2020 (3) TMI 174 - AT - Income Tax

Penalty u/s 271(1)(c) - mistake of wrong classification of the securities yielding Long Term Capital Gain and consequently the assessee had paid the tax @ 10% instead of 20% - AO was of the view that the assessee being a NRI and well educated and having availed of the services of a qualified professional, cannot take the plea of inadvertent mistake or error. HELD THAT - When the return was filed through the Tax Consultant then it is only a matter of misclassification of the capital asset sold by the assessee which has resulted into short payment of tax. Therefore, in the facts and circumstances of the case, we find that it is a case of inadvertent and bona fide mistake of wrong classification of the securities yielding Long Term Capital Gain and consequently the assessee had paid the tax @ 10% instead of 20%. Except the classification of securities, all other necessary and relevant particulars/ details furnished by the assessee are not in dispute. Therefore, the said classifications of the asset is nothing but a mistake occurred while filing the return of income by the Tax Consultant of the assessee and accordingly the same falls in the ambit of reasonable and bona fide explanations/ reasons for the default/ failure on the part of the assessee. Once the assessee has explained the reasons for wrong classification of the securities and the said explanation of the assessee is bona fide being inadvertent mistake on the part of the Tax Advisor then this case would not fall in clause B of Explanation 1 to Section 271(1)(C) of the Act. Thus no penalty shall be levied u/s 271(1)( c) of the Act in view of the decision of Hon'ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd vs CIT 2012 (9) TMI 775 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
Penalty imposition under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2015-16 based on inaccurate particulars of income or concealed particulars of income.

Analysis:
1. The assessee, an individual, initially declared Long Term Capital Gain from sale of securities as listed shares at 10% tax rate. During assessment, the assessee revised the income computation to reflect unlisted shares at 20% tax rate. The Assessing Officer (AO) initiated penalty proceedings under section 271(1)(c) based on this discrepancy, levying a penalty of ?23,48,470.
2. The assessee argued that the misclassification was an inadvertent mistake by the tax consultant, not intentional concealment. The assessee disclosed all transaction details but wrongly classified the shares. The assessee cited legal precedents to support the argument that inadvertent errors do not constitute concealment of income.
3. The Department contended that the assessee's actions amounted to concealment as the correct income was declared only after receiving notices from the AO. They argued that voluntary disclosure after notice does not absolve the assessee from penalty.
4. The Tribunal found that the misclassification was a bona fide mistake by the tax consultant, not an attempt to evade taxes. The AO's assertion that the assessee, being an NRI, should have known better was rejected. The Tribunal relied on legal precedents to support the decision that inadvertent errors do not warrant penalty.
5. Citing the Supreme Court's decision in Price Waterhouse Coopers Pvt. Ltd. vs CIT, the Tribunal concluded that the penalty imposed by the CIT(A) was unwarranted. The penalty under section 271(1)(c) was deleted, rendering the issue of the validity of penalty proceedings moot.
6. Ultimately, the Tribunal allowed the appeal of the assessee, deleting the penalty and pronouncing the order in favor of the assessee on 25/02/2020.

This detailed analysis highlights the key arguments, legal precedents, and the Tribunal's reasoning in overturning the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.