2014 (10) TMI 215 - AT - Income Tax

Tax Tribunal Overturns Penalty for Income Tax Act Violation

Century Metal Recycling Pvt. Ltd. Versus DCIT, Circle-3(1), New Delhi

The Tribunal concluded that the penalty under Section 271(1)(c) of the Income Tax Act was unjustified. The disallowance of carry forward of long-term ... Penalty levied u/s 271(1)(c) – AO specifically mentioned that carry forward of long term capital loss is allowed but since there was a change in the majority shareholding in the previous year, the loss was disallowed to be carried forward under the provision of Section 79 - Held that:- The assessee rightly contended that the carry forward of long term capital loss for AY 2005-06 and 2006-07 had been duly accepted as correct as per returns filed and assessment orders passed by the AO in the relevant years - the assessee had furnished any inaccurate particulars of income or had made any wrong claim of carry forward of long term capital loss - the disallowance of carry forward of the long term capital loss was on technical ground and not on account of any concealment of any particular of income - relying upon Mak Data P Ltd. vs. CIT-II [2013 (11) TMI 14 - SUPREME COURT] - section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income - the assessee’s conduct cannot be said to be contumacious so as to warrant levy of penalty – thus, the levy of penalty is not justified – Decided in favour of assessee. Issues Involved:1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.2. Disallowance of carry forward of capital loss under Section 79 of the Income Tax Act.3. Violation of principles of natural justice.4. Alleged concealment of income and furnishing of inaccurate particulars.Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act:The core issue was the confirmation of a penalty amounting to Rs. 8,05,000/- levied under Section 271(1)(c) of the Income Tax Act. The penalty was imposed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee contended that the penalty was levied without issuing a show cause notice or providing an opportunity for a hearing, which violated the principles of natural justice. The Tribunal observed that the assessee had disclosed all particulars regarding the carry forward of long-term capital loss, and the disallowance was based on a technical ground rather than any concealment of income or furnishing of inaccurate particulars. The Tribunal referred to the Supreme Court's decision in the case of Reliance Petro Products Pvt. Ltd., which held that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars.2. Disallowance of Carry Forward of Capital Loss under Section 79 of the Income Tax Act:The AO disallowed the carry forward of a capital loss amounting to Rs. 23,09,722/- under Section 79 of the Income Tax Act, citing a change in the majority shareholding of the company. The CIT(A) upheld this disallowance. The Tribunal noted that the AO had previously allowed the carry forward of long-term capital loss for the assessment years 2005-06 and 2006-07. The disallowance for the assessment year 2007-08 was based on a technical ground due to a change in shareholding, not due to any concealment or inaccurate particulars. The Tribunal emphasized that such a disallowance on technical grounds does not warrant the imposition of a penalty under Section 271(1)(c).3. Violation of Principles of Natural Justice:The assessee argued that the penalty was imposed ex-parte, without issuing a show cause notice or providing an opportunity for a hearing, which violated the principles of natural justice. The Tribunal found merit in this contention, noting that the AO had not issued the necessary notices for the relevant assessment year. The Tribunal highlighted that the CIT(A) had wrongly noted the issuance of a penalty notice dated 24/12/2009, which was not on record. This procedural lapse further supported the assessee's case against the imposition of the penalty.4. Alleged Concealment of Income and Furnishing of Inaccurate Particulars:The CIT(A) had found that the assessee concealed income and furnished inaccurate particulars regarding the addition of Rs. 23,90,722/-. However, the Tribunal disagreed, stating that the assessee had not concealed any particulars of income or furnished inaccurate details. The Tribunal referred to the Supreme Court's decision in the case of Mak Data P Ltd., which held that the onus is on the revenue to prove concealment or furnishing of inaccurate particulars once the assessee has provided a cogent and reliable explanation. The Tribunal concluded that the assessee had provided a valid explanation for the carry forward of the long-term capital loss, and the revenue failed to discharge its onus to prove otherwise.Conclusion:The Tribunal found that the imposition of the penalty under Section 271(1)(c) was not justified. The disallowance of the carry forward of the long-term capital loss was based on a technical ground and did not involve any concealment of income or inaccurate particulars. The Tribunal set aside the orders of the lower authorities and deleted the penalty. The appeal filed by the assessee was allowed.