2013 (5) TMI 444 - AT - Income Tax

Penalty u/s. 271(1)(c) - addition made in respect of service charges - assessee is member of Bombay Stock Exchange mainly engaged in business of share broking - Held that - Disallowance was made by treating the said payment as capital expenditure. There is no charge of furnishing of inaccurate particulars or for concealment of particulars of income. Thus, on these facts, it cannot be held that the assessee is guilty of furnishing inaccurate particulars or has concealed particulars of income. The nature of payment has also not been disputed. The only dispute relates to whether can be allowed as recalled expenditure or capital expenditure. Thus under these circumstances we do not feel that penalty under Section 271(1)(c) can be levied. Penalty u/s. 271(1)(c) - addition made in respect of speculation loss - Held that - Tribunal has held that in value of shares in the closing stock can be allowed as loss. However, it was subsequently only that the Hon ble jurisdictional High Court has settled this issue while holding it to be speculative loss. Thus, at the time of filing of return there was a possible view in favour of the assessee and therefore, it would not be held that assessee had either furnished any inaccurate particulars of income or has concealed the particulars of income. Thus, it cannot be a case of penalty under Section 271(1)(c) can be levied or confirmed. Penalty u/s. 271(1)(c) - disallowance of interest payment holding that when interest payment were not for business purposes, assessee furnished inaccurate particulars by claiming it to be business expenditure - Held that - Once the assessee has submitted that it had surplus funds from where it had advanced the money to the sister s concerns, there cannot be any presumption that the same has been made out of borrowed funds only. At least in the penalty proceedings, with any adverse material on record to dispute the assessee s explanation, penalty for concealment cannot be levied or imposed. Thus, on this score also no penalty is warranted - the appeal filed by the department stands dismissed.

Issues Involved:
1. Deletion of penalty on addition made in respect of service charges.
2. Deletion of penalty on addition made in respect of speculation loss under Section 73 of the Act.
3. Deletion of penalty on disallowance of interest payment.
4. Whether the CIT(A)'s order is contrary to law and if the Assessing Officer's order should be restored.

Issue-wise Detailed Analysis:

1. Deletion of Penalty on Addition Made in Respect of Service Charges:
The Assessing Officer disallowed the payment of Rs. 25,16,280/- made to Sovereign Global Finance, Stock Guardian India P. Ltd., and NSE IT, stating that the payments were not wholly incurred for business purposes. The Tribunal found that the payments were for acquiring clientele and thus capital in nature. Consequently, the penalty for concealment was levied. However, the CIT(A) deleted the penalty, noting that the Assessing Officer had not initiated penalty proceedings in the assessment order. The Tribunal upheld this deletion, stating that the nature of the payment was not disputed, and the issue was whether it could be allowed as revenue or capital expenditure. There was no charge of furnishing inaccurate particulars or concealment of income.

2. Deletion of Penalty on Addition Made in Respect of Speculation Loss under Section 73 of the Act:
The assessee reported a loss of Rs. 2,99,630/- on the valuation of closing stock. The Assessing Officer treated this as speculation loss under Section 73, a view confirmed by the CIT(A). The Tribunal noted that at the time of filing the return, there were decisions in favor of the assessee, making the issue debatable. Thus, it could not be held that the assessee furnished inaccurate particulars or concealed income. The penalty on this disallowance was also deleted.

3. Deletion of Penalty on Disallowance of Interest Payment:
The Assessing Officer disallowed Rs. 6,33,693/- of interest payment, arguing that the assessee borrowed funds while advancing interest-free loans to sister concerns. The CIT(A) deleted the penalty, stating that the Assessing Officer had not initiated penalty proceedings in the assessment order. The Tribunal upheld this deletion, noting that the assessee's explanation that advances were made from surplus funds was not disproven. Without adverse material to dispute the assessee's explanation, penalty for concealment could not be imposed.

4. Whether the CIT(A)'s Order is Contrary to Law and if the Assessing Officer's Order Should be Restored:
The CIT(A) deleted the penalties on the grounds that the Assessing Officer did not record satisfaction for initiating penalty proceedings under Section 271(1)(c). The Tribunal upheld the CIT(A)'s decision, noting that satisfaction must be recorded for penalty proceedings to be valid. The Tribunal did not delve into the issue of recording satisfaction, deeming it academic in this case, and dismissed the department's appeal.

Conclusion:
The Tribunal dismissed the department's appeal, upholding the CIT(A)'s deletion of penalties on the grounds that the Assessing Officer had not initiated penalty proceedings properly and the issues were debatable, thus not warranting penalties for concealment or furnishing inaccurate particulars of income.

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