2010 (5) TMI 564 - AT - Income Tax

Penalty - Addition - The learned counsel for the assessee has submitted that there is no requirement to disclose in the audit report the matter with regard to disallowance of loss within the meaning of Section 94(7) and as such mere because the fact of disallowance of loss to be made u/s 94(7) was not mentioned in the audit report it could not be said that the assessee has concealed the particulars of his income or furnished inaccurate particulars of his income - What has been disclosed by the assessee in the return of income is only the amount of loss adjusted against the other taxable income of the assessee and amount of dividend claimed exempt without disclosing any other particulars whatsoever relating to the purchase and sale of units - it is a case where the assessee has failed to furnish any explanation and material particulars relating to the income and loss arising to the assessee on purchase and sale of the units in question as to why the loss incurred on sale of units were not adjusted or set off against the dividend income - It is well settled that all and every fanciful and fantastic explanation offered by any person cannot in itself be construed to be a bona fide one Tribunal has cancelled the assessment on account of legality of the notice taken up in appeal and therefore on this ground alone the penalty cannot be imposed - At this stage a reference is made to a decision of Hon ble jurisdictional high Court of Delhi in the case of CIT vs Escorts Finance Ltd. dated 21th August 24 2009 where penalty levied u/s 271(l)(c) in respect of the disallowance of assessee s claim made u/s 35D for expenses incurred for public issue of shares was held to be justified - u/s 94(7) of the Act against the taxable profit of the assessee instead of adjusting the same against exempted dividend income and thereby derived double benefit is totally in disregard to the clear and unambiguous provisions contained in Section 94(7) of the Act and is not bonafide and further the assessee has failed to disclose fully and truly all materials relating to that claim in the return of income - In the result the appeal filed by the assessee stands dismissed

Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Section 94(7) of the Income-tax Act, 1961.
3. Disclosure of particulars in the audit report and return of income.
4. Bona fide nature of the assessee's claim.
5. Relevance of cited case laws to the present case.

Issue-wise Detailed Analysis:

1. Legality of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961:
The main grievance of the assessee is that the CIT(A) has erred in not deleting the penalty imposed under Section 271(1)(c) by the AO. The penalty was levied for furnishing inaccurate particulars and concealing income by making a claim of set off of loss of Rs.30,159/- incurred on sale of units against the profit on sale of securities. The Tribunal upheld the penalty, stating that the assessee failed to disclose all relevant facts and particulars necessary for determining the total income under the Act.

2. Applicability of Section 94(7) of the Income-tax Act, 1961:
The AO disallowed the loss of Rs.30,159/- for the purpose of set off against other profits, citing Section 94(7) of the Act. This section curbs the creation of short-term losses through transactions in securities and units around the record date for dividends. The Tribunal noted that the assessee did not disclose the primary and basic facts necessary to apply Section 94(7), such as the dates of purchase and sale of units and the record date for dividend distribution.

3. Disclosure of particulars in the audit report and return of income:
The assessee contended that there was no requirement to disclose the disallowance of loss under Section 94(7) in the audit report. However, the Tribunal held that mere stating the amount of income or loss in the statement of accounts without disclosing the particulars and details of the item cannot be considered a true and full disclosure. The Tribunal found that the assessee failed to disclose the primary and basic facts necessary for applying Section 94(7) in the return of income.

4. Bona fide nature of the assessee's claim:
The assessee argued that the claim in the return was bona fide and that the penalty could not be levied for a bona fide claim. The Tribunal rejected this argument, stating that the assessee failed to show and establish that the primary and basic facts about the purchase and sale of units were disclosed. The Tribunal concluded that the assessee's claim was not bona fide, as it was contrary to the specific provisions of Section 94(7) and the assessee did not provide any plausible explanation for the claim.

5. Relevance of cited case laws to the present case:
The assessee relied on several decisions, including CIT v. International Audio Visual Co., CIT v. PHI Seeds India Ltd., and Shri Krishna Electrical v. State of Tamil Nadu. The Tribunal found that these decisions were not applicable to the present case, as the primary facts were not disclosed by the assessee, and the claim was not bona fide. The Tribunal also referred to the decision in CIT v. Escorts Finance Ltd., where it was held that a bogus claim would attract penal provisions even if there was no concealment of income or furnishing of inaccurate particulars.

Conclusion:
The Tribunal upheld the order of CIT(A) in confirming the penalty levied under Section 271(1)(c) of the Act. It held that the assessee's claim of loss incurred on sale of units against taxable profit, instead of adjusting it against exempted dividend income, was not bona fide and was in disregard of the provisions of Section 94(7). The appeal filed by the assessee was dismissed.

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