2009 (9) TMI 749 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalty u/s 271(1)(c) of the Income-tax Act.
2. Determination of whether the loss incurred by the assessee is a speculation loss.
3. Assessment of the assessee's disclosure of material facts and the legitimacy of the claim.

Summary:

1. Cancellation of Penalty u/s 271(1)(c) of the Income-tax Act:
The primary issue was whether the Commissioner of Income-tax (Appeals) erred in cancelling the penalty of Rs. 5,39,620 levied u/s 271(1)(c) of the Income-tax Act. The Assessing Officer had initiated penalty proceedings on the grounds that the assessee had concealed particulars of income or furnished inaccurate particulars. However, the Commissioner of Income-tax (Appeals) cancelled the penalty, noting that the issue was debatable with divergent court opinions and that the assessee had disclosed all material facts required for computation of income.

2. Determination of Speculation Loss:
The assessee purchased 75,800 shares of Shardul Securities Ltd. at Rs. 22 per share, which were valued at Rs. 4 per share at the end of the financial year, resulting in a loss of Rs. 13,64,400. The Assessing Officer treated this as a speculation loss u/s 73 and allowed it to be carried forward. The Commissioner of Income-tax (Appeals) observed that the issue was debatable and that the disallowance was made purely on a question of law, thus penalty u/s 271(1)(c) could not be imposed.

3. Assessment of Disclosure and Legitimacy of Claim:
The assessee had disclosed all material facts in the profit and loss account and balance sheet. The Commissioner of Income-tax (Appeals) noted that the loss was not claimed on the basis of any false fact or by suppressing facts. The Tribunal agreed, stating that the explanation given by the assessee was bona fide and supported by various judicial decisions. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and that merely because an addition is made, it does not automatically lead to penalty. The Tribunal concluded that the assessee had not concealed income or furnished inaccurate particulars, and thus, no penalty u/s 271(1)(c) could be imposed.

Conclusion:
The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) to cancel the penalty, noting that the assessee had disclosed all material facts and that the issue was debatable with two possible opinions. The appeal filed by the Revenue was dismissed.