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ITAT upheld deletion of penalty u/s 271(1)(c)
ITAT upheld deletion of penalty u/s 271(1)(c)
Assessee, an investor and trader in shares, earned profit on share trading and claimed LTCG instead of treating it as business income. AO levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income. CIT(A) allowed assessee’s appeal. ITAT held that there was no basis to treat assessee as trader in shares, and AO was not justified in treating capital gain as business income. ITAT upheld CIT(A)’s order.-500619
1. Assessee earned rental income and was also investor and trader in shares, derivatives and other securities.
2. Assessee had shown capital gain of Rs 1,19,62,170 out of which an amount of Rs 1,06,78,515 had been claimed as exempt u/s 10(38).
3. AO asked assessee to explain why claim of long term gain should not be treated as business income.
4. AO held that net income from business activity of trading in shares and securities came to Rs.1,16,77,476.
5. Assessee earned profit on share trading transaction and claimed LTCG instead of showing of income as business income with the willful intention to evade the taxes.
6. AO initiated penalty proceedings and levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income.
7. Assessee had made investment in equity shares and mutual funds and had earned dividend income, but she had not disallowed any expenses directly related to those investments as per Rule 8D.
8. AO disallowed an amount of Rs 75,249 @ 0.5% of average value of investment and made addition.
9. CIT(A) allowed assessee’s appeal, and restricted the addition to Rs 56,234.
On appeal, the ITAT held as under:
10. There is no basis for treating the assessee as a trader in shares when his intention was to hold shares in Indian companies as an investment and not as stock in trade.
11. The transactions as a whole has to be taken into consideration and magnitude of the transaction does not alter the nature of transaction.
12. In the light of our discussion above the Assessing Officer was not justified in treating capital gain as business income.
13. We therefore, find no reason to interfere with the order of the CIT(A).
14. In the Profit & Loss Account assessee has shown net loss of Rs 5,49,962 mainly because of loss of future set off of Rs 12,29,896 hence rest of the loss is in respect of other expenditure ofRs 1,87,448.
15. Therefore considering the expenditure directly relatable to earning of such long term capital gain and dividend income, an amount of Rs 56,234/- being 30% of such expenses was found reasonable for disallowance by the CIT(A).
16. Accordingly the Assessing Officer was rightly directed to restrict the disallowance of such expenditure to the tune of Rs 56,234/- instead of Rs 75,249/-.
Case Reference - ACIT vs Smt. Pansy D. Mehta.
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE SHRI SHAILENDRA KUMAR YADAV, JM
AND SHRI RAMIT KOCHAR, AM
ITA No. 2696/Mum/2011
( Assessment Year: 2007-08)
