2018 (9) TMI 1853 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - non specification of charge - A.O. rejected the claim of the long term capital gain and charged the same @ 30% as income from other sources as undisclosed income - HELD THAT - We find that the assessee in this case is engaged into the purchase and sale of shares. The assessee has offered the gain as long term capital gain chargeable @ 10%. A.O. on the other hand made certain enquiries and came to the conclusion that on the economic and financial parameter the huge gain was not justified. Hence quoting the case laws on the subject of preponderance of probability A.O. rejected the claim of the long term capital gain and charged the same @ 30% as income from other sources as undisclosed income. In this regard the submission of the assessee is that all the documents in support of the genuineness of the transactions were submitted. The assessee has duly offered the gain to tax. Hence it is the assessee s submission that there is no concealment of income or furnishing of inaccurate particulars of income. We find it gainful to refer to the decision of the ITAT in the quantum addition wherein while confirming the ITAT had held that the genuineness of the transaction was not proved if not actually disproved. No defect was found in the documentation supporting the transaction and the ITAT had gave a finding that the assessee s explanation was unproved but not disproved. In identical situation in the case of Upendra vs. Mithani 2009 (8) TMI 1159 - BOMBAY HIGH COURT has held that in these circumstances the penalty u/s. 271(1)(c) cannot be imposed. In the case of Bennett Coleman Co. Ltd. 2013 (3) TMI 373 - BOMBAY HIGH COURT has held that no penalty is leviable where there is only a change of head of income. The assessee deserves to succeed on the touch stone of this case law also. In this case the penalty u/s. 271(1)(c) cannot be sustained as firstly the addition is based upon the theory of preponderance of probability and defect in the documentation for claim of long term capital gain per se have not been found to be defective. Similarly as held by the Hon ble Bombay High Court in the case of Nayan Builders (supra) when substantial question of law is admitted in the quantum appeal by the Hon ble Bombay High Court the issue becomes debatable and penalty u/s. 271(1)(c) cannot be levied. - Decided in favour of assessee.

Summary

Issues involved:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 amounting to Rs. 35,00,000.

Detailed Analysis:

Issue 1: Specification of Penalty Proceeding Initiation
The appellant contested that the Assessing Officer (AO) did not clearly specify the exact limb on which the penalty proceeding was initiated. The appellant argued that this lack of specificity was a legal infirmity. The appellant relied on legal judgments to support this argument, emphasizing the importance of clearly specifying the grounds for penalty initiation.

Issue 2: Treatment of Long Term Capital Gains
The appellant highlighted that the long term capital gains were disclosed in the return and taxed at a special rate of 10%. However, the AO taxed the gains at 30% as undisclosed income, leading to a penalty imposition. The appellant argued that this discrepancy was merely an interpretational issue or a change of income head, not warranting a penalty.

Issue 3: Evidence and Explanation Submission
The appellant presented voluminous evidence and a bona fide explanation in response to the penalty proceedings. The appellant contended that the AO did not disprove or negate the submitted evidence. The appellant also referenced ITAT observations and relevant case laws to support the argument that the penalty imposition was unwarranted.

Issue 4: Admittance of Substantial Question of Law
The appellant pointed out that the Hon'ble jurisdictional High Court had admitted a substantial question of law related to the case. Citing legal precedents, the appellant argued that when a substantial question of law is admitted, the issue becomes debatable, and the imposition of a penalty under section 271(1)(c) is not sustainable.

Judgment Analysis:
The ITAT, after considering the submissions and precedents, concluded that the penalty under section 271(1)(c) could not be sustained. The ITAT found that the addition was based on the theory of preponderance of probability, and no defects were found in the documentation supporting the long term capital gain claim. Referring to legal judgments, the ITAT held that the penalty was not leviable as the genuineness of the transaction was not proved. The ITAT also emphasized that a mere change of income head did not warrant a penalty. Ultimately, the ITAT set aside the penalty imposed, directing its deletion.

In summary, the ITAT's decision favored the appellant, ruling in favor of deleting the penalty imposed under section 271(1)(c) based on the lack of substantial evidence to support the penalty imposition and legal precedents supporting the appellant's arguments.