2019 (5) TMI 107 - AT - Income Tax

Penalty u/s 271(1)(c) - computation of penalty payable - such taxes which sought to be evaded - unexplained cash credit - HELD THAT - The assessee has offered short term capital gain on the amount of ₹ 10,19,405/-. AO treated it as unexplained cash credit. But this amount has suffered taxes, in the return of income itself by admission of the assessee. Thus, we direct the AO to calculate the penalty under sub-clause (iii) of section 271(1)(c) if any tax was sought to be evaded by the assessee by taking this addition under two different heads. The difference of tax components, if this amount of ₹ 10,19,405/- is being assessed under the head unexplained cash credit vis- -vis short term capital gin, comes out, then penalty equivalent to that tax component would be charged from the assessee. In any away, it will not be ₹ 3,15,000/-. This exercise be carried out after hearing the assessee - Appeal of the assessee is partly allowed.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The Appellate Tribunal ITAT Ahmedabad heard an appeal by the Assessee against the order of the ld.CIT(A)-5, Ahmedabad regarding the imposition of a penalty of ?3,15,000 under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2008-09. The case revolved around the treatment of a short term capital gain of ?10,19,405 declared by the Assessee, which was disallowed by the AO as unexplained cash credit under section 68 of the Act. The AO initiated penalty proceedings, which were upheld by the CIT(A), leading to the appeal before the Tribunal.

The Assessee contended that the penalty should be computed based on the amount added to their income, which had already been included under the head of short term capital gain. The Assessee argued that since taxes had been paid on this amount under the declared head, any penalty should only consider the variation in taxes due to the reclassification by the AO. The Assessee cited relevant case laws to support this argument.

The Tribunal considered sub-clause (iii) of section 271(1)(c) of the Act, which provides a mechanism for penalty computation based on the tax sought to be evaded due to concealment or furnishing inaccurate particulars of income. The Tribunal noted that the Assessee had already paid taxes on the amount in question under the head of short term capital gain. Therefore, the Tribunal directed the AO to calculate the penalty based on any tax sought to be evaded by the Assessee due to the reclassification of the amount as unexplained cash credit. The penalty was to be equivalent to the tax component affected by this reclassification, rather than a fixed amount of ?3,15,000. The Tribunal ordered this calculation to be done after hearing the Assessee, thereby partially allowing the Assessee's appeal.

In conclusion, the Tribunal's judgment clarified the penalty computation under section 271(1)(c) based on the tax implications of reclassifying income components, providing relief to the Assessee by directing a revised penalty assessment considering the tax impact of the reclassification from short term capital gain to unexplained cash credit.