2011 (5) TMI 609 - AT - Income Tax

Tribunal upholds CIT(A) decision on penalty under Income-tax Act

Assistant Commissioner of Income-tax, Circle – II Versus AH Wheelers & Co. (P.) Ltd.

Assistant Commissioner of Income-tax, Circle – II Versus AH Wheelers & Co. (P.) Ltd. - TMI Issues Involved:1. Deletion of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Deletion of Penalty Imposed under Section 271(1)(c):Background and Facts:The Department's appeal and the assessee's cross-objection were directed against the order of the CIT(A) concerning the assessment year 2004-05. The primary grievance of the Department was the deletion of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs. 1,45,00,000.The assessee, engaged in the business of trading books and periodicals, filed its return of income declaring a loss of Rs. 4,58,95,930. The Assessing Officer (AO) found discrepancies in the carry-forward losses claimed by the assessee, leading to the initiation of penalty proceedings under section 271(1)(c).Assessing Officer's Findings:The AO pointed out that the assessee had claimed excessive carried forward losses from earlier years, resulting in a double claim amounting to Rs. 1,47,39,030. The AO concluded that the assessee furnished inaccurate particulars of income and levied a penalty under section 271(1)(c) on the amount of Rs. 3,96,14,934. Additionally, the AO noted discrepancies in the loss on sale of equity shares and donations claimed by the assessee, leading to further additions.Assessee's Submissions:The assessee contended that the penalty under section 271(1)(c) was not justified as the discrepancies were due to bona fide mistakes by the professionals engaged by the assessee. The assessee argued that the penalty provisions are not absolute and are rebuttable. The assessee further submitted that the errors were rectifiable under sections 154/155 of the Act and that there was no conscious concealment of income.CIT(A)'s Observations:The CIT(A) observed that the assessee acted under a bona fide belief based on the advice of professionals and that the discrepancies were rectified during the assessment proceedings. The CIT(A) noted that the penalty under section 271(1)(c) was not leviable as the errors were not due to any mala fide intention. The CIT(A) relied on various judicial precedents, including the Supreme Court's decision in T. Ashok Pai v. CIT, which held that penalty cannot be levied for acting on wrong legal advice.Tribunal's Analysis:The Tribunal considered the rival submissions and the material on record. It noted that the AO had pointed out the discrepancies during the assessment proceedings, and the assessee had revised the Schedule-6 of the Tax Audit Report accordingly. The Tribunal emphasized that the facts relating to the loss determined for each of the earlier assessment years were within the knowledge of the Department, and it was the AO's duty to verify and allow the correct set-off.The Tribunal referred to the Supreme Court's decisions in Manmohan Das and Mahalaxmi Sugar Mills Co. Ltd., which underscored the AO's duty to apply relevant provisions and determine the true taxable income. The Tribunal also cited the Supreme Court's ruling in Reliance Petroproducts (P.) Ltd., which clarified that making an incorrect claim does not amount to furnishing inaccurate particulars.Conclusion:The Tribunal concluded that the penalty under section 271(1)(c) was not leviable on the amounts related to the wrong figures taken for set-off of carried forward losses, as the correct figures were already available with the Department. The Tribunal upheld the CIT(A)'s decision to delete the penalty, noting that the errors were rectified before the finalization of the assessment and were due to the negligence of the Tax Consultant.Other Additions:- Loss on Sale of Equity Shares: The Tribunal noted that this issue was decided in the assessee's favor in the quantum appeal, holding the loss as a capital loss. Therefore, the penalty was not leviable on this amount.- Donation and Charity: The Tribunal found that the amount of Rs. 19,001 on account of donations and charities was negligible and necessary for business exigencies. The penalty on this addition was rightly deleted by the CIT(A).- Donation to Wheeler Sewa Trust: The Tribunal held that the claim was made under a bona fide belief, and the disallowance was relevant for assessment but not for penalty under section 271(1)(c).Result:The Department's appeal was dismissed, and the assessee's cross-objection was dismissed as not pressed.