2015 (8) TMI 861 - AT - Income Tax

Penalty u/s. 27(1)(c) - conversion of business loss into capital loss and in adoption of higher rate for shares sold - Held that - As referred to by the learned AR, ITAT Ahmedabad B Bench for AY 2004-05 in the case of Ergon Investments & Finance (P) Ltd. 2011 (10) TMI 581 - ITAT AHMEDABAD has decided same issue(i. e., computation of capital gain on the sale of shares of Market creators Ltd. , on the basis of actual consideration received and not on the basis of alleged market value), in favour of the assessee relying on the decision of the case of Allure Investments & Finance (P) Ltd. for AY 2004-05 2011 (8) TMI 1085 - ITAT AHMEDABAD wherein held that for the computation of capital gain in the present case, the A.O. shall work out the capital gain/capital loss on the basis of consideration received by the assessee and not on the basis of alleged market value of the shares sold by the assessee. Considering the facts of the case and the above discussions, though the assessee has not preferred any quantum appeal, we do not find it appropriate to levy of penalty because, on identical facts of computation of capital gain on the sale of shares of Market creators Ltd. , on the basis of actual consideration received ie., @ ₹ 0.26 per share and not on the basis of alleged market value, it has been decided by the Tribunal in favour of the assessee on an earlier occasion in another assessee s case mentioned supra. - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act for alleged concealment of income.
2. Conversion of business loss into capital loss.
3. Adoption of a higher rate for shares sold.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act for alleged concealment of income:
The primary issue revolves around the penalty of Rs. 83,914 levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961, for alleged concealment of income. The AO disallowed the business loss claimed by the assessee, asserting that the assessee did not conduct any business activities during the relevant assessment year. The AO treated this as a case of furnishing inaccurate particulars of income and thus levied the penalty.

2. Conversion of business loss into capital loss:
The assessee, a Private Limited Company engaged in dealing and investing in stocks and securities, filed its return showing a loss of Rs. 32,42,900. The AO disallowed the business loss on the grounds that no business activities were carried out during the assessment year. The AO argued that the assessee claimed an unjustifiable loss by selling shares at a price significantly lower than their book value and market rate, thus converting a business loss into a capital loss.

3. Adoption of a higher rate for shares sold:
The CIT(A) confirmed the penalty, stating that the shares were sold at Rs. 0.26 per share to a related party, despite having a book value of Rs. 9.94 per share and a market rate of Rs. 1.52 per share. The CIT(A) held that the sale at a lower rate was unjustified and amounted to furnishing inaccurate particulars of income. The CIT(A) also noted that the shares were shown as investments in the books, yet the loss was claimed as a business loss, further supporting the penalty for inaccurate particulars.

Tribunal's Findings and Judgment:
The Tribunal referenced previous decisions, particularly those of the ITAT Ahmedabad in similar cases, where it was held that for the computation of capital gains, the actual consideration received should be considered rather than the market value. The Tribunal cited the case of Ergon Investments & Finance (P) Ltd., where it was decided that the capital gain should be computed based on the consideration received, not the alleged market value.

The Tribunal noted that the facts of the assessee's case were identical to those in the cited cases, as the shares of the same company were sold on the same date and at the same price. Following the precedent, the Tribunal concluded that the AO should compute the capital gain/capital loss based on the consideration received by the assessee.

Conclusion:
Considering the identical facts and previous favorable judgments, the Tribunal found it inappropriate to levy the penalty. The Tribunal set aside the order of the CIT(A) and deleted the penalty, allowing the appeal filed by the assessee.

Final Decision:
The appeal of the assessee was allowed, and the penalty under Section 271(1)(c) was deleted. The order was pronounced in the open Court on 24-09-2012.