IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “C”, MUMBAI
BEFORE SHRI N.V.VASUDEVAN (J.M) & SHRI N.K. BILLAIYA(A.M)
ITA NO. 2402/MUM/2010
(A.Y. 1993-94)
PEL Holdings Pvt.Ltd.
(Now merged with Topstar Mercantile Pvt.Ltd.)
4th Floor,
Ganpatrao Kadam Marg, Parel,
Mumbai-400013
PAN “AAACR 7180 B”
(Appellant)
Vs.
Income Tax Officer,
Ward 7(1)(3), Mumbai.
(Respondent)
Assessee by: S/ Shri J.D.Mistry
Respondent by: Shri. Pitambar Das
Date of hearing:
Date of pronouncement:
ORDER
PER N.K.BILLAIYA, A.M
This is an appeal by the assessee directed against the appellate order of the Commissioner of Income Tax (Appeals)-13, Mumbai, dated 17.11.2009 relating to AY 93-94.
2. The original grounds of appeal filed along with Form 36 on 26.03.2010 were revised by filing amended grounds of appeal dated 25.04.2011. Grounds taken by the Assessee in the revised grounds are as under:
Ground I
1] On the facts and in the circumstance of the case and in law, the ld CIT [ A ]-13 erred in upholding the action of the A.O of levying penalty u/s 271[1][c] of the act , to the extent of Rs. 1534260.00 on capital gains on renunciation of right shares on the alleged ground that the appellant had concealed the income and had furnished inaccurate particulars of the income.
2] He failed to appreciate and ought to have held that the appellant had furnished all relevant material in possession of the appellant at the time of filing of return and had disclosed truly and fully all relevant particulars.
3] He further failed to appreciate and ought to have held that the issue was debatable issue and hence levy of penalty was unwarranted.
4] In view of the above the appellant prays that the AO be directed to delete the afore said penalty levied u/s 271[1][c] of the act. Without prejudice to ground No. 1 above.
Ground II
1] The appellant further prays that the AO be directed to appropriately reduce the afore said penalty levied u/s 271[1][c] of the act.
Ground III
The appellant craves leave to add, alter or amend the above ground of appeal.
The sum and substance of ground No. 1 is that the appellant is aggrieved by the order of the CIT [ A ] upholding the levy of penalty of Rs.1534260.00 levied u/s 271[1][c] of the Act. Ground No. 2 is an alternative plea.
3. The Facts and circumstances under which the penalty was imposed by the AO on the Assessee and confirmed by the CIT(A) are as follows:
The Assessee is a finance and investment company. For the Assessment year under consideration for which the relevant previous year was the period between
course of assessment proceedings u/s.143(3) of the Act, the AO noticed that the Assessee has shown in the balance sheet under the head ‘Reserve Account‘ an amount of Rs.9452025.00 with the following description:
“Add: Premium on renunciation of rights shares received”
The AO called upon the Assessee to explain the nature of this receipt. The Assessee explained that it was holding 795600 equity shares of Morarjee Gokuldas Spinning & Weaving Co. Ltd.[MGSW]. On
4. In the mean time the AO sought clarification from the
5. The AO confronted this information to the assessee and sought its reply. The assessee did not give any explanation regarding the Cum-right and Ex-right quotation received by the AO from BSE.
6. The AO based on the information received from the BSE, came to the conclusion that Cum-Right and Ex-Right price being the same, entire receipt by the Assessee on renunciation of equity shares to the tune of Rs.9452025.00, was short term capital gains in the hands of the assessee and taxed it accordingly.
7. The matter was carried to CIT [A]. The stand taken by the assessee before the CIT[A] was that capital gains, if any, had to be computed in consonance with the principles laid down by the Hon’ble Supreme Court in the case of Ms Dhun Dadabhoy Kapadia [supra]. The cum-right date was 28-6-1992 and the ex-right date was 29-6-1992. The stock exchange remained closed from 11-6-1992 to 15-7-1992 on account of “Securities scam” and therefore, there was no quotation of the shares of MGS on 28- 6-1992 and on 29-6-1992. The quotations were available only on 10-6- 1992 and 16-7-1992, which represent the last cum-right rate and first exright rate. It was contended the market rates indicated in the letter of the BSE are not much relevance as these rates were the rates as on 10.06.92 and 16.07.92 whereas for determining the diminution in the market of the shares, the relevant dates were 28.06.92 and 29.06.92. However, on these dates the quotations were not available as the stock exchange remained closed from 11.06.92 to 15.07.92. It was contended by the assessee that in the absence of market quotations on the relevant dates, the working of capital gains / loss should be done on the basis of the principles of accountancy and commercial practices. The assessee furnished a detailed working before the CIT[A] which is annexed as annexure to this order.
8. The CIT[A] held as follows:
“11. On a consideration of the submissions, I find that in Dhun Kapadia’s case, it is held that the diminution in the value of shares held on the date of declaration of rights is the cost for the purposes of calculating capital gains. However, since the BSE has furnished the figures the same will have to be applied, and it is observed that the last cum-right quotation of the shares was Rs. 250 on
9. The matter was further agitated before the Income-tax Appellate Tribunal. On reference by the division bench, a Special bench was constituted to decide the following question:
Issue:
“Whether or not, on the facts and in the circumstances of the case and in the assessment years prior to assessment year 1995-96, while computing the gain or loss under the head ‘Short term capital gains’, the entire fall in value of cum-right shares held immediately before the rights issue vis-á-vis value of ex-rights shares immediately after the rights issue, is allowable as deduction as ‘cost of acquisition of such entitlements?”
10. The special bench so constituted after considering the facts in totality held:
“12. We have given our careful consideration to the rival submissions vis-a-vis the facts of the case. At the outset, it must be mentioned that on issue of right shares, the market price of the shares of the company is bound to go down. In the present case, the market rate of the share of MGS on
13. The Hon’ble
Finally, the Special Bench concluded as follows:
“We are of the view that it would be fair and reasonable if the ex-right value of the shares is estimated at Rs. 225 and cum-right rate should be taken at Rs. 250. We, therefore, hold that there was diminution to the extent of Rs. 25 per share. The Assessing Officer is directed to recompute the income under head ‘Short-term capital gains’ on the above basis and after allowing adequate opportunity to the assessee.”
Ultimately, the short term capital gain on renunciation of equity shares was recomputed at Rs. 26682750.00 following the directions of the Special Bench.
11. With the above mentioned factual matrix, the AO proceeded with the penalty proceedings u/s 271[1][c] of the Act, and accordingly assessee was show caused to explain why penalty u/s 27[1][c] of the Act should not be imposed on them for concealing particulars of income and filing inaccurate particulars of its income to the extent of Rs.2668275.00.
12. The main contention of the assessee during the penal proceedings was:
1] The issue involved in its case is debatable and there fore penalty should not be levied
2] All related information of renunciation had been provided and the related facts were submitted hence there is no furnishing of inaccurate particulars .
3] Concealment in sec 271[1][c] imports the concept of mens rea or guilty mind and hence penalty cannot be levied unless the necessary mental element could be spelt out in his act from material on record.
13. The assessing officer rejected the contentions of the assessee stating that:
1] The addition made by AO has been confirmed by the CIT[A] and the Hon’ble Income-tax Appellate Tribunal have also upheld the action of the AO in principle , though reduced the quantum of addition. And as the assessee successively failed to substantiate its stand of non-taxability of premium received on renunciation or right shares, therefore issue involved cannot be construed as a debatable issue.
2] The assessee’s contention that it has disclosed the entire consideration under the head ‘Reserves & Surplus “ does not hold any water as it has not mentioned the nature of its constituents and the fact of receipt of premium on renunciation of right shares has not been mentioned any where in the return of income , nor in the computation of income. This clearly shows that the assessee has furnished inaccurate particulars of its income earned on renunciation of right shares. The AO finally levied penalty u/s 271[1][c] of the Act to the tune of Rs. 3068520.00 which was at 200% of the tax sought to be evaded.
14. Aggrieved, the matter was carried before CIT[A].Before the Ld.CIT[A] the assessee re-iterated its stand that this is not a fit case for levy of penalty u/s 271[1][c] as there is no concealment or furnishing of inaccurate particulars on part of the assessee company and it has duly disclosed the premium received on renunciation of right shares under the head ‘Capital Reserve’ in the Balance Sheet. The assessee’s main arguments before the CIT[A] were that it is not possible to determine the cost of right shares and accordingly compute the capital gains / loss , if any . The tribunal has only estimated the cum –right / ex –right rate at Rs. 250 /- / 225 /- respectively. The issue has been debatable / differences of opinion are there. The assessee had no mens-rea. Mere addition / disallowances cannot result in penalty being levied automatically. No inaccurate particulars have been filed.
15. The CIT[A] rejected the contention of the assessee and held as follows:
“On facts and circumstances of the case, it is clear that the assessee had failed to mention in the return filed the details of income which was claimed as exempt. The assessee failed to mention the material facts regarding the taxability of capital gains on renunciation of right share which have been found to be taxable. Besides, even during the assessment proceedings, the assessee could not prove be evidence how the cum rate price of the shares was Rs. 250/- and ex-right price of the shares was Rs.200/-. The assessee therefore furnished inaccurate particulars of his income and could not substantiate the basis on which the said claim of exemption of capital gain on renunciation of right shares was made. The assessee has therefore concealed the particulars of his income and also furnished inaccurate particulars of his income and thereby concealed the income. In view of the afore said facts the AO is directed to levy penaly u/s 271[1][c] @ 100 % of the tax sought to be evaded on capital gains on renunciation of right shares”.
16. Aggrieved, the assessee is before us. Ld Sr.Counsel appearing for the Assessee reiterated the stand taken before the lower authorities that there was no concealment of income or furnishing of any inaccurate particulars. The assessee while filing the return of income has shown the premium
amount received on renunciation of right shares under the head ‘Capital Reserve’. Ld Sr.Counsel further submitted that since the company had incurred no cost on the renunciation of right shares, it legitimately took the stand that there was no capital gains involved following the ratio laid down by the Hon’ble Supreme court in the case of B.C.Srinivas Shetty [supra] therefore penalty so levied deserves to be cancelled. The Ld Sr.Counsel, further drew our attention to the fact that the Hon’ble High court of Judicature at
i] Income-tax Appellate Tribunal ‘F‘ Bench Mumbai in ITA No. 1883/Mum/2006 in the case of Maersk
ii] M/s Nayan builders & developers pvt ltd vs The Income tax officer ward 7[1][1] Mumbai. ITA No.2379/Mum/2009
iii] M/s CHEMT vs ACIT in ITA No. 7196/Mum/05
iv ] CIT Vs Reliance Petroproducts pvt ltd [2010] 222 ITR 0158 [SC]
17. The Ld DR on his turn heavily relied upon the orders of the lower authorities and submitted that the penalty so levied deserves to be confirmed .
18. We have heard the arguments from both sides and perused the orders of the lower authorities. The question to be decided is “whether the appellant has disclosed the receipt of share premium on renunciation of its rights and whether disclosure , if any , can be termed as ‘ proper disclosure’ in the light of the provisions of sec 271[1][c] read with the rules framed for filing of income tax returns ?”
19. At the outset we have to clarify that the decision of the Hon’ble Supreme Court in the case of B.C.Srinivasa Shetty (supra) is of no relevance to the facts of the present case as the taxability of capital gain on renunciation of rights shares was never in challenge even in the quantum proceedings in the light of the decision of the Hon’ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia (supra). The case of the Assessee that there was no cost of acquisition and therefore there can be no capital gain computed under Section 48 of the Act and therefore the charge to tax u/s.45 itself fails, is a plea which cannot be accepted in the penalty proceedings.
20. We shall now examine the disclosure made by the Assessee in the return of income. In the return of income there was no reference either to the receipt on renunciation of shares either as exempt capital gain or showing computation of capital loss on transfer by way of renunciation of
rights shares. There was no disclosure by the Assessee in this regard. The Balance sheet filed along with the return of income showed details of reserves & surplus mentioned in Sch–2 which were as under:
Capital Redemption Reserve 92-93 91-92
Balance as per last balance sheet 2000 2000
Add: Premium of renunciation of
Right shares received 9452025 0
General reserve
Balance as per last BS 113859 6359
Add: Transfer during the year 168341 107500
282200 113858
Surplus as per profit & loss account 570 972
-----------------------------
9736795 118831
-----------------------------
21. Admittedly, the entire consideration received by the assessee company on renunciation of right shares was shown under the head “Reserves & Surplus” without mentioning the nature of its constituents and as to how the same was exempt . Moreover, this fact was not mentioned any where in the Return of Income. Nothing was revealed in this regard by way of even a note to computation of total income chargeable to capital gains. The Ld Sr.Counsel’s argument that the issue relating to the Cum-right and Ex-right value of shares being debatable and therefore no penalty should be levied, does not hold any water because this is not a case of fling inaccurate particulars but of concealment of income, and undoubtedly, the appellant company has not disclosed the share premium received on renunciation of right shares either by way of any note in the balance sheet or in the computation of income. If the appellant company was of the opinion that the gains arising out of the afore said transaction was exempt from tax than also it was the statutory duty of the assessee to mention the same in the return of income with details in the annexures and statements / notes to accounts The assessee altogether failed to mention these material facts. The assessee has no explanation as to why he did not disclose material facts regarding taxability of capital gains on renunciation of right shares which have been found to be taxable. The argument of the learned counsel for the Assessee before the Tribunal was that if the ex-right price of the shares is assumed at Rs.200/- then there would be capital loss. The Assessee did not claim this loss by way of set off or carry forward and that way the Assessee has been very fair. We do not think that this is a valid argument. Firstly, the Assessee’s presumption that the ex-right price was Rs.200 has already found to be not correct by the Tribunal. Secondly, the Assessee, if it had given a note regarding its belief that there was no capital gain on renunciation of shares and that there would in fact be capital loss, then that would have been a proper disclosure. The explanation given by the Assessee is therefore held to be not a bonafide explanation. The mere mention indirectly in the balance sheet under the head ‘Capital Reserve’ cannot be said to be a ‘proper disclosure’.
22. Now let us examine the cases relied upon by the ld. Sr.Counsel appearing for the appellant. In M/s CHEMT vs ACIT CIR 19[2] , MUMBAI in ITA No. 7196/MUM / 2005, the facts were that the assessee received compensation on termination of agency agreement amounting to Rs. 25659783.00 and treated the same as capital receipt. This income was however not included as part of the income .In the tax audit report with regard to the above amount , the following observations were made by the auditors:
“Clause 13: Amounts not credit to the P & L account sub clauses.
ii] Clause (a) Rs 25659783.94 received compensation from DEGUSSA A.G for termination of agency arrangement credited to capital account of partners.
Note: The firm advised that the amount received is in consideration of the undertaking by it for reframing from competition and no promotion , either directly or indirectly , completion by third parties .Thus the amount received is by virtue of a restrictive covenant and therefore is in the nature of capital receipt not liable to tax.’
(Underlining by us for emphasis)
The AO added the said sum u/s28(ii)(c) as income of the Assessee. The Quantum addition was sustained in part by the order of the Income-tax Appellate Tribunal. The Assessee preferred appeal before the High Court. In the mean time AO levied penalty u/s 271[1][c]. The penalty so levied was contested in appeal which was cancelled by the Income-tax Appellate Tribunal. The tribunal while disposing off the appeal held:
“Even otherwise, on the facts of the present case itself proved that the issue is highly debatable because of two opinions. The AO formed an opinion that the receipts received on account of restrictive covenant are revenue receipts and liable to be taxed in view of the provisions of sec28[ii][c]. The tribunal knocked this view that in view of the provisions of sec 28[ii][c] , the receipts are taxable. However, the Tribunal opined that part of the receipts may be treated as on account of restrictive covenant and part of the receipts may be treated as revenue receipt. There is no dispute that the assessee has furnished particulars of income in respect to receipts received. In respect to these receipts, a specific note was given by the authority in their report which was enclosed along with the return. There fore this is not a case of furnishing any inaccurate particulars for the purpose of concealing any income. In view of the above facts and circumstances, we hold that penalty is not leviable legally and even on merit. Accordingly, we cancel the levy of penalty of Rs.9879017.00”
[Underlining by us for emphasis]
The facts and circumstances of the afore said case are clearly distinguishable from the facts of the instant case as can be seen that in the above mentioned case the assessee has explained in its return why it is not treating the compensation received as part of its total income and further the auditors have also clarified this by way of a note. But in the present appeal, neither the clarification was given in the return nor in the computation of income accompanied with the return. As the facts are clearly distinguishable, we do not find any reason to follow the findings of the tribunal in the aforementioned case.
23. The next case relied upon by the Ld Sr.Counsel for the appellant is that of M/s Nayan builders and developers pvt ltd vs ITO ward 7[1][1] in ITA No.2379/Mum/2009 dated18.03.2011. The facts of the case were that the as against the additions made in the quantum proceedings, the Assessee preferred appeal before the Hon’ble High Court and the Hon’ble High Court had framed substantial question of law for consideration. In those circumstances the question before the Tribunal was as to whether penalty could be levied. The Tribunal held that when the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u/s 271[1][c]. We find that this case also does not support the appellant in as much as in the afore said case there was dispute regarding the taxability / disallowance of certain expenditures where as in the present appeal the Hon’ble High Court has admitted the appeal of the appellant on the substantial question of law involving the issue of valuation of Cum-Right and Ex-right price of the shares renounced . The question of its taxability is beyond doubts which by no stretch of imagination can be said to be debatable, only the quantum may increase/decrease. The charge in the present case is concealment of particulars of income. The Assessee’s failure to disclose facts material to determination of income is the subject matter of the present penalty proceedings. When the charge is of furnishing inaccurate particulars of income i.e., when there is disclosure but taxability of the sum is in dispute then it was open to an Assessee to plead that the question whether the sum is taxable or not was debatable and therefore the Assessee claimed that the income was not taxable. Such a plea cannot be taken when there is non-disclosure of material facts.
24. The ld Sr counsel further relied upon the decision of the tribunal in the case of Maersk India pvt ltd vs Dy.CIT Cir6[3]3 Mumbai In ITA No 883/Mum/2006[supra]. In this case the tribunal cancelled the penalty holding that the assessee has claimed amortization of lease premium as revenue expenditure on the basis of certain judicial decisions available at the time of filing of the return and the facts regarding the claim was duly disclosed therefore the Tribunal concluded that it is a case of legal claim made by the assessee which has been rejected by the revenue authorities, hence this not fit for levy of penalty u/s 271[1][c]. The facts of the above mentioned case are also clearly distinguishable from the facts of the appeal under consideration in as much as in the aforesaid case the claim of the assessee was duly disclosed in the return and there was no concealment of income or filing of inaccurate particulars.
25. The last case relied upon by the ld Sr Counsel is that of CIT vs Reliance Petro Products pvt ltd reported in 322 ITR 0158(SC). In this case Hon’ble Supreme Court while affirming the decision of the Hon’ble Gujrat High Court confirming the order of the Tribunal cancelling penalty imposed on an Assessee held as follows:
“A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
[Underlining by us for emphasis]
26. The ratio of the afore mentioned case also goes against the appellant as the Hon’ble Supreme Court has clearly held that the return of income is the only document where the assessee can furnish his particulars of income, where as in the instant appeal, the appellant company has not disclosed the receipt of premium received on renunciation of rights in its return of income nor in the computation of income accompanied with the return of income .
27. After considering the facts and circumstances of the appeal under consideration and also distinguishing the facts of the cases relied upon by the ld Sr Counsel for the appellant, we do not find any infirmity or error in the order of the ld CIT [A]. We therefore confirm the order of the ld CIT [A]. Ground No. I, with all its sub - grounds of appeal, is dismissed.
28. Ground No. II is an alternative plea by which the assessee has prayed to direct the AO to appropriately reduce the penalty levied u/s 271[1][c] of the Act . We find that the AO has levied penalty which is @ 200% of the tax sought to be evaded. While disposing off the appeal the ld CIT[A] at page 16 of his order at para 7.0 has concluded that:
“In view of the afore said facts the AO is directed to levy penalty u/s 271[1][c] @ 100 % of the tax sought to be evaded on capital gains on renunciation of right shares ………”
As the penalty levied by the AO has already been brought down to 100% , which is the minimum penalty u/s 271[1][c] of the Act, we find no reason to interfere with the findings of the ld CIT [A], therefore ground No. II is also dismissed.
29. Ground No.III is general in nature therefore needs no adjudication.
30. In the result, appeal filed by the assessee is dismissed.
Order pronounced in the open court on the 17th day of April, 2012.
Sd/- Sd/-
(N.V.VASUDEVAN) (N.K.BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, Dt: 17.04.2012
Copy forwarded to:
1. The Appellant,
2. The Respondent,
3. The C.I.T.
4. CIT (A)
5. The DR, G - Bench, ITAT, Mumbai
//True Copy//
BY ORDER
ASSISTANT REGISTRAR
ITAT, Mumbai Benches, Mumbai
