2014 (3) TMI 615 - AT - Income Tax

Tribunal upholds deletion of penalty under section 271(1)(c)

The Tribunal dismissed the Revenue's appeal, upholding the deletion of the penalty under section 271(1)(c). The Tribunal found that the assessee had a ... Penalty u/s 271(1)(c) of the Act - Revenue was of the view that the assessee had neither in the return of income nor in the accompanied documents, disclosed that the bonds were sold within the period of three months and the assessee did not suo–motu disallow the short term capital gain on sale of these bonds to the extent of dividend received – Held that:- The assessee has purchased units of Sundaram Mutual Funds for Rs. 40 lakhs on 26th December 2003, which is a record date - the assessee had received dividend income – the units have been redeemed on 26th March 2004 after incurring a loss which has been claimed by the assessee as a short term capital loss in the return of income - As per the provisions of section 94(7), the loss, if any, arising to the assessee on account of purchase and sale of securities or units, then such a loss has to be ignored if the securities has been sold or transferred within the period of three months. The Assessing Officer has calculated the period of three months on calendar basis which perhaps is correct - it cannot be held that the assessee has furnished any inaccurate particulars or concealed any income - the assessee’s belief or explanation cannot be held as wrong which was given during the course of quantum proceedings as well as penalty proceedings is not bonafide - thus, the order of the CIT(A) upheld – Decided against Revenue. Issues:Challenge to deletion of penalty u/s 271(1)(c) for non-disclosure of short term capital gain on sale of bonds within three months.Analysis:The Revenue appealed against the order deleting the penalty u/s 271(1)(c) for the assessment year 2004-05. The Revenue contended that the assessee failed to disclose the sale of bonds within three months and did not disallow the short term capital gain on the sale to the extent of dividend received. The assessee purchased Sundaram Mutual funds for Rs. 40,00,000 on 26th December 2003 and received a dividend of Rs. 15,48,599. Upon redemption on 26th March 2004, a short term capital loss of Rs. 17,31,198 was incurred. The Revenue claimed that the redemption within three months from the record date attracted section 94(7), disallowing the dividend income. The penalty under section 271(1)(c) was imposed based on this disallowance.The assessee argued that the redemption was not within three months as calculated from the purchase date. The Assessing Officer disagreed, leading to the penalty imposition. The Commissioner (Appeals) deleted the penalty citing the assessee's bonafide belief and the technical nature of the breach. The Revenue contended that as per section 94(7), the loss should be disallowed if securities are sold within three months. The assessee maintained that the calculation was based on a bonafide belief that the three-month period had lapsed before the sale. The Tribunal noted the calculation discrepancies but upheld the deletion of the penalty. The Tribunal found no evidence of concealment or furnishing inaccurate particulars, affirming the Commissioner (Appeals)'s decision.In conclusion, the Tribunal dismissed the Revenue's appeal, sustaining the cancellation of the penalty. The Tribunal emphasized the assessee's bonafide belief in the calculation of the three-month period, ruling out any grounds for penalty imposition. The order was pronounced on 14th March 2014 by the Tribunal.