Penalty on Assessee for Loss Disallowance on RBI Bonds Set Aside by ITAT

The ITAT set aside the penalty levied on the Assessee for the disallowance of loss on RBI Bonds, emphasizing that the issue was a legal question of eligibility for the claimed loss rather than concealment of facts. The ITAT held that since the correct position of law could only be determined by the Revenue Department, the penalty was deleted, following the principles established in the Reliance Petro Product Pvt. Ltd. case.

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Issues:
Levy of penalty on disallowance of loss on RBI Bonds based on inaccurate particulars of income.

Analysis:
The appeal was filed by the Assessee against the order of the CIT(A) upholding the penalty levy of Rs. 2,65,490 on the disallowance of loss on RBI Bonds due to furnishing inaccurate particulars of income. The facts revealed that the disallowance was made regarding a short-term capital loss claimed on maturity of tax-free RBI bonds amounting to Rs. 7,88,730. The AO disallowed the set-off of loss and requested an explanation from the Assessee regarding the incurred losses on the sale of Relief Bonds. The Assessee's contention was that the purchase of tax-free Relief Bonds at a premium resulted in a short-term capital loss on maturity. However, the AO rejected this explanation stating that the tax-free nature of the bond and the face value received on maturity did not justify the claimed loss, leading to the disallowance of the capital loss.

Upon appeal, the CIT(A) affirmed the penalty levy, stating that the Assessee was aware that the claim was not permissible under the law, constituting a case of furnishing inaccurate particulars rather than a debatable issue. However, the ITAT disagreed with the CIT(A)'s findings. They noted that all relevant information regarding the receipt on maturity of tax-free RBI bonds was disclosed to the Revenue Department during the return filing. The ITAT opined that there was no concealment of facts regarding the maturity of the bonds, and the eligibility for the short-term capital loss was a legal question to be determined by the Revenue Department. Citing the case of Reliance Petro Product Pvt. Ltd., the ITAT held that since the correct position of law could only be ascertained by the Revenue Department, the penalty deserved to be deleted. Consequently, the ITAT allowed the Assessee's appeal, directing the deletion of the penalty.

In conclusion, the ITAT set aside the penalty levied on the Assessee for the disallowance of loss on RBI Bonds, emphasizing that the case did not involve concealment of facts but rather a legal question of eligibility for the claimed loss, which warranted the deletion of the penalty based on the principles laid down in the Reliance Petro Product Pvt. Ltd. case.

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