2015 (7) TMI 1013 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee debited an amount under the head other expenses , being loss on account of transactions in shares - AO treated this loss, as loss arising from speculative business - Held that - The Assessing Officer (AO) in this case has not found, that the claim of the assessee that it had incurred a loss of ₹ 1,69,75,525/- in the business of purchase and sale of shares as either false or fabricated. He had infact accepted this figure of loss. All the transactions in question were disclosed by the assessee in the books of accounts. The Profit and Loss a/c was audited. The assessee had in its letter dt. 12.10.2010 furnished all the details to the AO. The details of STT paid along with photo copies of Certificates in Form no.10 DB, bearing code of transactions etc. These code of transactions indicated as to whether the transactions were settled by actual delivery or not.Whether the loss in question should be treated as business loss or as speculative loss.This is a debatable issue. As decided in THE COMMISSIONER OF INCOME TAX & OTHS. Versus M/s MANJUNATHA COTTON AND GINNING FACTORY & OTHS. 2013 (7) TMI 620 - KARNATAKA HIGH COURT the findings recorded in the assessment proceedings insofar as concealment of income and furnishing of incorrect particulars would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings - Decided against revenue.

Summary

Issues:
- Appeal against order of Ld.CIT(A)-XVII, New Delhi for AY 2008-09
- Treatment of loss as speculative business
- Penalty proceedings u/s 271(1)(c) of the Act

Analysis:

Issue 1: Appeal against Ld.CIT(A) order
The appeal was filed by the Revenue against the order of the Ld.CIT(A)-XVII, New Delhi for the Assessment Year 2008-09. The assessee, a company engaged in export, manufacturing, and trading, had declared 'nil' income but debited an amount under 'other expenses' due to losses from share transactions. The AO treated this loss as speculative business loss, initiating penalty proceedings u/s 271(1)(c) of the Act.

Issue 2: Treatment of loss as speculative business
The First Appellate Authority found that the assessee had disclosed all particulars, and the AO did not claim the particulars were false or inaccurate. The Ld.CIT(A) concluded that the issue revolved around whether the loss was a business loss or speculative loss. The Tribunal observed that the AO had accepted the loss figure, and all transactions were disclosed in the books of accounts, audited, and supported by relevant details. The Tribunal considered the issue debatable.

Issue 3: Penalty proceedings u/s 271(1)(c) of the Act
The Tribunal cited the Hon'ble Karnataka High Court judgment, emphasizing that penalty under Section 271(1)(c) is a civil liability and mens rea is not essential for its imposition. It highlighted that the conditions for penalty initiation should be evident from the assessment order or appellate authority's order. The Tribunal also noted that penalty imposition is not automatic, especially if the explanation offered by the assessee is found to be bonafide. It clarified that the direction to initiate penalty proceedings should be clear, and the notice under Section 274 should specify the grounds for penalty.

The Tribunal relied on a Delhi C Bench Tribunal decision and the principles laid down by the High Court to uphold the Ld.CIT(A)'s order, emphasizing that the assessee had disclosed all income particulars and did not furnish inaccurate details. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the First Appellate Authority's decision.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing the importance of disclosing accurate particulars and the debatable nature of the loss classification as business or speculative. The judgment highlighted the legal principles governing penalty proceedings under Section 271(1)(c) and upheld the First Appellate Authority's decision based on the principles established in relevant case laws.