2013 (11) TMI 314 - AT - Income Tax

Penalty u/s 271(1)(c) of the Income Tax Act Assessee sold shares at a loss and claimed for it Held that - Bald plea of the AO and also by the DR before us that the assessee has claimed a loss cannot by itself justify the exigibility of penalty under section 271(1)(c) - It is a fact that the assessee was unable to produce the details of the shares of the two companies before the AO but, before the CIT(A), the assessee was able to produce the balance sheet and profit & loss account of the two impugned companies, whose shares, the assessee has sold at a loss. As has been held by the CIT(A), the book value could not be the sole criteria for deciding the fair market value of the shares sold. The co-ordinate Bench in the case of Rupee Finance & Management (P) Ltd., reported in 2007 (2) TMI 240 - ITAT BOMBAY-J , Mumbai, ITAT held that in case of transfer of shares to a group company at cost price, difference between fair market value of the shares and their cost price cannot be brought to tax as capital gains. Since, there being no material to show that the assessee had received more consideration then recorded in the books. Disallowance of the loss claimed has been non-filing of appeal against the order of the AO, cannot, by itself, justify that penalty is exigible and leviable on the assessee, despite the fact that the assessee has placed all the material facts before the AO. There could have been various reasons for non filing of the appeal, which fact could not lead to a conclusion of furnishing of inaccurate particulars of income or concealing particulars of such income - The issue is also fortified by decision of the Hon ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd., reported in 2010 (3) TMI 80 - SUPREME COURT Decided against the Revenue.

Summary

Issues Involved:
Appeal against deletion of penalty under section 271(1)(c) by CIT(A) - Alleged bogus loss claimed on sale of shares - Justification for penalty imposition - Non-filing of appeal by assessee - Validity of penalty under section 271(1)(c) - Compliance with legal requirements for penalty imposition.

Detailed Analysis:

1. Alleged Bogus Loss on Sale of Shares:
The AO disallowed a total loss claimed by the assessee on the sale of shares, holding them to be bogus and against the market trend. The department initiated penalty proceedings under section 271(1)(c) based on this disallowance. The assessee did not file an appeal against the disallowance of loss, leading to the penalty imposition.

2. Justification for Penalty Imposition:
The AO, in the penalty order, relied on the decision of Union of India vs Dharmendra Textiles Processors, stating that penalty is a civil matter, and hence, the levy of penalty was justified. The department contended that the assessee failed to provide a satisfactory explanation for the claimed loss, justifying the penalty imposition.

3. Non-filing of Appeal by Assessee:
One of the reasons cited for disallowance of the loss claimed was the non-filing of an appeal against the AO's order. However, the CIT(A) found that this reason alone was not sufficient to justify the imposition of penalty under section 271(1)(c), especially considering that the assessee had disclosed all relevant facts during the assessment proceedings.

4. Validity of Penalty under Section 271(1)(c):
The CIT(A) referred to the decision of CIT vs. Reliance Petro Products Pvt. Ltd., where it was held that even a wrong claim or disallowance would not attract penalty if complete details were furnished before the authorities. The CIT(A) deleted the penalty, emphasizing that the assessee's claim of loss on the sale of shares was made in good faith and was supported by satisfactory explanations.

5. Compliance with Legal Requirements for Penalty Imposition:
The ITAT dismissed the revenue's appeal, stating that the penalty could not be sustained based on the facts presented. The ITAT highlighted that the assessee had provided explanations and disclosed all relevant facts, which were not found to be false. The decision was further supported by the Supreme Court's ruling in the case of Reliance Petro Products Pvt. Ltd.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the penalty imposed under section 271(1)(c), emphasizing the importance of furnishing complete details and justifying claims in good faith to avoid penalty imposition.