2014 (4) TMI 661 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Deduction claim for fee paid to portfolio manager - No satisfactory explanation provided Held that - The assessee has furnished an explanation to the effect that he had claimed the deduction of Portfolio Management fee against the Short term capital gain on the basis of decisions rendered by the Tribunal - the decision in ITO Vs. Radha Birju Patel 2010 (11) TMI 145 - ITAT MUMBAI followed - the Portfolio Management charges are deductible as expenses - the addition or disallowances made in the assessment proceedings would not automatically give rise to penalty and hence in the penalty proceedings, the entire matter has to be looked into afresh, though the finding given in the assessment proceedings can be taken help of - the AO was not justified in levying penalty u/s 271(1)(c) of the Act on the disallowance of Portfolio Management Charges the order of the CIT(A) set aside the AO is directed to delete the penalty u/s 271(1)(c) of the Act Decided in favour of Assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Act for disallowance of Portfolio Management fee deduction.

Detailed Analysis:
The appeal was against the penalty imposed by the AO and upheld by Ld CIT(A) for disallowance of a deduction claimed by the assessee against short term capital gain. The AO disallowed the claim, leading to penalty proceedings under section 271(1)(c) of the Act. The AO imposed a penalty of Rs.29,258, considering the claim as furnishing inaccurate particulars of income. The Ld CIT(A) upheld the penalty, citing the claim as untenable in law and referring to a decision by the Hon'ble Kerala High Court. The assessee argued that the claim was based on court decisions and should not attract a penalty.

The Ld AR cited case laws to support that no penalty should be imposed when no fault was found with the particulars furnished by the assessee. The Ld D.R, however, supported the Ld CIT(A)'s order. The Tribunal noted that the assessee based the claim on tribunal decisions and explained the deduction against short term capital gain. The assessee's explanation was not found false, and the Tribunal referred to the requirement under Explanation 1 to section 271 regarding false explanations.

The Tribunal highlighted that the assessee's claim was supported by tribunal decisions and that no false particulars were furnished. Referring to the decision in Reliance Petroproducts, the Tribunal emphasized that a claim unsustainable in law does not automatically lead to penalty. It was noted that additions in assessment do not automatically attract penalty, and the penalty proceedings require a fresh examination. The Tribunal concluded that the AO and Ld CIT(A) were not justified in levying and upholding the penalty, respectively.

Therefore, the Tribunal set aside the Ld CIT(A)'s order and directed the AO to delete the penalty levied under section 271(1)(c) of the Act. The appeal by the assessee was allowed, and the penalty was revoked.