2015 (8) TMI 1465 - AT - Income Tax

Levy of penalty u/s. 271(l)(c) - furnishing inaccurate particulars of income - treating the loss on foreign exchange fluctuation - Held that - We find that there was difference of opinion between the AO and the assessee about treating the loss on foreign exchange fluctuation, that the assessee had furnished all the details about the claim made by it and had stated that after the repossession of the ship the transaction had become part of the working capital. Thus, all the details of about the claim were available on file. In our opinion, confirmation of an addition by higher judicial forum do not lead to automatic imposition of penalty u/s.271(1)(c)of the Act Penalty notice the assessee had filed an explanation and we are of the opinion that it was a plausible explanation. If any information is suppressed by the assessee and but for the attentiveness of the AO, it would have escaped taxation, the assessee has to be dealt with sternly, but not in a case where the assessee has filed an explanation that is prima facie reasonable. In the case under consideration the reply filed by it was neither fanciful nor totally unacceptable. We find that in the case of Reliance Petro Products P. Ltd.(2010 (3) TMI 80 - SUPREME COURT) the Hon ble Supreme Court has held that merely because an assessee raises a claim which is eventually disallowed, that does not mean that the ingredients of clause (c) of section 271(1) of the Act are satisfied or fulfilled so as to justify imposition of a penalty. - Decided in favour of the assessee.

Summary

Issues:
Levy of penalty under section 271(l)(c) for furnishing inaccurate particulars of income.

Analysis:
The appellant challenged the order confirming the penalty under section 271(l)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income. The dispute arose from the disallowance of a claim made by the assessee regarding foreign exchange fluctuation on principal, treated as revenue expenditure. The Assessing Officer disallowed the claim, leading to the initiation of penalty proceedings. The First Appellate Authority upheld the disallowance, resulting in a penalty imposition of Rs. 4,91,338. The AO alleged that the assessee had concealed income by furnishing inaccurate particulars, invoking section 271(1)(c) of the Act.

In the appellate proceedings, the assessee contended that the liability in question became part of circulating capital after the termination of the agreement, justifying the claim as a revenue loss. However, the FAA dismissed the appeal, maintaining the expenditure as capital in nature and deeming the particulars inaccurate.

During the ITAT proceedings, no representation was made on behalf of the assessee. The Departmental Representative supported the FAA's order, emphasizing the Tribunal's decision on the nature of the expenditure. The ITAT observed that the disagreement between the AO and the assessee regarding the treatment of the loss was evident. The ITAT emphasized that the confirmation of an addition by a higher judicial forum does not automatically warrant a penalty under section 271(1)(c). The ITAT highlighted that the mere disallowance of a claim does not imply concealment of income or furnishing inaccurate particulars. The ITAT stressed that penalty proceedings should be distinct from assessment proceedings, and the explanation provided by the assessee must be considered.

Referring to the Supreme Court's decision in Reliance Petro Products P. Ltd., the ITAT concluded that the disallowance of a claim does not necessarily justify the imposition of a penalty under section 271(1)(c). The ITAT found the assessee's explanation to be plausible and reasonable, deciding in favor of the assessee and reversing the FAA's order.

In a subsequent case for another assessment year, the ITAT followed the same reasoning and reversed the FAA's order, allowing the appeals filed by the assessee for both assessment years.

Therefore, the ITAT ruled in favor of the assessee, emphasizing the importance of a plausible explanation in penalty proceedings and distinguishing between disallowed claims and deliberate concealment of income.