Tax Tribunal: No Penalty under Sec 271(1)(c) as Assessee's Claim Not Inaccurate.

The Tribunal held that the penalty under Section 271(1)(c) of the Income Tax Act was not imposable as the assessee had taken a bona fide view, and there was no furnishing of inaccurate particulars of income. The appeals were allowed, and the penalties imposed by the Assessing Officer were set aside. The Tribunal emphasized that merely making a claim not substantiated in law does not amount to furnishing inaccurate particulars, as established in a Supreme Court case.

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Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Alleged concealment of income by the assessee.
3. Valuation of bonus units at NIL value.
4. Interpretation and application of Section 94(7) and Section 94(8) of the Income Tax Act.
5. Dependence on counsel for tax return preparation.
6. Genuineness of transactions and bona fide belief.

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961
The appeals were filed against the order of the CIT(A) confirming the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) for alleged concealment of income. The AO imposed penalties of Rs. 13,77,450/- and Rs. 28,05,210/- respectively, asserting that the assessee had concealed particulars of income by not following the provisions of Section 94(7) and claiming wrong exemptions under Section 10.

Issue 2: Alleged Concealment of Income by the Assessee
The AO argued that the assessee had deliberately booked losses on the sale of original units and valued the bonus units at NIL value, thereby reducing the net asset value of units and generating losses to offset against other income. The AO deemed this as a tax avoidance strategy using colorable devices and initiated penalty proceedings under Section 271(1)(c).

Issue 3: Valuation of Bonus Units at NIL Value
The assessee valued the bonus units at NIL value, arguing that these units were issued free of cost. The AO disallowed the set-off of the loss, considering it notional, as the assessee sold these units at a profit in the succeeding year. The CIT(A) upheld the AO's view, stating that the entire exercise was to generate a loss to reduce tax liability.

Issue 4: Interpretation and Application of Section 94(7) and Section 94(8) of the Income Tax Act
The CIT(A) referred to Section 94(8), which provides for ignoring such loss and allowing it as deemed cost of bonus units, applicable from the assessment year 2005-06. Since the present case related to the assessment year 2004-05, the CIT(A) held that the loss incurred by the assessee was to be treated as the cost of bonus units. The AO also charged the assessee with violating Section 94(7), which the CIT(A) found incorrect as it relates to earning dividend or income on securities.

Issue 5: Dependence on Counsel for Tax Return Preparation
The assessee contended that he depended on his counsel for preparing the return and was unaware of the technicalities of IT law. The CIT(A) rejected this plea, holding that the onus cannot be shifted to the counsel.

Issue 6: Genuineness of Transactions and Bona Fide Belief
The Tribunal found no dispute about the sale price of original units and the loss incurred. It noted that the loss was not notional as the sale of original units was genuine. The Tribunal also observed that the assessee valued the bonus units at NIL value based on Section 55(2)(iiia), which permits such valuation for financial assets allotted without payment. The Tribunal concluded that the assessee took one of the possible views, and there was no furnishing of inaccurate particulars.

Conclusion:
The Tribunal held that the penalty under Section 271(1)(c) was not imposable as the assessee had taken a bona fide view, and there was no furnishing of inaccurate particulars of income. The appeals filed by the assessees were allowed, and the penalties were set aside. The Tribunal emphasized that mere making a claim not substantiated in law does not amount to furnishing inaccurate particulars, as held by the Supreme Court in CIT v. Reliance Petroproducts Ltd.

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