2011 (11) TMI 858 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty imposed u/s 271(1)(c).
2. Classification of Birla Index Fund units as investment or stock in trade.
3. Bonafide belief and presentation error in financial statements.
4. Applicability of Accounting Standard 13.
5. Relevance of the Supreme Court decision in Reliance Petro Products P. Ltd.

Summary:

1. Legitimacy of the penalty imposed u/s 271(1)(c):
The appeal was directed against the order of CIT(A)-22, Mumbai, confirming the penalty of Rs. 15 lakhs imposed by the AO u/s 271(1)(c). The AO disallowed the assessee's claim of loss on Birla Index Fund units, treating it as a capital loss rather than a business loss, and imposed the penalty for furnishing inaccurate particulars of income.

2. Classification of Birla Index Fund units as investment or stock in trade:
The AO noted that the assessee had shown the Birla Index Fund units as investment in the balance sheet, consistent with the treatment of other mutual fund units in previous years. The assessee's claim of loss due to diminution in value was disallowed as the units were not treated as stock in trade. The CIT(A) upheld this view, stating that the balance sheet classification could not be amended post-approval by the shareholders and filing with the Registrar of Companies.

3. Bonafide belief and presentation error in financial statements:
The assessee contended that the loss was claimed under a bonafide belief that the units were trade investments, and the classification as investment was a presentation error. The CIT(A) rejected this argument, noting that the units were consistently shown as investments in previous years and the relevant details were not furnished, indicating a deliberate and knowing wrong claim.

4. Applicability of Accounting Standard 13:
The assessee argued that as per Accounting Standard 13, current investments should be valued at cost or market price, whichever is lower, and the loss should be recognized in the profit and loss statement. The Tribunal found this argument unconvincing, noting that the units were long-term investments and should be valued at cost, as per the accounting policies disclosed in the balance sheet.

5. Relevance of the Supreme Court decision in Reliance Petro Products P. Ltd.:
The assessee relied on the Supreme Court decision in Reliance Petro Products P. Ltd., arguing that making an incorrect claim does not amount to furnishing inaccurate particulars. The Tribunal distinguished this case, noting that the assessee's explanation was neither substantiated nor shown to be bonafide, and the relevant details were not furnished. The Tribunal upheld the penalty, referencing the Delhi High Court decision in Zoom Communication (P) Ltd., which emphasized that an unsubstantiated and non-bonafide explanation attracts penalty u/s 271(1)(c).

Conclusion:
The Tribunal dismissed the appeal, upholding the penalty imposed by the AO and confirmed by the CIT(A), concluding that the assessee furnished inaccurate particulars of income by making a wrong claim for the loss on Birla Index Fund units. The order was pronounced on November 18, 2011.