2016 (4) TMI 1261 - AT - Income Tax

Levy of penalty under section 271(1)(c) - Held that - The finding of the Assessing Officer in the penalty order are incorrect in the sense that Assessing Officer has recorded his satisfaction in the penalty order that assessee has failed to produce documentary evidence to substantiate its claim because assessee furnished/produced documentary evidence as noted above in support of its claim of sale of shares at ₹ 10/- per share to the share broker and the documentary evidences filed by the assessee have been corroborated by the information provided by the company under section 133(6) of the Act to the Assessing Officer directly. Therefore, it is not a case where the assessee has failed to produce documentary evidence to substantiate its claim. The Assessing Officer levied the penalty because the explanation of the assessee was not acceptable to the Assessing Officer. Therefore, Explanation-I to Section 271(1)(c) would not apply in the case of the assessee because the explanation of the assessee was bonafide and was substantiated through documentary evidence and explanation of the assessee was not found to be bogus or false. Since assessee disclosed complete facts in the return of income therefore, there cannot be filing of inaccurate particulars of income. We are of the view that even if the quantum addition have been confirmed upto the stage of Hon ble High Court, however, it is not fit case of levy of penalty under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.
2. Validity of the claim of short-term capital loss on the sale of shares.
3. Difference of opinion between the assessee and the tax authorities regarding the genuineness of the share transactions.
4. Applicability of Explanation-I to Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue was the levy of penalty under section 271(1)(c) for furnishing inaccurate particulars of income. The Assessing Officer (AO) initiated penalty proceedings on the grounds that the assessee failed to prove the genuineness of the share transactions resulting in a short-term capital loss. The AO held that the assessee furnished inaccurate particulars of income to reduce taxable income.

2. Validity of the Claim of Short-Term Capital Loss on Sale of Shares:
The assessee sold land resulting in short-term capital gain and subsequently purchased shares from an unlisted company, M/s. Arcee Ispat Udyog Ltd., Hisar, at ?100 per share and sold them at ?10 per share. The AO disallowed the short-term capital loss claimed by the assessee, suspecting the transactions were structured to create an artificial loss. The CIT (Appeals) initially deleted the addition, but the ITAT reversed this decision, and the High Court upheld the ITAT's decision.

3. Difference of Opinion Between Assessee and Tax Authorities:
The assessee contended that the mere confirmation of disallowance of loss could not be the basis for levying a penalty. It was argued that there was a difference of opinion regarding the claim's validity, which did not amount to furnishing inaccurate particulars of income. The assessee provided evidence supporting the transactions, including purchase bills, client master lists, and confirmations from the company and share broker.

4. Applicability of Explanation-I to Section 271(1)(c) of the Income Tax Act:
The AO applied Explanation-I to Section 271(1)(c), which pertains to cases where the assessee fails to substantiate their explanation with evidence. However, the assessee argued that the explanation was bona fide and supported by documentary evidence. The Tribunal noted that the AO did not provide a clear-cut finding on whether it was a case of concealment of income or furnishing inaccurate particulars. The Tribunal held that the mere rejection of a legal claim did not justify the levy of penalty if the claim was supported by evidence and was bona fide.

Conclusion:
The Tribunal concluded that the assessee disclosed all material facts and particulars in the return of income and substantiated the explanation with documentary evidence. The penalty under section 271(1)(c) was deemed inappropriate as the claim was not found to be false or bogus. The Tribunal set aside the orders of the authorities below and canceled the penalty for all the assessees involved in the appeals.

Result:
All appeals were allowed, and the penalties under section 271(1)(c) were canceled.