2012 (5) TMI 863 - AT - Income Tax

Tax Penalty Appeal Dismissed for AY 2006-07

The appeal against the deletion of a penalty under section 271(1)(c) of the Income Tax Act for Assessment Year 2006-07 was dismissed. The penalty ... - ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) is leviable where a taxpayer claims indexed cost of acquisition from an earlier date and later revises the computation on the ground that ownership crystallised at a later date due to litigation. 2. Whether mere making of a claim in the return that is ultimately found unsustainable in law amounts to 'furnishing inaccurate particulars' or 'concealment' attracting section 271(1)(c). 3. Whether imposition of penalty can be sustained where the assessment finally proceeds under the Minimum Alternate Tax (MAT) provision and there is no material loss of revenue under the normal provisions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Levy of penalty under section 271(1)(c) for indexing cost from an earlier date where ownership crystallised later due to litigation Legal framework: Section 271(1)(c) penalises concealment of particulars of income or furnishing of inaccurate particulars of income; penalty requires either concealment or furnishing of inaccurate particulars. Precedent treatment: The Tribunal relied on the Supreme Court's exposition that an incorrect claim by itself does not automatically translate into furnishing inaccurate particulars unless particulars supplied in the return are found to be incorrect, erroneous or false. The Revenue relied on an earlier authority (K.P. Madhusudanan) to argue penalty applicability; the assessee relied on authorities recognising bona fide mistakes and permitting rectification. Interpretation and reasoning: The Court examined facts showing a bona fide dispute on date of acquisition - agreement executed in 1981; final adjudication of ownership by the High Court in 1993; part payment prior to 1993; revised computation filed by assessee at assessment stage before AO detected any mistake. The Court considered that the difference of opinion on date of acquisition was academic because the assessment was ultimately made under MAT. The Court held that the mistake in indexing was clerical/inadvertent/bona fide and arose from a genuine dispute about ownership timing, not from concealment or deliberate furnishing of inaccurate particulars. Ratio vs. Obiter: Ratio - where a taxpayer discloses the relevant facts and a genuine difference of opinion exists on legal entitlement/date of acquisition, an inadvertent or bona fide error in computation does not attract section 271(1)(c). Obiter - observations on the relevance of part payment and timing, insofar as factual support, but not laying new legal test beyond established principles. Conclusion: Penalty under section 271(1)(c) is not imposable in respect of the claimed indexed cost leading to capital loss, because the claim arose from a bona fide difference of opinion and disclosed facts; no concealment or furnishing of inaccurate particulars was established. Issue 2 - Whether an unsustainable claim in the return equals 'furnishing inaccurate particulars' under section 271(1)(c) Legal framework: The statutory language requires concealment or furnishing of inaccurate particulars; the concept of 'particulars' embraces details of claims made in the return. Precedent treatment: The Court applied the Supreme Court's holding that making a claim which is not sustainable in law does not ipso facto amount to furnishing inaccurate particulars or concealment; penalty cannot be mechanically imposed where details in return are not shown to be incorrect, erroneous or false. Interpretation and reasoning: The Court found no finding in the assessment order that particulars supplied by the assessee were incorrect, erroneous or false. The assessee had furnished computation details and thereafter corrected the computation at assessment stage. Given disclosure of material facts, the nature of the claim as arguable and the absence of deliberate misstatement, the threshold for invoking section 271(1)(c) was not crossed. Ratio vs. Obiter: Ratio - an unsustainable claim in law, standing alone, does not constitute furnishing inaccurate particulars for purposes of section 271(1)(c) where there is no proof of incorrect, erroneous or false particulars or concealment. Obiter - commentary on the need for non-mechanical application of penalty provisions. Conclusion: The mere fact that the indexed-cost claim was ultimately unsustainable does not by itself justify imposition of penalty under section 271(1)(c) absent evidence of concealment or false particulars. Issue 3 - Sustainment of penalty where assessment is finally made under MAT and there is no loss to revenue under normal provisions Legal framework: Imposition of penalty presupposes either evasion/under-assessment or furnishing of inaccurate particulars that affect tax liability; revenue loss is a relevant consideration in assessing prejudice from the misstatement. Precedent treatment: The Court noted authorities indicating that penalty cannot be automatic and must consider whether the details in return were inaccurate; also noted appellate authority permitting penalty only to the extent of actual discrepancy affecting tax liability. Interpretation and reasoning: The Court observed that the final assessment was under MAT and that taxable income under normal provisions, as finally assessed, did not change materially - MAT income differed by only Rs. 19,200 leading to a nominal difference in tax. The AO nevertheless sought penalty based on the large reduction in carried forward capital loss, which had no revenue consequence in the year because of MAT assessment. The Tribunal accepted the CIT(A)'s approach that at most penalty could have been considered on the small MAT income difference, but that full penalty on the capital-loss reduction was not justifiable. Ratio vs. Obiter: Ratio - where the assessment results in MAT charge and there is no substantive loss to revenue under the normal provisions, imposition of substantial penalty based on an academic difference in carried forward loss is not sustainable. Obiter - suggestion that where a quantifiable revenue impact exists, penalty scope should be calibrated to that impact. Conclusion: Penalty based on the large reduction in carried forward capital loss (with no practical revenue loss because assessment proceeded under MAT) cannot be sustained; at best, any penalty consideration should be limited to the actual small difference affecting MAT computation, not the academic reduction in carried forward loss. Overall Conclusion The Court upheld deletion of the penalty under section 271(1)(c) relating to the capital-loss indexing issue (finding no concealment or furnishing of inaccurate particulars) and regarded the imposition of penalty on an academic reduction of carried forward loss - in circumstances where assessment was under MAT and there was negligible revenue impact - as unsustainable. The Revenue's appeal against deletion of the penalty was dismissed.