2010 (6) TMI 793 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Section 94(7) of the Income Tax Act, 1961.
3. Bona fide nature of the assessee's claim.
4. Interpretation and application of various judicial precedents.

Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this case is whether the penalty of Rs. 3,14,478/- levied by the Assessing Officer (AO) under Section 271(1)(c) for concealment of income was justified. The AO initiated penalty proceedings after detecting that the assessee had not applied the provisions of Section 94(7) while calculating its income, resulting in an addition of Rs. 8,59,817/-. The AO concluded that the assessee failed to disclose material facts and imposed the penalty. The CIT(A) deleted the penalty, considering the issue as debatable and involving a difference of opinion. However, the Tribunal found that the assessee did not furnish full and true particulars relating to the claim and upheld the AO's imposition of the penalty.

2. Applicability of Section 94(7) of the Income Tax Act, 1961:
Section 94(7) deals with disallowance of losses arising from transactions in securities or units where the dividend or income on such securities or units is exempt. The AO noted that the assessee, a stockbroker, did not apply the provisions of Section 94(7) while filing its return, despite being aware of them. The Tribunal observed that the assessee furnished details of dividend and bonus stripping only after being queried by the AO, indicating that the claim was not made suo moto. The Tribunal found no ambiguity in the provisions of Section 94(7) and concluded that the assessee's failure to apply these provisions was not bona fide.

3. Bona Fide Nature of the Assessee's Claim:
The assessee argued that the loss was due to market movements and not intended to adjust with other profits. However, the Tribunal noted that the assessee did not disclose the loss on sale of shares in its return or audited accounts, and only provided details after the AO's inquiry. The Tribunal concluded that the claim was not bona fide and that the assessee's conduct was deliberate, aimed at claiming double benefits by exempting dividend income while setting off the loss on sale of shares.

4. Interpretation and Application of Various Judicial Precedents:
The Tribunal considered various judicial precedents cited by both parties:
- Reliance Petroproducts Pvt. Ltd.: The Tribunal distinguished this case, noting that the assessee in the present case did not furnish full and true particulars relating to the claim, unlike in Reliance Petroproducts.
- Haryana Warehousing Corporation and Siddharatha Enterprises: The Tribunal found these judgments inapplicable as the facts differed, particularly noting that the assessee in the present case did not disclose the loss on sale of shares in its return or audited accounts.
- KP Madhusudhanan vs. CIT: The Tribunal relied on this judgment, which supports the imposition of penalty when the assessee fails to offer a bona fide explanation for not applying the provisions of the Act.

The Tribunal also criticized the CIT(A) for incorrectly interpreting the Tribunal's decisions and for concluding that the issue was debatable without providing supporting material.

Conclusion:
The Tribunal reversed the order of the CIT(A) and restored the AO's order, concluding that the penalty under Section 271(1)(c) was justified. The Tribunal emphasized that the assessee's claim was not bona fide, and the provisions of Section 94(7) were clear and unambiguous. The appeal filed by the revenue was allowed.