2012 (8) TMI 338 - AT - Income Tax

Levy penalty u/s.271(1)(c) - short term capital loss of dividend stripping not shown - Held that - Assessee has offered the amount on account of short term capital loss of dividend stripping as per section 94(7) when a query was raised by the AO - Merely for committing the lapse by the assessee does not amount to furnishing inaccurate particulars of income as for not reducing the loss on account of dividend stripping from the total short term capital loss declared by the assessee due to mismatch in the computer calculation is an inadvertent mistake for which assessee has given an explanation and the said explanation cannot be rejected outright - it is not a fit case for levy of penalty u/s 271(1)(c) - in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income leading to concealment of income regarding loss of Rs.27,38,705 under section 94(7) of the Act.

Detailed Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c)
The appellant contested the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, arguing that the excess claim of short term capital loss of Rs.27,38,705 was a bona fide mistake and was rectified by the appellant suo moto. The AO contended that the appellant made a non-bonafide claim, thereby furnishing inaccurate particulars of income and concealing income, justifying the penalty. The First Appellate Authority upheld the penalty, stating that the appellant failed to offer the loss voluntarily before receiving the notice under section 142(1) and that the explanation of a system error was unsubstantiated. The Authority relied on the decision of the Hon'ble Supreme Court in Dharmendra Textiles Processors & Ors vs. Union of India, emphasizing that the penalty is a civil liability and does not require proof of conscious concealment.

Issue 2: Bonafide Mistake and Precedents
The appellant argued that the mistake was inadvertent and made in good faith, with no tax benefit derived from it. The appellant cited precedents where penalties were canceled due to bonafide mistakes, emphasizing that if there is a genuine error, the penalty should be deleted. The appellant also referred to cases where penalties were canceled for mistakes made by professionals assisting the assessee, supporting the argument that inadvertent errors do not warrant penalties.

Judgment and Conclusion:
The Tribunal acknowledged that the appellant rectified the mistake when it was brought to their attention and that there was no tax advantage gained from the error. The Tribunal found that the explanation of a system error causing the mistake was plausible, especially considering the appellant's non-resident status and assistance by reputable professionals. The Tribunal concluded that the failure to reduce the loss on account of dividend stripping was an inadvertent mistake, not warranting a penalty under section 271(1)(c). Consequently, the Tribunal allowed the appeal, directing the deletion of the penalty levied under the said section, reversing the decisions of the authorities below.