2023 (11) TMI 1003 - HC - Income Tax

Penalty u/s 271(1)(c) - determination of correct head of income - debatable issue - Allegation that, assessee had deliberately claimed the income received from sale of shares as Long Term Capital Gain instead of Profit and Gains of Business - bonafide of the contention raised by the assessee to protect levy of penalty - ITAT deleted penalty levy - HELD THAT - Merely making incorrect claim under a particular head of income, while furnishing full information about the transactions in question, would not amount to furnishing inaccurate particulars. This is because no statement made or detail supplied was found to be factually incorrect. See Reliance Petroproducts Private Limited 2010 (3) TMI 80 - SUPREME COURT . This is also the view taken in M/s Anant Overseas P Ltd 2014 (9) TMI 432 - DELHI HIGH COURT reiterated therein that the question whether the shares were held as investment or stock in trade is highly debatable and a difficult call in many a case, and that merely because the assessee made an incorrect claim in law, it would not tantamount to furnishing inaccurate particulars inviting penalty. Since the assessee-respondent had not suppressed the amount in question and had disclosed it in its return, merely because he declared it under a particular head of income , and the AO chose to treat the same under some other head, the assessee-respondent cannot be accused of furnishing incorrect particulars of income or suppressing facts. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the ITAT erred in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the income from the sale of shares should be treated as "Long Term Capital Gain" or "Profit and Gains of Business."

Summary:

Issue 1: Whether the ITAT erred in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.

The High Court examined the legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal had allowed the appeal of the respondent-assessee, holding that merely because the assessee treated a particular item of income in a particular way, which was later changed by the Revenue, it would not attract penal action. The Tribunal emphasized that if the assessee had a bona fide explanation for treating an item in a particular fashion, it would not result in penal consequences merely because the Assessing Officer did not accept it. The Tribunal relied on the Supreme Court's judgments in Cement Marketing Co. of India Ltd. vs. Assistant Commissioner of Sales Tax and CIT vs. Reliance Petroproducts (P) Ltd., and the Delhi High Court's decision in CIT vs. Amit Jain.

The High Court concurred with the Tribunal's view, stating that Section 271(1)(c) requires concealment of particulars or furnishing of inaccurate particulars of income. It held that merely making an incorrect claim under a particular head of income, while furnishing full information about the transactions, would not amount to furnishing inaccurate particulars. The High Court also noted that the explanation to Section 271, which shifted the burden of proof to the assessee, was no longer applicable. The court concluded that the respondent-assessee had not suppressed any income and had disclosed it in its return, and therefore, the penalty under Section 271(1)(c) was not justified.

Issue 2: Whether the income from the sale of shares should be treated as "Long Term Capital Gain" or "Profit and Gains of Business."

The High Court reviewed the background facts, noting that the respondent-assessee, a Private Limited Company, had declared income from the sale of shares under the head "Capital Gains" for the Assessment Year 2002-2003. The Assessing Officer reopened the case, contending that the income should be assessed under the head "profit and gains of business" since the respondent-assessee was engaged in trading and investment in shares. The Assessing Officer imposed a penalty under Section 271(1)(c), which was upheld by the Commissioner of Income Tax (Appeals).

The High Court observed that the Tribunal had correctly held that the respondent-assessee had disclosed all relevant facts regarding the sale of shares and that the only difference was the head under which the income was declared. The Tribunal noted that changing the head of income did not constitute concealment or furnishing of inaccurate particulars. The High Court also referred to its earlier decision in the quantum appeal, where it was held that the revenue authorities were entitled to treat the profits from the sale of shares as business income, but this did not imply concealment or furnishing of inaccurate particulars by the respondent-assessee.

Conclusion:

The High Court dismissed the appeal, affirming the Tribunal's decision to delete the penalty under Section 271(1)(c) of the Income Tax Act, 1961. It held that the respondent-assessee had not concealed any income or furnished inaccurate particulars and that merely making an incorrect claim under a particular head of income did not attract penal consequences. The court emphasized that the bona fide belief of the assessee in treating the income as "Capital Gains" protected it from the levy of penalty.