2019 (1) TMI 1338 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of long term capital loss claimed intra-head against short term capital gains - Held that - We find that the AO has allowed the set off of brought forward long term capital loss and short term capital loss pertaining to the AY 2009-10 to the extent income available i.e. ₹ 5,46,720/-. The AO passed the penalty order on 30.07.2013. The Ld. CIT(A) passed the appellate order on 18.09.2017. Thereafter, the AO passed a rectification order u/s 154 on 06.11.2017 allowing the above set off of ₹ 5,46,720/-. Therefore, the penalty confirmed by the Ld. CIT(A) does not survive.- decided in favour of assessee

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2010-11. The assessee objected to the penalty confirmed by the Commissioner of Income Tax (Appeals) and raised the issue in the ground of appeal.

2. The Assessing Officer disallowed the set off of long term capital loss against short term capital gains claimed by the assessee, leading to the initiation of penalty proceedings. The AO held that the assessee attempted to evade tax by claiming the set off incorrectly, resulting in a penalty of ?1,68,936 under section 271(1)(c) of the Act.

3. The Commissioner of Income Tax (Appeals) dismissed the appeal filed by the assessee, stating that the claim of set off was an attempt to reduce tax liability and evade taxes. The CIT(A) relied on various case laws to support the decision and confirmed the penalty imposed by the AO.

4. During the proceedings, the assessee argued that a rectification order passed by the AO allowed the set off of the capital losses, rendering the penalty invalid. The AO's rectification order dated 06.11.2017 permitted the set off of ?5,46,720, which was the amount in question for the penalty.

5. The Tribunal found that the rectification order issued by the AO post the CIT(A)'s decision allowed the set off of the capital losses, making the penalty imposed by the AO and confirmed by the CIT(A) redundant. As a result, the Tribunal allowed the appeal, stating that the penalty of ?1,68,936 did not survive after the rectification order.

In conclusion, the Tribunal allowed the appeal as the rectification order post the CIT(A)'s decision permitted the set off of capital losses, making the penalty imposed under section 271(1)(c) of the Income Tax Act inapplicable.