2012 (10) TMI 280 - AT - Income Tax

Penalty u/s 271(1)(c) - profit on sale of land offered as capital gain instead of business income - assessee on realizing the mistake had suo moto offered the income as business income taxed as same by AO without any change - Held that - It is clear that the assessee had offered explanation by furnishing necessary details and also substantiated it. The explanation of the assessee was not found to be false by Revenue in view of the fact that the computation as submitted by assessee was accepted by Revenue. Thus it is clear that no material was found by Revenue to hold that the explanation offered by assessee was false. Therefore assessee s case does not fall within the ambit of Part-A of Explanation. So far as Part-B is concerned it is found that assessee offered an explanation and also substantiated it. Therefore Part-B is also not applicable. In view of above assessee s case does not fall within the ambit of Explanation 1 to Sec. 271(1) (c) and no penalty can be levied by merely disbelieving explanation given by the assessee - Decided in favor of assessee

Summary

Issues:
Penalty under section 271(1)(c) for misreporting income as capital gains instead of business income.

Analysis:
1. Factual Background: The appellant, engaged in construction business, declared income as capital gains instead of business income. During assessment, the mistake was rectified, and income was treated as business income.

2. AO's Penalty: The Assessing Officer (AO) levied a penalty under section 271(1)(c) for misreporting income. The AO considered the appellant's actions as a deliberate default, leading to inaccurate particulars of income.

3. CIT(A) Decision: The Commissioner of Income Tax (Appeals) upheld the penalty, stating that the appellant did not contest the penalty during proceedings, indicating agreement with the penalty imposition.

4. Appellant's Argument: The appellant argued that the mistake was unintentional, promptly rectified during assessment. The appellant provided all necessary details and explanations, which were accepted by the AO.

5. Legal Analysis: The Tribunal analyzed the provisions of Explanation 1 to section 271(1)(c) of the Income Tax Act. The Explanation outlines situations where penalties apply for concealing income or providing false explanations.

6. Explanation 1 Evaluation: The Tribunal found that the appellant's case did not fall under either Part A or Part B of Explanation 1. The appellant had promptly rectified the mistake, provided substantiated explanations, and the AO accepted the corrected income declaration.

7. Conclusion: The Tribunal held that the penalty imposed by the CIT(A) could not be upheld as the appellant's case did not meet the criteria for penalty under section 271(1)(c). Therefore, the penalty was canceled, and the appeal of the appellant was allowed.