2015 (6) TMI 887 - AT - Income Tax

Penalty levied by AO u/s. 271(1)(c) - claim of set off of loss relating to Madras Elastomes Ltd. a company under BIFR, which was merged with the assessee company - CIT(A) deleted penalty levy - Held that - In the instant case the audited profit & loss account, correctly disclosed the profit of the assessee which was set off against the loss incurred by the company under amalgamation. Therefore, the basic element necessary for initiation of proceeding u/sec 271(1)(c) of the Income Tax, 1961 that the assessee has furnished inaccurate particulars of income is conspicuously absent. The only point, in the instant case as per the argument of the Ld. counsel for the assessee was on which the impugned action has been conceived the AO. stated that income disclosed in the return which is based on an expert legal opinion, from the simple fact that the assessee was amalgamated with MEL, there was an error in this respect committed by the assessee, in aid of the legal expert, claiming the set off of loss of the amalgamated company. However, an error is never tantamount to penalty and accordingly the proceedings under section 271(1)(c) of the Act is misconceived in view of the fact that the mistake committed under an expert advice cannot expose the assessee to a charge of the furnishing of inaccurate particulars of income . See CIT v. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT stating mere disallowance of claim for expenditure by itself would not tantamount to furnishing inaccurate particulars of income and accordingly, in such cases no concealment penalty can be levied on that basis. - Decided in favour of assessee.

Summary

Issues:
Appeals by revenue against CIT(A) order deleting penalty u/s. 271(1)(c) for set off of loss relating to merged company.

Analysis:

Issue 1: Penalty under section 271(1)(c) for set off of loss
The appeals by revenue challenge the CIT(A) order deleting the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied due to the disallowance of the claim of set off of loss relating to a company under BIFR that was merged with the assessee company. The AO contended that the assessee knowingly claimed the set off despite being aware that it was not entitled to it. However, the CIT(A) deleted the penalty, citing the decision in Reliance Petro products Ltd. case, emphasizing that an error based on a bonafide belief does not amount to penalty under section 271(1)(c). The CIT(A) concluded that the appellant disclosed its income in good faith based on expert advice and did not hide any facts regarding the merger, thus ruling out any intention to subvert the truth.

Issue 2: Furnishing inaccurate particulars of income
The core argument revolved around whether the assessee furnished inaccurate particulars of income, leading to the penalty under section 271(1)(c). The assessee contended that there was no concealment of income as the accounts were maintained accurately, and the error in claiming the set off was based on legal advice. The legal opinion sought by the assessee supported the adjustment of losses, and the error was not intentional but a result of following expert advice. The Tribunal agreed with the assessee's argument, emphasizing that the mere disagreement between the taxpayer and the revenue on income calculation does not warrant a penalty. The Tribunal relied on the Supreme Court's decision in the Reliance Petroproducts case, highlighting that penalty is not applicable if there is no proven concealment of income.

Conclusion:
The Tribunal dismissed all appeals by revenue, upholding the CIT(A) order deleting the penalty under section 271(1)(c) for the set off of loss relating to the merged company. The consistent view was taken across multiple assessment years, emphasizing that the error in claiming the set off based on expert advice did not amount to furnishing inaccurate particulars of income, warranting a penalty. The judgment reaffirmed that penalties are applicable only in cases of proven concealment of income, not mere differences in interpretation or calculation.