The order of the Bench was delivered by
G. D. Agrawal, VP :-This appeal by the assessee is directed against the order of learned CIT(A)-VI, New Delhi dated 25th July, 2013 for the AY 2006-07.
2. Ground No.1 of the assessee’s appeal reads as under:-
“The order passed by the CIT(A) confirming the levy of penalty of Rs.7,26,45,992/- imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 (the Act) is erroneous both on facts and in law and, therefore, liable to be set aside on this ground itself.”
3. The other grounds are only arguments in support of above ground No.1.
4. At the time of hearing before us, it is submitted by the learned CIT-DR that the assessee’s appeal for quantum should be decided first and then only, the penalty appeal should be decided. Learned counsel for the assessee has no objection to the above suggestion of the learned CIT-DR but he pointed out that in the case of the assessee, the Assessing Officer as well as CIT(A) has followed/referred to the order of Escorts Limited and, therefore, before deciding the quantum appeal in the case of the assessee, the appeal in the case of Escorts Limited will have to be decided. In the case of Escorts Limited, apart from assessee’s appeal, there is a cross-appeal by the Revenue and there are several grounds in both the appeals, therefore, it will take a few days’ time if Escorts Limited appeals are heard. Today, in this Bench, one of the Members, viz. Judicial Member Shri I.C. Sudhir is required to sit in two Benches, one in the present bench i.e. ‘B’ Bench and also in ‘D’ Bench. Therefore, it may not be practicable to take up very time consuming appeals. Accordingly, we asked both the parties whether the penalty appeal which is the stay granted matter can be disposed of independently to the quantum appeal.
5. It is submitted by the learned counsel that this penalty appeal can certainly be decided independently because, in this case, penalty has been levied on the claim of the assessee that the capital gain offered by the assessee in the return of income amounting to Rs. 32.37 crores is not liable to be taxed in the year under consideration. He stated that the assessee has disclosed the income in the return of income but only made a claim that because of the transaction of sale itself having been stayed by the High Court, the capital gain cannot be charged to tax in the year under appeal. The above claim of the assessee is denied by the Assessing Officer and he also levied the penalty on the said capital gains which is already offered by the assessee in the return of income. He, therefore, submitted that the penalty appeal can be decided independently and should be decided because it is a stay granted appeal. In view of the above, we proceeded to decide this stay granted appeal i.e. ITA No.5115/Del/2013 and the quantum appeals in the case of Escorts Limited as well as assessee are adjourned to a future date.
6. At the time of hearing before us, the learned counsel for the assessee has referred to the return of income and the computation filed along with the return of income and pointed out that in the return of income, the assessee disclosed long term capital gain on sale of shares amounting to Rs.32,27,119/-. However, in the computation itself, assessee gave the note that the capital gain on sale of shares is not liable to be assessed in the year under appeal. Further, in another note which was filed alongwith return of income, it was explained by the assessee that the assessee had entered into an agreement dated 25.09.2005 for sale of its shareholding in Escorts Heart Institute and Research Centre Ltd. (hereinafter referred to as ‘EHIRCL’) to M/s Fortis Healthcare Services (P) Ltd. for a consideration of Rs.32,49,51,257/-. However, the very formation of EHIRCL has been challenged in Hon'ble Delhi High Court and Hon'ble Delhi High Court has passed the status quo order 30th September, 2005 in respect of aforesaid sale transaction. In view of the above, it was claimed that capital gains arising out of the aforesaid transaction may not be considered for taxation in AY 2006-07. It is further submitted that the above belief of the assessee is based on the legal opinion obtained from the Senior Advocate. Copy of the opinion is also placed in the paper book from pages 56 to 70. He, therefore, submitted that in the case of the assessee, there is no concealment at all because first of all, income itself is offered by the assessee and secondly, all material facts were duly disclosed by the assessee and none of the facts disclosed by the assessee was found to be incorrect or false. In support of this contention, learned counsel for the assessee relied upon the following decisions:-
(i) CIT Vs. Reliance Petroproducts Pvt.Ltd. – [2010] 322 ITR 158 (SC).
(ii) Price Waterhouse Coopers Pvt.Ltd. Vs. CIT and Another – [2012] 348 ITR 306 (SC).
(iii) CIT Vs. DCM Ltd. – [2013] 359 ITR 101 (Delhi).
7. Learned DR, on the other hand, relied upon the order of the Assessing Officer as well as learned CIT(A). She stated that learned CIT(A) has considered each and every argument of the assessee and has rightly arrived at the conclusion that levy of penalty under Section 271(1)(c) by the Assessing Officer was justified. She submitted that in the subsequent year, Shri Anil Nanda has withdrawn his petition from the High Court and, therefore, ultimately, the sale transaction has materialized. The assessee has not offered the income from capital gains in any of the subsequent years. Thus, it is evident that ultimately, there was no effect of the dispute on the sale of shares of EHIRCL by the assessee to M/s Fortis Healthcare Services (P) Ltd. She, therefore, submitted that the assessee made a wrong claim of exemption of the capital gains in the year under consideration and therefore, penalty under Section 271(1)(c) was rightly levied.
8. In the rejoinder, it is submitted by the learned counsel that the assessee has not only offered the income in the year under consideration but has also paid the capital gains tax thereon. When the transaction of sale has not materialized in the year under consideration because of the stay by Hon'ble Jurisdictional High Court, the capital gains tax cannot be levied in the year under consideration. The assessee has no objection for levy of the capital gains tax in the correct year. He submitted that the assessee cannot pay the capital gains tax in two years because the assessee has already offered the income from capital gains in the year under consideration and that is assessed by the Revenue. Therefore, merely because in the subsequent year the income from capital gains is not offered by the assessee, it cannot be inferred that there was concealment of income by the assessee in the year under appeal.
9. We have carefully considered the arguments of both the sides and perused relevant material placed before us. The facts have been recorded by the Assessing Officer in the penalty order and therefore, for ready reference, we reproduce herein below the relevant portion thereof:-
“Return of income declaring an income of Rs.307028354/- was filed by the assessee on 11.12.2006. However, this entire taxable income related to long term capital gains on sale of the assessee’s share holding in EHIRCL to M/s Fortis Healthcare Services (P) Ltd. The assessee disputed its liability to pay tax on these capital gains even though the liability was self computed by the assessee in the electronic return filed by it. The return of the assessee was processed u/s 143(1) of the Act and a demand of Rs.130006605/- was raised on account of this long term capital gain. The case of the assessee was taken up for scrutiny u/s 143(3) and the income under the head capital gain was assessed at Rs.32,37,20,998/- vide order dated29.12.2008. During the assessment proceedings, the assessee took the plea that a sum of Rs.32,37,20,998/- was ‘inadvertently’ shown as income under the head LTCG a note was appended with the returns explaining how the LTCG was not liable for taxation. The note is being reproduced below:-
“During the previous year ending 31.03.06, AAA Portfolios P.Ltd. (the Company) had entered into an agreement dated 25.9.05 for the sale of its shareholding in the Escorts Heart Institute and Research Centre Ltd. (hereinafter ‘EHIRCL’) to one M/s Fortis Healthcare Ltd. for a consideration of Rs.324951257/-. However, the very formation of EHIRCL has been challenged in the Delhi High Court in Suit No.1372/2005 (titled Anil Nanda v. Escorts Ltd. & Ors.)., wherein the plaintiff Anil Nanda has sought re-conversion of EHIRCL into the erstwhile EHIRC – Delhi Society. Having regard to the contentions of the plaintiff in Suit No.1372/2005, the Delhi High Court has passed a status quo order dated 30.9.05, in respect of the aforesaid sale transaction, which continues till today. The Co. has been legally advised that no capital gains accrue to the Co. till the matter is finally settled by the Court.
In view of the matter still being sub-judice and the status quo order of the Court still in operation and on the basis of the legal advice obtained by the Co., the company has not considered the capital gains arising out of the aforesaid transaction as part of the taxable income for the AY 2006- 07.”
However, the AO found the explanation of the assessee unsatisfactory.”
10. From the above, it is evident that the assessee declared in the return of income long term capital gain on sale of assessee’s shareholding in EHIRCL to M/s Fortis Healthcare Services (P) Ltd. However, the assessee disputed its liability to pay tax on this capital gain for which the assessee has given the note in the computation filed alongwith the return of income. In the note, assessee claimed that because of the dispute over the sale of shares and stay order issued by Hon'ble Delhi High Court, the sale transaction has not materialized and therefore, no capital gain accrued to the company in the year under consideration. The claim of the assessee was not accepted by the Assessing Officer. We are unable to understand what concealment was made by the assessee? The assessee has disclosed the income in the return of income, paid tax thereon but claimed that the income is not taxable. The Assessing Officer did not accept the assessee’s claim and also levied penalty under Section 271(1)(c) in respect of the capital gains which is already disclosed by the assessee in the return of income. If the view of the Assessing Officer and learned CIT(A) is accepted, it may lead to a situation where the assessee would be debarred from making any claim before the Assessing Officer. Whether making of a claim before the Assessing Officer that certain part of income is non-taxable is an offence? We are really surprised to see the levy of penalty under Section 271(1)(c) on the facts of the assessee’s case. The very basis of the levy of penalty under Section 271(1)(c) is the concealment of income or furnishing of inaccurate particulars of income. Where is the concealment of income in this case? Whether making of a claim is a concealment? The reply is certainly NO. Hon’ble Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt.Ltd. – (2010) 322 ITR 158 (SC) held as under:-
“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.”
11. Similarly, in the case of DCM Ltd. (supra), Hon'ble Jurisdictional High Court held as under:-
“That the claim was put forward on the basis that the loan granted to the subsidiary was for a specific purpose and for the benefit of the holding company. The loan in fact was granted and had been also written off. There was no concealment or furnishing of inaccurate facts. The legal position put forward by the assessee that the loan unpaid and written off should be either treated as business loss or alternatively as capital loss was rejected. The full facts were before the Assessing Officer at the time of assessment when this claim was made. The fact that scrutiny assessment was pending was a relevant and important circumstance to show the bona fides of the assessee as it was aware that the claim would be examined and would not go unnoticed. Secondly, the claim was rejected in view of the legal position, which was against the assessee and not because of the statement of incorrect or wrong facts.
Law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible. Threat of penalty cannot become a gag or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of assessment proceedings. Normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibits a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.”
12. That the ratio of both the above decisions of Hon’ble Apex Court as well as Hon'ble Jurisdictional High Court would be squarely applicable to the facts of the present case. The assessee disclosed the income in the returned income, made a claim by way of a note and the law does not bar or prohibit an assessee from making a claim which he believes is a plausible claim. The assessee’s claim is duly supported by the opinion of a Senior Advocate. Department may or may not accept the assessee’s claim as correct but the law does not bar an assessee from making a claim and the denial of such claim by the Revenue will not make the assessee liable for penalty of concealment of income. In this case, all the relevant facts were disclosed by the assessee and it is not the case of the Revenue that any facts disclosed by the assessee in the return of income were found to be incorrect or erroneous or false. In view of the above, we have no hesitation to hold that the levy of penalty under Section 271(1)(c) of the Act was not justified in the case under appeal before us. Accordingly, the same is deleted.
13. In the result, the appeal of the assessee is allowed.
The order pronounced in the open court on 6th June, 2014.