Penalty cannot be levied merely because of differential rate of tax and mistake in advice of CA – Mum ITAT


ACIT v Smt. Cecilia Haresh Chaganlal [ITA NO. 2661/Mum/2013 dated 05.11.2014] (Mumbai ITAT)

Background:

The assessee is an individual and a senior citizen of 80 years age. Assessee filed the return of income declaring long term capital gains on sale of paintings and the same were offered to tax at the normal tax rate of 20% applicable to the long term capital gains under the Act. Thereafter, the assessee filed revised return wherein the aforesaid long term capital gains are offered to tax at the concessional tax rate of 10% under proviso to sub section (1) of section 112 of the Act. The AO held that assessee has made a wrong claim in the revised return by offering the impugned capital gains at 10% tax rate instead of 20% tax rate and thus, furnished inaccurate particulars of her income in respect of the sale of paintings. Accordingly, the A.O. initiated penalty proceedings and imposed penalty u/s. 271 (1 )(c) of the Act.  The CIT(A) was satisfied with the explanation of the assessee and deleted penalty levied under section 271(1)(c).

Assessee’s contentions:

  • There is no concealment or incorrect particulars of income in any of the return filed by the assessee but the only difference is the rate of tax applied by the assessee in the revised return.
  • The original return as well as revised returns were filed on the basis of the advice of Chartered Accountant, therefore, if a mistake is committed by the Chartered Accountant due to inadvertence or oversight then it cannot be said that the assessee has furnished inaccurate particulars of income but the same falls under the bonafide mistake. In support of this contention reliance was placed upon the decision of Hon’ble Supreme Court in the case of Price Waterhosue Coopers Pvt. Ltd. (2012) 348 ITR 306 (SC)

Tax Authority’s arguments:

  • This is not a case of some bonafide mistake but it was claimed by the assessee to offer Long Term Capital Gain under a different category which is absolutely incorrect and false.

HELD:

  • The Long Term Capital Gain arose on sale of paintings, therefore, the same is not allowable for concessional rate of tax as per the proviso to section 112(1) of the Income Tax Act. 
  • The amount of Long Term Capital Gain remains same in all the three return of income filed by the assessee and the only change and difference in the original return of income and first revised return of income is the rate of tax applied by the assessee.
  • In the return of income the assessee has specifically and categorically mentioned the capital gain arising from the sale of paintings. The source of income has been explained by the assessee in all the return of income which remains same and, therefore, there is no change in the source of income and the category of income which is specified as capital gain.
  • When there is no attempt on the part of the assessee to show the Long Term Capital Gain in a different category then merely because a concessional rate of tax was applied in the revised return does not ifso facto lead to the conclusion that the assessee has concealed the particulars of income.
  • The concessional rate of tax on Long Term Capital Gain was applied on the basis of the advice of the Chartered Accountant, therefore, it was a bona fide mistake
  • This explanation, in our view is quite reasonable as per the Explanation 1B of section 271(1) of the Income Tax Act particularly in view of the fact that the assessee did not claim the benefit of indexed cost while computing the Capital Gain in question. 
  • We do not find any error or illegality in the impugned order of CIT(A) in deleting the penalty by following the Judgment of Hon’ble High Court in the case of Price Watercoopers (Supra)

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