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2021 (3) TMI 1122 - AT - Income TaxPenalty proceedings u/s 271(1)(c) - assessee has incurred loss on sale of shares which was held as stock-in-trade - assessee treated the same as part of business whereas AO treated the same as speculative loss by invoking explanation to section 73 - HELD THAT - As decided in AURIC INVESTMENT AND SECURITIES LTD. 2007 (7) TMI 276 - DELHI HIGH COURT it is well-settled that assessment proceedings and penalty proceedings are distinct and independent of each other. No doubt, the findings in the assessment proceedings would have significance in the penalty proceedings also but they are not decisive or determinative.With respect to the fact that the assessee had accepted the view taken by the Assessing Officer that V the loss due to trading in shares was in the nature of a speculative loss, the assessee contended that in the penalty proceedings, it can take up the plea that the claim made in the return was bona fide. The assessee had a bonafide belief that the loss suffered by it is business loss. The change of nature of loss from business loss to speculative loss was not enough to impose penalty on the assessee. Therefore, we are inclined to delete the penalty imposed in this case. Accordingly, grounds raised by the assessee are allowed.
Issues Involved:
1. Classification of loss from sale of shares as speculative loss under Section 73 of the Income Tax Act. 2. Imposition of penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income. Issue-wise Detailed Analysis: 1. Classification of Loss from Sale of Shares as Speculative Loss: The assessee, an investor and dealer in shares and securities, declared income under two heads: 'Business Income' and 'Capital Gains'. The Assessing Officer (AO) observed that the loss incurred from the sale of shares held as stock-in-trade should be classified as speculative loss under the explanation to Section 73 of the Income Tax Act. Consequently, the AO reclassified the business loss as speculation loss and assessed the total income at NIL after adjusting the brought forward losses. The assessee contested this reclassification before the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT), both of which upheld the AO's decision. The main contention was whether the explanation to Section 73 was applicable, which the CIT(A) and ITAT affirmed. 2. Imposition of Penalty under Section 271(1)(c): Following the order of CIT(A), the AO issued a notice under Section 274 read with Section 271(1)(c) and subsequently levied a penalty on the grounds that the assessee furnished inaccurate particulars of income and concealed particulars by claiming a business loss instead of a speculative loss. The assessee appealed against this penalty, arguing that there was no evasion of tax since the AO merely reclassified the head of income without making any additions. The CIT(A) sustained the penalty, stating that the assessee had not disclosed complete and correct facts, particularly the applicability of the explanation to Section 73, which resulted in the filing of inaccurate particulars and concealment of income. Appeal Before ITAT: The assessee argued that the reclassification did not change the gross total income and hence, there was no concealment or furnishing of inaccurate particulars. The assessee relied on several case laws, including CIT v. Auric Investment & Securities Ltd. and CIT v. Navinchandra & Co., to support the argument that mere reclassification does not warrant a penalty under Section 271(1)(c). The ITAT considered the rival submissions and relevant case laws, including the decision in CIT v. Aretic Investment Pvt. Ltd., which held that the mere change of the head of income does not automatically lead to penalty imposition. The ITAT noted that the assessee had a bona fide belief that the loss was a business loss and had disclosed all relevant details to the AO. Judgment: The ITAT concluded that the change of nature of loss from business loss to speculative loss was not sufficient to impose a penalty on the assessee. It was held that the assessee had a bona fide belief and had disclosed all necessary details, thus not justifying the penalty under Section 271(1)(c). Consequently, the ITAT deleted the penalty imposed by the AO, allowing the appeal filed by the assessee. Order Pronounced: The appeal filed by the assessee was allowed, and the penalty imposed was deleted. The order was pronounced in the open court on 26/03/2021.
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