2012 (8) TMI 220 - AT - Income Tax

Penalty u/s. 271(1)(c) - addition/disallowance made by the Assessing Officer under the normal computation of the Act when the assessment has been finally made and tax has been paid u/s. 115JB Held that - Penalty u/s. 271(1)(c) in the case of the assessee cannot be imposed, because there was no tax sought to be evaded because the additions in respect of which penalty have been imposed, was made while computing the total income under the normal provisions of the Act and finally the income of the assessee was determined on the basis of the book profit u/s. 115JB Penalty u/s. 271(1)(c) - For concealment of income - Assessee claimed short-term capital gain on sale of shares - However, Assessing Officer rejected said claim and treated gain as speculative business income under section 73 Held that - Appellant company was having shares in the nature of investment and accordingly they were shown under the head investment in the balance sheet and gain on sale of such shares was bonafidely shown under the head capital gain - mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee - appellant cannot be held to be guilty of either furnishing of inaccurate particulars of income or has concealed particulars of income penalty cannot be levied In favor of assessee

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.
2. Treatment of income from share transactions as speculative income under Explanation to section 73.
3. Applicability of penalty under section 271(1)(c) when assessment is completed under section 115JB.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The appellant contested the penalty of Rs. 1,37,46,512/- confirmed by the CIT (Appeals) for the Assessment Year 2007-08. The appellant argued that the provisions of the Act were not properly construed and that no penalty should have been confirmed. The CIT (Appeals) concluded that the appellant furnished inaccurate particulars of income amounting to Rs. 5,87,78,852/- and confirmed the penalty. The appellant is a company engaged in infrastructure development and had shown book profit under section 115JB at Rs. 67,44,11,568/- and filed a return of income at Rs. 10,93,98,307/-.

2. Treatment of Income from Share Transactions as Speculative Income:
During the assessment proceedings, the Assessing Officer (AO) made disallowances under sections 14A and 80IB and treated the short-term capital gain of Rs. 5,87,78,833/- from share transactions as "income from speculation business" under Explanation to section 73. The appellant contended that the shares were held as investments, and the sales should be computed under capital gains. The AO, relying on the ITAT Special Bench judgment in Asstt. CIT v. Concord Commercial (P.) Ltd., rejected this claim and considered it as speculative income.

3. Applicability of Penalty under Section 271(1)(c) when Assessment is Completed under Section 115JB:
The appellant argued that since the assessment was completed under section 115JB based on book profit and not under normal provisions, the penalty under section 271(1)(c) should not be upheld. The AO initiated penalty proceedings on all disallowances and additions made in the assessment order and levied a penalty on the income sought to be evaded. The CIT (Appeals) upheld the penalty on the speculative income but deleted it for other disallowances. The appellant contended that the mere treatment of short-term capital gain as speculation income does not amount to furnishing inaccurate particulars or concealing income.

Judgment Analysis:

On the First Issue:
The tribunal held that penalty under section 271(1)(c) cannot be imposed when the assessment is completed under section 115JB, as no tax was levied on the additions made under normal provisions. The tribunal relied on the Delhi High Court decision in CIT v. Nalwa Sons Investments Ltd., which stated that if tax is paid on book profits under section 115JB, then additions under normal provisions are irrelevant for penalty purposes. The tribunal concluded that since the assessment was completed on book profit, penalty on additions made under normal provisions is not sustainable.

On the Second Issue:
The tribunal examined the appellant's claim that the shares were held as investments and gains were shown under capital gains. The AO had rejected this explanation based on the Special Bench decision in Concord Commercial (P.) Ltd. The tribunal noted that the assessment order is not conclusive in penalty proceedings and that the appellant's explanation must be considered afresh. The tribunal observed that the appellant had a bona fide belief that the income from the sale of shares was taxable under capital gains, and the AO had not discharged the burden of proving the explanation false. The tribunal also referenced the Supreme Court decision in Reliance Petroproducts (P.) Ltd., which held that making an incorrect claim does not amount to furnishing inaccurate particulars.

Conclusion:
The tribunal allowed the appeal, canceling the penalty imposed by the AO and confirmed by the CIT (Appeals). The tribunal held that the appellant was not guilty of furnishing inaccurate particulars or concealing income, and the penalty under section 271(1)(c) was not leviable. The tribunal's decision was based on the fact that the assessment was completed under section 115JB and the appellant had a bona fide belief regarding the treatment of income from share transactions.

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