2014 (7) TMI 766 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Concealment or furnishing of inaccurate particulars - Depreciation on purchase of cars Held that - The assessee is not in the business of sale and purchase of cars and therefore cars owned by it could not be part of its stock in trade - Cars were part of block of assets - any loss suffered or profit earned on sale of such cars cannot be treated as part of business activities - even if depreciation was not charged the nature of cars would not change from the part of block assets to the part of stock in trade - Revenue loss can be claimed only for business-activities carried out by an assessee as the cars were part of block asset, so loss arising out of their sale has to be computed under appropriate head and not under the head revenue loss - The assessee has stated that it was a bonafide mistake - the claim made by the assessee about the loss was not a bonafide - Two views are not possible about the claim-only one view is possible - By claiming revenue loss on sale of fixed assets the assessee had filed inaccurate particulars of income - the order of the FAA does not suffer from any legal infirmity. The decision in COMMISSIONER OF INCOME TAX Versus ZOOM COMMUNICATION PVT LTD 2010 (5) TMI 34 - DELHI HIGH COURT followed - Mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide - If the claim besides being incorrect in law is mala fide, Explanation 1 to section 271(1)(c) would come into play and work to the dis-advantage of the assessee - If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act. The persons who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny - This would take away the deterrent effect, which these penalty provisions in the Act have - the assessee had made a claim that was wholly untenable and unsustainable - AO and the FAA had found that the assessee had failed to file any bonafide explanation Decided against assessee.

Summary

Issues Involved:
1. Validity of the penalty order passed under Section 271(1)(c) of the Income Tax Act.
2. Confirmation of the penalty levied by the CIT(A) under Section 271(1)(c) of the Income Tax Act.
3. Whether there was concealment or furnishing of inaccurate particulars of income by the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Order Passed Under Section 271(1)(c):
The assessee contended that the penalty order passed under Section 271(1)(c) was invalid and bad in law. The Tribunal examined the circumstances under which the penalty was levied. It was found that the assessee had debited a loss on account of the sale of motor cars under 'Administrative and other expenses' in the Profit & Loss Account. The Assessing Officer (AO) determined that the motor cars were capital assets and not stock-in-trade, and any loss on their sale could not be treated as a trading loss or business expenditure. The AO held that the loss should be considered under the provisions of Section 50 of the Act, which deals with the sale of depreciable assets. Consequently, the penalty proceedings were initiated for furnishing inaccurate particulars of income.

2. Confirmation of the Penalty Levied by the CIT(A):
The First Appellate Authority (FAA) confirmed the penalty imposed by the AO, stating that the loss on the sale of motor cars, which were capital assets, could not be claimed as revenue expenditure. The FAA held that the claim made by the assessee was not bona fide and included incorrect particulars of income. The Tribunal upheld the FAA's decision, noting that the assessee had shown the motor cars as part of the block of assets and had claimed depreciation on them in earlier years. The Tribunal found no infirmity in the FAA's order and confirmed the penalty.

3. Concealment or Furnishing of Inaccurate Particulars of Income:
The assessee argued that there was neither any concealment nor furnishing of inaccurate particulars of income, as it had not claimed depreciation on the motor cars and believed it was eligible to claim the loss. However, the Tribunal noted that the assessee had charged depreciation on the motor cars in the assessment year 2001-02 and that the cars were part of the block of assets. The Tribunal concluded that the claim of revenue loss on the sale of capital assets was not bona fide and amounted to furnishing inaccurate particulars of income. The Tribunal cited the judgment of Zoom Communication, which emphasized that making a wholly untenable and unsustainable claim without a bona fide explanation could attract penalty under Section 271(1)(c).

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, confirming the penalty imposed under Section 271(1)(c) of the Income Tax Act. The Tribunal held that the assessee had made a patently wrong claim by treating the loss on the sale of capital assets as revenue loss, which amounted to furnishing inaccurate particulars of income. The Tribunal found no legal infirmity in the orders of the AO and the FAA and upheld the penalty.