Penalty is not Leviable solely on Ground of ‘Change in Heads of Income’: ITAT Mumbai [Read Order]

Imposing Penalty - ITAT - Taxscan

In Ms. Pushpavati Khushalchand Mehta v. ITO, the division bench of the Mumbai ITAT held that penalty under section 271(1)(c)of the Income Tax Act cannot be levied on the assessee on mere ground that the assessee opted to declare the income under a different head.The bench was hearing a second appeal preferred by the assessee who impugned the assessment order as per which the income earned by him for the sale of equity shares of various companies were assessed under the head “Business income.” the assessee claimed that the income is liable to be taxed under the head Short term Capital Gain. Subsequently, penalty under section 271(1)(c) had been initiated against him for the offence of furnishing of inaccurate particulars of income.

The assessee challenged the penalty order on ground that, the AO, for the immediate succeeding year, have accepted the same income as the assessees’ STCG and penalty canot be imposed on a mere ground of change in the heads of income.

The bench noted that there is only a change of head of income by the AO from ‘STCG’ income on account of investment in shares and securities declared by the assessee to ‘business income’ by the AO and there is no addition to income of the assessee.

“In the factual matrix, it is clear that there is no furnishing of inaccurate particulars of income by the assessee. No doubt, the tax effect would be there since the rate of tax for ‘business income’ is higher than for ‘STCG’.

Reliance was placed on the decision of the Bombay High Court in the case of Bennett Coleman & Co. Ltd. (supra) wherein it was held that when there is only achange of head of income and in the absence of any evidence to show that the assessee’s claim was not bona fide, penalty levied under section 271(1)(c) for furnishing of inaccurate particulars of income/concealment of income was to be deleted.”

Following the above decision, the bench arrived at a conclusion that penalty cannot be levied on the assessee.

Read the full text of the order below.