2017 (1) TMI 777 - AT - Income Tax

Levy of penalty under section 271(1)(c) - change of head of income - the income shown under the head STCG by the assessee is to be assessed under the head income from Business and Profession - Held that - The assessee had declared the income arising out of purchase and sale activity in shares and securities as STCG as against business income assessed by the AO. It is seen that the assessee had also filed written submissions before the authorities below that she was under the bona fide belief that its activity of purchase/sale of shares and securities was only capital gain and not business income and also that the assessee s claim of capital gains/loss has been accepted by the AO in the assessee s own case for the next assessment year i.e. A.Y. 2009-10, which was completed in scrutiny under section 143(3) of the Act. The authorities below were not able to controvert arguments put forth by the assessee or hold them to be false. In this view of the matter and respectfully following the decision of the Hon ble Bombay High Court in the case of Bennett Coleman & Co. Ltd. (2013 (3) TMI 373 - BOMBAY HIGH COURT) and of the Coordinate Bench of the Tribunal in the case of Mita J. Jhaveri (2017 (1) TMI 682 - ITAT MUMBAI) we hold that since there is only a change of head of income from STCG as declared by the assessee to business income as held by the AO and no evidence brought on record that the assessee s claim was not bona fide, we delete the penalty of ₹ 1,18,735/- levied under section 271(1)(c) of the Act for A.Y. 2008-09. - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2008-09.

Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income
The Assessing Officer (AO) initiated penalty proceedings under section 271(1)(c) of the Act against the assessee for declaring income under the head Short Term Capital Gains (STCG) as 'business income.' The AO contended that the income should be assessed under 'business income' and not STCG. The AO proceeded to levy a penalty despite the assessee's explanation that there were no inaccurate particulars furnished, and the STCG was accepted in the subsequent assessment year. The CIT(A) upheld the penalty, emphasizing that the appellant's belief in treating the income as STCG was not bona fide. The appellant challenged this decision, arguing that the penalty was unjustified as there were no inaccurate particulars furnished.

Issue 2: Judicial Review and Decision
Upon review, it was found that the assessee's income primarily consisted of STCG/LTCG from dealings in shares, house property, and other sources. The AO's reclassification of STCG as 'business income' led to the penalty proceedings. The appellant contended that there was no inaccurate information provided, only a change in the head of income. Citing the decision of the Hon'ble Bombay High Court in a similar case, it was established that when there is a mere change in the head of income without evidence of mala fide intent, the penalty under section 271(1)(c) should be deleted. The Tribunal noted that the appellant's claim was bona fide, and the AO had accepted similar claims in subsequent years. Consequently, the penalty of &8377;1,18,735/- was deleted for A.Y. 2008-09, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting that the reclassification of income without evidence of inaccurate particulars did not warrant the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961. The decision aligned with established legal precedents and the principle that a bona fide belief in income classification should be considered in penalty proceedings.