2024 (10) TMI 1204 - AT - Income Tax

Penalty u/s 271(1) - disallowance of long-term capital loss arise on account of slump sale as per slump sale agreement - HELD THAT - As evident that the brought forward loss was not set off by the assessee. Thus, from the perusal of the evidence placed on record, it is evident that the very basis on which it was alleged that the entire transaction is an afterthought which is a trick to evade taxes and the long-term capital loss was added to the total income of the assessee is without any merits. Thus, we find that in the present case, the AO merely disagreed with the business transaction of the assessee whereby the proprietary concern was taken over by a company in which the assessee is a majority shareholder. Due to the long-term capital loss, which is the basis for the levy of the impugned penalty, there is no evasion of tax. We find that while examining the meaning of the term particulars in section 271(1)(c) as in CIT v/s Reliance Petroproducts (P) Ltd 2010 (3) TMI 80 - SUPREME COURT held that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. We are of the considered view that the levy of penalty under section 271(1)(c) of the Act in the facts of the present case is not justifiable, and accordingly the same is deleted. Appeal by the assessee is allowed.

Summary

Issues:
Challenge to penalty order under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2013-14.

Detailed Analysis:

1. Background and Assessment Proceedings:
The appeal was filed by the assessee against the penalty order dated 03/07/2024 under section 250 of the Income Tax Act, 1961. The case involved the disallowed long-term capital loss arising from a slump sale transaction. The assessee, an individual, had a proprietary business taken over by a private limited company. The assessing officer disallowed the capital loss claimed by the assessee, alleging it to be a colorable device. The CIT(A) upheld the assessment order.

2. Penalty Proceedings:
Subsequently, penalty proceedings under section 271(1)(c) were initiated, and a penalty of Rs. 3,03,789 was imposed for furnishing inaccurate particulars of income related to the long-term capital loss claimed by the assessee.

3. Appellate Tribunal's Analysis:
The Appellate Tribunal considered both sides' submissions and the material on record. It noted that the assessing officer's addition of the long-term capital loss was based on the belief that the transaction was a colorable device. However, the Tribunal found that the transaction was a slump sale and not an attempt to evade taxes. Citing the Supreme Court's decision in CIT v/s Reliance Petroproducts, the Tribunal held that the mere making of a claim, even if unsustainable in law, does not amount to furnishing inaccurate particulars. Therefore, the Tribunal concluded that the penalty under section 271(1)(c) was not justified and deleted the penalty.

4. Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the penalty order. The judgment emphasized that the long-term capital loss claimed by the assessee did not constitute inaccurate particulars warranting the penalty. The decision was in line with the principles laid down by the Supreme Court regarding the interpretation of "inaccurate particulars" under section 271(1)(c) of the Income Tax Act, 1961.

5. Outcome:
The appeal by the assessee was allowed, and the penalty under section 271(1)(c) was deleted. The judgment was pronounced in open court on 21/10/2024.