2015 (6) TMI 811 - HC - Income Tax

Penalty u/s.271(1)(c) - whether claiming speculation loss as business loss deliberately amount to filing of inaccurate particulars and adjusting the same against income from other sources, whereas the clause (d) inserted by the Finance Act, 2005 under sub-section (5) of section 43 is applicable w.e.f 01.04.2006 i.e. from A.Y. 2006-07 conclusively proves that the derivative transactions are in the nature of speculative transactions till A.Y. 2005-06 - ITAT deleted penalty levy - Held that - While submitting the return of income, the assessee claimed/treated the loss from derivative transactions as normal business loss. However, the AO did not accept the same and treated the same as speculative in nature and therefore, disallowed the same. Therefore, it was a bonafide claim made on behalf of the assessee which was not accepted by the AO. All particulars in respect of the loss were found to be correct. Only point of contention was that the appellant had treated loss from derivative transactions as normal business loss whereas the AO held it to be speculative in nature. It is a case of bonafide claim in respect of an item where the law was not very clear, this is evident from decisions of various tribunals quoted by the appellant which were in its favour. This is a case of difference of opinion and not a case of mala fide claim of wrong deduction. Ratio of decision of Hon ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. 2010 (3) TMI 80 - SUPREME COURT wherein held that mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee is squarely applicable to the facts of the case - Decided in favour of assessee.

Summary

Issues:
1. Whether the ITAT was correct in deleting penalty under section 271(1)(c) of the Income Tax Act for Assessment Year 2005-06?

Analysis:
The case involved a dispute regarding the treatment of speculative loss on derivative transactions by the assessee. The Income Tax Appellate Tribunal (ITAT) had deleted the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The Revenue challenged this decision through a tax appeal. The assessee declared a total loss and claimed a net loss on derivative trading, which was set off against other sources of income. The Assessing Officer (AO) treated the loss as speculative and disallowed it, initiating penalty proceedings. The Commissioner of Income Tax (Appeals) (CIT(A)) allowed the appeal, stating it was a bonafide claim due to differing tribunal views. The ITAT upheld the deletion of the penalty, leading to the Revenue's current appeal.

The Revenue contended that the ITAT erred in deleting the penalty, arguing that the assessee knowingly treated speculative loss as business loss to evade tax. However, the Court noted that the assessee's claim was bonafide, especially considering the lack of clarity in the law at the time and divergent tribunal views. Citing the decision in CIT v. Reliance Petroproducts (P.) Ltd., the CIT(A) had deleted the penalty, which the ITAT affirmed. The CIT(A) found no inaccurate particulars in the income declaration, emphasizing it was a case of differing opinions, not intentional misrepresentation.

The Court upheld the decisions of the CIT(A) and ITAT, stating that no error was committed in deleting the penalty. It was noted that the claim was bonafide, especially given the unclear legal landscape and supporting tribunal decisions. The Court concluded that no substantial question of law arose, dismissing the Revenue's appeal.