2012 (8) TMI 220 - AT - Income Tax

Tribunal cancels penalty for inaccurate particulars, citing bona fide belief in share transaction treatment

The tribunal allowed the appeal, canceling the penalty imposed by the AO and confirmed by the CIT (Appeals). The tribunal held that the appellant was not ... Penalty under section 271(1)(c) - Deemed total income under section 115JB (book profit) - Effect of assessment under section 115JB on levy of penalty for additions under normal computation - Treatment of share-sale proceeds as income from speculation business under the Explanation to section 73 - Furnishing inaccurate particulars / concealment of particulars of income - Explanation 1 to section 271(1)(c) as a rebuttable presumptionPenalty under section 271(1)(c) - Deemed total income under section 115JB (book profit) - Effect of assessment under section 115JB on levy of penalty for additions under normal computation - Whether penalty under section 271(1)(c) can be levied in respect of additions/disallowances made under the normal provisions when the assessment was finally completed and tax was levied on book profit under section 115JB. - HELD THAT: - The Tribunal held that where the assessment culminates in taxation by treating book profits as deemed total income under section 115JB and tax is paid on that deemed income, additions/disallowances made only in the normal computation (on which no tax is ultimately levied) cannot form the basis for penalty under section 271(1)(c). Section 115JB operates by legal fiction to make book profit the total income; therefore, additions in the normal computation that do not affect the tax actually levied did not result in any 'tax sought to be evaded' and cannot sustain penalty. The Tribunal followed the reasoning in CIT v. Nalwa Sons Investments Ltd. and allied decisions (and the Mumbai coordinate bench decision in Ruchi Strips & Alloys Ltd.), which hold that where assessment proceeds on the basis of book profits, concealment or inaccurate particulars relevant only to the normal computation had no role in causing tax evasion and hence penalty is not sustainable. Applying that principle to the facts, the Tribunal cancelled the penalty insofar as it related to the additions which were not the basis of the tax levied under section 115JB. [Paras 8]Penalty under section 271(1)(c) cannot be imposed in respect of additions/disallowances made under the normal computation when the assessment has been finally completed and tax levied on book profit under section 115JB; penalty cancelled.Treatment of share-sale proceeds as income from speculation business under the Explanation to section 73 - Furnishing inaccurate particulars / concealment of particulars of income - Explanation 1 to section 271(1)(c) as a rebuttable presumption - Whether, on merits, the assessee was guilty of furnishing inaccurate particulars or concealing particulars of income by showing short-term capital gain instead of income from speculation business. - HELD THAT: - The Tribunal held that, even on merits, penalty could not be sustained. The assessment-stage finding treating the sale proceeds as speculative income does not automatically determine the penalty proceedings; Explanation 1 to section 271(1)(c) raises a rebuttable presumption which the Revenue must displace. The assessee had shown shares as investments and claimed the profit as short-term capital gain, and there was a bona fide belief in that treatment. The Assessing Officer's reliance on a Special Bench decision and rejection of the explanation did not render the assessee's claim automatically false, and the Tribunal relied on the principle in Reliance Petroproducts that an unsustainable claim alone does not amount to furnishing inaccurate particulars unless the particulars in the return are shown to be incorrect or false. Applying these tests, the Tribunal found the assessee's explanation not disproved and held that there was no concealment or inaccurate particulars warranting penalty; accordingly, the penalty was deleted on merits as well. [Paras 9]On merits, the assessee was not guilty of furnishing inaccurate particulars or concealing particulars of income in respect of the share-sale proceeds; penalty deleted.Final Conclusion: The appeal is allowed; the penalty imposed under section 271(1)(c) (including that confirmed by the CIT(A)) is cancelled, both because tax was finally levied under section 115JB (book profits) and, on merits, because the assessee's treatment of the share-sale proceeds did not constitute furnishing inaccurate particulars or concealment. Issues Involved:1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.2. Treatment of income from share transactions as speculative income under Explanation to section 73.3. Applicability of penalty under section 271(1)(c) when assessment is completed under section 115JB.Issue-wise Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c):The appellant contested the penalty of Rs. 1,37,46,512/- confirmed by the CIT (Appeals) for the Assessment Year 2007-08. The appellant argued that the provisions of the Act were not properly construed and that no penalty should have been confirmed. The CIT (Appeals) concluded that the appellant furnished inaccurate particulars of income amounting to Rs. 5,87,78,852/- and confirmed the penalty. The appellant is a company engaged in infrastructure development and had shown book profit under section 115JB at Rs. 67,44,11,568/- and filed a return of income at Rs. 10,93,98,307/-.2. Treatment of Income from Share Transactions as Speculative Income:During the assessment proceedings, the Assessing Officer (AO) made disallowances under sections 14A and 80IB and treated the short-term capital gain of Rs. 5,87,78,833/- from share transactions as 'income from speculation business' under Explanation to section 73. The appellant contended that the shares were held as investments, and the sales should be computed under capital gains. The AO, relying on the ITAT Special Bench judgment in Asstt. CIT v. Concord Commercial (P.) Ltd., rejected this claim and considered it as speculative income.3. Applicability of Penalty under Section 271(1)(c) when Assessment is Completed under Section 115JB:The appellant argued that since the assessment was completed under section 115JB based on book profit and not under normal provisions, the penalty under section 271(1)(c) should not be upheld. The AO initiated penalty proceedings on all disallowances and additions made in the assessment order and levied a penalty on the income sought to be evaded. The CIT (Appeals) upheld the penalty on the speculative income but deleted it for other disallowances. The appellant contended that the mere treatment of short-term capital gain as speculation income does not amount to furnishing inaccurate particulars or concealing income.Judgment Analysis:On the First Issue:The tribunal held that penalty under section 271(1)(c) cannot be imposed when the assessment is completed under section 115JB, as no tax was levied on the additions made under normal provisions. The tribunal relied on the Delhi High Court decision in CIT v. Nalwa Sons Investments Ltd., which stated that if tax is paid on book profits under section 115JB, then additions under normal provisions are irrelevant for penalty purposes. The tribunal concluded that since the assessment was completed on book profit, penalty on additions made under normal provisions is not sustainable.On the Second Issue:The tribunal examined the appellant's claim that the shares were held as investments and gains were shown under capital gains. The AO had rejected this explanation based on the Special Bench decision in Concord Commercial (P.) Ltd. The tribunal noted that the assessment order is not conclusive in penalty proceedings and that the appellant's explanation must be considered afresh. The tribunal observed that the appellant had a bona fide belief that the income from the sale of shares was taxable under capital gains, and the AO had not discharged the burden of proving the explanation false. The tribunal also referenced the Supreme Court decision in Reliance Petroproducts (P.) Ltd., which held that making an incorrect claim does not amount to furnishing inaccurate particulars.Conclusion:The tribunal allowed the appeal, canceling the penalty imposed by the AO and confirmed by the CIT (Appeals). The tribunal held that the appellant was not guilty of furnishing inaccurate particulars or concealing income, and the penalty under section 271(1)(c) was not leviable. The tribunal's decision was based on the fact that the assessment was completed under section 115JB and the appellant had a bona fide belief regarding the treatment of income from share transactions.