2015 (10) TMI 1603 - AT - Income Tax

Penalty u/s.271(1)(c) - treatment of transactions in shares and mutual funds - whether assessable under the head income from short term capital gains as declared by the assessee and whether to be assessed under the head income from business - Held that - As decided in assessee s own case relating to assessment year 2006-2007 till last assessment year the assessee was showing income from share business under the head business income, that during the year it had converted its stock in trade in to investment, that it was maintaining two portfolios in the year under appeal, that it had showed income from certain share transaction under the business head. As per the provisions of the Act, the assessee can convert his stock in trade in to investment. So, if in the year under consideration, it had opted for that option, there was no reason to reject its claim. It had passed necessary entries in the books of accounts. Therefore just because of a decision taken in quantum proceedings, it cannot be held that the assessee had concealed particulars of income. It is said that decision in the assessment proceedings do not result in automatic imposition of penalty. In the matter before us, the assessee had filed all the necessary details before the AO. There was difference of opinion between the assessee and the AO about the treatment to be given to the share transactions undertaken by the assessee. The admission of the appeal by the Hon ble jurisdictional High Court against the quantum proceedings prove that there is difference of opinion about the issue in question. In such matters, in our opinion, penalty should not be levied - Decided in favour of assessee.

Summary

Issues involved:
Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on the treatment of income from share trading as short term capital gains instead of business income.

Analysis:

1. Issue of Penalty under Section 271(1)(c):
The appeal was filed by the Revenue against the Commissioner of Income-tax (Appeals) order relating to the assessment year 2007-2008 regarding the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961. The primary contention raised by the Revenue was that the penalty was wrongly deleted by the CIT(A) based on the grounds that a mere disallowance of a claim would not attract penalty under section 271(1)(c) of the Act. The Revenue argued that the assessee had changed its income declaration from business income to short term capital gains to benefit from a lower tax rate, which was considered a false claim. The AO initiated penalty proceedings based on the same facts as in the previous assessment year, and the penalty was levied for filing inaccurate particulars of income.

2. Judicial Precedent and Tribunal's Decision:
The Tribunal reviewed the orders in the assessee's own case for the assessment year 2006-2007 and noted that the penalty levied under section 271(1)(c) was deleted by the CIT(A) following the Tribunal's order. The Tribunal emphasized that the assessee had the right to convert stock in trade into investment as per the Act, and the difference in opinion between the assessee and the AO regarding the treatment of share transactions did not automatically warrant a penalty. The Tribunal held that penalty should not be imposed in cases where there is a genuine dispute on the treatment of income. Therefore, based on the parity of reasoning with the previous year's decision, the Tribunal confirmed the CIT(A)'s order in deleting the penalty under section 271(1)(c) for the current assessment year.

3. Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal found that the issue and facts in the present appeal mirrored those in the previous year's case, and based on the consistent application of legal principles, the penalty was not justified. The Tribunal's decision highlighted the importance of considering the specific facts and circumstances of each case before imposing penalties under tax laws.

In summary, the Tribunal's judgment focused on the treatment of income from share trading, emphasizing the need for a genuine dispute on income classification to avoid automatic penalties under section 271(1)(c) of the Income-tax Act, 1961.