MITA J JHAVERI,MUMBAI vs. ACIT 16(1), MUMBAI

This appeal by the Assessee is arising out of order of CIT(A)-27, Mumbai, in Appeal No.CIT(A)-27/ACIT 16(1) /84/2011-12, order dated 30/08/2012. Assessment was framed by ACIT-16 (1), Mumbai under section 143(3) of the Income Tax Act, 1961 ( herein after referred to as ‘the Act’) for the assessment year 2008-09 vide his order dated 27/12/2010.

The only issue in this appeal of the assessee is against the order of CIT(A) confirming the levy of penalty by the Assessing Officer u/s.271(1)(c ) of the Act for furnishing of inaccurate particulars of income.

Briefly stated facts are that the assessee is earning income mainly on capital gains by dealing in shares and securities and also income from other sources. During the year under consideration the assessee has disclosed business income of Rs.344/-, short term capital gain of Rs.49,98,803/- and income from other sources at Rs.2,92,796/-. Assessing Officer noted that assessee’s is engaged in the derivative transaction activity and the income arising out of the same as is to be treated as business income as against capital gains declared by assessee . The assessee has not disputed the change of head from capital gain to business income in the quantum assessment. The Assessing Officer initiated penalty proceedings for furnishing of inaccurate particulars of income for the reason that assessee had disclosed derivative transactions as capital gains instead of business income. The Assessing Officer levied the penalty despite the fact that assessee filed explanation that he actually was of the view that the entire activity of share market is to be treated as capital gain either short term or long term . But AO has not accepted the explanation of the assessee and levied penalty for furnishing inaccurate particulars of income u/s.271 (1) (c ) of the Act.

We have heard the rival contentions and gone through the facts and circumstances of the case. First of all it is to be mentioned that the assessment has 6210/M/12 Mita Jhaveri become final and assessee accepted the change of head of income made by AO. We find that the AO in assessment order treated derivative transaction activity as business activity instead of investment activity claimed by the assessee. The AO assessed short term capital gain declared by the assessee as business income from these derivative transaction activities. Assessee’s explanation before lower authorities was that the view of the assessee was supported by various judicial decisions in its favour treating the activity of buying and selling of shares and trading in derivates and also future & options as investment activity and not business activity. Before us, the ld. Counsel for the assessee stated that assessee has not furnished inaccurate particulars of income as it has furnished all the details relating to her derivative transaction and admittedly the same was correct. According to the ld. Counsel for the assessee there is only change of head of income and there is no addition to the income of the assessee. He admitted that there is tax effect for rate purpose because business income is assessed at higher rate of tax than short term capital gain. The ld. Counsel for the assessee referred to the decision of Hon'ble Bombay High Court wherein the penalty for concealment u/s. 271(1)(c) of the Act for change of head of income and consequent claim of exemption was deleted. Hon'ble Bombay High Court in the case of Bennett Coleman & Co. Ltd. 259 CTR 383(Bom.) has held that the AO considered the premium received on redemption of debentures to be taxable under the head income from other sources while the assessee considered the same to be taxable under the head capital gains and Hon'ble High Court held that there is only change of head of income and in the absence of any evidence that the claim of the assessee was not bonafide, Tribunal has 6210/M/12 Mita Jhaveri rightly deleted the penalty. The related finding of Hon'ble High Court in para-3 reads as under:- “3. So far as question (ii) is concerned, the respondent- assessee had claimed premium on redemption of debentures as income from capital gains. Whereas the assessing officer held that the redemption of debentures is revenue receipt assessable to tax under the head income from other sources. The CIT(A) confirmed the order of the assessing officer. The respondent-assessee did not file any further appeal on the quantum proceedings. Thereafter, the assessing officer levied penalty under Section 271(1)(c) of the Act on the respondent- assessee. The CIT(A) also confirmed the levy of penalty upon the respondent- assessee. On further appeal, the Tribunal held that there is no dispute with regard to the fact that the respondent- assessee had disclosed that the amount received as premium on redemption of debentures in its computation of income. Further, the Tribunal records that it is not the case of the department that the respondent-assessee had concealed any particulars of income or furnished inaccurate particulars of income by stating incorrect facts. The assessing officer considered the said premium received on redemption of debentures to be taxable under the head income from other sources while the respondent-assessee considered the same to be taxable under the head capital gains. In view of the fact that there is only a change of head of income and in the absence of any facts that the claim of the assessee was not bonafide, the Tribunal deleted the penalty imposed under Section 271(1)(c) of the Act. The revenue has not been able to point out that the finding of the Tribunal is perverse. In these circumstances, we see no reason to entertain the proposed question (ii). ”

We find that the above, that the assessee has declared the income arising out of derivative transaction activity as short term capital gain as against assessed by AO as business income. For this assessee has filed an explanation that assessee was under bonafide belief that the entire activity of share trading earns only capital gain and not business income. It was also the argument of the assessee that he has not indulged into any concealment of income or furnishing of inaccurate particulars of income. The findings of AO are unwarranted that he is in organized business activity but only in this year held the transaction of derivative activity as business. The ld. Counsel for the 6210/M/12 Mita Jhaveri assessee before us filed complete details of transactions relating to derivative transactions/activities. In view of the above explanation and by going through the case records, we are of the view that the Revenue has not been able to controvert the explanation of the assessee or same is held to be false. In such circumstances, we have no hesitation in deleting the penalty and accordingly the penalty is deleted.

In the result, appeal of the assessee is allowed.