M S Harsiddh Specific Family Trust Ahmedabad v. The Dy Cit Circle 10 Ahmedabad

1 In The Income Tax Appellate Tribunal A Bench Ahmedabad Before Honble Shri T K Sharma Judicia L Member And Honble Shri N S Saini Accountant Member Ita No 4116 Ahd 2008 Assessment Year 2002 2003 Deputy Commissioner Of Income Tax Circle 10 Ahmedabad Versus Harsiddh Specific Family Trust Ahmedabad Pan Aaath 1941 D Appellant Respondent A N D C O No 12 Ahd 2009 Arising Out Of I T A No 4116 Ahd 2008 Assessment Year 2002 2003 Harsiddh Specific Family Trust Ahmedabad Versus Deputy Commissioner Of Income Tax Circle 10 Ahmedabad Cross Objector Respondent For The Assessee S Shri S N Soparkar And Himanshu Shah C A For The Department Shri Rajeev Agarwal Cit Order Per T K Sharma Judicial Member This Appeal By The Revenue And Cross Objection By The Assessee Is Against The Order Date D 05 11 2008 Of Ld Commissioner Of Income Tax Appeals Xvi Ahmedabad For The Asses Sment Year 2002 03 Cancelling The Penalty Of Rs 47 99 880 Levied By The A O Under Section 271 1 C Of The Income Tax Act 1961 2 Briefly Stated The Facts Are That The Assessee I S A Trust For The Assessment Year Under Appeal It Filed The Return Of Income Declari Ng Total Income Of Rs 4 84 06 670 The A O Framed The Assessment Under Section 143 3 On 23 03 2005 At A Total Income Of Rs 6 40 92 585 In This Order The A O Made V Arious Additions Which Inter Alia Include The Addition Of Rs 3 19 60 000 On Account Of Accrued Interest On Deep Discount Bonds Of Nirma Limited In This Year The A O Also Initiated Penalty Proceedings Under Section 271 1 C Of The Income T Ax Act 1961 3 In Reply To Show Cause Notice Issued Before Levy Ing The Penalty The Assessee Furnished The Reply Dated 23 03 2005 The Relevant Reply Of The Assessee Is As Under 2 Ita No 4116 Ahd 2008 Co No 12 Ahd 2009 Return Of Income Was Filed On 9 8 02 Declaring To Tal Income Of Rs 4 84 06 870 The Assessment Order U S 143 3 Of I T Act Was Passed On 23 03 2005 Assessing Income Of Rs 6 40 92 585 Major Additions Were Regarding Accrued Interest On Deep Discount Bonds Of Nirma Limited Of Rs 3 19 60 000 Assessed As Sh Ort Term Capital Gain Which Was Treated As Long Term Capital Gain In The Return Of Income The Addition Was Made Based On The Circular No 2 Of 2002 This Asse T Was Long Term Capital Asset The Gain Arising Therefrom Should Be Assessed As Lo Ng Term Capital Gain According To The Provisions Of I T Act Being Aggrieved Appeal Is Preferred Before Honble Cit A Appellate Order Was Passed By Honble Cit A On 7 3 06 Being Aggrieved Appeal Is Preferred Before Honble It At Which Is Pending Till Dale The Facts Of My Case Clearly Show That There Is No Concealment Of Income Which Justify Levy Of Penalty U S 271 1 C Of It Act Th E Income Was Disclosed In The Return Of Income Mere Change Of Nature Of Income C Annot Justify Levy Of Penalty U S 27 L 1 C Of It Act It Is The Circular No 2 Of 2002 Which Is Contrary T O The Provisions Of L T Act Is Illegal Null And Void Having No Legal Force It Is Submitted That Board Has Further Clarified Th At Circular 2 Of 2002 Would Be Applicable Prospectively And Would Not Be Applied I N Respect Of The Securities Issued Prior To 15 2 2002 Hence Reliance On This Circular No 2 Of 2002 Is Wholly Irrelevant And Misplaced Even Otherwise This Is Highly Debatable Issue For Which Penalty U S 271 1 C Should Not Be Levied Hence May We Humbly Request Your Goodself Not To Levy Penalty Ufe 271 1 C Of It Act 4 The A O Rejected The Aforesaid Explanation Of T He Assessee On The Ground That The Learned Commissioner Of Income Tax Appeals Con Firmed The Addition Of Rs 3 00 73 758 On Account Of Accrued Interest In Favour Of The Department The A O According Levied The Penalty Of Rs 47 99 880 On A Ddition Of Rs 3 00 73 758 Made In The Assessment Order On Account Of Accrued Inter Est This Penalty Was Levied In The Status Of Aop Trust Against The Penalty Order The Assessee Preferred Appeal Before The Learned Commissioner Of Income Tax Appeals Du Ring The Course Of Hearing Of Penalty Appeal Before The Learned Commissioner Of I Ncome Tax Appeals The Assessee Contended That It Was Not Liable Subject T O Penalty Under Section 271 1 C Because I Though In The Penalty Order There Is A Mention Of Addition Of Rs 3 00 73 758 On Account Of Accrued Interest No Such Addition Is Made In The Assessment Order 3 Ita No 4116 Ahd 2008 Co No 12 Ahd 2009 Ii Even Otherwise Also On Principle The Additi On Of Accrued Interest Based On The Circular No 2 Of 2002 Dated 15 02 2002 Has Bee N Deleted By The Itat Ahmedabad In The Case Of Kisan Discretionary Family Trust Iii After Following The Orders Of The Itat In Th E Case Of Kisan Discretionary Family Trust The Ld C I T A Xi Has Deleted Pena Lty In The Case Of The Family Members Of This Group Namely A Shri Hiren K Patel A Y 2002 2003 Dated 18 01 200 8 B Shjri Rakeshbhai K Patel A Y 2002 03 Dated 11 01 2008 C Shri Karsanbhai K Patel A Y 2002 03 Dated 18 01 2008 5 Before The Learned Commissioner Of Income Tax Ap Peals It Was Also Contended That A O Passed The Penalty Order Under Section 271 1 C Of The Income Tax Act In The Status Of Aop Trust Whereas The Corr Ect Status Of The Assessee Is That Of Individual As Per The Judgment Of The Honble Juris Dictional High Court In The Case Of 258 Itr 785 Before The Learned Commissioner Of I Ncome Tax Appeals The Assessee Also Relied On The Decision Of Itat In The Case Of Kisan Discretionary Family Trust Vs Acit Circle 10 Ahmedabad In Ita No 18 50 Ahd 2007 For A Y 2003 04 On The Identical Facts And Circumstances Of The Case The Itat Has Held That Since The Assessee Was Following Cash System Of Accountin G The Interest Income On The Deep Discount Bonds Ofcpns Is To Be Taxed In The Y Ear Of Receipt And Not On Accrual Basis It Was Also Submitted That On Similar Facts The Quantum Addition Has Been Deleted By The Itat Therefore There Is No Scope F Or Levying Penalty Under Section 271 1 C Before The Learned Commissioner Of Incom E Tax Appeals It Was Also Contended That In The Assessment Order No Such Add Ition Of Rs 3 00 73 756 Is Made Therefore On This Ground Alone Penalty Levied Sho Uld Be Cancelled 6 After Considering The Various Submissions The L Earned Commissioner Of Income Tax Appeals Held That Addition Itself Is On Debatable Issue Therefore Penalty Under Section 271 1 C Is Not Leviable Aggrieved By The Order Of Learned Commissioner Of Income Tax Appeals The Revenue Is In Appeal Before Us 7 At The Time Of Hearing On Behalf Of Revenue Shr I Rajeev Agarwal Appeared And Contended That The Order Of Learned Commissione R Of Income Tax Appeals Is Incorrect As He Has Failed To Give Any Finding On T He Penalty Levied In Relation To Addition Made Towards Short Term Capital Gain On Sa Le Of Deep Discount Bonds 4 Ita No 4116 Ahd 2008 Co No 12 Ahd 2009 Rejecting The Claim Of Long Term Capital Gain It W As Also Contended That The Order Of Learned Commissioner Of Income Tax Appeals Is Clea Rly Incomplete And Incorrect On The Facts Of The Case Because The Learned Commis Sioner Of Income Tax Appeals Has Relied On The Decision Of Itat In The Case Of K Isan Discretionary Family Trust Vs Acit Circle 10 Ahmedabad In Ita No 1850 Ahd 2007 For A Y 2003 04 That Decision Is Not Relevant On The Addition Made Towar Ds Short Term Capital Gains Finally The Ld D R Submitted That The Order Of Learned Co Mmissioner Of Income Tax Appeals Is Incorrect As He Has Cancelled The P Enalty Levied Under Section 271 1 C Without Analyzing The Facts Discussed In The Penalty Order And Without Giving Any Finding On The Issued Involved 8 On The Other Hand Shri S N Soparkar Ld Couns El For The Assessee Contended That From The Penalty Of Penalty Order Under Sectio N 271 1 C It Is Clear That The A O Levied The Penalty On The Addition Of Rs 3 00 73 75 8 On Account Of Accrued Interest No Penalty Whatsoever Is Levied In Respect Of Addit Ion Made Towards Short Term Capital Gain On Sale Of Deep Discount Bonds Rejecti Ng The Claim Of Long Term Capital Gain The Ld Counsel Of The Assessee Further Relie D On The Decision Of The Itat A Bench Ahmedabad In Ita No 1042 Ahd 2006 In The Ca Se Of Karsanbhai Khodidas Patel Huf Vs Acit Central Circle 1 1 Ahmedab Ad Wherein On Identical Facts It Was Held That Assessee Is Right In Claiming That Ca Pital Gain Arising On Sale Of Deep Discount Bonds Should Be Assessed As Long Term Capi Tal Gain On The Footing That He Held Than For A Period Of More Than 12 Months Start Ing From 23 09 2000 Before They Were Sold On 20 03 2002 Consequently The Assessee Is Entitled To Exemption Under Section 54 Ec As Claimed The Ld Counsel Of The Ass Essee Accordingly Contended That Even Otherwise On Merit Also Penalty Under Section 271 1 C Is Not Leviable Therefore The View Taken By The Learned Commission Er Of Income Tax Appeals Cancelling The Penalty Be Upheld 9 Having Heard Both The Sides We Have Carefully G One Through The Orders Of Authorities Below In The Penalty Order The A O L Evied The Penalty On The Ground That The Assessee Has Evaded The Taxation Of Income Of R S 3 00 73 758 On Account Of Accrued Interest Admittedly No Such Addition Is M Ade In The Assessment Order Even Otherwise Also On Principle Addition Of Accrued I Nterest Based On Circular No 2 Of 2002 Dated 15 02 2002 Has Been Deleted By The Itat Ahmedabad In The Case Of 5 Ita No 4116 Ahd 2008 Co No 12 Ahd 2009 Kisan Discretionary Family Trust Similar Addition Is Also Deleted By The Itat A Bench Ahmedabad Recently Vide Order Dated 09 10 20 09 In Ita No 1042 Ahd 2006 In The Case Of Karsanbhai Khodidas Patel Huf Supra Apart From This Penalty Levied Under Section 271 1 C Is Also Deleted In The Case Of The Family Members Of This Group In The Following Cases A Shri Hiren K Patel A Y 2002 2003 Dated 18 01 200 8 B Shjri Rakeshbhai K Patel A Y 2002 03 Dated 11 01 2008 C Shri Karsanbhai K Patel A Y 2002 03 Dated 18 01 2008 Since The Interest Income On The Deep Discount Bond S Ofcpns Is To Be Taxed In The Year Of Receipt And Not On Accrual Basis And On Id Entical Facts The Tribunal Has Held That Capital Gains Arising On Sale Of Deep Discount Bonds Should Be Assessed As Long Term Capital Gains On The Footing That It Has Held Them For A Period Of More Than 12 Months And Consequently Is Entitled To Exemption U Nder Section 54 Ec In Our Opinion The Assessee Has Not Concealed Particular S Of Income Or Furnished Inaccurate Particulars Thereof As A Matter Of Fact Complete Facts Were Disclosed Therefore In Our Opinion The Learned Commissioner Of Income Tax Appeals Has Given Cogent Reason For Cancelling The Penalty Of Rs 47 99 880 Levied By The A O Under Section 271 1 C Of The Income Tax Act 1961 We Therefor E Decline To Interfere 10 The Assessee In Its Cross Objection Has Raised The Following Grounds I In Law And In The Facts And Circumstances Of Th E Respondents Case The Penalty Levied Rs 47 99 880 On The Addi Tion Of Rs 3 00 73 758 On Account Of Accrued Interest Ho Wever No Such Addition Was Made In The Assessment Order Passed U S 143 3 Of Income Tax Act Ii In Law And In The Facts And Circumstances Of T He Respondents Case The Penalty Order Passed In The Status Of Aop Trust Should Be Held To Be Invalid The Correct Status Of The Appel Lant Is That Of Individual 11 In View Of Our Decision In Revenues Appeal Th E Cross Objection Filed By The Assessee Is Rendered Infructuous Therefore The Sa Me Is Dismissed 12 In The Result The Appeal Filed By The Revenue As Well As The Cross Objection Filed By The Assessee Are Dismissed This Order Is Pronounced In Open Court On 13 Th January 2010 Sd Sd N S Saini T K Sharma Accountant Member Jud Icial Member Dated 13 01 2010 6 Ita No 4116 Ahd 2008 Co No 12 Ahd 2009 Copy Of The Order Is Forwarded To 1 The Appellant 2 The Respondent 3 The Cit A Concerned 4 The Cit 5 The Dr Ahmedabad Bench 6 The Guard File By Order True Copy Asstt Registrar Deputy Registrar Itat Ahmedabad Benches Ahmedabad Laha Sr P S