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2017 (8) TMI 653 - AT - Income TaxPenalty u/s 271(1)(c) - treating a loss claimed as normal business loss as a speculative loss - whether the disallowance of assessee s claim for set off of share trading loss against other income by treating the same as speculation loss as per Explanation to Section 73 of the Act will attract the penalty under section 271(1)(c)? - Held that - This issue is squarely covered in favour of the assessee by the various judicial pronouncements cited by the ld. counsel for the assessee including those which have been relied upon by the ld. CIT(Appeals) in his impugned order while cancelling the penalty imposed by the Assessing Officer under section 271(1)(c). In one of such cases, namely CIT vs.- SPK Steels Pvt. Limited 2004 (1) TMI 21 - MADHYA PRADESH , it was held that penalty under section 271(1)(c) was not exigible in respect of disallowance of assessee s claim for set off of share trading loss by treating the same as speculative in nature as per Explanation to Section 73 on the basis of preliminary details furnished by the assessee along with the return of income as the assessee could not be said to have filed inaccurate particulars or concealed particulars of his income, which was chargeable to tax. The penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable as mere treatment of business loss as speculation loss by the Assessing Officer did not automatically warrant inference of concealment of income and there was nothing on record to show that in furnishing its return of income, the assessee had either concealed its income or had furnished any inaccurate particulars of income. See CIT vs.- Auric Investment & Securities Limited 2007 (7) TMI 276 - DELHI HIGH COURT Thus no infirmity in the impugned order of the ld. CIT(Appeals) cancelling the penalty imposed by the Assessing Officer under section 271(1)(c) - Decided in favour of assessee.
Issues Involved:
1. Whether the loss of ?51,00,000/- claimed by the assessee is speculative in nature under Section 43(5) of the Income Tax Act, 1961. 2. Whether the penalty imposed under Section 271(1)(c) for furnishing inaccurate particulars of income and concealing particulars of income is justified. Detailed Analysis: Issue 1: Nature of Loss - Speculative or Business The primary issue revolves around the classification of a ?51,00,000/- loss claimed by the assessee. The assessee, engaged in leasing land, plant, machinery, and premises, entered into a contract with Global Alloys Pvt. Ltd. for purchasing materials but failed to lift the material as agreed, resulting in a payment of damages under the contract. - Revenue's Argument: The Assessing Officer (AO) classified this loss as speculative under Section 43(5) of the Act, which defines a speculative transaction as one settled otherwise than by actual delivery. The AO argued that the contract inherently contained speculative elements, as evidenced by clauses 7 and 8, which accounted for price fluctuations and potential non-delivery. The AO concluded that the loss was speculative and could not be set off against normal business income, as per Section 73 of the Act. - Assessee's Argument: The assessee contended that the loss was due to a breach of contract and not speculative. They cited the Supreme Court's decision in CIT Vs. Shantilal Pvt. Ltd. (144 ITR 57), which held that damages paid for breach of contract are not speculative losses. The assessee also argued that the materials were intended for use in manufacturing, which they planned to resume, thus asserting the transaction was part of normal business operations. - Tribunal's Decision: The Tribunal upheld the AO's classification of the loss as speculative, aligning with the revenue's interpretation that non-delivery under the contract was not a breach but a part of the contract's speculative nature. Consequently, the ?51,00,000/- loss was treated as speculative and not eligible for set-off against normal business income. Issue 2: Imposition of Penalty under Section 271(1)(c) The second issue concerns the imposition of a penalty for allegedly furnishing inaccurate particulars of income and concealing income. - Revenue's Argument: The AO imposed a penalty under Section 271(1)(c), arguing that the assessee's claim of the loss as a business loss constituted furnishing inaccurate particulars of income. The AO distinguished the case from the Supreme Court's decision in Reliance Petro Products Pvt. Ltd. (322 ITR 158), where it was held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. - Assessee's Argument: The assessee maintained that they had disclosed all particulars of the transaction and that the loss was genuinely incurred. They relied on several judicial precedents, including CIT vs. SPK Steels Pvt. Ltd. (270 ITR 156) and CIT vs. Auric Investment and Securities Ltd. (310 ITR 121), which held that treating a business loss as a speculative loss does not automatically imply furnishing inaccurate particulars or concealing income. - Tribunal's Decision: The Tribunal found no evidence of the assessee attempting to defraud the revenue or that the loss was not genuine. It noted that the issue was a matter of interpretation of the nature of the loss rather than a case of concealment or furnishing inaccurate particulars. The Tribunal cited various judgments supporting the view that disallowance of a claim based on differing interpretations does not warrant a penalty under Section 271(1)(c). Consequently, the Tribunal upheld the CIT(A)'s decision to cancel the penalty. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order that the ?51,00,000/- loss was speculative and could not be set off against normal business income. Additionally, the Tribunal upheld the cancellation of the penalty imposed under Section 271(1)(c), concluding that the assessee had not furnished inaccurate particulars of income.
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