Offering Income under a Wrong Head would not attract Penalty: ITAT [Read Order]

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In ACIT vs. M/s. Sane & Doshi Enterprises, the Income Tax Appellate Tribunal ( ITAT ) held taxability of an item of income under a wrong particular head should not result in levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

The assessee had shown unsold stock of built up premises as ‘investment’ in its books of accounts from 01.04.2005. The Assessing Officer (A.O.) was of the view that since the premises sold by the assessee were out of ‘unsold stock in trade’, the profit from sales should have been treated as business income. Accordingly, he added the said profit from sales as business income.

On appeal, both the First Appellate Authority (FAA) as well as the ITAT confirmed the order of the AO. Thereafter, the A.O initiated penalty proceedings against the assessee and held that the assessee had evaded tax to the extent of Rs 41.00 lakhs by way of this change of head of income. The AO held that the assessee had concealed the particulars of its income and levied a penalty of Rs 41,02,084 u/s. 271(1)(c) of the Income Tax Act, 1961. Aggrieved, appeal was filed before FAA, who after hearing the contentions of the assessee deleted the penalty. Revenue appealed before ITAT.

The Counsel for the Revenue argued that there that FAA and the Tribunal had confirmed the addition made by the AO in quantum proceedings, that the AO had rightly levied the penalty. The Counsel for the assessee argued that the assessee had converted the stock in trade into investment, that in subsequent years it sold the assets and profit earned on sale of investment was offered to tax, that the assessee had disclosed all the necessary details about the transactions.

The issue before the ITAT was whether the treatment given by the assessee to the sale proceeds of unsold stock can be treated as furnishing of inaccurate particulars or not.

The Bench comprising of Judicial Member Ram Lal Negi & Accountant Member Rajendra observed that the facts of the case was never concealed and that there was a difference of opinion

between the AO and the assessee about the treatment to be given to the transaction.

“Any addition to the income of an assessee or disallowance of a claim cannot and should not lead to automatic levy of penalty. What has to be seen is that as to whether the explanation filed by the assessee during the penalty proceedings was a plausible explanation. In the case under consideration the assessee had claimed that it was under bona fide impression that profit arising to it was taxable under the head capital gains. Taxability of an item of income under a particular head should not result in levy of penalty. After considering the peculiar facts and circumstances of the case under consideration, and taking note of the judgment of the Hon’ble High Court in appeal 375 of 2013 along with the cases cited by the AR we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity” observed the Bench.

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