2022 (1) TMI 981 - AT - Income Tax

Penalty levied on derivative loss - defective notice u/s 274 - CIT-A deleted the addition - Revenue argued though it is a speculative loss, holding that the genuineness of this loss is not in dispute - whether CIT (A) has erred in deleting the penalty ignoring the fact that the speculative loss was due to trading in derivatives and wrong claim of it as business loss cannot be bonafide because its main business is sugar export the claim cannot be because of oversight but is an act of commission? - HELD THAT - Bare perusal of the notice issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee goes to prove that the AO himself was not aware / sure as to whether he is issuing notice to initiate the penalty proceedings either for concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him/her, he/she is required to be specifically made aware of the charges to be leveled against him/her. Following the decisions rendered in the cases of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT , CIT vs. SSA s Emerald Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT , we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act the same has been issued, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Even otherwise, when returned income/assessed income is made under MAT provisions and thereby made certain additions under normal provisions of the Act, penalty cannot be imposed on the basis of disallowances or additions as has been held by Hon ble Delhi High Court in case of CIT vs. Nalwa Sons Investments Ltd. 2010 (8) TMI 40 - DELHI HIGH COURT - Decided against revenue.

Summary

Issues:
1. Penalty for derivative loss claimed as business loss.
2. Validity of penalty proceedings initiated by the Assessing Officer.
3. Applicability of penalty under MAT provisions.

Issue 1: Penalty for derivative loss claimed as business loss
The appeal sought to set aside the order deleting the penalty on derivative loss, arguing it was speculative and not a genuine loss. The main contention was that the speculative loss from trading in derivatives was wrongly claimed as a business loss, indicating an act of commission rather than oversight. The Revenue challenged the deletion of the penalty, emphasizing the nature of the loss and the business activities of the assessee.

Issue 2: Validity of penalty proceedings initiated by the Assessing Officer
The Assessing Officer (AO) initiated penalty proceedings based on additions made to the assessed income, alleging inaccurate particulars of income. The assessee contended that the AO failed to specify in the notice whether the penalty was for concealment or furnishing inaccurate particulars of income. Citing legal precedents, the assessee argued that vague and ambiguous notices render penalty proceedings unsustainable. The Tribunal highlighted the importance of specifying the charges against the assessee before initiating penalty proceedings.

Issue 3: Applicability of penalty under MAT provisions
The Tribunal analyzed the applicability of penalty when income is assessed under Minimum Alternate Tax (MAT) provisions and certain additions are made under normal provisions. Referring to a Delhi High Court judgment, it was established that penalty cannot be imposed solely based on disallowances or additions under normal provisions when income is assessed under MAT. The Tribunal concluded that in such cases, concealment of income does not lead to tax evasion, and penalties cannot be imposed on that basis.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the deletion of the penalty on derivative loss claimed as a business loss. The Tribunal emphasized the importance of specific charges in penalty notices and clarified that penalties cannot be imposed solely based on additions under normal provisions when income is assessed under MAT provisions. The judgment provided a detailed analysis of each issue raised, citing legal precedents and relevant provisions of the Income-tax Act, 1961.