2014 (8) TMI 1237 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - determination of correct head of income - Gain on sale of shares - LTCG OR Business Income - income from capital gain was held to be assessable under the head income from business and profession because according to AO the shares were purchased for trading purposes - also assessee has claimed deduction u/s 80G but the assessee had not filed any evidence regarding exemption - HELD THAT - it was a finding of fact that shares were not held as investment which was confirmed by the Hon ble High Court. However at the same tome we find that there is no bar in the Companies Act to convert the stock in trade into investments. Merely because the assessee has treated a particular item of income and the Revenue has changed that treatment would not attract the penal action. See Cement Marketing Co. of India Ltd v Assistant Commissioner of Sales Tax Wherever the assessee has a bonafide explanation to treat an item in a particular fashion and if that view is not accepted then the same cannot be fastened with penal consequences. See Reliance Petroproducts (P) Ltd 2010 (3) TMI 80 - SUPREME COURT Thus the assessee has duly disclosed the facts regarding sale of shares but the only difference is that since shares were treated as investment therefore gains were declared under the head capital gain whereas same were assessed as income from business and profession by the Assessing Officer. This cannot be called to be a case of concealment of income or furnishing of inaccurate particulars of income. Merely the change in the heads of income would not lead to levy of penalty u/s 271(1)(c) Rejection of claim on account of donation u/s 80G - As we find force in the submissions of assessee that assessee had itself added back his claim of donation in the computation of income copy of which is available at page 5 of the paper book. In any case this claim was denied simply because the assessee could not file the certificate of eligibility for exemption u/s 80G and as far as payment is concerned the same has not been doubted. Therefore penalty is not leviable in this case and accordingly we set aside the order of Ld. CIT(A) and delete the penalty. Assessee appeal allowed.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Rejection of deduction claim under Section 80G of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act, 1961:

The primary issue revolves around the confirmation of a penalty of Rs. 1,26,98,414/- imposed by the Deputy Commissioner of Income-tax under Section 271(1)(c) of the Income-tax Act, 1961. The assessee declared income under 'capital gains,' but the Assessing Officer reclassified it under 'income from business and profession,' arguing that the shares were purchased for trading purposes. The penalty proceedings were initiated due to this reclassification and the denial of a deduction under Section 80G.

The assessee contended that all details were provided to justify the claim, and the conversion of stock in trade into investments was a legitimate action recognized by the Income Tax Act. The Revenue had accepted this treatment in previous years without scrutiny, which led the assessee to believe their approach was correct. The Assessing Officer, however, found no merit in this explanation, noting that previous assessments were not scrutinized and upheld the penalty.

The CIT(A) also confirmed the penalty, rejecting the assessee's submissions. The Tribunal, however, emphasized that the assessee had disclosed all facts regarding the sale of shares and the difference lay in the classification of income. It was noted that the conversion of stock in trade into investments is permissible and merely changing the treatment of income does not attract penal consequences. The Tribunal relied on the Supreme Court's decision in CIT v Reliance Petroproducts Pvt Ltd., which stated that making an incorrect claim does not amount to furnishing inaccurate particulars.

The Tribunal concluded that the assessee had not concealed any income or furnished inaccurate particulars, and the penalty under Section 271(1)(c) was not justified. The Tribunal also referenced the Delhi High Court's decision in CIT v Amit Jain, which supported the view that a mere change in the head of income does not warrant a penalty.

2. Rejection of deduction claim under Section 80G of the Income-tax Act, 1961:

The second issue pertains to the rejection of the assessee's claim for deduction under Section 80G amounting to Rs. 5,05,000/-. The deduction was denied because the assessee did not provide evidence of eligibility for exemption under Section 80G. The assessee argued that no deduction was actually claimed, as the donation amount was added back in the computation of income.

The Tribunal found merit in the assessee's submission, noting that the donation amount was indeed added back in the computation. The denial of the claim was solely due to the absence of the eligibility certificate, and the payment itself was not disputed. The Tribunal concluded that the penalty was not applicable in this case either.

Conclusion:

The Tribunal set aside the orders of the CIT(A) and deleted the penalty for both issues. The appeals filed by the assessee were allowed, and the Tribunal emphasized that the mere reclassification of income and the absence of an eligibility certificate for a donation do not constitute grounds for imposing a penalty under Section 271(1)(c) of the Income-tax Act, 1961. The decision was pronounced in the open court on 08/08/2014.