2015 (11) TMI 1065 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - bogus speculation profit - Held that - In the present case, the assessee has disclosed income from speculation profit only and the case is that he could not prove that this is speculation income or any other income for the want of evidence and merely he has not challenged the quantum addition. Assessee may file an appeal against an order of imposition of penalty even though he might not have filed an appeal against the order of assessment. The assessment proceedings are quite distinct and different from penalty proceedings. Although the order of assessment is a good evidence but it is not a conclusive proof that the assessee has concealed the particulars of income. In the present case before us, the AO s levy of penalty is entirely based on the assessment order that the assessee is unable to prove the profit declared in speculation income received to be one from Nakamichi Securities Ltd. in the absence of evidence. In levying penalty the burden is on the revenue to prove that the particular amount is profit not from speculation income but income from other sources against which speculation loss cannot be adjusted. No doubt the findings during assessment proceeding for determining or computing the income is conclusive and it is also a good piece of evidence for initiating penalty proceeding but before penalty could be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income that the assessee has concealed the particulars of income or has deliberately furnished inaccurate particulars of income. Here none of the case is present. In view of the above, we are of the considered view that the penalty u/s. 271(1)(c) of the Act in the given facts and circumstances is not leviable. Accordingly, we delete the penalty and allow this issue of assessee s appeal.- Decided in favour of assessee. Short term capital loss disclosed by assessee claimed to have been carried forward for setting off - Held that - AO s levy of penalty is entirely based on the assessment order that the assessee is unable to prove the profit declared in speculation income received to be one from Nakamichi Securities Ltd. in the absence of evidence. In levying penalty the burden is on the revenue to prove that the particular amount is profit not from speculation income but income from other sources against which speculation loss cannot be adjusted. No doubt the findings in the assessment proceeding for determining or computing the income is conclusive and it is also a good piece of evidence for initiating penalty proceeding but before penalty could be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income that the assessee has concealed the particulars of income or has deliberately furnished inaccurate particulars of income. Here none of the case is present. In view of the above, we are of the considered view that the penalty u/s. 271(1)(c) of the Act in the given facts and circumstances is not leviable.- Decided in favour of assessee. Disallowance of expenses against exempt income u/s. 14A of the Act by invoking Rule 8D - Held that - Where no information given in the return of income is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing of inaccurate particulars of income. In the present case also, the AO has nowhere found the explanation of the assessee as false and moreover from the details filed it could not be ascertained that the claim made by assessee is false. The AO has to prove that the assessee has concealed the particulars of income. In such circumstances, the penalty levied by the AO cannot be sustained. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for:
- Bogus speculation profit
- Short term capital loss
- Disallowance of expenses relating to exempt income under section 14A of the Act

Issue-wise Detailed Analysis:

1. Bogus Speculation Profit:
The assessee disclosed a speculation profit of Rs. 53,34,463 in the audited profit and loss account, set off against brought forward speculation loss, and showed a difference of Rs. 1,58,786 as income from profit and gains of business and profession. During assessment, the AO found no supporting details except a certificate from Nakamichi Securities Ltd., which later denied issuing such a certificate. Consequently, the AO added the undisclosed speculation profit to the income and disallowed the adjustment of brought forward speculation loss. The assessee did not contest this in appeal.

The Tribunal found that the penalty was based on the denial letter from Nakamichi Securities Ltd., which was not confronted to the assessee during assessment or penalty proceedings. The Tribunal held that the mere inability to prove the speculation income does not amount to concealment of particulars of income or furnishing inaccurate particulars. Citing the Rajasthan High Court's decision in CIT Vs. G. Nemichand and the Supreme Court's decision in Reliance Petro Products Pvt. Ltd., the Tribunal concluded that the penalty under section 271(1)(c) was not leviable and deleted the penalty.

2. Short Term Capital Loss:
The assessee claimed a short term capital loss of Rs. 9,67,232 and provided a sale and purchase account of shares. The AO accepted the account but disallowed the claim of interest received/adjusted against the sale and purchase, adding it to the returned income under the head "interest received." This was not contested by the assessee in appeal.

The Tribunal noted that the assessee had disclosed all details and reduced the interest income from the cost of shares while calculating the short term capital loss. The Tribunal reiterated that the penalty proceedings are distinct from assessment proceedings and that the burden is on the revenue to prove concealment of income. Since the AO's penalty was based on the assessment order without proving the concealment, the Tribunal held that the penalty under section 271(1)(c) was not sustainable and deleted the penalty.

3. Disallowance of Expenses Relating to Exempt Income under Section 14A:
The AO disallowed expenses of Rs. 3,01,590 relating to exempt income under section 14A, based on the audit report in Form No. 3CB and 3CD. The assessee did not contest this addition.

The Tribunal observed that the assessee had disclosed all details in the audit report and filed complete particulars with the return of income. There was no charge by the revenue that the details supplied by the assessee were incorrect or false. The Tribunal cited the Supreme Court's decision in Reliance Petro Products Pvt. Ltd., which held that a mere claim not sustainable in law does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the penalty under section 271(1)(c) was not justified and deleted the penalty.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the penalty under section 271(1)(c) of the Act for all three issues, as the revenue failed to prove concealment of income or furnishing of inaccurate particulars by the assessee. The decision was pronounced in the open court on 07.10.2015.