2011 (2) TMI 911 - AT - Income Tax

Penalty for concealement of Income or furnishing inaccurate particulars- Share of brought forward loss of partnership set off against business income of partner in his hands- Held that - It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect in law is mala fide Explanation 1 to section 271(1)(c) would come into play and work to the disadvantage of the assessee. Penalty in cases of claims which are wholly unsubstantial in law is to be upheld. See CIT v. Zoom Communication (P.) Ltd. (2010 - tmi - 75987 - Delhi High Court). - Decided in favor of the Revenue.

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income.
2. Justification of the assessee's claim regarding the set-off and carry forward of business loss.
3. Applicability of the Supreme Court's decision in CIT v. Reliance Petroproducts (P.) Ltd. to the present case.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) which deleted the penalty of Rs. 2,43,118 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed for furnishing inaccurate particulars of income. The Assessing Officer had determined that the assessee deliberately furnished inaccurate particulars by claiming a business loss of Rs. 7,36,723 from a partnership firm, which was not allowable.

2. Justification of Assessee's Claim:
The assessee claimed a set-off and carry forward of business loss from a firm in which he was a partner. The Assessing Officer issued a show-cause notice requiring justification for this claim, but the assessee did not provide any details. Consequently, the Assessing Officer disallowed the claim and initiated penalty proceedings. The assessee did not respond to the show-cause notice for the penalty, leading the Assessing Officer to conclude that the assessee furnished inaccurate particulars of income consciously and deliberately.

Before the Commissioner of Income-tax (Appeals), the assessee argued that the claim was made under a bona fide belief and cited the Supreme Court's decision in CIT v. Reliance Petroproducts (P.) Ltd. The Commissioner of Income-tax (Appeals) accepted this argument, noting that all details were disclosed in the income computation and there was no discovery of new facts by the Assessing Officer indicating concealment or furnishing of inaccurate particulars.

3. Applicability of Supreme Court's Decision:
The Revenue contended that the assessee's claim was wholly unsubstantiable and could not be supported by the provisions of the Income-tax Act or any judicial decision. The Revenue cited the Delhi High Court's decision in CIT v. Zoom Communication (P.) Ltd., which distinguished the Reliance Petroproducts case, asserting that penalty should be upheld for claims that are wholly unsubstantial in law.

The Tribunal examined the facts and found that the losses claimed by the assessee were from previous years and not from the current financial year. The assessee did not provide any explanation during the assessment or penalty proceedings. The Tribunal concluded that the assessee's claim was not bona fide and was made with full awareness that it was not allowable by law.

The Tribunal emphasized that the decision in Reliance Petroproducts was not applicable to the present case, as the facts were different. In Reliance Petroproducts, the claim was made based on a bona fide belief before the introduction of section 14A, whereas in the present case, the claim had no legal basis and was not bona fide.

The Tribunal cited the Delhi High Court's observations that a claim needs to be bona fide and that Explanation 1 to section 271(1)(c) would apply if the claim is both incorrect in law and mala fide. The Tribunal noted that the assessee did not explain the circumstances under which the claim was made, indicating a lack of bona fide intention.

Conclusion:
The Tribunal concluded that the Commissioner of Income-tax (Appeals) erred in deleting the penalty. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and restored the penalty order of the Assessing Officer, allowing the Revenue's appeal. The Tribunal held that the assessee's claim was wholly unsubstantiable and made with a mala fide intention, attracting the provisions of section 271(1)(c) and Explanation 1 thereto.

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