2017 (7) TMI 308 - HC - Income Tax

Penalty u/s 271 (1)(c) - computing the revenue neutral income by the assessee as per provisions of Section 10(38) for the Long Term capital gain - carried forward as per Section 74 - Held that - Provisions of Section 271 (1)(c) can only be invoked upon satisfaction of the ingredients as laid down in the said section. In the present case, it appears that the Assessee had disclosed in its return the loss of ₹ 80.64 Crores sustained by him and further in the return, note was also given that it reserves its right to carry forward the loss. The same was made by the Assessee keeping in mind its interpretation of Section 10(38) of the Income Tax Act. According to the Assessee, the Assessee bonafidely believed that under Section 10(38), the loss is not required to be considered and only income is required to be considered relying on the phraseology of the said provision. In the present matter, we are not testing the interpretation on the provisions of Section 10(38). However, suffice it to state that the assessee bonafidely and in good faith acted upon the said interpretation. It is also not a matter of debate that on the tax liability also, there was no effect of not setting off the said loss of ₹ 80.64 Crores. The Tribunal has considered the aspect in it s correct perspective. We do not see that the act of the assessee in giving the said note was with some ulterior intention or concealment of income or giving inaccurate particulars. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty order under Section 271(1)(c) of the Income Tax Act for Assessment Year 2008-2009.

Analysis:
The appeal arose from the Tribunal's decision in favor of the assessee against the penalty order under Section 271(1)(c) of the Income Tax Act. The assessee, an approved sub-account of a foreign institutional investor, had earned long-term capital gain and loss on shares but did not set off the loss against the gain exempt under Section 10(38) of the Act. The Assessing Officer disallowed the claim to carry forward the loss, leading to penalty proceedings and a penalty of ?17,02,90,407. The Commissioner and Tribunal both rejected the claim, prompting the appeal. The appellant raised substantial questions of law regarding the Tribunal's decision to delete the CIT(A)'s order and the penalty levied under Section 271(1)(c). The appellant argued that the Tribunal failed to consider Section 271(1)(c) correctly and that penalty should apply if incorrect particulars are provided. However, the Tribunal found no concealment or inaccurate particulars by the assessee and dismissed the appeal.

The appellant contended that the Tribunal erred in deleting the penalty and not deducting the long-term capital loss as per Section 10(38) of the Act. The appellant argued that penalty proceedings were rightly initiated as the assessee could not substantiate a plausible explanation. The appellant relied on legal provisions to support the penalty imposition, emphasizing that penalty can be imposed if an amount is disallowed in assessing total income. However, the Tribunal found the appellant's interpretation of Section 10(38) to be in good faith and not with any ulterior intention, leading to no effect on tax liability due to not setting off the loss.

The respondent argued that the assessee acted in good faith based on a bona fide interpretation of Section 10(38) of the Act. The respondent highlighted that the provision only contemplates income, not loss, and referenced a Tribunal judgment supporting the assessee's interpretation. The respondent further stated that carrying forward the loss would not impact tax liability and that the appellant acted in good faith.

The Court considered the submissions and found that the assessee disclosed the loss in its return, believing in good faith that the loss did not need to be considered under Section 10(38). The Court noted that the appellant's actions were not with any ulterior motive or intent to conceal income or provide inaccurate particulars. The Court affirmed that there was no effect on tax liability due to not setting off the loss. Consequently, the Court dismissed the appeal, stating that no substantial question of law arose in the matter.