Penalty 271(1)(c) for claiming STCG as LTCG and deduction us 54F quashed by the ITAT holding that if the assessee had not concealed any fact while filing the return and filed the copies of the document along with the return, merely because the sale proceeds were shown as a long term capital gain instead of short term capital gain, it could not readily be stated that there was either concealment of income or furnishing of inaccurate particulars.
ABCAUS Case Law Citation:
981 2016 (08) ITAT
Assessment Year: 2006-07
Date/Month of Judgment: August 2016
Important Case Laws relied by the assessee:
Udayan Mukherjee vs Commissioner Of Income-Tax (2007) 291 ITR 318(Cal),
Price Waterhouse Coopers Pvt. Ltd vs. CIT  348 ITR 306 (SC)
CIT v. Hiralal Doshi  383 ITR 19 (Bom)
Brief Facts of the Case:
The appellant assessee purchased a plot of land and sold it away holding it less than 36 months but in income tax return claimed the short term capital gain (STCG) as long term capital gains (LTCG) as well as benefit under section 54F of the Income Tax Act 1961.
Revisionary order was passed u/s 263 treating the capital gains as Short term Capital gains and withdrawing the benefits under section 54F. Further, an order was passed accordingly u/s 144 r/w section 263.
Besides, penalty proceedings were also initiated and a penalty of was imposed u/s 271(1)(c). The Assessee did not challenge the order u/s 263 or the order passed under section 144 r/w 263. However the appeal against the imposition of penalty u/s 271(1)(c) was challenged by the assessee before Commissioner of Income Tax (Appeals) which was dismissed confirming the order passed by the AO.
Against the order of CIT(A) confirming the penalty u/s 271(10(c), the the assessee preferred an appeal before the Tribunal which is the subject matter of present case law.
Contentions of the Assessee:
The assessee contended that proceeds of sale were treated as long term capital gain instead of short term capital gain as she was under wrong impression of eligibility to claim benefit under Section 54F and when the addition was made, the assessee accepted the same and paid the tax due thereon. According to him, this was at best an erroneous claim.
It was further pointed out that the AO in his order stated that inaccurate particulars are furnished by the assessee, whereas the CIT(A) had stated that the assessee concealed the particulars of her taxable income. However, as a matter of fact, there was neither concealment nor furnishing the inaccurate particulars of income, since all the documents were submitted before the AO and amount was also shown in the return. In the absence of any concealment or active furnishing of inaccurate particulars, an erroneous belief as to the entitlement for the benefit under section 54F of the Act does not form a base to impose penalty.
Contentions of the Revenue:
The Revenue contended that the assessee with mala fide intention had classified STCG as LTCG and claimed benefit under section 54F and but for detection by the authorities in scrutiny proceedings, it could have gone unnoticed causing prejudice to the revenue. It was argued that showing short term capital gain as long term capital gain itself is an act of furnishing inaccurate particulars. He prayed to dismiss the appeal of assessee.
Observations made by the Tribunal:
Contrary findings of authorities:
Though the counsel for the Revenue argued that the very act of showing the Long Term Capital Gain as a Short Term Capital Gain in order to claim benefit u/s 54F itself amounted to furnishing of inaccurate particulars, he was not able to explain the discrepancy in the order of the AO holding this act as furnishing of inaccurate particulars whereas the CIT(A) treated it to be concealment of income. These two contrary findings by the authorities could not be reconciled. The Tribunal concurred that the assessee was at loss as to on what ground she had to defend herself; on furnishing inaccurate particulars or concealment of income? The ITAT also found force in the arguments that in the case both the elements were not present. The authorities were not clear as to the allegation to be levelled against the assessee – whether it is concealment of income or furnishing of inaccurate particulars. Thus certainly the situation caused prejudice to the assessee to conduct her defence diligently.
Merits of the Case:
The Tribunal observed that it was a judicially acknowledged fact that the tax laws are complex and complicated and often require for compliance there-with the assistance of tax practitioners specialising in this field and that the legislation in this field undergoes so frequent changes and amendments that it is not possible for even a person specialising in this field, including the tax administrator, to claim that he knows what exactly the law is on a particular given day or period without making references to the history of the enactments. Further, it is also judicially acknowledged fact that there is no presumption in law that every person knows the law and it is also not a correct statement to make that there is a presumption that every person knows the law of the land.
The ITAT noted that it was an admitted fact that the assessee while filing the return had furnished the copies of all the documents. It observed that once the assessee had not concealed any fact while filing the return and as a matter of fact filed the copies of the document along with the return, merely because the sale proceeds were shown as a long term capital gain instead of short term capital gain, it could not readily be stated that there is either concealment of income or furnishing of inaccurate particulars.
According to the Tribunal, it was also possible that such an erroneous claim could have been made under an erroneous or improper understanding of law. Looking at the things from the angle of the assessee furnishing copies and documents and, showing the sale proceeds in the returns coupled with the facts that she did not challenge the addition of quantum, the Tribunal found some force in the contention that the proceedings do not warrant imposition of penalty and it was only a venial breach of law.
The Tribunal noted that as held by the Bombay High Court in the case of Hiralal Doshiis, deleting the penalty is a possible view and the facts and circumstances of the case inspired to take such a view in the interest of justice.
We accordingly do so. The point is answered in the negative holding that the learned Assessing Officer is not justified in imposing penalty on the assessee