2016 (6) TMI 1080 - AT - Income Tax

Tax penalties deleted due to correct classification of gains as long-term, upheld by Tribunal.

DCIT, Circle-10, Ahmedabad Versus Smt. Punitaben K. Patel

DCIT, Circle-10, Ahmedabad Versus Smt. Punitaben K. Patel - TMI Issues Involved:1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.2. Validity of additions made on account of accrued interest on OFCPNs of Nirma Industries Ltd.3. Validity of additions made on account of short-term capital gain on sale of DDBs of Nirma Ltd.4. Validity of additions made on account of short-term capital gain on the transaction of strips of TATA Finance Ltd.Analysis of Judgment:Deletion of Penalty under Section 271(1)(c):The primary issue in this case is the deletion of the penalty of Rs. 22,41,425/- levied under Section 271(1)(c) by the Assessing Officer (A.O.). The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted the penalty. The Tribunal upheld the CIT(A)’s decision, emphasizing that the penalty cannot be sustained when the quantum additions have been deleted.Accrued Interest on OFCPNs of Nirma Industries Ltd.:The A.O. had added Rs. 50,185/- on account of accrued interest on OFCPNs of Nirma Industries Ltd., which was not included in the assessee’s income as the assessee follows the cash method of accounting. The Tribunal observed that since the interest was not received, there was no concealment of income or furnishing of inaccurate particulars. Consequently, the penalty related to this addition was rightly deleted by the CIT(A).Short-term Capital Gain on Sale of DDBs of Nirma Ltd.:The A.O. had treated the gain of Rs. 8,79,320/- from the sale of Deep Discount Bonds (DDBs) of Nirma Ltd. as a short-term capital gain, while the assessee had claimed it as a long-term capital gain. The Tribunal referred to its earlier decision in the case of Shri Karsanbhai P Patel (HUF) and concluded that the holding period should be counted from the date of allotment, not the date of listing. Since the holding period exceeded 12 months from the date of allotment, the gain was correctly classified as a long-term capital gain, and the assessee was entitled to the deduction under Section 54EC. As the quantum addition was deleted, the penalty on this addition was also not sustainable.Short-term Capital Gain on Transaction of Strips of TATA Finance Ltd.:The A.O. had also treated the gain of Rs. 53,49,000/- from the transaction of strips of TATA Finance Ltd. as a short-term capital gain. The Tribunal noted that the assessee had acquired the strips before the Board’s Circular No. 2 dated 15.02.2002, which was not applicable retrospectively. The Tribunal referred to several decisions, including those in the cases of ITO vs. Kulgam Holdings Pvt. Ltd. and Navin Associates vs. ACIT, which supported the assessee’s position. Consequently, the gain was correctly classified as a long-term capital gain, and the assessee was entitled to the deduction under Section 54EC. With the quantum addition deleted, the penalty on this addition was also not sustainable.Conclusion:The Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)’s order that deleted the penalty under Section 271(1)(c). The Tribunal emphasized that penalty cannot be imposed when the quantum additions are deleted. The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 3rd June 2016.