2016 (2) TMI 45 - HC - Income Tax

Penalty u/s 271(1)(c) - claim for business loss - CIT(a) and ITAT deleted the penalty - Held that - CIT(Appeals) and the Tribunal have concurrently reached a finding of fact that the Respondent had not claimed any carry forward loss either in the return which he has filed for the subject assessment year or in the subsequent assessment years. In the subject assessment year, once a loss was shown in the E-return, the software suomotu reflects the loss returned as carry forward loss. The Respondent has not fed in the entry of carried forward loss while filing its return of income in the E-return. The fact that the Respondent-Assessee had in the subsequent assessment year not claimed carry forward loss is evidence of the fact that there was no intent to furnish inaccurate particulars of income or conceal income. The expenditure had been claimed as it had set up its business though not commenced during the subject Assessment years. This was a claim which was disallowed not on the basis that it had not set up its business. In any case, both CIT(A) as well as the Tribunal had concurrently reached a finding of fact that there was no intent on the part of the Respondent Assessee to evade tax. This finding is not shown to the arbitrary - Decided in favour of assessee

Summary

Issues:
1. Whether the Tribunal was correct in upholding the action of the CIT(A) canceling the penalty for a claimed business loss that was disallowed during assessment proceedings?
2. Whether the Tribunal was incorrect in ignoring the provisions of Explanation 4 to Section 271(1)(c) regarding deemed concealment of loss reduction?

Analysis:

Issue 1:
The Respondent filed a return claiming an expenditure resulting in a business loss, which was disallowed by the Assessing Officer. The Assessing Officer also disallowed the carry forward loss claimed in the return. Penalty proceedings under Section 271(1)(c) were initiated. The Respondent argued that the claimed expenditure was for a business that was set up, even though not commenced, and had no intent to carry forward the loss. The Commissioner of Income Tax(Appeals) allowed the appeal, stating no intent to conceal income. The Tribunal upheld this decision, noting the automatic reflection of carry forward loss in the E-return and the absence of such claims in subsequent years. The finding that there was no intent to evade tax was upheld. The appeal was dismissed as no substantial question of law arose.

Issue 2:
The application of Explanation 4 to Section 271(1)(c) was not disturbed in the assessment order. The Explanation pertains to inaccurate particulars reducing declared loss, resulting in a penalty for tax evasion. The Revenue pressed this question, but it was not the grievance before the Tribunal. As the issue did not arise in the present case, it was not entertained. The appeal was dismissed without costs.