SAKUNTALA BASU,KOLKATA vs. ITO, WD-29(4), KOLKATA, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

2. Assessee has raised the following grounds of appeal:

SakuntalaBasu A.Y. 2006-07 “1 With reference to para-A at page no. 3 of the APPELATE ORDER at ANNEXURE-A, we beg to disagree that no explanation has been furnished and we have got no explanation to offer.

3.Although, in this appeal, the assessee has raised a multiple grounds of appeal

, but at the time of hearing the solitary grievance of the assessee has been confined to the issue that penalty imposed by Assessing Officer under section 271 (1) (c ) of the Act and confirmed by the CIT(A) is bad in law. 3.1.The brief facts qua the issue are that the assessee filed its return of income on 03.03.2007 declaring a total income of Rs.60,000/- for A.Y 2006-07. The assessee’s case was selected for scrutiny U/s 143(2) of the Act and Assessing Officer completed the assessment by making addition on account of short-term Page |

2. SakuntalaBasu A.Y. 2006-07 capital gain.The assessee had switched his mutual fund investments from one account to another mutual fund but had not considered the capital gains in its return of income. It was calculated that the total amount of capital gains was at Rs.2,72,004/-.The assessee did not disclose this short-term capital gain, therefore the Assessing Officer had initiated penalty proceedings u/s. 271(1)(c) of the Act. The assessee also agreed that the said gain on account of switchoverfrom one MF investments, to another MF investments should be taxable in his hands. Therefore, the Assessing Officer held that it was clear that the assessee had concealed the particulars of the income and had furnished the inaccurate particulars of income. Therefore, the Assessing Officer initiated the penalty proceedings u/s 271(1)(c) of the Act and imposed a penalty of Rs.38,816/-. 3.2 Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A), who has confirmed the penalty imposed by the Assessing Officer. During the appellate proceedings, the assessee submitted that switching in or switching off operations between different schemes of mutual funds are not actually transfer as per section 2(47) of the I.T Act, as the capital remains with the Mutual Fund only. Therefore, the assessee submitted before the Ld. CIT(A) that switching in operations from one mutual fund to another mutual fund does not violate the rules of capital gain and the assessee is not subject to any penalty u/s 271(1)(c) of the Act. However, the Ld. CIT(A) did not agreed with the submissions of the assessee and held that the assessee had not shown the Short term capital gain of Rs.2,72,004/- in the return of income which was generated by switching his mutual fund investment from one account to other account and it is a transfer Page | 3 SakuntalaBasu A.Y. 2006-07 under section 2(47) of the Act. Therefore, the Ld. CIT(A) confirmed the penalty imposed by the Assessing Officer at Rs.38,816/-. 3.3 The Ld. Counsel for the assessee has submitted before us that assessee was in bona fide belief that switching in or switching off operations between different schemes of mutual funds are not ‘transfer’ as per section 2(47) of the I.T Act, as the capital remains with the Mutual Fund only. Since the capital investments is with the mutual fund only, that is, the money remains with the mutual fund, therefore switching in or switching off between different schemes of mutual funds should not be a ‘Transfer’ as contemplated by section 2 (47) of the Act, therefore, the assesseenever thought that it would be a capital gain. The assessee has been guided with the bona fide belief therefore penalty imposed u/s. 271(1)(c) should be deleted. 3.4. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not repeated for the sake of brevity. 3.5 We have heard the rival submissions and perused the materials on record, we are of the view that assessee had been guided by the bona fide belief and he was in the impression that switching in operation between different schemes of mutual funds does not violate the rules of capital gains and does not ‘transfer’ as per section 2(47) of the Act, because ultimately the capital remains with the mutual fund only. For bona fide belief, we rely of the following judgments: (1)Rajendra vs. ACIT (2O1O) 127 ITD 361 (Chennai) Page | 4 SakuntalaBasu A.Y. 2006-07 The facts of the above case before the Hon'ble Tribunal were that the assessee received gifts from NRIs. The A.O. to verify the genuineness of the gifts examined the donors, who have confirmed the gifts. However, disbelieving the gifts, the amounts were considered as undisclosed income of the assessee and added to his total income. The assessee was unsuccessful before the Ld. C.I.T.(A) and Hon'ble Tribunal and thus carried the matter the Hon'ble High Court. The assessee then moved in further appeal before the Hon'ble High Court and was successful. However, the department being aggrieved moved further before the Hon'ble Supreme Court, which reversed the findings of the Hon'ble High Court and held in favour of the revenue. Based on the addition made with reference to undisclosed income in the guise of gift, the A.O. initiated penalty proceeding u/s. 271(1)(c) of the Act and more or less came to the same conclusions that he had come to in the quantum assessment and imposed penalty on the ground of concealment. Appeal of the assessee before the CIT(A) met with no success and resultantly the assessee moved before the Hon'ble Tribunal against such levy and sustenance of penalty u/s. 271(1)(c) of the Act by the revenue authorities. On the aforesaid facts and circumstances of the case, the Hon'ble Tribunal held that although the explanations regarding the alleged gifts were discounted by the A.O. as well as CIT(A) and thereafter by the Tribunal and finally upheld by the Hon'ble Supreme Court, this cannot by itself mean that the explanations given by the assessees were not bona fide. Further, the rules of preponderance of probability that are to be applied to assessment proceedings cannot be so applied qua penalty proceedings. Considering the totality of the case, the Hon’ble Tribunal came to the conclusion that there was no case for the Revenue that the explanations offered by the assessees were not bona fide or there was concealment and thus cancelled the penalty. (2)Hon'ble Apex Court in the case of CIT vs. Reliance Petroproducts Ltd. (2010 322 ITR 158 (SC) that if no fault can be found with the particulars submitted by the assessee in the return of income, then penalty u/s. 271(1)(c) of the Act cannot be imposed. The ratio of these judgments (supra) are applicable to the assessee under consideration, because the assessee was under bona fide belief that just to Page | 5