2017 (1) TMI 682 - AT - Income Tax

Levy of penalty u/s.271(1)(c ) - AO in assessment order treated derivative transaction activity as business activity instead of investment activity claimed by the assessee. The AO assessed short term capital gain declared by the assessee as business income from these derivative transaction activities - Held that - The assessee has declared the income arising out of derivative transaction activity as short term capital gain as against assessed by AO as business income. For this assessee has filed an explanation that assessee was under bonafide belief that the entire activity of share trading earns only capital gain and not business income. It was also the argument of the assessee that he has not indulged into any concealment of income or furnishing of inaccurate particulars of income. The findings of AO are unwarranted that he is in organized business activity but only in this year held the transaction of derivative activity as business. The ld. Counsel for the assessee before us filed complete details of transactions relating to derivative transactions/activities. In view of the above explanation and by going through the case records, we are of the view that the Revenue has not been able to controvert the explanation of the assessee or same is held to be false. In such circumstances, we have no hesitation in deleting the penalty and accordingly the penalty is deleted. - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.

Analysis:
The appeal was against the order confirming the penalty by the Assessing Officer under section 271(1)(c) of the Act for inaccurate income particulars. The assessee disclosed business income, short term capital gain, and income from other sources. The Assessing Officer treated derivative transaction income as business income instead of capital gains, leading to the penalty. The assessee argued a bonafide belief that share trading earns only capital gain. The AO's view was based on organized business activity, but the assessee provided detailed transaction records. The Tribunal noted the absence of evidence to contradict the assessee's explanation, leading to the penalty's deletion.

The Tribunal highlighted a similar case where the Hon'ble Bombay High Court deleted a penalty for a change of income head. The Court ruled that a bonafide claim of exemption without concealing income does not warrant a penalty. The Tribunal applied this precedent to the current case, emphasizing the absence of evidence showing the assessee's explanation as false. Consequently, the penalty was deleted, considering the assessee's detailed transaction records and the absence of evidence contradicting the bonafide belief in treating share trading income as capital gains.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing the absence of evidence to disprove the bonafide belief regarding the nature of share trading income. The penalty under section 271(1)(c) was deleted, following the precedent set by the Hon'ble Bombay High Court in a similar case.