2014 (5) TMI 76 - AT - Income Tax

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 ... Confirmation of penalty u/s 271(1)(c) of the Act - Whether the assessee has furnished inaccurate particulars or not - AO was of the view that the assessee had deliberately booked losses on the sale of original units and had valued the bonus units at nil vale which otherwise had the value as the same were sold in the next year - Held that:- The assessees were issued bonus units which they valued at NIL value as they were issued free of cost and assessee had not paid any amount for receipt of the same - there is no dispute about the sale price of original units and loss incurred by the assessee on original units and also it is an undisputed fact that this loss cannot be said to be notional as assessee had actually made the sale of original units - to this extent, there does not seem to be a case of furnishing of inaccurate particulars - as far as value of bonus units is concerned, sub section (iiia) of clause (2) of sub section 55 permits the assessee to value such bonus units at NIL value - there was no loss to revenue or to assessee as claim denied during the present year has resulted into gain to assessee in succeeding year as assessee was able to adjust cost of such bonus units against sale of such units – here inaccurate particulars of income were not furnished. The provisions of section 94(8) were inserted in the statute to curb tax avoidance in such type of circumstances only which were applicable from assessment year 2005-06, the fact CIT(A) has noted in his order also - The present cases relate to assessment year 2004-05 and therefore in these years the assessee had not violated the provisions of section 94(8) and therefore had valued the bonus units as per provisions of section 55(2)(iiia) which is an accepted method though for different purposes - The AO had charged the assessee with the violation of provisions of section 94(7) which is not the fact as section 94(7) relates to the cases where an assessee earns dividend or income on such securities - the other charge of AO is that assessee had shown income from other sources as agricultural income is also not correct as CIT(A) in quantum proceedings had accepted the claim of assessee – thus, the assessee had valued the bonus units at nil value by taking one of the possible views and various courts has held that penalty under these circumstances is not leviable – Relying upon CIT v. Reliance Petroproducts Ltd. [2010 (3) TMI 80 - SUPREME COURT] - mere making a claim which is not substantiate in law by itself will not amount to furnishing of inaccurate particulars – thus, the penalties for concealment of income u/s 271(1)( c) is not imposable – Decided in favour of Assessee. 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, 1961The 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 AssesseeThe 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 ValueThe 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 ActThe 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 PreparationThe 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 BeliefThe 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.