ITO (IT), WARD 2(1), CHENNAI, CHENNAI V. ROHITKUMAR NEMCHAND PIPARIA, CHENNAI

ITA 1326/CHNY/2023

AI Insights

The case involves an appeal by the Income Tax Officer against the decision of the CIT(A) which had deleted a penalty imposed on Shri Rohitkumar Nemchand Piparia for non-disclosure of capital gains income in his tax returns for the Assessment Year 2008-09. The penalty was initially imposed due to the assessee's failure to disclose substantial capital gains from share transactions, which came to light during reassessment proceedings. The CIT(A) had deleted the penalty, citing the assessee's bona fide belief that he was not liable for tax on these gains due to his residential status and the TDS deductions made by his bank in Abu Dhabi. The Tribunal, however, found that the primary responsibility to report and pay tax on these gains lay with the assessee, not the bank, and thus restored the matter to the CIT(A) for a fresh decision.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 29395 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2024
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Other Referred Cases: Hindustan Steel Ltd. Vs. State of Missa (1972) 83 ITR 26 (SC), Gangotri Textiles Limited (276 Taxman 356), Dharmendra Textiles (306 ITR 277)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NILAY BARAN SOM LD
• Assessee Lawyers: T. BANUSEKAR; SAMYUKTHA
• Keywords: Set aside; Reassessment proceedings; Bonafide belief; Capital Gains; Ignorance of law; TDS; Rectification of order; Residential status
• Section: 148; 143(3); 154; 271(1)(c); 6

Judgement Text

" आयकर अपीलीय अिधकरण “ए” \u000eा यपीठ चे\u0013ई म\u0016। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI मा ननीय \u0019ी एबी टी. वक , \u000eा ियक सद\" एवं माननीय \u0019ी मनोज क ुमार अ'वाल ,लेखा सद\" क े सम)। BEFORE HON’BLE SHRI ABY T. VARKEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ ITA No.1326/Chny/2023 (िनधा*रण वष* / Assessment Year: 2008-09) Income Tax Officer International Taxation Ward-2(1), Chennai. बनाम / Vs. Shri Rohitkumar Nemchand Piparia #34 (Old #77), Meddox Street, Choolai, Chennai-600 112. \u0002थायीलेखासं./जीआइआरसं./PAN/GIR No. AKZPP-0661-M (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Assessee by : Shri T. Banusekar & Ms.Samyuktha Banusekar (Advocates) - Ld. ARs थ कीओरसे/Revenue by : Shri Nilay Baran Som (CIT) - Ld. DR सुनवाईकीतारीख/Date of Hearing : 07-10-2024 घोषणाकीतारीख /Date of Pronouncement : 31-12-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1.1 Aforesaid appeal by revenue for Assessment Year (AY) 2008-09 arises out of an order passed by learned Commissioner of Income Tax (Appeals)-16, Chennai on 29-09-2023 in the matter of penalty levied by Ld. AO u/s 271(1)(c) vide order dated 28-06-2019. The grounds of appeal read as under: - 1. The ld. CIT(A) erred in facts and law in deleting the addition made amounting to Rs.4,56,94,344/- on account of penalty u/s 271(1)(c) of the Act. 2. The Ld. CIT(A) has relied upon the principle of law as laid down by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Missa (1972) 83 ITR 26 (SC) wherein it was observed that:- 2 \"Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from the bona fide belief that the offender is not liable to act in the manner prescribed by the statute.\" The assessee being a regular tax payer, having failed to disclose the Capital gains income in the original return of income has also failed to disclose the same in the return of income filed in response to notice u/s 148 of the Act. This clearly proves that the assessee has an intention to conceal the particulars of income by not disclosing the Capital Gains earned during the relevant year as well as furnished inaccurate particulars of income in both the return of income filed. This default in the hands of the assessee clearly fits into the definition of s.271(1)(c) of the Act for imposing Penalty under this section. 3. The CIT(A) has further held that the facts of the case show that the assessee was under the bonafide belief that there was no tax liability to be discharged by him on account of his residential status, NRE accounts and TDS deductions made by the Abu Dhabi Commercial Bank Ltd. In this regard, the following are placed for the consideration of the Hon’ble ITAT: The intention behind the legislation of the provisions of the Act relating to TDS is \"TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments by the persons making such payments\" as advance payment of taxes due. Further, the persons receiving the income are liable to pay the relevant income tax on the amounts received under the relevant heads of income. The idea behind the Tax Deducted at Source provisions is only to make sure that income tax is deducted in advance from the payments being made to the payee and there is no escapement of income in the hands of the receiver and in order to file the return of income to claim credit of the TDS available in his account. The recipient of income is under obligation to disclose the actual taxable income and claim the amount of TDS adjusted against the final tax liability. In this case, the deductor cannot be held responsible for the default in payment of taxes but it is the deductee, i.e., assessee, who has defaulted in disclosing the actual income and failed to pay the relevant taxes due. Hence, the intention to conceal the particulars of income is present in this case. 1.2 The Ld. CIT-DR advanced argument to support levy of impugned penalty. The Ld. AR also advanced arguments supporting the impugned order deleting the penalty. The written submissions have also been filed by both the sides which have duly been considered. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Proceedings before lower authorities 2.1 The material facts leading to imposition of penalty are that the assessee’s case was reopened and an assessment was framed against 3 the assessee u/s 143(3) r.w.s. 147 on 25-02-2016 wherein the issue of chargeability of Short-Term Capital Gains (STCG) on sales of shares of an entity by the name M/s Rajesh Exports Ltd. was identified. The case was reopened pursuant to receipt of information from investigation wing that the assessee entered into high value share transactions for Rs.155 Crores but the income was not reported in the Income Tax return. The assessee filed various replies and submissions during the course of assessment proceedings. After due consideration, Ld. AO assessed Short-Term Capital Gains (STCG) which reached up-to the level of Tribunal. By the order of Tribunal, the assessment was restored back to the file of Ld. AO for re-computation of capital gains since there was error in the computation of STCG. Pursuant to the same, another assessment order was passed on 31-12-2018. The Ld. AO finally determined Short Term Capital Gains of Rs.40.33 Crores and raised certain demand against the assessee. This assessment has reached finality. 2.2 Against quantum addition, penalty proceedings were initiated against the assessee and the assessee was show-caused. The assessee assailed the same on the ground that the assessee had purchased the shares through Ventura Securities Ltd., Mumbai utilizing the funds lying in the assessee’s equity portfolio investment account (NRE Account) which was managed by the Mumbai branch of Abu Dhabi Commercial Bank Ltd. (Bank). The assessee was under the impression that any profit / dividend or other income realized from NRE account would be fully exempt to tax and therefore these transactions were not reflected in the return of income. 4 2.3 The Ld. AO rejected the explanation on the ground that the fact of gains came to light only from the information as available with the department. The assessee did not disclose the transaction either in regular return or in return filed in reassessment proceedings. Such non- disclosure amount to concealment of income. Had the case not been reopened, entire gains would have escaped the tax liability thereby avoiding payment of tax of Rs.456.94 Lacs. Considering the same, Ld. AO levied penalty of Rs.456.94 Lacs. 2.4 During appellate proceedings, the assessee submitted that there was no concealment as the responsibility to deduct and remit the due taxes lay with the Banker who remitted the share sale proceeds to the assessee. The assessee assumed that since the due taxes were deducted by the said bank, the income was not be included in the return of income. The assessee made out a case of bona-fide mistake. It was also stated that once the assessee was made aware about the short- deduction of TDS, the assessee paid the differential tax and settled the dues. The assessee did not make any attempt to willfully or deliberately conceal any particulars of income. In the alternative, the assessee submitted that Ld. AO erred in ignoring the TDS amount of Rs.353.59 Lacs and therefore the penalty, at the most, could be levied for additional tax demand of Rs.103.35 Lacs only. 2.5 The Ld. CIT(A) considering the decision of Hon’ble Supreme Court in the case of Hindustan Steel Ltd. (83 ITR 26) observed that the assessee was under bona-fide belief that there was no tax liability to be discharged by him on account of his residential status, NRE account and the TDS made by the bank. The intention to conceal income by furnishing inaccurate particulars of income was not established and 5 therefore, the impugned penalty was deleted. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 3. The Ld. CIT-DR, in the written submissions, has argued that the gains were not reflected either in regular return of income nor in return of income filed during reassessment proceedings. This is despite the fact that the case was reopened to examine the issue of capital gains on transfer of shares. As a recipient of income, it was the obligation of the assessee to disclose actual taxable income and claim the TDS against final tax liability. The deductor could not be held responsible for default in payment of tax but it is the assessee who failed to report the correct income. The Ld. CIT-DR, referred to the decision of Hon’ble High Court of Madras in the case of Gangotri Textiles Limited (276 Taxman 356) as confirmed by Hon’ble Supreme Court (reported as 286 Taxman 357). The Ld. CIT-DR submitted that the above case law is on similar facts and involve imposition of concealment penalty arising out of failure of the assessee to report capital gains through 'inadvertence'. It has further been submitted that the decision of Hindustan Steels Ltd. (supra) as relied upon by Ld. CIT(A) has duly been considered in this decision. The Ld. CIT-DR also referred to the provisions of Sec.191 which, inter-alia, provide that in the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee directly. Thus, the assessee has defaulted in meeting his statutory liability in reporting correct income and paying correct amount of tax which certainly make him liable for penalty u/s 6 271(1)(c). The Ld. CIT-DR further submitted that after the omission of words 'deliberately' from section 271(1)(c) of the Act, the intention of the assessee is not to be proved by the revenue. As concluded by Hon'ble Supreme Court in the case of Dharmendra Textiles (306 ITR 277), penalty u/s.271 (1) (c) is a civil liability. 4. The Ld. AR, on the other hand, has stated that responsibility to ensure payment of entire tax on Short Term Capital Gains was on the remitter banker. As a non-resident of more than 40 years, the assessee reasonably presumed that the entire TDS payment was deducted by the deductor and there was no further responsibility on his part to disclose the same. The Ld. AR also stated that this being AY 2007-08, the procedure prior to insertion of sub-section (6) to Sec.195 has to be seen. Prior to insertion of sub-section (6), the remittance to non-resident was governed by the RBI guidelines. As per master circular no.4/2007-08 dated 02-07-2007, remittance was to be made based on any undertaking by the remitter and certificate by Chartered Accountant in the format prescribed vide CBDT Circular No.10/2022 dated 10-09-2002. Considering the same, the bank managing the assessee’s equity portfolio had responsibility to ensure that the due tax was deducted and remitted on the capital gains. The Ld. AR also sought distinction in the case laws being relied upon by revenue. The Ld. AR further relied on certain judicial decision to make a point that ignorance of law is a good excuse in cases where there is a mistaken bona fide belief and no intention to conceal. The Ld. AR also referred to the observations of Hon’ble High Court of Madras in assessee’s petition seeking quashing of criminal proceeding initiated against the assessee which stood disposed- 7 off in CRL O.P. No. 16989 of 2021 & CRL.O.P.No.11023 of 2021 dated 16-11-2023 (reported as 156 Taxmann.com 636). 5. From the facts, it emerges that the assessee is a non-resident. It has maintained NRE account and has carried out sale transactions of certain shares through equity portfolio investment account (NRE Account) which was managed by the Mumbai branch of Abu Dhabi Commercial Bank Ltd. (Bank). The assessee has filed regular return of income wherein these transactions were not reported. Pursuant to receipt of information from investigation wing that the assessee carried out these transactions, the case was reopened and the assessee filed return of income wherein these transactions were not again reflected. The plea of the assessee is that the computation of tax liability on these transactions would lie with the banker managing the equity portfolio. This argument is liable to be rejected at its threshold since the banker is not an authority to compute the final tax liability of the assessee. The role of remitter banker is simply to follow the extant procedure and to deduct Tax at source as prescribed under the statute. The banker has deducted TDS of Rs.353.33 Lacs as against final tax liability of Rs.479.08 Lacs. It could be seen that the final tax liability has been determined after series of litigation. The assessee has earned Long Term Capital Gains as well as Short Term Capital Gains (STCG) on these transactions. Initially, an assessment was framed wherein STCG was computed at Rs.52.10 Crores raising tax demand of Rs.479.08 Lacs. However, the order was rectified and the STCG were recomputed and corresponding tax demand was reduced to Rs.283.75 Lacs in rectification order passed u/s 154 on 31-03-2016. The matter reached up-to Tribunal wherein the matter was restored back to the file of Ld. AO for re-computation of capital gains 8 since there was error in the computation of STCG. Pursuant to the same, another assessment order was passed on 31-12-2018 wherein STCG has been re-computed at Rs.40.33 Crores and finally, tax demand of Rs.1.45 Crores has been raised against the assessee which has thus attained finality. In our considered opinion, the primary liability to compute correct taxes was on assessee and the assessee could not absolve himself by shifting this burden to the remitter banker. Even otherwise if this argument was to be accepted, it would be pertinent to note that the assessee has never reflected aforesaid transactions in Income Tax Returns. Even assuming that the banker had deducted due taxes, still the assessee was obligated to reflect this income in the return of income. Having not done so, the argument thus raised by Ld. AR could not be accepted. We order so. 6. Proceeding further, we find that though it has been submitted that the assessee has settled the final tax liability and paid due taxes forthwith as finally determined by Ld. AO, no evidence thereof has been adduced before us to support the same. 7. In the impugned order, Ld. CIT(A) has deleted the penalty merely by extracting observations of Hon’ble Supreme Court in the case of Hindustan Steels Ltd. (supra). The arguments as well as case laws being put before us by revenue as well as by Ld. AR have nowhere been considered by first appellate authority. No finding has been rendered on the alternative submissions made by the assessee. The disposal of assessee’s petition in CRL O.P. No. 16989 of 2021 & CRL. O.P.No.11023 of 2021 dated 16-11-2023 (reported as 156 Taxmann.com 636) by Hon’ble High Court of Madras is also a subsequent development which has been rendered after passing of 9 impugned order. The same was not available at the time of passing of impugned order. Under these circumstances, we deem it fit to set aside the impugned order and restore the issue of levy of penalty back to the file of Ld. CIT(A) for de novo adjudication. All the issues are kept open except for the argument of Ld. AR which has been dealt with by us in preceding para-5 of this order. The said defense would not be available to the assessee. The assessee is directed to substantiate its case before Ld. CIT(A). 8. The appeal stands allowed for statistical purposes. Order pronounced on 31st December, 2024 Sd/- Sd/- (ABY T. VARKEY) (MANOJ KUMAR AGGARWAL) \u000eा ियक सद\" /JUDICIAL MEMBER लेखा सद\" / ACCOUNTANT MEMBER चे4ई Chennai; िदनांक Dated : 31-12-2024 DS आदेशकीKितिलिपअ'ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Assessee 2. थ /Revenue 3. आयकरआयु=/CIT Chennai. 4. िवभागीय ितिनिध/DR 5. गाडBफाईल/GF "