2018 (8) TMI 926 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - appellant wrongly claimed loss by debiting it to P & L Account on account of loss on sale of assets whereas the same was capital loss and not business loss. - The Tribunal had held that the claim of the assessee to treat loss on sale of assets as business loss was not a bona-fide mistake and, therefore, the penalty under Section 271(1)(c) of the Act was imposable. Held that - In order to attract the provision of Section 271(1)(c) of the Act, the assessee must be found to have failed to prove that explanation offered is not only bona-fide but all the facts relating to the same and material to the computation of his income have been disclosed by him. If the assessee has disclosed all facts and material in computation of his income, it cannot be said that he has furnished inaccurate particulars of his income. In the present case, it is clear that the assessee has disclosed particulars of the loss in sale of assets which was not in dispute. Instead of treating that loss as capital loss the assessee had treated the same as business loss. Thus, the assessee cannot as such be said to have not disclosed all the material to the computation of his income. - This was a wrong belief of the assessee that loss in sale of assets could be treated as business loss and not the capital loss. Levy of penalty deleted as there is no concealment of income - Decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 271(1)(c) of the Income Tax Act.
2. Treatment of loss on sale of assets as business loss instead of capital loss.
3. Applicability of penalty under Section 271(1)(c) in case of disclosed losses.
4. Impact of assessment resulting in Nil income on penalty proceedings.

Analysis:
1. The case involved an Income Tax Appeal by the appellant-assessee against the order of the Income Tax Appellate Tribunal confirming the penalty under Section 271(1)(c) of the Income Tax Act for the assessment year 2004-05. The primary issue was whether the penalty was rightly imposed for alleged concealment of income or furnishing inaccurate particulars.

2. The assessee had declared a loss in the return, which was treated as capital loss by the Assessing Officer instead of business loss. The AO initiated penalty proceedings under Section 271(1)(c) alleging intentional misrepresentation to reduce profits. The CIT(A) and Tribunal upheld the penalty, considering the claim as a deliberate attempt to evade tax.

3. The appellant argued that there was no intention to conceal income, as all details were disclosed to the AO. The appellant maintained that the treatment of the loss as business loss was a mistaken interpretation, not a deliberate act of concealment. Citing the Supreme Court judgment in Reliance Petroproducts case, the appellant contended that a mere disagreement on expenses claimed does not warrant penalty under Section 271(1)(c).

4. The Revenue contended that the misclassification of loss as business loss was a deliberate act to provide inaccurate particulars of income. They relied on the NG Technologies case judgment to support the imposition of penalty. However, the court emphasized the necessity of mens rea for penalty under Section 271(1)(c) and clarified that inaccurate particulars require a deliberate act or omission.

5. The court analyzed the provisions of Section 271(1)(c) and emphasized the requirement of mens rea for penalty imposition. It was observed that the appellant had disclosed all material facts, albeit with a mistaken belief regarding the treatment of the loss. As there was no concealment of income, the court set aside the penalty, ruling in favor of the assessee.

6. Ultimately, the court concluded that the penalty proceedings were not justified as there was no intentional concealment of income. The appeal was allowed, and the questions of law were answered in favor of the assessee, overturning the penalty imposed under Section 271(1)(c) of the Income Tax Act.