2020 (8) TMI 811 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - gain on sale of shares - capital gain or business income - HELD THAT - Assessee has offered his income from the sale and purchase of the shares transaction under the head of long/short term capital gain. AO treated the same as business income on seeing the voluminous transactions of the shares. No doubt the said finding was confirmed by CIT(A) but in fact there is no concealment of income or furnishing the inaccurate particulars of income. The assessee showed his income from long/short term capital gain from his share purchase transaction. However, the same was not accepted and the income from the share transaction was treated as business income. These facts nowhere attract the penalty in view of the law settled in the case of Reliance Petroproduct . 2010 (3) TMI 80 - SUPREME COURT . Taking into account all the facts and circumstances, we are of the view that the penalty is not liable to be sustainable in the eyes of law - Decided in favour of assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Basis for initiation and levy of penalty.
3. Application of Explanation 1 to Section 271(1)(c).
4. Applicability of the principles laid down in various case laws.
5. Appeal status before the Bombay High Court.
6. Nature of share transactions and their classification as business income.
7. Principles of natural justice.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The assessee appealed against the CIT(A)'s order confirming the penalty of ?95,05,536/- levied by the AO under Section 271(1)(c) of the Income Tax Act, 1961. The primary contention was that the penalty was not sustainable as the notice did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income."

2. Basis for Initiation and Levy of Penalty:
The assessee argued that the notice issued for levying the penalty did not tick off any specific limb, which is crucial for the assessee to defend accordingly. This argument was supported by the case law CIT Vs. Samson Perinchery 392 ITR 4 (Bom), which emphasizes the necessity for clarity in the notice. The assessment order mentioned levying the penalty for furnishing inaccurate particulars of income, but the notice did not specify this, leading to non-application of mind by the AO.

3. Application of Explanation 1 to Section 271(1)(c):
The CIT(A) held that Explanation 1 to Section 271(1)(c) was clearly attracted, implying that the assessee’s explanation was not bona fide. However, the assessee contended that there was no concealment or furnishing of inaccurate particulars, as the income from share transactions was declared under the head of long/short-term capital gains, which was later reclassified by the AO as business income.

4. Applicability of Principles Laid Down in Various Case Laws:
The assessee cited the case of Reliance Petroproduct Vs. CIT (P) Ltd. 322 ITR 158 SC, arguing that merely changing the head of income does not attract penalty. The CIT(A) relied on other case laws like CIT v. SHREE GOPAL HOUSING & PLANTATION CORPORATION, which the assessee argued were not applicable to their case.

5. Appeal Status Before the Bombay High Court:
The CIT(A) noted that no appeal was filed before the Bombay High Court against the Tribunal’s order for the Assessment Year 2006-07, which was accepted by the assessee. This was used to argue against the principle of consistency in the assessee’s claims.

6. Nature of Share Transactions and Their Classification as Business Income:
The AO treated the income from share transactions as business income due to the voluminous and frequent nature of transactions, rather than long/short-term capital gains as claimed by the assessee. The CIT(A) upheld this classification, stating that the transactions were business ventures aimed at reducing tax liability.

7. Principles of Natural Justice:
The assessee claimed that the penalty order was in contravention of the principles of natural justice, as the notice did not specify the exact charge, thus prejudicing the assessee’s right to a reasonable opportunity to defend.

Conclusion:
The Tribunal found that the notice issued by the AO did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars, reflecting non-application of mind. This was in line with the precedent set by the Supreme Court in Dilip N. Shroff and the Bombay High Court in Samson Perinchery. Consequently, the penalty was deemed unsustainable and was deleted. The appeal filed by the assessee was allowed, setting aside the CIT(A)'s findings.

Delay in Pronouncement:
The delay in pronouncement was due to the nationwide lockdown imposed by the Government of India in response to the COVID-19 pandemic, which disrupted judicial work. This period was excluded from the computation of the 90-day limit for pronouncement, as per the Tribunal’s rules and recent judicial decisions.

← Previous Next →