Penalty-Shares Trading

(Anoop Jain HUF, ITAT Delhi, delevered on 3-2-2012)

A. On disallowance of Interest for Shares Trading

Facts of the case: A.Y.06-07

The assessee claimed deduction of interest out of his speculative income taxable @30%. AO asked him to prove that interest has been paid to earn speculative income and not earn short term capital gain taxable @10%. However since assessee could not offer any documentary proof to substantiate the same, AO treated the same as towards STCG and disallowed interest resulting addl tax @ 20% on interest component. Now AO seeks to impose penalty and CIT(A) confirmed the order

Held by ITAT

It is not the case of the Assessing Officer that the borrowed amount on which the interest has been paid by the assessee was not utilized by him for the purpose of earning income either from speculative activity or from short-term

capital gain. It is, therefore, the Assessing Officer has reduced the said amount from short-term capital gain after adding it back to the speculative income shown by the assessee. That does not mean that the borrowed amount on which the interest is paid was entirely used by the assessee for earning short-term capital gain. The amount has been found to be allowable and it was a matter of determination only that what amount should be allowed out of speculative activity or what amount should be allowed out of short-term capital gain. It is also not the case of the Assessing Officer that the amount has incorrectly been claimed and is not paid by the assessee to the bank for the purpose of earning income either as speculative income or as short-term capital gain. Therefore, we are of the opinion that on that component levy of concealment penalty is not justified. Therefore, to that extent we direct the Assessing Officer to delete the penalty on that component.

B. On wrong claim of STT

Further in this case the assessee had wrongly claimed deduction of STT from STCG and speculative income which was not allowable as per fifth proviso to section 48 and section 40. Assessee didn’t set up any claim of having claimed inadvertently. Further ITAT held that disallowance is applicable from AY 2005-06, hence it is not a new provision and hence penalty affirmed.