2012 (9) TMI 1206 - AT - Income Tax

Appeal allowed, penalty canceled under Income Tax Act; assessee's claim deemed bonafide.

The Tribunal allowed the appeal, canceling the penalty levied under section 271(1)(c) of the Income Tax Act, as the assessee's incorrect claim was found ... Penalty under Section 271(1)(c) - Explanation 1 to Section 271(1)(c) - Bonafide claim - Concealment of income / furnishing inaccurate particulars of income - Section 94(7) - adjustment of dividend against capital loss; redemption as transfer - Particulars of income disclosed in the returnPenalty under Section 271(1)(c) - Bonafide claim - Concealment of income / furnishing inaccurate particulars of income - Particulars of income disclosed in the return - Section 94(7) - adjustment of dividend against capital loss; redemption as transfer - Whether penalty under Section 271(1)(c) is leviable where the assessee disclosed the transaction and dividend in the return but claimed a short term capital loss without adjusting exempt dividend under Section 94(7). - HELD THAT: - The Tribunal found as a fact that the assessee had disclosed purchase of units, receipt of dividend and the loss on redemption/sale in the return and in books. Although the authorities correctly held that redemption amounts to transfer for the purpose of Section 94(7) and thus the dividend ought to have been adjusted, the determinative question was whether the omission amounted to furnishing inaccurate particulars or concealment attracting Section 271(1)(c). Applying the principle in Union of India v. Dharamendra Textile Processors and the ratio in Reliance Petroproducts and subsequent decisions relied upon by the Tribunal, a mere incorrect claim or an interpretation of law which is finally held unsustainable does not automatically import inaccurate particulars where full disclosure has been made and the explanation is bonafide. The Tribunal noted earlier precedents (including Walter Saldhana and Hindalco) where penalty was cancelled where the Assessing Officer's addition was based on material supplied by the assessee and there was no suppression of facts or false particulars. On the facts, the assessee had furnished requisite details and raised a legal interpretation that redemption was not a transfer; even though that contention failed, there was no evidence of an intention to conceal or to furnish false particulars. Consequently Explanation 1 to Section 271(1)(c) did not sustain imposition of penalty in this case. [Paras 10, 11, 13]Levy of penalty under Section 271(1)(c) cancelled.Final Conclusion: The appeal is allowed: penalty under Section 271(1)(c) set aside because the assessee had made a bonafide, fully disclosed claim and there was no concealment or furnishing of inaccurate particulars warranting penalty. Issues Involved:1. Confirmation of penalty levied u/s 271(1)(c) of the Income Tax Act.2. Interpretation of Section 94(7) regarding the disallowance of short-term capital loss.Summary:Issue 1: Confirmation of Penalty Levied u/s 271(1)(c)The assessee appealed against the CIT(A)'s order confirming the penalty levied by the Assessing Officer (AO) u/s 271(1)(c) for the assessment year 2003-04. The AO had levied a penalty of Rs. 30,56,747/- for furnishing inaccurate particulars of income and concealing income. The assessee contended that the mistake was bonafide and there was no intention to conceal income. The CIT(A) disagreed, stating that the assessee made a false claim and deliberately concealed income, thus triggering Explanation 1 to Section 271(1)(c).Issue 2: Interpretation of Section 94(7)The assessee purchased units of SUN F & C Money Value Fund and received exempt dividend income u/s 10(33). The units were later sold at a loss, and the assessee claimed this short-term capital loss. The AO disallowed the loss to the extent of the dividend received as per Section 94(7). The assessee argued that the units were redeemed, not sold, and thus not covered by Section 94(7). The Tribunal held that redemption constitutes a transfer under Section 2(47), and the assessee's claim was not bonafide. However, the Tribunal noted that the assessee disclosed all relevant details and there was no intention to conceal income. Citing precedents, the Tribunal concluded that merely making an incorrect claim does not amount to furnishing inaccurate particulars. Therefore, the penalty u/s 271(1)(c) was not justified.Conclusion:The Tribunal allowed the appeal, canceling the penalty levied u/s 271(1)(c), as the assessee's incorrect claim was bonafide and did not amount to furnishing inaccurate particulars of income. The decision was pronounced in the open court on 28th Sept., 2012.