASE AND VARIOUS JUDICIAL PRINCIPLES R ELIED ON AND THE FACT THAT A.O. HAS EXCLUDED THE AMOUNT IN THE ASSESSMENT UNDE R SECTION 10(38) ONLY. WE ARE OF THE CONSIDERED OPINION THAT PENALTY UNDER SECTION 271(1)(C) IS NOT WARRANTED. THE PENALTY LEVIED IS THEREFORE CANCELLE D. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIII, MUMBAI 4. THE CIT VII, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.