2011 (12) TMI 658 - AT - Income Tax

Whether claim of the loss disallowed by virtue of provisions of section 94(7) attracts penalty under section 271(1)(c) - Held NO - This is a bonafide mistake happened at the level of compiling the data. The application of provisions of section 94(7) were not examined nor invoked. Since the assessee has declared large amount of profits in transactions on purchase and sale of shares this aspect could have genuinely missed the attention of persons concerned. Since no malafide intention can be attributed to assessee in claiming loss in these transactions we are of the view that penalty under section 271(1)(C) is not warranted. Various case law relied upon by the assessee also supports the contentions made. However without getting into the legal parameters on facts of the case we are of the view that there occurred a bonafide mistake in not examining the provisions of section 94(7) on these transactions. Moreover though there are disallowances in the course of the assessment proceedings mere disallowance does not attract penalty proceedings under section 271(1)(C).

Summary

Issues:
Appeal against penalty under section 271(1)(c) confirmed by CIT (A) - Disallowances under section 94(7) - Whether penalty justified.

Analysis:
1. The appeal was filed against the penalty under section 271(1)(c) confirmed by CIT (A) regarding disallowances made in assessment. The Assessing Officer initially imposed a penalty of &8377; 1,90,86,996/- based on various disallowances, which was partly confirmed by CIT (A). The penalty on disallowances under section 94(7) of &8377; 12,45,342/- was upheld. The assessee contested the penalty on disallowances, while the Revenue did not appeal the deleted part of the penalty.

2. The assessee, engaged in stock broking and trading, declared a total income of &8377; 8,47,91,121/-. Losses were incurred on transactions involving shares of VSNL and Infosys Ltd, totaling to &8377; 12,45,332/-. The transactions attracted section 94(7) due to dividends declared by the companies. The assessee, unintentionally missing the application of section 94(7), sought relief based on bonafide belief and professional advice. Various legal precedents were cited to support the contention that penalty under section 271(c) should not apply in cases of genuine oversight.

3. The Departmental Representative argued that the assessee purchased shares before dividend declarations to claim losses, which would have gone unnoticed without verification. Supporting the Assessing Officer and CIT (A) orders, it was contended that penalty was justified.

4. The Tribunal observed that the assessee, regularly involved in share transactions, incurred losses in specific transactions due to dividend declarations falling under section 94(7). The losses were disallowed after withdrawal of contentions. The Tribunal held that the penalty under section 271(c) was not warranted as the mistake was bonafide, and the application of section 94(7) was overlooked by both the assessee and professional advisors. The Tribunal emphasized the absence of malafide intent and the genuine oversight in not examining the provisions of section 94(7).

5. Considering the substantial profits declared by the assessee in other transactions and the genuine mistake made in the specific transactions attracting section 94(7), the Tribunal concluded that penalty under section 271(1)(c) was not justified. Citing various case laws and legal arguments, the Tribunal allowed the assessee's appeal and canceled the penalty levied on the disallowed losses.

6. Consequently, the Tribunal allowed the assessee's appeal, pronouncing the order on 30th December, 2011, and canceling the penalty imposed under section 271(1)(c) related to the disallowed losses under section 94(7).