2015 (8) TMI 878 - AT - Income Tax

Assessee's Appeal Granted, Penalty Deleted under Income Tax Act Section 271(1)(c)

The Tribunal allowed the Assessee's appeal, deleting the penalty levied under section 271(1)(c) of the Income Tax Act. The Tribunal found the Assessee's ... Penalty u/s. 271(1)(c) - disallowance of claim of loss on sale of shares - Held that:- In the case of Omni Finstock Pvt. Ltd. (2015 (8) TMI 861 - ITAT AHMEDABAD) identical issue was involved wherein held that for the computation of capital gain in the present case, the A. O. shall work out the capital gain/capital loss on the basis of consideration received by the assessee and not on the basis of alleged market value of the shares sold by the assessee. Considering the facts of the case and the above discussions, though the assessee has not preferred any quantum appeal, we do not find it appropriate to levy of penalty because, on identical facts of computation of capital gain on the sale of shares of 'Market creators Ltd.', on the basis of actual consideration received ie., @ ₹ 0.26 per share and not on the basis of alleged market value, it has been decided by the Tribunal in favour of the assessee on an earlier occasion in another assessee’s case mentioned supra. Accordingly, we set aside the order of the ld. CIT(A) and delete the penalty. - Decided in favour of assessee. Issues Involved:1. Levy of penalty under section 271(1)(c) of the Income Tax Act.2. Classification of loss on sale of shares as business loss versus capital loss.3. Determination of the sale price of shares for tax computation purposes.Issue-wise Detailed Analysis:1. Levy of Penalty under Section 271(1)(c):The core issue in this case is the levy of penalty under section 271(1)(c) of the Income Tax Act for allegedly furnishing inaccurate particulars of income. The Assessing Officer (A.O.) levied a penalty of Rs. 83,914 on the Assessee, asserting that the Assessee had willfully and knowingly furnished inaccurate particulars of income to evade taxes. The CIT(A) upheld this penalty, stating that the Assessee had claimed an unjustifiable loss by selling shares at a significantly lower price than their book value and market rate, and had also misclassified the loss as a business loss instead of a capital loss.2. Classification of Loss on Sale of Shares:The Assessee classified the loss on the sale of shares as a business loss, despite the shares being shown as investments in the books of accounts. The CIT(A) noted that the shares were sold to related parties at a price much lower than the market rate, which indicated an attempt to create an artificial loss. The CIT(A) held that the Assessee's action amounted to furnishing inaccurate particulars of income, and the loss should have been classified as a capital loss, not a business loss.3. Determination of Sale Price of Shares:The Assessee sold shares of Market Creators Ltd. at Rs. 0.26 per share, whereas the book value was Rs. 9.94 per share, and the market price on the Stock Exchange a day before the sale was Rs. 1.52 per share. The CIT(A) found the sale price unjustifiable and indicative of an attempt to create an artificial loss. The Assessee failed to provide evidence that the sale price was the market rate on the date of sale, leading to the conclusion that the Assessee had filed inaccurate particulars of income.Tribunal's Decision:The Tribunal examined the facts and noted that in a similar case involving Omni Finstock Pvt. Ltd., the penalty under section 271(1)(c) was deleted. The Tribunal found that the facts of the present case were identical to those in Omni Finstock Pvt. Ltd., where the shares of the same company were sold on the same date and at the same price. The Tribunal held that for the computation of capital gain, the actual consideration received should be considered, not the alleged market value. The Tribunal concluded that the Assessee's actions did not warrant the levy of penalty as there was no willful tax avoidance or evasion.Conclusion:The Tribunal allowed the Assessee's appeal, deleting the penalty levied under section 271(1)(c). It held that the Assessee's classification of the loss and the sale price of the shares were in line with the precedent set in the case of Omni Finstock Pvt. Ltd. The Tribunal directed the A.O. to compute the capital gain/loss based on the actual consideration received by the Assessee. The appeal of the Assessee was allowed, and the order was pronounced in open court on 13-08-2015.