2013 (8) TMI 551 - AT - Income Tax

Penalty u/s. 271(1)(c) - Onus on assessee to furnish a reasonable explanation - CIT upheld penalty - Held that - assessee did not revise the statement of brought forward (or carry forward) loss/es even after the receipt of the appellate order for A.Y. 1995-96 on 25.01.2002, accepting its claim for the set-off of loss to this extent. The same led to a corresponding difference in the brought forward loss for A.Y. 1996-97. To this extent the assessee has clearly preferred a double claim, i.e., firstly against the income for AY 1995-96 and then again for the current year. Its argument of the A.O. having disallowed the claim subject to verification is to no effect inasmuch as the difference in loss, as claimed and allowed, is finally only for this difference, i.e., which stands wrongly claimed. If the assessee considered that its claim for set off of business loss against LTCG, made for AY 1995-96, may be disallowed in appeal, so that he chose to keep alive its claim for set off of the said loss against income for the current year, the only manner he could do so was by way of a note in the return o income for the current year, and not by actually claiming a set off. The same makes his stand, rather than clarificatory, contradictory, inasmuch as the assessee did not withdraw its claim for the preceding year. In fact, the return for the current year stands filed on 22/4/2004, i.e., after having received the order allowing its claim for set off of business loss against income (LTCG) for AY 1995-96, so that these considerations are only hypothetical and of no relevance. This is as the loss no longer survived for set off, having been already adjusted, rendering the claim for its adjustment (of business loss) to that extent (for this year) as without basis. The assessee thus has no explanation, much less a valid one, for the excess of Rs. 27.01 lakhs, except want of due diligence. In fact, the audit report contains a specific column for furnishing information on brought forward claims for losses and unabsorbed depreciation, and which should have also infused a sense of responsibility in preparing and filing the return, while it is apparent that the figure of loss(es) has been mechanically adopted. Rather, as apparent, the record was not updated for three consecutive years, i.e., A.Y. 2002-03 to 2004-05, and despite the same having a tax impact for the current year. The assessee s case is sans any explanation, and levy of penalty on this sum stands rightly confirmed by the ld. CIT(A) - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Discrepancy in the brought forward business losses claimed by the assessee.
3. Assessee's explanation for the discrepancies.
4. Revenue's stance on the discrepancies and penalty.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal by the assessee challenges the order confirming the levy of penalty under Section 271(1)(c) by the Assessing Officer (AO) amounting to Rs. 16,98,378/-. The penalty arises due to discrepancies in the brought forward business losses claimed by the assessee for various assessment years.

2. Discrepancy in the Brought Forward Business Losses Claimed by the Assessee:
The penalty pertains to a difference of Rs. 34,31,066 in the brought forward business losses claimed by the assessee for assessment years 1996-97 to 2003-04. The losses claimed in the return of income were Rs. 6,26,40,393, while the assessment record showed Rs. 5,92,09,327, resulting in the disputed amount.

3. Assessee's Explanation for the Discrepancies:
The assessee provided an explanation for the discrepancies, which included:
- The disallowance was due to the lack of official details, leading to claims being disallowed subject to verification.
- The claims were based on the tax audit report and were bona fide with no mala fides or mens rea.
- The discrepancy was only 5.08% of the total claim, which was argued to be insignificant and a result of a bona fide error.

4. Revenue's Stance on the Discrepancies and Penalty:
The Revenue found the assessee's explanations unacceptable, arguing that the incorrect claim was due to the assessee being aware of the set-off allowed for A.Y. 1995-96. The onus to substantiate the claim lies with the assessee, who failed to do so. The Revenue cited various case laws to support the stance that mens rea or willful neglect is not necessary for the levy of penalty.

Detailed Analysis:

5. Tribunal's Findings and Analysis:
The Tribunal reiterated that the onus to furnish a reasonable explanation lies with the assessee. The levy of penalty is a civil and strict liability. The assessee must provide a plausible explanation, failing which Explanation 1 to Section 271(1)(c) would be attracted.

5.1. Analysis of Assessee's Explanation:
- For the discrepancy of Rs. 3,00,000, the Tribunal found that the assessee's claim of a clerical mistake was valid, as the error was consistent over several years.
- For the balance Rs. 27,00,448, the Tribunal noted that the assessee did not revise the statement of brought forward losses even after receiving the appellate order for A.Y. 1995-96, leading to a double claim. The Tribunal found no valid explanation for this discrepancy, attributing it to a lack of due diligence.

5.2. Discrepancy for A.Y. 2002-03:
The difference for A.Y. 2002-03 was due to an addition sustained on assessment after the return for A.Y. 2004-05 was filed. The Tribunal accepted the assessee's claim as bona fide since the discrepancy arose due to a subsequent event.

5.3. Partial Relief Granted:
The Tribunal granted partial relief for Rs. 7,30,618, but confirmed the penalty for the remaining amount. The rate of penalty at 150% was also confirmed due to the absence of any plausible explanation for the double claim.

Conclusion:
The assessee's appeal was partly allowed, with the Tribunal confirming the penalty for the amount where no valid explanation was provided. The order was pronounced in the open court on 5/06/2013.