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2020 (10) TMI 662 - AT - Income TaxPenalty u/s 271(1)(c) - set off of business loss against income from other sources disallowed - HELD THAT - The assessee has disclosed the income in the financial statements which is not disputed by the A.O. A.O. has levied the penalty because of set off claimed by the assessee and the mere disallowance or disagreement of a claim cannot be a basis for levy of penalty and also the addition made in the assessment order by the A.O cannot be a gateway for automatic levy of penalty. CIT(A) has passed a elaborate order confirming the penalty, overlooking the facts, nature and method of operations of the assessee business. We are of the view that penalty cannot be automatic and rely on the decision of the CIT Vs. Manjunatha Cotton and Ginning factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT . A.O has levied the penalty for concealment of income as the assessee company has the treated the speculation loss as a business loss and claimed set off against the income from other sources. Claim of the assessee is in consideration of the financial statements and the assessee adopted one of the possible views that the business loss can be set off against the income from other sources. The assessee has made a claim under the bonafide belief that it is allowable under the law. Direct the A.O to delete the penalty and allow the grounds of appeal of the assessee.
Issues:
1. Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. 2. Treatment of speculation loss as business loss for set off against income from other sources. 3. Applicability of principles for levy of penalty under section 271(1)(c). 4. Interpretation of "concealment of income" and "furnishing inaccurate particulars of income." Detailed Analysis: Issue 1: Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 The case involved an appeal against the penalty imposed by the Assessing Officer (A.O) under section 271(1)(c) of the Income Tax Act. The penalty was levied due to the treatment of speculation loss as a business loss and claiming a set off against income from other sources. The Commissioner of Income Tax (Appeals) confirmed the penalty, leading to the appeal before the Tribunal. Issue 2: Treatment of speculation loss as business loss for set off against income from other sources The A.O considered the income of the assessee, engaged in trading shares, as speculation income, disallowing the set off of speculation loss against other income. The A.O's decision was based on the nature of the assessee's business activities, specifically trading in shares, and the application of Section 73 of the Act. The A.O's penalty order was challenged by the assessee, arguing for the permissibility of the set off under the law. Issue 3: Applicability of principles for levy of penalty under section 271(1)(c) The Tribunal referred to the decision in CIT Vs. Manjunatha Cotton and Ginning Factory, emphasizing that the imposition of penalty under section 271(1)(c) is a civil liability and does not require mens rea or wilful concealment. The Tribunal highlighted the need for clear conditions stipulated in the assessment order for initiating penalty proceedings. It was emphasized that the mere disallowance or disagreement with a claim does not automatically warrant a penalty. Issue 4: Interpretation of "concealment of income" and "furnishing inaccurate particulars of income" The Tribunal analyzed the interpretation of "concealment of income" and "furnishing inaccurate particulars of income" as per the provisions of section 271(1)(c). Citing the case of CIT Vs. Reliance Petroleum Products Ltd., the Tribunal clarified that the provision requires concealment or furnishing of inaccurate particulars. It was highlighted that making an incorrect claim in law does not necessarily amount to furnishing inaccurate particulars. The Tribunal ruled in favor of the assessee, setting aside the penalty based on the interpretation of the law. In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the A.O to delete the penalty. The decision was based on the judicial principles governing the levy of penalty under section 271(1)(c) and the interpretation of the provisions related to concealment of income and furnishing inaccurate particulars of income.
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