2019 (4) TMI 511 - AT - Income Tax

Penalty u/s 271(1)(c) - treatment to loss on sale of wheat - claiming the speculative loss as business loss - any proof of mensrea? - HELD THAT - A.O on coming to a finding that the assessee intentionally claimed the loss on sale of wheat as a business loss without establishing anything about the movement of goods which shows that the transaction of purchase and sales of wheat is speculative in nature and provisions of Section 45(3) applies thereon and the loss arising from which transaction without delivery of goods falls under the category of speculation loss and the same can be adjusted/carry forward to be adjusted against speculative profit only. The transaction of purchase and sale of wheat revenue authorities have not pointed out any mistake, error or anomaly in the genuineness of the transaction with regard to the quantity of goods, amount of purchase and sale, details of the party with whom the transaction has been carried out. In nutshell assessee has not concealed any particulars relating to the alleged transaction for both the assessment years. Where assessee s mensera is not proved and there is no furnishing of inaccurate particulars of transactions, whether the penalty is leviable u/s 271(1)(c) of the Act needs to be adjudicated. In the case of Krishna Soya Product Pvt. Ltd vs. DCIT 2017 (9) TMI 1801 - ITAT INDORE adjudicating the similar type of issue of levy of penalty u/s 271(1)(c) in respect of treating the loss on trading of commodity exchange treated as business loss but was held to be as speculative loss by the revenue authorities the penalty levied u/s 271(1)(c) was deleted by the Tribunal Levying the penalty u/s 271(1)(c) on the alleged transaction of purchase and sale of wheat because the assessee has bonafidely treated the loss as business loss and disclosed all necessary details relevant to the transaction in the books of accounts and further for the alleged transaction two divergent views were possible thereby the alleged loss could be treated as a business loss or speculation loss. Thus delete the penalty levied u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act for Assessment Years 2005-06 and 2007-08.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Act:

The appeals pertain to the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, for Assessment Years 2005-06 and 2007-08. The penalties were imposed by the Assessing Officer (A.O.) due to the disallowance of losses claimed by the assessee on the sale of wheat, which were treated as speculative losses instead of business losses.

Background and Facts:

The assessee, engaged in trading grains and shares, underwent a search under Section 132 of the Act. Subsequently, notices under Section 153 were issued for the relevant assessment years. The assessee filed its returns declaring incomes of ?26,12,485 and ?34,11,875 for Assessment Years 2005-06 and 2007-08, respectively. During the assessment proceedings, the A.O. disallowed the loss on the sale of wheat, treating it as speculative under Section 43(5) of the Act, as there was no physical delivery of goods. This led to the initiation of penalty proceedings under Section 271(1)(c).

Arguments by the Assessee:

The assessee argued that the transactions were conducted in the normal course of business, and the loss was bona fide. It was contended that the A.O. merely reclassified the business loss as speculative loss without any concealment or furnishing of inaccurate particulars. The assessee cited several judicial precedents to support the claim that penalty under Section 271(1)(c) is not warranted in cases of debatable issues or where there is a mere change of opinion.

Tribunal's Observations and Judgment:

The Tribunal noted that the revenue authorities did not dispute the genuineness of the transactions concerning the quantity of goods, purchase and sale amounts, and details of the parties involved. It was observed that the assessee had not concealed any particulars related to the transactions.

The Tribunal referred to a similar case, Krishna Soya Product Pvt. Ltd vs. DCIT, where the penalty under Section 271(1)(c) was deleted on the grounds that the assessee had disclosed all relevant facts, and the issue was debatable. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings, and the mere disallowance of a claim does not automatically lead to the imposition of penalty.

Conclusion:

The Tribunal concluded that the assessee had bona fide treated the loss as a business loss and disclosed all necessary details. Given that two divergent views were possible regarding the nature of the loss (business or speculative), the penalty under Section 271(1)(c) was not justified. The Tribunal allowed the appeals for both assessment years and deleted the penalties of ?6,43,300 and ?3,80,530 for Assessment Years 2005-06 and 2007-08, respectively.

Result:

Both appeals of the assessee were allowed, and the penalties levied under Section 271(1)(c) were deleted. The order was pronounced in the open Court on 04.04.2019.