2023 (8) TMI 1256 - AT - Income Tax

Penalty u/s 271(1)(c) - AO treated amount shown under the head decrease in value of investment as capital loss , declined to allow the same and added it back to the income of the assessee - HELD THAT - Hon'ble Delhi High Court in the case of CIT vs. DCM Limited 2013 (9) TMI 760 - DELHI HIGH COURT wherein held that law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; that normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the AO. In the case of CIT vs Reliance Petroproducts Pvt Ltd 2010 (3) TMI 80 - SUPREME COURT held that when the assessee preferred a claim, it was up to the authorities to accept its claim in the Return or not, but merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty u/s 271(1)(c) - As further held that if the contention of the Revenue is accepted, then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c) of the Act and that is clearly not the intendment of the Legislature. On a consideration of the material before us, we are of the considered opinion that the above decisions are applicable to the facts of the case on hand. Merely because the assessee preferred a claim which was not acceptable to the Revenue, the assessee cannot be visited with the proceedings u/s 271(1)(c) unless and until the twin requirements u/s 271(1)(c) are satisfied. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case are related to the treatment of a claimed amount as capital loss, the initiation of penalty proceedings under section 271(1)(c) of the Act, and the imposition of penalty based on the claim of inaccurate particulars of income.

Treatment of claimed amount as capital loss:
The assessee debited an amount of Rs. 50 lakhs towards decrease in value of inventories in the return of income for the assessment year 2005-06. The Assessing Officer treated this amount as 'capital loss' and added it back to the income of the assessee. The assessee contended that the claim should be allowed as speculation loss under section 73 of the Act. The dispute arose as to whether the revaluation of closing stock and the claim of Rs. 50 lakhs should be allowed. The Assessing Officer did not find any falsification of accounts but treated the entry as capital loss, leading to a difference of opinion.

Initiation of penalty proceedings:
The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act, holding that the amount added or disallowed in computing the total income of the assessee shall be deemed to represent concealed income. The penalty of Rs. 18,29,625/- was levied based on the contention that the claim of the assessee was not allowable under law, constituting a form of tax evasion attempt.

Imposition of penalty for inaccurate particulars of income:
The assessee argued that the penalty was levied on the grounds of furnishing inaccurate particulars of income, contrary to legal precedents. The assessee relied on decisions such as CIT vs. Reliance Petroproducts Pvt Ltd and CIT vs. DCM Limited to support the claim that making a claim, even if not accepted by the Revenue, should not attract penalty under section 271(1)(c) of the Act. The Tribunal held that merely preferring a claim that was not acceptable to the Revenue does not warrant penalty unless the twin requirements under the Act are satisfied.

Separate Judgment:
The Appellate Tribunal, ITAT Hyderabad, in its decision dated August 24, 2023, allowed the appeal of the assessee. The Tribunal held that the penalty under section 271(1)(c) of the Act cannot be sustained as the assessee's claim, though not accepted by the Revenue, did not meet the conditions for imposing a penalty. The Tribunal directed the Assessing Officer to delete the penalty imposed on the assessee.