Penalty for recharacterisation of share sale proceeds as income versus long term capital gain deleted where no concealment found

Recharacterisation of share sale proceeds was contested as income while the assessee treated the amount as long term capital gain in the return; absence of concealment or filing of inaccurate particulars means the statutory prerequisites for imposing a penalty were not met, and the penalty imposed under the tax penal provision was therefore held unjustified and deleted. The conclusion rests on the AO's failure to establish either concealment of particulars or inaccurate particulars of income, leading to allowance of the assessee's appeal and removal of the penalty.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 is justified where the assessee had disclosed the income in the return as long term capital gains but the Assessing Officer recharacterised it as business income and imposed penalty for concealment of particulars of income.

Analysis: The issue requires examination of whether the statutory conditions for levying penalty under section 271(1)(c) are satisfied. The statutory framework contemplates punishment where there is concealment of particulars of income or furnishing of inaccurate particulars of income. Both the fact of non-disclosure or concealment and the inaccuracy of particulars must be established by the assessing authority to invoke the provision. In the present matter, the income was declared in the return as long term capital gains; the assessment proceedings involved a recharacterisation of that income as business income under section 68, but there is no finding that the income was not disclosed or that particulars were furnished inaccurately at the time of filing. The recharacterisation in assessment does not, by itself, establish concealment or furnishing of inaccurate particulars unless the essential elements for penalty are separately proved.

Conclusion: Penalty under section 271(1)(c) is not sustainable because the elements of concealment of particulars of income and furnishing of inaccurate particulars of income are not established; decision in favour of the assessee.

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