2013 (9) TMI 901 - HC - Income Tax

Penalty for concealment of Income u/s 271(1)(c) of the Income Tax Act Held that - levy of penalty u/s 271(1)(c) of the Act in respect of loss on account of investments, vehicle and disallowance under Section 43B confirmed - The claims were ex facie wrong being contrary to fundamental/basic principles of accounts and Act, would not have escaped notice or missed. - Decided in favor of revenue. However, penalty was not justified and proper on the wrong claim for depreciation of plant and machinery as the legal position on the said claim was debatable. - decided in favor of assessee.

Issues Involved:
1. Deletion of penalty on additions made on account of loss on sale of investment and vehicles.
2. Wrongly claimed business loss and expenditure disallowed under Section 43B of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Penalty on Additions Made on Account of Loss on Sale of Investment and Vehicles:

The tribunal deleted the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2003-04. The respondent-assessee had initially filed a return declaring a loss of Rs. 13,65,54,483/-, which was processed under Section 143(1) of the Act. However, upon reassessment, it was found that the assessee had claimed depreciation on plant and machinery despite no manufacturing activity and had wrongly claimed a capital loss on the sale of investments as a business loss. The tribunal held that all details regarding the loss were filed along with the return of income and that a change in the head of income cannot be considered as concealment or furnishing inaccurate particulars of income. The tribunal noted, "The assessee made a legal claim which was not found to be allowable by the Assessing Officer under the head business loss but the same was allowed as long term capital loss." The tribunal concluded that the assessee did not conceal any particulars or furnish inaccurate particulars in this regard.

2. Wrongly Claimed Business Loss and Expenditure Disallowed Under Section 43B:

The tribunal also addressed the issue of disallowance under Section 43B of the Act. The assessee had disclosed in its Chartered Accountant's report that certain amounts were not deposited, thus claiming them as not allowable. The tribunal considered this a technical or venial mistake rather than concealment of particulars of income. The tribunal further noted that the revised return was prepared but not filed due to a dispute with the Chartered Accountant over professional fees. The tribunal concluded that the details furnished along with the return of income indicated that the assessee's case was not liable for penalty under Section 271(1)(c).

High Court's Observations and Rulings:

The High Court examined the tribunal's observations and the contentions of the parties. It noted that during the reassessment proceedings, the respondent's loss was reduced by Rs. 5,98,74,592/- due to various disallowances. The court agreed that the claim for depreciation of plant and machinery was debatable and that passive use entitles an assessee to claim depreciation. However, the court found that the real contest was regarding the loss on the sale of investments and vehicles and disallowance under Section 43B.

The court disagreed with the tribunal's broad statement that a change in the head of income cannot be considered as concealment or furnishing inaccurate particulars of income. It emphasized that the application of Explanation 1 to Section 271(1)(c) is crucial, which requires the assessee to prove that the explanation offered was bona fide and that the facts relating to the computation of total income were duly disclosed. The court found that the assessee had furnished inaccurate particulars of income, which was established beyond doubt. The court noted that the assessee had not made disallowance under Section 43B even in respect of interest payable but not paid to financial institutions.

The court further observed that the tribunal had accepted the explanation that the revised return was prepared but not filed due to a dispute with the Chartered Accountant, which the court found contrary and without basis. The court highlighted that the assessee had filed the original return supported by audited accounts and had contested the reassessment notice. It was only after being confronted by the Assessing Officer that the assessee filed a revised computation, accepting that the loss on the sale of investments was a capital loss, not a business loss.

Conclusion:

The High Court concluded that the assessee had furnished inaccurate particulars of income and failed to discharge the burden under Explanation 1 to Section 271(1)(c) of the Act. The court upheld the levy of penalty in respect of the loss on account of investments, vehicles, and disallowance under Section 43B, stating that the claims were ex facie wrong and contrary to fundamental principles of accounts and the Act. However, the court did not find the penalty justified on the wrong claim for depreciation of plant and machinery, as the legal position on this claim was debatable. The appeal was disposed of with no order as to costs.

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