2012 (8) TMI 61 - AT - Income Tax

Penalty u/s 271(1)(c) - the assessee showed gain of sale of 23,90,000 shares of HQR as STCG. This stand was changed in the course of assessment proceedings and it was claimed that the shares were long term capital asset, therefore, the gain was LTCG. Such a claim , if accepted by the AO, would permit the assessee to set off other LTCG loss against this gain. - On the basis of this date of acquisition, the gain has to be qualified as STCG, which cannot be set off against other loss in the form of LTCG. The question is whether the assessee is liable to be penalised u/s 271(1)(c) on these facts ? Held that - It is a case of false claim rather than a wrong claim. In such a situation, the decision of jurisdictional High Court in the case of Zoom Communication Pvt. Ltd. (2010 (5) TMI 34 - DELHI HIGH COURT) clearly applicable. Further since particulars furnished for ascertaining the nature of capital gain are inaccurate, the decision in the case of Reliance Petro Products (2010 (3) TMI 80 - SUPREME COURT) is not applicable. In the light of this finding, it is clear that the explanation is not bonafide. Accordingly, the levy of penalty on this amount is upheld.

Issues Involved:
1. Penalty under Section 271(1)(c) for Rs. 2.39 crores as Short-Term Capital Gain (STCG) instead of Long-Term Capital Gain (LTCG).
2. Disallowance of Rs. 22,03,822/- under Section 57(iii).
3. Deletion of penalty concerning the claim of short-term capital loss of Rs. 8,64,15,538/-.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) for Rs. 2.39 crores as STCG instead of LTCG:

The assessee filed a return declaring a total income of Rs. 58,43,535/-. However, the assessment was completed at Rs. 38,50,75,969/-, with the gain from the sale of 23,90,000 shares of Hotel Queen Road Pvt. Ltd. (HQR) being treated as STCG instead of LTCG. The Tribunal found that the shares were acquired on 27.7.2004 and sold on 10.5.2005, thus qualifying as STCG. The assessee claimed the gain as LTCG based on letters dated 11.11.2003 and 4.4.2004, which were found unreliable. The Tribunal concluded that the claim was not bona fide and upheld the penalty, distinguishing between a false claim and a wrong claim. The Tribunal cited the case of Zoom Communication Pvt. Ltd., holding that the particulars furnished were inaccurate, and thus, the explanation was not bona fide.

2. Disallowance of Rs. 22,03,822/- under Section 57(iii):

The assessee claimed a deduction of Rs. 22,03,822/- as interest expenditure against interest income, which was disallowed. The Tribunal found that the borrowings were made to discharge an existing loan from Shri R.P. Mittal and not for earning interest income, thereby lacking the requisite nexus under Section 57(iii). However, the Tribunal noted that all facts were correctly furnished and there was no inaccuracy. Citing Reliance Petro Products Pvt. Ltd., the Tribunal held that the explanation was bona fide and the penalty was not justified.

3. Deletion of penalty concerning the claim of short-term capital loss of Rs. 8,64,15,538/-:

The revenue appealed against the deletion of penalty related to the claim of short-term capital loss. The Tribunal had previously deleted the addition based on the estimated fair market value, which was substituted for the actual consideration. As the addition was deleted in the quantum order, the Tribunal found no basis for the levy of penalty on this issue.

Conclusion:

The Tribunal partly allowed the assessee's appeal by deleting the penalty related to the disallowance under Section 57(iii) and dismissed the revenue's appeal regarding the deletion of penalty for the short-term capital loss claim. The penalty for treating the gain from the sale of shares as LTCG instead of STCG was upheld.

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