2017 (9) TMI 1801 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - A.O disallowed business loss treating the same as speculative loss u/s 43(5) - difference of opinion - establishment of mensrea - HELD THAT - The perusal of the assessment order reveals that the AO has made disallowance of speculation loss on the basis of facts as disclosed by the assessee in the return of income and also during the assessment proceedings. We find that the assessee has furnished all relevant facts and merely because the AO has changed the head of loss from business loss to speculative loss and allowed to carry forward of the same the penalty u/s 271(1)(c) could not be levied. Where the explanation is bonafide and all the facts relating to the same have been disclosed then there is no case of levy of penalty. The findings recorded in the assessment order is not conclusive for deciding the imposition of penalty as it has only a persuasive value and non filing of appeal against the said disallowance does not mean that the penalty has to be imposed automatically. It is trite law that penalty proceedings are distinct and separate proceedings from assessment proceedings. It is settled law that when the issue is debatable, then the provisions of penalty u/s 271(1)(c ) is not attracted, because mensrea is not established against the assessee. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act based on interpretation of Section 43(5) of the Act.

Analysis:
The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding the penalty imposed under section 271(1)(c) of the Income Tax Act. The Assessing Officer disallowed the claim of loss on forward booking of oil contracts as speculative transactions under Section 43(5) of the Act. The AO initiated penalty proceedings, concluding that the assessee claimed wrong deductions. The CIT(A) upheld the penalty, stating that the transactions were speculative and not subject to appeal, making the assessment final. The assessee argued that the transactions were business losses, not speculative, and there was no concealment of income or inaccurate particulars. The ITAT noted that the AO changed the nature of the loss from business to speculative without questioning the genuineness of the transactions. The Tribunal held that when the issue is debatable, penalty under section 271(1)(c) is not applicable, especially when all facts were disclosed. Citing relevant case laws, the ITAT concluded that the penalty was not sustainable, deleting the penalty of ?5,10,000.

In conclusion, the ITAT allowed the appeal, stating that the penalty imposed under section 271(1)(c) of the Income Tax Act was deleted. The decision was based on the debatable nature of the transactions and the full disclosure of facts by the assessee, leading to the conclusion that there was no concealment of income or furnishing of inaccurate particulars. The ITAT emphasized that penalty proceedings are separate from assessment proceedings, and in this case, the penalty was not justified.