2011 (3) TMI 700 - AT - Income Tax

Business income vs. Capital gain - in the original return, the assessee has taken a stand that the income earned on sale of securities in India is business income while in the revised it changed its stand and declared its income as capital gain - Penalty u/s 271 - The law gives him a right to substitute and bring on record a correct and complete return if he discovers any omission or wrong statement in the return originally filed by him - merely because in the original return the assessee has made certain claim based upon the ruling of AAR which the assessee has subsequently revised voluntarily as per latter ruling of the AAR does not mean that there is a concealment of income on the part of the assessee - 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) - Decided in favor of the assessee

Issues Involved:
1. Characterization of income as 'business income' or 'capital gains.'
2. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.
3. Validity and effect of filing a revised return before the issuance of notice under section 143(2).
4. Justification for deleting the penalty imposed by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Characterization of income as 'business income' or 'capital gains':
The assessee, a Foreign Institutional Investor (FII) registered with SEBI, initially filed its return showing 'NIL' income, claiming it as 'business income.' In a revised return, the income was claimed as 'capital gains.' The Assessing Officer determined that the income from the purchase and sale of securities in India by the FIIs should be assessed as 'capital gains' under section 115AD(1)(b) of the Income-tax Act, 1961. The revised return was accepted, and the income was assessed as short-term capital gains.

2. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961:
The Assessing Officer initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income in the original return. The penalty of Rs. 2,69,460 was imposed, asserting that the assessee concealed particulars of income by not including the short-term capital gains in the original return.

3. Validity and effect of filing a revised return before the issuance of notice under section 143(2):
The assessee filed a revised return before the notice under section 143(2) was issued. The revised return, filed within the due date specified under section 139(1) and 139(5), replaced the original return. The revised return was based on the ruling of the AAR in a sister fund's case. The assessment was completed accepting the revised return, indicating no concealment of income.

4. Justification for deleting the penalty imposed by the Assessing Officer:
The CIT(A) observed that the revised return was filed voluntarily, and the original return was based on a bona fide belief supported by AAR rulings. The CIT(A) held that the primary conditions for levying penalty under section 271(1)(c) were not satisfied, as there was no concealment or inaccurate particulars furnished. The Tribunal upheld this view, emphasizing that the revised return was filed before any detection of concealment and based on a bona fide belief. The Tribunal referenced the Supreme Court's decision in Reliance Petroproducts (P.) Ltd., which stated that making an incorrect claim does not tantamount to furnishing inaccurate particulars.

Conclusion:
The appeals by the revenue were dismissed, and the deletion of the penalty by the CIT(A) was upheld. The Tribunal found that the revised return was filed voluntarily and based on a bona fide belief, with no concealment or inaccurate particulars furnished. The Tribunal emphasized that making an incorrect claim does not amount to furnishing inaccurate particulars, thereby not attracting penalty under section 271(1)(c).

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