2010 (3) TMI 824 - AT - Income Tax

Levy of penalty under section 271(1)(c) - Denial of the assessee s claim for set-off of brought forward business loss against the income assessed under the head Capital gains - Held that - There was a bona fide disclosure of all the particulars and mere denial of the assessee s claim of set-off will not attract the penal provisions as contained under section 271(1)(c). He placed reliance on the recent decision of the Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. (2010 - TMI - 75701 - SUPREME COURT) , wherein it was observed that making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars, no penalty is leviable under section 271(1)(c) of the Income-tax Act. - Thus appeal of the assessee is allowed.

Summary

Issues:
Appeal against penalty under section 271(1)(c) for denial of set-off of business loss against capital gains.

Analysis:
1. The appeal was filed against the penalty imposed under section 271(1)(c) for the assessment year 1994-95, regarding the denial of the assessee's claim for set-off of brought forward business loss against income under "Capital gains."

2. The assessee contended that the claim was made in good faith, disclosing all relevant particulars, and cited legal precedents to support the argument that an incorrect claim in law does not amount to furnishing inaccurate particulars under section 271(1)(c).

3. The Departmental representative argued that the claim was incorrect and not permissible under the Income-tax Act, justifying the penalty imposed.

4. The Tribunal found that the assessee had disclosed all relevant particulars, including the director's report, and the claim was denied by the Assessing Officer without alleging mala fide intention. The Supreme Court's decision in Reliance Petroproducts case was cited to support the view that an incorrect claim in law does not attract penalty under section 271(1)(c).

5. Various judicial decisions were referenced to emphasize that the mere rejection of a claim, even if incorrect, does not automatically warrant the imposition of a penalty under section 271(1)(c), as deliberate default or concealment of income is necessary for penalty imposition.

6. The Tribunal concluded that the assessee had disclosed all relevant particulars, and the denial of the claim for set-off of business loss against other income heads did not justify the penalty under section 271(1)(c).

7. Citing legal precedents, the Tribunal allowed the appeal, emphasizing that the assessee's disclosure of all particulars along with the return of income precluded the imposition of a penalty solely based on the denial of the claim for set-off of business loss against capital gains.

8. Therefore, the Tribunal held that it was not a suitable case for levying a penalty merely due to the rejection of the assessee's claim for set-off of business loss against other income heads.

9. Consequently, the appeal of the assessee against the penalty under section 271(1)(c) was allowed by the Tribunal.