Ita v. Ankita Deposits & Advances Pvt. Ltd

IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA ITA No.8 of 2015 Reserved on:17.10.2023Pronounced on: 09.11.2023 Pr. Commissioner of Income Tax, Shimla ……Appellant Versus Ankita Deposits & Advances Pvt. Ltd. …Respondent __________________________________________________________ Coram: Hon’ble Mr. Justice M.S. Ramachandra Rao, Chief Justice.Hon’ble Ms. Justice Jyotsna Rewal Dua, Judge. Whether approved for reporting? For the appellant : Mr. Vinay Kuthiala, Sr. Advocate with Ms. Vandana Kuthiala, Advocate. Ms. Vandana Kuthiala, Advocate. For the respondent : Mr. Vishal Mohan, Sr. Advocate with Mr. Sushant Kaprate and Mr. Praveen Sharma, Advocates. Sushant Kaprate and Mr. Praveen Sharma, Advocates. ____________________________________________________ M.S. Ramachandra Rao, Chief Justice. This appeal under Section 260-A of the Income Tax Act, 1961 (in short the “Act”) arises out of the order dt. 08.08.2014 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, in ITA No.1096/CHD/2009. 2)The said appeal had been filed by the Revenue and had been admitted on 26.10.2015 to consider the following substantial question of law:-admitted on 26.10.2015 to consider the following substantial question of law:- “Whether the Hon’ble ITAT erred in deleting penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, despite the fact that the assessee had deliberately claimed the income received from sale of shares as “Long Term Capital Gain” instead of “Profit and Gains of Business”, as was being done earlier?” levied under Section 271(1)(c) of the Income Tax Act, 1961, despite the fact that the assessee had deliberately claimed the income received from sale of shares as “Long Term Capital Gain” instead of “Profit and Gains of Business”, as was being done earlier?” Background facts 3) The brief background facts are that the respondent-assessee is a Private Limited Company engaged in the business of trading in shares as well as engaged as investor in shares/stocks.Limited Company engaged in the business of trading in shares as well as engaged as investor in shares/stocks. 4) For the Assessment Year 2002-2003, the respondent had filed a return declaring an income of Rs.4,98,84,560/- on 31.01.2002 under the head “Capital Gains”. declaring an income of Rs.4,98,84,560/- on 31.01.2002 under the head “Capital Gains”. 5) During assessment proceedings, it was noticed by the Assessing Officer that the respondent-assessee had shown income comprised of income from sale of long term investments in listed shares and as per Section 112, income tax thereon was paid.income from sale of long term investments in listed shares and as per Section 112, income tax thereon was paid. 6) So, the Assessing Officer reopened the case on the ground that the income declared from capital gains was to be assessed under the head “profit and gains of business” as the respondent-assessee was running the business of investment and trading of shares. income declared from capital gains was to be assessed under the head “profit and gains of business” as the respondent-assessee was running the business of investment and trading of shares. The order dt.31.8.2008 of the assessing Officer imposing penalty under section271 (1) (c) of the Act271 (1) (c) of the Act 6) So, the Assessing Officer reopened the case on the ground that the income declared from capital gains was to be assessed under the head “profit and gains of business” as the respondent-assessee was running the business of investment and trading of shares. income declared from capital gains was to be assessed under the head “profit and gains of business” as the respondent-assessee was running the business of investment and trading of shares. The order dt.31.8.2008 of the assessing Officer imposing penalty under section271 (1) (c) of the Act271 (1) (c) of the Act 7) The quantum appeal before the Commissioner of Income Tax (Appeals) (in short the “Appellate Authority”) and the further appeal before the Income Tax Appellate Tribunal (in short the “Tribunal”), Chandigarh Bench, of the assessee/respondent were decided against the respondent, on the basis of which, the Department imposed penalty vide order dt. 31.08.2008 under Section 271(1) (c) of the Act. (Appeals) (in short the “Appellate Authority”) and the further appeal before the Income Tax Appellate Tribunal (in short the “Tribunal”), Chandigarh Bench, of the assessee/respondent were decided against the respondent, on the basis of which, the Department imposed penalty vide order dt. 31.08.2008 under Section 271(1) (c) of the Act. 8) The reason for imposing the penalty on the respondent by the Assessing Officer was that the respondent had shown the income from sale of shares under the head “long term capital gains” and the Assessing Officer was of the view that they should be taxed under the head “business income”. Assessing Officer was that the respondent had shown the income from sale of shares under the head “long term capital gains” and the Assessing Officer was of the view that they should be taxed under the head “business income”. 9)The contention of the respondent-assessee that it had not filed a return with inaccurate particulars was rejected by the Assessing Officer. He held that the said income ought to be taxed under the head “business income” since the shares were held as stock in trade up to Assessment with inaccurate particulars was rejected by the Assessing Officer. He held that the said income ought to be taxed under the head “business income” since the shares were held as stock in trade up to Assessment Years 1999-2000, and the head of investment was changed for the first time by the respondent-assessee thereafter. It was concluded that this was done by the respondent to evade tax, and that the act of the respondent/assessee amounts to furnishing inaccurate particulars inviting penalty under Section 271(1)(c) of the Act. 10)This was challenged by the respondent/assessee before the Commissioner of Income Tax (Appeals), Shimla, by way of an appeal, which was dismissed on 10.09.2009. The Appellate Authority upheld the order of the Assessing Officer for levying penalty of Rs.1,26,98,414/- under Section 271(1)(c) of the Act. Commissioner of Income Tax (Appeals), Shimla, by way of an appeal, which was dismissed on 10.09.2009. The Appellate Authority upheld the order of the Assessing Officer for levying penalty of Rs.1,26,98,414/- under Section 271(1)(c) of the Act. 11)This was challenged by the respondent-assessee by filing an appeal before the Income Tax Appellate Tribunal.before the Income Tax Appellate Tribunal. The impugned order dt.8.4.2014 of the ITAT 12)By the impugned order passed on 08.08.2014, the Tribunal allowed the appeal of the respondent-assessee.the appeal of the respondent-assessee. 11)This was challenged by the respondent-assessee by filing an appeal before the Income Tax Appellate Tribunal.before the Income Tax Appellate Tribunal. The impugned order dt.8.4.2014 of the ITAT 12)By the impugned order passed on 08.08.2014, the Tribunal allowed the appeal of the respondent-assessee.the appeal of the respondent-assessee. 13) It held that merely because the assessee-respondent had treated a particular item of income in a particular way and the Revenue had changed that treatment, it would not attract penal action; and that if the assessee-respondent has a bonafide explanation to treat an item in a particular fashion, merely because the said view was not accepted by the Assessing Officer, it would not result in penal consequences. particular item of income in a particular way and the Revenue had changed that treatment, it would not attract penal action; and that if the assessee-respondent has a bonafide explanation to treat an item in a particular fashion, merely because the said view was not accepted by the Assessing Officer, it would not result in penal consequences. 14)The Tribunal held that the assessee-respondent had duly disclosed the facts regarding sale of shares, but the only difference was that since the shares were treated as investment, therefore, gains were declared under the head “capital gains”, butthe same were assessed as “income from business and profession” by the Assessing Officer, and this cannot be said to be a case of concealment of income or furnishing of inaccurate particulars of income. 15) It also held that merely changing the heads of income, cannot lead to levy of penalty under Section 271(1)(c) of the Act. levy of penalty under Section 271(1)(c) of the Act. 16) The Tribunal placed reliance on the judgments of the Supreme Court in Cement Marketing Co. of India Ltd. vs. Assistant Commissioner of Sales Tax[1];CIT vs. Reliance Petroproducts (P) Ltd.[2] and the decision of the Delhi High Court in CIT vs. Amit Jain[3]. Sales Tax[1];CIT vs. Reliance Petroproducts (P) Ltd.[2] and the decision of the Delhi High Court in CIT vs. Amit Jain[3]. Contentions of counsel for the Income Tax department/appellant 17)Standing Counsel for the Income Tax Department contended that the view taken by the Assessing Officer in the case of the respondent-assessee had been upheld by the Income Tax Appellate Tribunal and the High Court of Himachal Pradesh in the quantum appeal filed by the assessee-respondent, ITA no.33 of 2008 decided on 18.06.2010 reported view taken by the Assessing Officer in the case of the respondent-assessee had been upheld by the Income Tax Appellate Tribunal and the High Court of Himachal Pradesh in the quantum appeal filed by the assessee-respondent, ITA no.33 of 2008 decided on 18.06.2010 reported 1 124 ITR 15 = (1980) 1 SCC 71 2 322 ITR 158 (SC) 3 (2013) 351 ITR 74 (Delhi) in 235 CTR 273; and the High Court had given a finding that the revenue authorities were entitled to treat the profits realised from sale of shares by the respondent-assessee not as long term capital gains, but as business income and this was done by the respondent-assessee to reduce its tax liability and, therefore, it was a case for levy of penalty under Section 271(1)(c) of the Act. Contentions of counsel for respondent 18) Counsel for the respondent-assessee refuted the said contention and supported the view taken by the Tribunal. 19) Consideration by the Court Section 271(1)(c) of the Act, empowers the Assessing Officer to levy penalty, if the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. 20)Explanation 1 to Section 271 of the Act, States as under:- “Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act,- Contentions of counsel for respondent 18) Counsel for the respondent-assessee refuted the said contention and supported the view taken by the Tribunal. 19) Consideration by the Court Section 271(1)(c) of the Act, empowers the Assessing Officer to levy penalty, if the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. 20)Explanation 1 to Section 271 of the Act, States as under:- “Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.” 21) In Cement Marketing Co. of India Ltd (1 supra), the assessee effected certain transactions of sale of cement under provisions of the Cement Control Order 1967 during the relevant Assessment Years. Under the terms of contract with the purchasers, the amount of freight, which was included in the “free on rail destination railway station”price was paid by the purchaser, and hence deducted from the price shown on the invoice sent to the purchasers. The assessee did not include the amount of freight in its return on the view that it did not form part of sale price. The Assistant Commissioner of Sales Tax however held that having regard to the Cement Control Order, freight was part of sale price and levied sales tax upon it. He also imposed a heavy penalty on the assessee for not disclosing the amount of freight in the return. The assessee appealed by Special Leave to the Supreme Court directly from the orders of the Assistant Commissioner of Sales Tax. Though, the Supreme Court dismissed the appeal on merits, however, it set aside the levy of penalty, holding that penalty cannot be imposed under Section 43 of the M.P. General Sales Tax Act, 1958 and Section 9 (2) of the Central Sales Tax Act, 1956 on the ground that the assessee had filed false returns by not including the amount of freight in the taxable turnover disclosed in the returns; that it is difficult to see how the assessee could be said to have filed false returns when what the assessee did namely- not including the amount of freight in the taxable turnover, was under a bonafide belief that the amount of freight did not form part of the sale price, and was not includible in the taxable turnover. The Court held that it cannot be said that this was a frivolous contention taken up merely for the purpose of avoiding liability to pay tax. It held that it was a highly arguable contention which requires serious consideration by the Court and the belief entertained by the assessee that it was not liable to include the amount of freight in the taxable turnover, could not be said to be malafide or unreasonable. It held that what Section 43 of the Madhya Pradesh General Sales Tax Act requires is that the assessee should have filed a false return; a return cannot be said to be false unless there is an element of deliberateness in it; it is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for want of such care, the Court may, in a given case, infer deliberation and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turnover under a bonafide belief that he is not liable so to include it, it would not be right to condemn the return as a false return inviting imposition of penalty. It observed that the statute providing for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by guilty mind, the section cannot be invoked for imposing penalty; and if the view canvassed on behalf of the Revenue was accepted, the result would be that even if the assessee raises a bonafidecontention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable and that surely could never have been intended by the Legislature. 22) Thus the bonafide of the contention raised by the assessee would protect it from levy of penalty. 23) Counsel for the revenue relied on the decision of the Supreme Court in C.I.T vs. Jeevan Lal Sah [4] . That decisionconsidered Section 271(1)(c) of the Income Tax, 1961, after amendment thereto in 1964, which introduced an explanation to sub-section (1) of Section 271. The said explanation created a presumption that where the total income returned by any person is less than 80% of his total assessed income, such person shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of Section 271(1), unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The Supreme Court held that the explanation shifts the burden of proof to the assessee in the situation covered by it. If the assessee fails to establish that his failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part, the presumption will become a finding and it would be open to the authority to levy penalty. 24) Counsel for the Revenue-Department contended by placing reliance on this decision that the finding of the High Court in the quantum appeal filed by the assessee is suggestive of concealment of particulars of income/furnishing of inaccurate particulars of income by the respondent-assessee and, therefore, levy of penalty is justified. 25) We may firstly point out that the Explanation 1 as it stood w.e.f 1.4.1964 had ceased to be on the statute book after it’s deletion much before the instant assessment was made. So the ratio of the said decision has no application to the instant case. 26)Secondly, we have perused the order dt. 18.06.2010 in ITA no.33 of 2008 passed by the High Court of Himachal Pradesh in the assessee’s own case and have noticed that the High Court merely recorded that the revenue authorities were entitled to come to a conclusion that shares were purchased by the respondent not by way of investment, but by way of “trading”, and the assessee was not correct in claiming the profits realized from sale of those shares as “long term gains”. The High Court observed that this is a pure finding of fact and not of law. Though the High Court further observed that to reduce the liability to pay tax, the assessee had started claiming profits realized from sale of shares as “long term capital gains”, but it did not say that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of his income. 27) In the absence of any such finding given by the High Court in the order dt. 18.06.2010 in quantum appeal ITA no.33 of 2008, it is not open order dt. 18.06.2010 in quantum appeal ITA no.33 of 2008, it is not open 27) In the absence of any such finding given by the High Court in the order dt. 18.06.2010 in quantum appeal ITA no.33 of 2008, it is not open order dt. 18.06.2010 in quantum appeal ITA no.33 of 2008, it is not open to the Department to infer such a finding. 28) As rightly contended by the counsel for the respondent-assessee, there was no concealment or furnishing of any inaccurate particulars regarding the income in the return filed by the assessee-respondent. Merely making incorrect claim under a particular head of income, will not expose the assessee-respondent to levy of penalty. was no concealment or furnishing of any inaccurate particulars regarding the income in the return filed by the assessee-respondent. Merely making incorrect claim under a particular head of income, will not expose the assessee-respondent to levy of penalty. 29) The decision of the Supreme court in Commissioner of Income Tax, Ahmedabad vs. Reliance Petroproducts Private Limited[5]supports this view. In that case,the Supreme Court again interpreted Section 271(1)(c) and held as under:- Ahmedabad vs. Reliance Petroproducts Private Limited[5]supports this view. In that case,the Supreme Court again interpreted Section 271(1)(c) and held as under:- “A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of theincome of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" covered, there has to be concealment of the particulars of theincome of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" 5 (2010) 11 SCC 762 used in the Section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the presentcase that no information given in the Return was found to beincorrect or inaccurate. It is not as if any statement made or anydetail supplied was found to be factually incorrect. Hence, atleast, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. 5 (2010) 11 SCC 762 used in the Section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the presentcase that no information given in the Return was found to beincorrect or inaccurate. It is not as if any statement made or anydetail supplied was found to be factually incorrect. Hence, atleast, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. 11. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretchof imagination, making an incorrect claim in law cannottantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills[2009(13) SCC 448] and reiterated in para 13 that:- "13. It goes without saying that for applicability of Section 271 (1) (c), conditions stated therein must exist." (emphasis supplied) 30) Thus, merely making incorrect claim under a particular head of income, while furnishing full information about the transactions in question, would not amount to furnishing inaccurate particulars. This is because no statement made or detail supplied was found to be factually incorrect. 31) This is also the view taken by the Delhi High Court in Commissioner of Income tax (Central)-II vs. M/s Anant Overseas P Ltd[6]. The Court reiterated therein that the question whether the shares were held as investment or stock in trade is highly debatable and a difficult call in many a case, and that merely because the assessee made an incorrect claim in law, it would not tantamount to furnishing inaccurate particulars inviting penalty. 32) In Amit Jain( 3 Supra) also ,the situation was something akin to the instant case. In that case also the assessee declared an income from “short term capital gains”, but the Assessing Officer, on an interpretation of the relevant provisions, and having regard to the nature of the transactions, assessed it as “income from business” and levied a penalty under Section 271(1)(c) of the Act, alleging that the assessee had produced inaccurate particulars. The CIT(Appeals), on being approached by the assessee, cancelled the penalty and the revenue unsuccessfully appealed to the Tribunal. The Delhi High Court held that the amount in question which formed the basis for the Assessing Officer to levy penalty was in fact truthfully reported in the returns and merely because the Assessing Officer chose to treat the income under some other head, he cannot characterize the particulars reported in the return as an “inaccurate particulars” or a “suppression of facts”. cancelled the penalty and the revenue unsuccessfully appealed to the Tribunal. The Delhi High Court held that the amount in question which formed the basis for the Assessing Officer to levy penalty was in fact truthfully reported in the returns and merely because the Assessing Officer chose to treat the income under some other head, he cannot characterize the particulars reported in the return as an “inaccurate particulars” or a “suppression of facts”. 33) We respectfully follow the decisions cited above and hold that since the assessee-respondent had not suppressed the amount in question and had disclosed it in its return, merely because he declared it under a particular “head of income”, and the Assessing Officer chose to treat the same under some other head, the assessee-respondent cannot be accused of furnishing incorrect particulars of income or suppressing facts. assessee-respondent had not suppressed the amount in question and had disclosed it in its return, merely because he declared it under a particular “head of income”, and the Assessing Officer chose to treat the same under some other head, the assessee-respondent cannot be accused of furnishing incorrect particulars of income or suppressing facts. 34) Therefore, the question framed is thus answered in favour of the respondent and consequently, this appeal is dismissed. respondent and consequently, this appeal is dismissed. 35) Pending miscellaneous application(s), if any, shall also stand disposed of. (M.S. Ramachandra Rao) Chief Justice Chief Justice November 09, 2023 (Yashwant) (Jyotsna Rewal Dua) Judge