2022 (5) TMI 515 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee in the year under consideration has declared loss on account of sale of unit of mutual funds under the head short-term capital gain which was carried forward to the subsequent assessment years impugned loss was inclusive of the loss which was to be ignored under the provisions of section 94(7) - HELD THAT - Under the explanation 1 to section 271(1)(c) of the Act, there are 2 situations. In situation (A), if the assessee failed to offer an explanation or offers an explanation which is found to be false with respect to any fact material to the computation of income, then the amount added or disallowed shall be deemed as concealment of income. In situation (B), the assessee offer an explanation but fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides and that all the facts relating such explanation and material to the computation of income have been disclosed by him, then the amount added or disallowed to the total income of the assessee shall be deemed as concealment of income. Coming to the present case, we have to test whether the case of the assessee falls under the main provisions of section 271(1)(c) of the Act or explanation 1 attached with it. As regards the main provisions of section 271(1)(c) of the Act, we find that there was no allegation that the assessee has claimed bogus loss by furnishing inaccurate particulars of income. Thus, the claim of the assessee at the most can be regarded as inaccurate claim which cannot be equated with the inaccurate particulars of income. It is for the reason that nothing has been brought on record by the authorities below suggesting that the assessee has furnished the particulars of income with dishonest intent. As regards the explanation 1 to section 271(1)(c) of the Act, there was no iota of evidence suggesting that the explanation offered by the assessee was false. STCG loss claimed by the assessee cannot be said amounting to concealment of particulars of income. Likewise, there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides with respect to material facts relating to the computation of total income. Thus, in our considered view the provisions of expression 1 to section 271(1)(c) cannot be attracted in the given facts and circumstances. In view of the above and after considering the facts in totality, we set aside the finding of the CIT (A) and direct the AO to delete the penalty levied by him under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is allowed.

Summary

Issues:
Penalty under section 271(1)(c) for furnishing inaccurate particulars of income.

Analysis:
The appeal was filed by the Assessee against the penalty order passed under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2016-17. The main issue raised was whether the penalty levied by the Assessing Officer (AO) for furnishing inaccurate particulars of income was justified. The Assessee had declared a loss on the sale of mutual funds, including an amount that was to be ignored under section 94(7) of the Act. The AO initiated penalty proceedings as the Assessee did not ignore the disallowed loss while calculating taxable income.

The Assessee contended that there was no furnishing of inaccurate particulars of income as the loss claimed was a result of an inaccurate claim, not deliberate misinformation. The Revenue argued that the Assessee admitted to the disallowed loss during assessment, indicating lack of bona fides. The Tribunal analyzed the case, emphasizing that the term "inaccurate particulars of income" signifies a deliberate act or omission by the Assessee, requiring dishonest intent.

The Tribunal referred to a similar case to support its decision, highlighting that inadvertent errors or mistakes do not constitute furnishing inaccurate particulars of income. It differentiated between inaccurate claims and furnishing inaccurate particulars with dishonest intent. The Tribunal also examined Explanation 1 to section 271(1)(c) which deems additions or disallowances as concealment of income under specific conditions. In this case, the Tribunal found no evidence to suggest that the Assessee's explanation was false or lacked bona fides.

Ultimately, the Tribunal set aside the penalty imposed by the AO, concluding that the Assessee did not furnish inaccurate particulars of income with dishonest intent. The Tribunal held that the penalty provisions under section 271(1)(c) could not be attracted in the given circumstances. The appeal of the Assessee was allowed, directing the AO to delete the penalty.

In conclusion, the Tribunal's detailed analysis focused on the distinction between inaccurate claims and deliberate furnishing of inaccurate particulars of income. The decision emphasized the importance of dishonest intent and conscious misrepresentation in invoking penalty provisions under section 271(1)(c) of the Act.