Hiding material facts is concealment

Hiding material facts is concealment
Accepting loan in cash of Rs 20,000 or more is liable for penalty under the income-tax law.

BUSINESS LINE ,Monday, Jul 21, 2008

Taxpayers are expected to declare taxable income by computing it in accordance with the provisions of law.
If a taxpayer files a return of income which he knows is not true or furnishes inaccurate particulars of income then he could be slapped with ‘concealment penalty’.
The minimum penalty leviable is equal to the amount of tax sought to be evaded by concealing the income or furnishing inaccurate particulars thereof. However, the maximum penalty cannot exceed three times the tax sought to be evaded.
In CIT vs Videon (2008 301 ITR 260 Delhi), the assessee disclosed capital gain from sale of land in the original return. Later, a revised return was filed claiming the capital gain, as the transfer was of agricultural land which is an exempted asset.
The assessing officer (AO) did not accept the withdrawal of capital gain by means of revised return and, on appeal, when the matter was remanded by the Tribunal to the AO for reconsideration, the assessee surrendered its claim for exemption.
The AO after charging long-term capital gain (LTCG) to tax also levied concealment penalty.
The court held that the assessee did not hide any material facts and had acted on bona fide belief and on the basis of advice received from Municipal Corporation for claiming the exemption in respect of capital gain on sale of land.
The court held that there was no malicious act or ill intention on the part of the assessee and, hence, penalty is not leviable.

Time limit for rectification
The term ‘order’ refers to assessment orders relating to income and levy of penalty. It also includes orders passed by the appellate authorities. If it contains any error it is to be rectified and necessary provisions are inserted in the statute book to facilitate such rectification. In the case of orders passed by Tribunal, the time limit for rectifying the error is four years from the date of order as per Section 254(2).
In Sree Ayyanar Spinning & Weaving Mills Ltd vs CIT (2008 301 ITR 434 SC) the apex court held that Section 254(2) has two parts — (i) rectification on suo motu basis for which the time limit is four years from the date of order is applicable; and (ii) rectification on the basis of any mistake pointed out by the assessee or AO — for which the time limit of four years is applicable only for pointing out the error and not for passing the order of rectification.
Accordingly, if an application for rectification is filed with the Tribunal within four years from the date of order, the order rectifying the error could be passed by the Tribunal even after the expiry of four years from the date of its earlier order.

Possession of unregistered property
An immovable property could be taken or retained by the prospective buyer by entering into a sale agreement with the seller. If the sale agreement satisfies the requirements of Section 53A of the Transfer of Property Act, 1882 the ownership could be obtained by mere possession without any sale deed or registration thereof.
On sale of such property later, the date of acquisition of ownership must be counted from the date of possessing the property in accordance with sale agreement and not from the date of sale deed or its registration.
In Madathil Brothers vs Deputy CIT (2008 301 ITR 345 Madras), the assessee had possession of property from 1976 based on sale agreement, though the sale deed in favour of the assessee was executed in July 1986 and was registered in September 1986.
The property was sold four days after the registration of the document in the assessee’s favour. The court held that for the purpose of reckoning the ownership tenure, the date of sale agreement and consequent possession thereof was to be considered and not the date of execution of sale deed or its registration. Accordingly it held that the transfer is taxable as LTCG.
In CIT vs G. Saroja (2008 301 ITR 124 Madras) it was held that if there is no sale agreement and granting of possession to the builder or buyer, no capital gain could be charged on deemed basis without any other evidence on record to show transfer of property.

Acceptance of loan by book entries
Accepting loan in cash of Rs 20,000 or more is liable for penalty under the income-tax law. Whether a loan could be accepted by means of book entries was discussed in CIT vs Bombay Conductors & Electricals Ltd (2008 301 ITR 328 Gujarat). In this case, the assessee purchased goods from its holding company. Since it could not pay the money for the purchases made, the due was converted into a loan by means of book entries.
The court held that the objective of introducing Section 269 SS is to curb circulation of black money in the guise of loan or deposit. While introducing Section 269 SS a provision to provide relief based on reasonable cause was inserted by way of Section 273B.
The Tribunal gave a reprieve to the assessee as the book entry was made on bona fide belief that there was no embargo in the statute. The court upheld the reasoning of the Tribunal and held that for a technical or venial breach of law — no penalty is imposable.

Sale of shares
In the case of sale of shares, the date of transfer would be the date of execution of contract of sale provided it is followed by actual delivery of shares and transfer deeds.
The CBDT Circular No.704 dated April 28, 1995, says that the contract for purchase or sale of securities entered by the broker shall be taken as the date of transfer for the purpose of computing capital gain. It was so held in Max Telecom Ventures Ltd vs Assistant CIT (2008 301 ITR AT 90 Amritsar).
It may be noted that if the shares were held for more than 12 months and the sale is effected through a recognised stock exchange in India and is covered by securities transaction tax, such LTCG arising on transfer is exempt under Section 10(38).(The author is an Erode-based chartered accountant.)