Error due to wrong advice on the part of counsel can grant immunity from penal provision
Error due to wrong advice on the part of counsel can grant immunity from penal provision is accepted by the judiciary. One such case is Chandrapal Bagga vs Income-Tax Appellate Tribunal … on 31 January, 2003 wherein it was held that when the assessee has disclosed the transaction which is the basis for capital gains tax and though wrongly claimed exemption from the capital gains tax, but that cannot be a case of penalty under Section 271(1)(c) of the Income-tax Act if it is due to wrong advice of the counsel.
Rajasthan High Court
Chandrapal Bagga vs Income-Tax Appellate Tribunal … on 31 January, 2003
Equivalent citations: (2003) 182 CTR Raj 185, 2003 261 ITR 67 Raj
Bench: Y Meena, K Sharma
- The appeal was admitted in terms of the following question :
“Whether the mistake committed by counsel in advising the assessee and the assessee on such advice submitted return omitting a particular item to be shown in the return can be said to be an act committed by the assessee in concealing deliberately the item of income and thus is liable for penalty under Section 271(1)(c) of the Income-tax Act, 1961 ?”
- The relevant assessment year is 1992-93. The assessee-appellant is an individual and is carrying on the business of transport. In the preceding year, the assessee was a partner in Gautam Roadways but became a proprietor from the assessment year 1991-92. He filed the return on September 21, 1992. The appellant has sold his immovable property on April 26, 1991, for Rs. 5 lakhs and purchased two flats, one on May 6,1991, and another on May 29, 1991, for a total sum of Rs. 5,56,000. The capital gain comes to Rs. 1,40,000. In the original return, the assessee claimed that as he has purchased the immovable property against the consideration received on the sale of house property on April 26, 1991, therefore, no capital gain tax is attracted. Thereafter, he filed the revised return claiming that the capital gain tax is not payable as it is long-term capital gain and the assessee has purchased the property within six months against the consideration received on the sale of his house property on April 26, 1991.
- The Assessing Officer did not accept this explanation and taxed this amount, i.e., difference of Rs. 1,40,000 as short-term capital gain. No appeal has been preferred. Therefore, that addition has become final. Thereafter, the Assessing Officer has initiated the penalty proceedings under Section 271(1)(c)of the Income-tax Act, 1961, and levied the penalty of Rs. 1,04,110.
- In appeal before the Commissioner of Income-tax (Appeals), the penalty amount has been reduced to Rs. 63,974 and in appeal before the Tribunal, the Tribunal has reduced the penalty amount to Rs. 53,312 vide order dated November 23, 2000.
- Learned counsel for the assessee-appellant, Mr. J. K. Ranka, submits that the assessee has disclosed the basic facts regarding the transaction and sale of the house property which was sold on April 26, 1991, and in the revised return the assessee has annexed a note along with the revised return that as assessee has purchased new residential properties against the consideration received on the sale of his house property on April 26, 1991, the assessee is not liable to pay any tax on such capital gain. That capital gain was calculated to Rs. 1,41,000 and penalty has been imposed but learned counsel, Mr. Ranka, submits that when the transaction regarding sale and purchase of the properties in question has been disclosed in the return, no penalty is attracted.
- Mr. Mathur, learned counsel for the respondents, submits that in the original return he has not shown any capital gain tax. In the revised return though he has submitted a note he has not furnished full and true particulars of the income, therefore, the penalty is attracted under Section 271(1)(c)of the Income-tax Act, 1961.
- Heard learned counsel for the parties.
- The fact is not in dispute that year ending is March 31, 1992, and the assessee has filed the revised return containing a note which reads as under : “II. Capital gain–For the reasons given below.
- In view of the transactions of the purchases and sale of residential properties the assessee within the stipulated period of two years used long-term capital gain in the purchase of new residential property as described in Schedule X and so the long-term capital gain earned are all exempt and are not liable to be taxed. So the capital gains have been shown as exempt.”
- He further submits that though the assessee has brought to the notice of the Department that there was a transaction and the assessee has sold the immovable property on April 26, 1991, but on the advice of the advocate, Mr. M. C. Ranka, the assessee has claimed that capital gain is not liable to tax. Mr. J. K. Ranka has brought to our notice the affidavit given on oath by Mr. M. C. Ranka that in fact by his mistake the assessee has shown “long-term capital gain” and claimed exemption, but the transaction has been disclosed in the return. That was his mistake and not the mistake of the assessee. The relevant portion in para. 3 of the affidavit reads as under :
“That the revised return was filed in consultation with me and in accordance with my advice. I am working individually. I do not form part of any firm. My view was found mistaken. I was unaware of the view adopted by the Assessing Officer. The mistake was bona fide and was committed after due diligence.”
- When the assessee has disclosed the transaction which is the basis for capital gains tax and though wrongly claimed exemption from the capital gains tax, but that cannot be a case of penalty under Section 271(1)(c)of the Income-tax Act, 1961. If it has claimed any exemption after disclosing the relevant basic facts and under ignorance of the provisions of the Act of 1961, and not offered that amount for tax, in such cases, penalty should not be imposed. In such cases rather it is the duty of the Assessing Officer to ask for further details and tax the income if it is liable to tax and that has been done in this case.
- In view of these facts on record, we see no reason to sustain the order of the Tribunal. The order of the Tribunal is set aside and penalty is cancelled. The appeal stands allowed accordingly.