2011 (10) TMI 651 - AT - Income Tax

Penalty u/s. 271(l)(c) - Addition of speculating profit - set off of brought forward losses - addition - Held that - Invoking the provisions of Section 41(1)he court cannot overlook the facts that only a small percentage of income tax returns are selected for scrutiny and if the assessee makes a claim which is not only incorrect in law but is also without any basis and the explanation furnished by him for making such claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty u/s 271(1)(c) of the Income tax Act, 1961. In the present case also, this is not explained by the assessee as to who committed the oversight resulting in failure to add this amount in question as income in the P & L account and in the computation of total income. It is also not explained as to how and under what circumstances, the oversight occurred and why it was not detected by the person who checked the income tax return when it was filed. Under these facts, we decline to interfere in the order of Ld. CIT(A).

Summary

Issues:
- Confirmation of penalty under section 271(l)(c) of the Act without proper consideration and appreciation of facts.
- Claiming speculation profit for set-off against speculation loss as a bonafide mistake.
- Applicability of judgments by Hon'ble Gujarat High Court and Hon'ble Delhi High Court in the case.

Issue 1: Confirmation of Penalty
The appeal was against the order of Ld. CIT(A) confirming a penalty of Rs. 1,18,611 under section 271(l)(c) of the Act for the assessment year 2006-07. The AO had initiated penalty proceedings after making an addition of Rs. 5,54,284 in the assessment, which was not shown in the P&L account but credited to the capital account. The CIT(A) confirmed this addition, leading to the penalty imposition. The appellant argued that there was no concealment as the receipt was shown in the capital account, and there was no mala-fide intention due to eligibility for set-off against speculation loss. The AR relied on a Gujarat High Court judgment, but the DR supported the penalty, citing Explanation 4 to Section 271(1)(c). The Tribunal found that the income was not offered for taxation, resulting in a reduction in carry forward of unabsorbed speculation loss. The Tribunal differentiated the facts from the Gujarat High Court judgment, as the appellant was an HUF, where the Karta would benefit from not showing the speculation profit.

Issue 2: Claiming Mistake as Bonafide
The appellant contended that the speculation profit of Rs. 5,54,284, not considered in the computation of total income, was a bonafide mistake eligible for set-off against speculation loss of earlier years. The AO added the speculation profit and disallowed the claim of carry forward of speculation loss due to an amendment in provisions. The AR argued that there was no malafide intention, and it was merely a case of a bonafide mistake. However, the Tribunal found that the appellant failed to explain who committed the oversight resulting in not adding the amount in question to the income, as observed in a Delhi High Court judgment. The Tribunal held that the explanation provided was not found to be bona fide, leading to the dismissal of the appeal.

Issue 3: Applicability of Judgments
The Tribunal analyzed the applicability of judgments by the Hon'ble Gujarat High Court and the Hon'ble Delhi High Court. In the Gujarat High Court case, the penalty was deleted as it was not a fit case for concealment, unlike the present case where the Karta of HUF would benefit personally. Regarding the Delhi High Court judgment, the Tribunal found it squarely applicable as the appellant failed to explain the oversight in not adding the amount to the income, leading to the decline to interfere in the CIT(A) order. Consequently, the appeal of the assessee was dismissed on 20th Oct., 2011.