2009 (4) TMI 805 - AT - Income Tax

Levy of Penalty u/s 271(1)(c) - two additions u/s 68 on speculative loss and loan received - Whether penalty levied by AO is contrary to the facts and law of the case? - It is submitted that although the addition has been confirmed by the Tribunal, penalty u/s 271(1)(c) cannot be imposed because the assessee has furnished explanation which the assessee could not substantiate but such explanation is bona fide and all the facts relating to the same and material to the computation of total income have been disclosed by the assessee and as per Explanation 1 to section 271(1)(c), it is not a case of concealment of income or furnishing of inaccurate particulars of income and hence the penalty imposed is not justified. HELD THAT - Respectfully following the judgment of the hon'ble Delhi High Court CIT v. Auric Investments and Securities Ltd. 2007 (7) TMI 276 - DELHI HIGH COURT , we hold that penalty is not leviable u/s 271(1)(c) because it cannot be said that there is concealment of income or furnishing of inaccurate particulars of income merely because the claim of the assessee regarding business loss has been accepted by the AO as speculative loss. Regarding the second aspect, i.e., Penalty on addition u/s 68 - loan received by the assessee from M/s. Elite Management Pvt. Ltd - For this loan, the assessee has furnished the loan confirmation from the party - HELD THAT - In view of this fact that the party has accepted that the cheque in question was given by them to the assessee although not as a loan, we are of the considered opinion that although the addition has been confirmed by the Tribunal on this account but it cannot be said that the explanation of the assessee was not bona fide and it also cannot be said that all the facts relating to the same and material to the computation of total income have not been disclosed by the assessee and hence Explanation 1 to section 271(1)(c) is not applicable in the present case for this addition and hence penalty cannot be imposed on this account also. Addition u/s 68 - claim of the assessee, four cheques were received by the assessee from M/s. Sujata Securities Pvt. Ltd. - assessee has given loan confirmation - HELD THAT - The addition was made for the reason that this cheque was given by M/s. Sujata Securities Pvt. Ltd. to the assessee out of fund said to be received by that company from M/s. Model Trading Co. and it is noted by AO, director of M/s. Sujata Securities Pvt. Ltd. has stated in his statement that he does not remember the address of M/s. Model Trading Co. which create serious doubt about the genuineness. It is further found that in the bank account of M/s. Model Trading Co. cash was deposited. On this basis, the addition made may be justified but it cannot be said that the explanation of the assessee was not bona fide and hence as discussed regarding loan received from M/s. Elite Management Pvt. Ltd, Explanation 1 to section 271(1)(c) is not applicable and hence for this loan also, AO is doubting the source of source which cannot be the basis for imposing penalty. Since, we have noted that in the present case, Explanation 1 to section 271(1)(c) is not applicable because bona fide explanation has been furnished by the assessee and hence we feel that penalty in the present case is not justified and hence respectfully following this Tribunal's decision with regard to applicability of the judgment of the hon'ble apex court rendered in the case of Dharamendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT , we delete the penalty. In the result, this appeal of the assessee is allowed.

Issues Involved:
1. Justification of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Allegation of concealment and furnishing of inaccurate particulars of income.
3. Genuineness of loans received by the appellant.
4. Treatment of loss as speculative loss.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The primary issue was whether the penalty of Rs. 32,89,552 under section 271(1)(c) was justified. The appellant argued that the penalty was unfounded and exorbitant. The Tribunal found that the mere treatment of business loss as speculative loss by the Assessing Officer does not automatically warrant the inference of concealment of income. The judgment of the Delhi High Court in CIT v. Auric Investments and Securities Ltd. [2009] 310 ITR 121 was cited, which held that the mere reclassification of business loss as speculative loss does not amount to concealment of income. Consequently, the penalty under section 271(1)(c) was not justified in this context.

2. Allegation of Concealment and Furnishing of Inaccurate Particulars of Income:
The Tribunal examined whether the appellant had concealed income or furnished inaccurate particulars. The Assessing Officer's reclassification of the business loss as speculative loss did not imply concealment. The Tribunal referenced the Delhi High Court's decision, which emphasized that such reclassification does not equate to concealment or furnishing inaccurate particulars. Thus, the penalty on this ground was not upheld.

3. Genuineness of Loans Received by the Appellant:
The appellant claimed to have received loans of Rs. 4,00,000 from M/s. Elite Stock Management Pvt. Ltd. and Rs. 19,00,000 from M/s. Sujata Securities Pvt. Ltd. The Assessing Officer added these amounts under section 68, questioning their genuineness. However, the Tribunal found that the appellant had furnished loan confirmations and the parties had acknowledged the transactions, albeit not as loans. The Tribunal concluded that the appellant's explanation was bona fide and all material facts were disclosed, thus Explanation 1 to section 271(1)(c) was not applicable.

4. Treatment of Loss as Speculative Loss:
The appellant's claim of business loss amounting to Rs. 50,95,247 was treated as speculative loss by the Assessing Officer. The Tribunal found that the reclassification of this loss did not amount to concealment or furnishing inaccurate particulars. The Delhi High Court's decision in Auric Investments and Securities Ltd. was again referenced, reinforcing that such reclassification does not justify a penalty under section 271(1)(c).

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified on both counts of reclassification of business loss as speculative loss and the addition of loans under section 68. The appellant had provided bona fide explanations and disclosed all material facts. The Tribunal also noted that the judgment of the Supreme Court in Dharamendra Textile Processors [2008] 306 ITR 277 did not imply that penalty was automatic in all cases of addition. The appeal was allowed, and the penalty was deleted.

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