Bonafide mistake in Disclosure of income under wrong head – No penalty u/s 271(1)( c)

Brief of the case:

ITAT New Delhi held in Simran Singh Gambhir Vs DDIT International Taxation that if the assessee had disclosed the income by mistake under wrong head of income and that mistake was bonafide then the same could not be treated as an undisclosed income and penalty u/s 271(1)(c) could not be levied.

Penalty u/s 271(1)(c) could only be levied if the assessee had not disclosed the income. In this case as the assessee had disclosed his income so penalty penalty u/s 271(1)(c) could not be levied, as concluded by ITAT new delhi.

Facts of the case:

The assessee had invested Rs 2 crore on 10-08-2004 under the national Housing Bonds and received Rs  2,32,86,842/- on maturity So he had shown the income of Rs 32,86,842/- under income from Long term Capital gain on sale of National housing Bonds. But AO on the other hand treated the above income as an interest income and treated under head income from other sources because he was of the view that the National Housing Bonds while giving interest, had deducted the TDS on the interest income and the assessee had claimed the credit of the same. So the same should be treated under head income from other sources and levied penalty 271(1)( c) considering the consealed income. The assessee then went into appeal.

Contentions of the assessee:

Asseseee was of the view that as he had disclosed the income from NHB bonds under head income from capital gains though under wrong head but he had not hidden his income at all. All the income had been disclosed in the computation of the income, so penalty order u/s 271(1)( C) was void ab initio. The penalty of sec 271(1)( C) could only be levied when the assessee had not disclosed his income. The assessee had relied on the following case laws in which it was decided that if the income had been disclosed in the return of the income under wrong head then penalty proceedings u/s 271(1)(C) could not be levied:

                                                  CIT Vs Auric Investment and Securities Ltd 310 ITR 121

                                                  CIT Vs Bennett Coleman & Co. Ltd 87 DTR 268

                                                  CIT Vs Bhartesh Jain 235 CTR 220

Contention of the revenue:

Revenue was of the view that NHB bonds are specified assets for claiming exemption for Long Term capital Gain u/s 54EC and interest on these bonds to be taxed under head income from other sources. Moreover TDS had also been deducted while giving interest on these bonds for which TDS credit had also been taken by the assessee. So the above income should be treated under head income from other sources. Revenue also argued that the assessee was fully aware of that interest would be taxable under heads income from other sources and also claimed TDS credit so the penalty u/s 271(1)(C) should be levied, considering that assessee has intentionally not shown the income under wrong head.

Held by ITAT:

ITAT in the above case held that if the assessee had made a mistake by taking the income under inappropriate head of income and that mistake was bona fide then the penalty u/s 271(1)(C) could not be levied as the assessee had disclosed his income and also paid the tax on the same though there might be some difference in the tax amount that would be dealt separately but the penalty u/s 271(1)(C) could not be levied because he had not hidden his income rather just shown to wrong head.

So the appeal of the assesse was allowed.