In the instant case, the assessee has sold 71233 shares for Rs.3.33 crore under the buy-back scheme. This sale consideration comprises Rs.1.06 crore as interest. The assessee calculated the capital gain considering the total receipt of Rs.3.33 crore as value of sale consideration while the A.O. taxed Rs.1.06 crore as income from other sources which was confirmed by the Tribunal. For such change of head of income, the AO levied penalty u/s 271(1)(C). The Tribunal has upheld the addition against which assessee approached to the High Court and the following question of law were admitted as substantial question of law:-
(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the impugned interest Rs.1,06,57,881/- is not part of sales consideration and hence assessable under the head income from other sources”?
(ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in rejecting the additional ground advancing the argument that the impugned interest Rs.1,06,57,881/- is a capital receipt not exigible to tax under the Act?
After hearing rival contentions and on perusal of record It was held that Part of the capital gains shown in the form of interest was treated by the AO as income from other sources in place of capital gains. Thus, it is a case of mere change of head of income from capital gains to income from other sources. Following the proposition of law laid down by the Hon’ble Bombay High Court in the case of Nayan Builders, Hon’ble Delhi High Court in the case of Liquid Investment and Trading Co. Ltd. ITA No.240/2009 and decision of Hon’ble Bombay Tribunal in the case of M/s Schrader Duncan Ltd., ITA 8223/M/2010 and Vidya Vihar Container Ltd., ITA No.5541&5544/Mum/2013, it was pronounced that when the High Court admits substantial question of law on an addition, it becomes apparent that addition is debatable. In such circumstances penalty cannot be levied u/s 271(1)(c). Furthermore, the Hon’ble Bombay High Court in the case of Bennett Coleman & Co. Ltd., ITA No.2117/2012, dtd 26-2-2013 and the Hon’ble Delhi High Court in the case of Bhartesh Jain, ITa No.363/2010, dated 6-4-2010 and in the case of Auric Investment and Securities Ltd., ITA No.763/2006, dated 13-7-2007, has been held that no penalty is leviable where there is only a change of head of income. In the instant case, there is merely change of head of income from capital gains to income from other sources against which substantial question of law has been admitted by Hon’ble Bombay High court, under these circumstances, penalty cannot be imposed u/s.271(1)(c) of the Act. In the result, appeal of the assessee is allowed.