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2016 (7) TMI 375 - AT - Income TaxPenalty u/s. 271(1)(c) - as per assessee income arising from Redemption of Mutual funds is exempted from tax - AO treated the said exempted income as short Term Capital Gain and added the income to total income and taxed thereon at special rate @ 10% u/s. 111A - Held that - We find that the plea of the assessee is bona fide and also find that the AO had levied penalty for filing inaccurate particulars of income in respect of short term capital gains of ₹ 6,51,937/- and levied penalty of ₹ 60,173/- thereon. But the Ld. CIT(A) had confirmed the levy of penalty on the ground of concealment of income. Hence, there is a basic difference on the charge attributed on the assessee by the revenue. In these circumstances, penalty could not be imposed on the assessee - Decided in favour of assessee
Issues Involved:
1. Whether penalty under Section 271(1)(c) of the Income Tax Act, 1961 could be levied in the facts and circumstances of the case. Issue-wise Detailed Analysis: 1. Penalty under Section 271(1)(c): The sole issue in this appeal is whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961 could be levied. The assessee, an individual engaged in the business of agricultural items, filed her return of income declaring a total income of ?1,46,864 and exempted income of ?10,86,573 for the Assessment Year 2008-09. The return was processed under Section 143(1) of the Act, and the case was later selected for scrutiny. During the assessment proceedings, the Assessing Officer (AO) questioned the exempted income shown in the return. The assessee explained that the income from the redemption of mutual funds was shown as exempted based on the decision of Bharatiya Janata Party Vs Dy CIT, which held that redemption of mutual funds on maturity does not constitute a transfer. However, the AO rejected this explanation, treated the income as short-term capital gain (STCG), and taxed it at a special rate of 10% under Section 111A of the Act. The assessee did not appeal against this order, making the addition final. Subsequently, the AO initiated penalty proceedings under Section 271(1)(c) and levied a penalty on the taxed amount of ?6,51,937 out of the ?10,86,573 shown as exempted income. The CIT(A) upheld the levy of penalty, leading to the present appeal. 2. Explanation and Defense by Assessee: The assessee contended that once the income was disclosed in the return and taxed, there was no concealment, and thus, no penalty under Section 271(1)(c) should be imposed. The assessee relied on the decision of the Hon’ble Rajasthan High Court in Chandra Paul Bagga vs. ITAT & Ors, which held that if the transaction is disclosed in the return, there is no concealment of income, and penalty cannot be imposed. The assessee also cited the Supreme Court decision in Pricewaterhouse Coopers Pvt. Ltd. Vs. CIT, which emphasized that a bona fide and inadvertent error does not constitute concealment or furnishing of inaccurate particulars. 3. Revenue's Argument: The Departmental Representative (DR) argued that the assessee had filed inaccurate particulars of income, justifying the levy of penalty. 4. Tribunal's Findings: The Tribunal noted that during the assessment proceedings, the assessee had cooperated and provided a detailed breakdown of the exempted income, including STCG and LTCG. The Tribunal observed that the assessee's belief that income from the redemption of mutual funds was exempt under Section 10(23D) was a bona fide misunderstanding of the law. The Tribunal emphasized that ignorance of law is not an excuse, but in this case, the assessee's belief was genuine and not intended to conceal income. The Tribunal also referred to the decision of the Hon’ble Apex Court in Motilal Padampat Sugar Mills Co. Ltd vs. State of Uttar Pradesh & Ors, which stated that there is no presumption that every person knows the law. 5. Legal Precedents and Conclusion: The Tribunal relied on the decision of the Hon’ble Karnataka High Court in CIT Vs. Manjunatha Cotton and Ginning Factory & Ors, which outlined several principles regarding the imposition of penalty under Section 271(1)(c), including the necessity of specific findings and the non-automatic nature of penalty imposition. The Tribunal concluded that the assessee's explanation was bona fide and that the AO had not adequately demonstrated that the explanation was false or not bona fide. Consequently, the Tribunal canceled the levy of penalty, allowing the appeal in favor of the assessee. Final Judgment: The appeal of the assessee was allowed, and the order of penalty under Section 271(1)(c) was canceled. The judgment was pronounced in the open court on 01.06.2016.
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