2014 (1) TMI 31 - AT - Income Tax

Penalty u/s 271(1)(c) - Loss on exempt income cannot be set-off against taxable income - Held that - True and full disclosure, i.e., assuming so, is by itself not sufficient to escape penalty u/s.271(1)(c) - The requirement of law as per Explanation 1(B) to the provision, couples with a condition that the assessee is able to substantiate its explanation and proves it to be bona fide - The assessee offers no explanation, so that its case falls under Explanation 1 (A) to the provision - The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier - The paper return was required to follow the e-return as per the new procedure, was filed on 13.11.2007, i.e., within the prescribed period of 15 days of the filing of the e-return - As per the Board Circular the assessee was entitled to furnish all the reasons and disclosures in support of its claim per the return of income for the year, on 29.09.2008 - This was admittedly not done - Even the computation of the total income was not filed - The assessee had not availed of the first opportunity to make full disclosure in terms of the Board Circular and, thus, the same must be deemed to be per its return of income for the year - The first instance on which proper disclosure, was made only vide the assessee's letter dated 28.08.2009 which was in response to the requisition dated 13.08.2009, and upon hearing on 17.08.2009 - The assessee cannot be said to have furnished any explanation, rather, contrary to it, cannot be considered as an explanation in law, and that in any case the assessee can only be considered as having failed to substantiate its explanation - Explanation 1(A) or 1(B) is applicable in such case - Penalty levied at minimum was sustained - Decided in favour of Revenue.

Issues Involved:
1. Validity of the set-off of loss on transactions of Long-Term Capital Assets (LTCAs) specified under section 10(38) of the Income Tax Act, 1961.
2. Applicability of penalty under section 271(1)(c) for concealment or furnishing of inaccurate particulars of income.
3. Adequacy of true and full disclosure of facts material to the computation of income.

Detailed Analysis:

1. Validity of the Set-Off of Loss on Transactions of LTCAs Specified Under Section 10(38):

The core issue revolves around the legality of setting off losses from transactions involving LTCAs, which are exempt under section 10(38) due to the payment of Securities Transaction Tax (STT), against taxable Long-Term Capital Gains (LTCG). The assessee argued that:
a) Section 70(3) allows LTCL to be set off against LTCG.
b) The exemption under section 10(38) is absolute, and thus LTCL can be set off against LTCG irrespective of STT payment.
c) The exemption relates to transactions, not the source or head of income.
d) Any ambiguity in law should be interpreted in favor of the taxpayer.

The Tribunal found the assessee's case unmaintainable, citing several Supreme Court decisions (CIT vs. Gold Coin Health Food (P.) Ltd., CIT vs. J. H. Gotla, CIT vs. Harprasad & Co. (P.) Ltd.) that clarified the definition of 'income' includes losses. The Tribunal emphasized that if income from certain transactions is exempt, the corresponding loss should also be exempt and not enter the computation of taxable income.

2. Applicability of Penalty Under Section 271(1)(c):

The penalty proceedings were initiated on the grounds that the assessee's claim was not sustainable in law and represented either concealment or furnishing of inaccurate particulars of income. The CIT(A) had found in favor of the assessee, citing full disclosure and the debatable nature of the legal issue. However, the Tribunal disagreed, stating that:
a) True and full disclosure alone is insufficient to escape penalty; the explanation must be bona fide and substantiated.
b) The assessee's legal claim was found to be without basis in law and contrary to the settled legal position.
c) The assessee's reliance on the decision in Royal Calcutta Turf Club was misplaced, and its argument regarding the benefit of doubt was not tenable given the clear legal precedents.

3. Adequacy of True and Full Disclosure of Facts Material to the Computation of Income:

The Tribunal scrutinized whether the assessee had made full and true disclosure of all material facts. It was found that:
a) The assessee did not avail the first opportunity to make full disclosure as per the Board Circular No. 9 of 2006.
b) Proper disclosure of the impugned loss and its STT-paid nature was only made during the assessment proceedings and not per the return of income.
c) The Tribunal concluded that the assessee did not furnish all material particulars of income voluntarily but only in response to specific queries during the assessment.

The Tribunal also discussed the reliance on the decision in Nalin P. Shah, where the penalty was deleted under similar circumstances. However, it found that the legal and factual basis in the present case differed significantly, and thus the reliance was not applicable.

Conclusion:

The Tribunal set aside the order of the CIT(A) and restored the penalty, finding that the assessee's claim was not bona fide and that there was a failure to make full and true disclosure of material facts. The Revenue's appeal was allowed, and the penalty under section 271(1)(c) was reinstated.

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