2017 (3) TMI 1177 - AT - Income Tax

Penalty u/s 271(1)(c) - additional income offered on account of shortage of stock - Held that - The assessee had included the said income in his hands and had claimed set off of brought forward losses, however, the same was denied to the assessee. Merely because the set off has been denied to the assessee does not justify the levy of penalty under section 271(1)(c) of the Act. Upholding the order of CIT(A) in this regard we dismiss the ground of appeal raised by the revenue. Restricting the addition added in the hands of the assessee on account of unexplained investment in furniture and office building - Held that - The assessee during the course of assessment proceedings agreed to the addition of sum of ₹ 50 lakhs as part of his computation of income and its non adjustment against the current business loss. The offer made by the assessee was in the spirit of reaching quietus and to end the litigation which had arisen in the instant case. The assessee had infact claimed the set off of that income against the business loss arisen for the year under consideration and merely because the same has not been set off, it cannot be said to be concealment of income. The view of the assessee have not been accepted by the Assessing Officer, but the same does not justify levy of penalty under section 271(1)(c) of the Act. Accordingly, we direct the Assessing Officer to delete the same. The Grounds of appeal raised by the assessee are thus allowed.

Summary

Issues:
- Assessment of penalty under section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income.
- Disallowance of set off of business loss against deemed income.
- Justification of levy of penalty for declaration of unexplained investment in furniture and office building.

Analysis:
1. The case involved cross-appeals by the assessee and the Revenue against the order of CIT(A)-V, Pune, regarding the assessment year 2010-11 under section 271(1)(c) of the Income-tax Act, 1961. The appeals were heard together and disposed of in a consolidated order for convenience.

2. The assessee raised grounds challenging the sustenance of concealment penalty of ?15,00,000 levied for furnishing inaccurate particulars of income. The Revenue questioned the justification of restricting the penalty to ?15,00,000 concerning the adjustment of deemed income against business loss. The appeals were based on the interpretation of provisions under section 271(1)(c) of the Act.

3. The assessee declared total income of ?12,71,180 but later disclosed additional income during a survey, leading to scrutiny by the Assessing Officer. The AO disallowed set off of business loss against the deemed income, resulting in a penalty imposition of ?30 lakhs. The CIT(A) considered the additions separately and held that disallowance of set off did not constitute inaccurate particulars of income.

4. The CIT(A) further analyzed the declaration of ?50 lakhs on account of investment in furniture and office building. The Assessing Officer claimed the declaration was nullified by huge losses claimed by the assessee. The CIT(A upheld the penalty levy on this addition, despite the assessee's explanation of reaching a settlement.

5. The Tribunal dismissed the Revenue's appeal, stating that denial of set off against deemed income did not warrant penalty under section 271(1)(c). Regarding the assessee's appeal, the Tribunal directed the AO to delete the penalty imposed for the declaration of unexplained investment, as it was made in good faith to settle the matter and not for concealment of income.

6. Ultimately, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal, emphasizing the importance of interpreting penalty provisions in alignment with the factual circumstances and intent behind the income declarations.

Judgment Summary:
The Appellate Tribunal ITAT Pune, in the case involving penalty assessment under section 271(1)(c) of the Income-tax Act, 1961, addressed the challenges raised by the assessee and the Revenue. The Tribunal differentiated between inaccurate particulars of income and legitimate declarations, emphasizing the need for a contextual understanding of income adjustments and set off provisions. The judgment highlighted the importance of considering the intent behind income disclosures and the spirit of settlements in determining the applicability of penalties under the Act.