2015 (11) TMI 129 - AT - Income Tax

Penalty U/S 271(1)(c) - change in the head of income - income from the sale / maturity of National Housing Bond under the head long term capital gain or income from other sources - Held that - In the present case, the assessee offered to tax, the income from the sale / maturity of National Housing Bond under the head long term capital gain. The A.O. chooses to tax the same under ht head income from other sources . The interest of all the three years was offered to tax in the year of maturity and not year-wise. In my view, this is just change in the head of income under which the income is offered to tax. The taxation of the receipt is changed to the head of income other sources from the head of income capital gain . We are of the considered opinion that the explanation filed by the assessee is bona fide. This is a case of a bona fide mistake on part of the assessee. All the information has been disclosed in the income tax return filed by the assessee. Income had been offered under the head capital gain T.D.S. Under these circumstances, we cancel the penalty levied u/s 271(1)(c) of the Act - Decided in favour of assessee.

Issues:
- Appeal against penalty levied under section 271(1)(c) by the Assessing Officer for Assessment Year 2008-09.
- Dispute regarding the correct tax treatment of income from the sale/maturity of National Housing Bonds.
- Assessment of income under the head 'income from other sources' instead of 'long term capital gain.'
- Consideration of penalty cancellation based on the principle of bona fide mistake.

Analysis:
1. The appeal was filed against the penalty imposed under section 271(1)(c) for the Assessment Year 2008-09. The appellant contested the jurisdiction and legality of the penalty, arguing that the penalty order was passed without proper appreciation of the facts and circumstances of the case.

2. The case involved a dispute over the tax treatment of income from the sale/maturity of National Housing Bonds. The Assessing Officer disagreed with the appellant's classification of income under the head 'long term capital gain' and instead assessed it under 'income from other sources.' This discrepancy led to the addition of a certain amount to the appellant's income.

3. The appellant challenged the penalty levied under section 271(1)(c), which was upheld by the Ld. CIT(A). During the proceedings, both parties presented their arguments, with the appellant's counsel emphasizing the appellant's position and citing relevant case laws to support their claim.

4. The Tribunal considered the submissions and referred to legal precedents to analyze the imposition of penalties under section 271(1)(c). The judgment highlighted that penalty imposition is not automatic and requires specific conditions to be met, including the presence of concealment or furnishing incorrect particulars of income.

5. Applying the legal principles to the case, the Tribunal concluded that the appellant's explanation was bona fide, indicating a genuine mistake rather than willful misconduct. It was noted that all relevant information had been disclosed in the tax return, and the income had been offered under the correct head. Therefore, the penalty under section 271(1)(c) was canceled in favor of the appellant.

6. The judgment emphasized the importance of clear directions and specific grounds for initiating penalty proceedings, ensuring adherence to the principles of natural justice. It also distinguished between assessment and penalty proceedings, highlighting the independent nature of penalty imposition.

7. Ultimately, the Tribunal allowed the appeal of the assessee, canceling the penalty levied under section 271(1)(c) for the Assessment Year 2008-09. The order was pronounced in open court on 21.7.2015, providing a resolution to the dispute over the tax treatment of income from National Housing Bonds.

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