The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that a mere change in the heads of income would not attract penalty under the Income Tax Act, 1961.
The assessee claimed that the transactions relating to mutual fund constituted part of his business and therefore the loss arising out of the transactions in the mutual fund units was to be treated as its business loss. However, the AO rejected the claim of the assessee and held that the transactions in the mutual fund did not constitute assessee’s business transactions. Thus, AO treated the loss as ‘Short Term Capital Loss’ of the assessee.
On first appeal, the first appellate authority upheld the penalty order.
Allowing the appeal of the assessee, the Tribunal observed that mere change of head of income should not result in automatic levy of penalty.
“The details about the ‘business loss’ or ‘Short Term Capital Loss’ were available on the record. Therefore, it cannot be said that assessee had filed ‘Inaccurate Particulars of Income’. Even if a unsubstantiated claim is made in the return of income, it cannot be held that the assessee is liable for levy of penalty u/s.271(1)(c). Difference of opinion between the AO and the assessee about head of income under which ‘Particular Item’ is to be ‘assessed’ was and would remain a bone of contention between the AO and the assessee. But such differences should not and cannot result in invoking the penal provisions of chapter XXI of the Act. Therefore, we delete the penalty and allowed these grounds raised by the assessee.,” the Tribunal said.
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