2024 (9) TMI 352 - AT - Income Tax

Penalty under Section 271(1)(c) deleted for incorrect long-term capital loss claim versus inaccurate particulars

ITAT Delhi held that penalty u/s 271(1)(c) was wrongly levied on assessee for denial of long-term capital loss carry forward. The tribunal found that ... Taxability of distributed income on buy-back of shares - exemption of income on buy-back under section 10(34A) - penalty under section 271(1)(c) for furnishing inaccurate particulars - carry forward of long-term capital loss on buy-back - incorrect claim versus furnishing inaccurate particularsTaxability of distributed income on buy-back of shares - exemption of income on buy-back under section 10(34A) - carry forward of long-term capital loss on buy-back - penalty under section 271(1)(c) for furnishing inaccurate particulars - incorrect claim versus furnishing inaccurate particulars - Validity of penalty under section 271(1)(c) imposed for claiming and carrying forward a long-term capital loss arising from buy-back of shares - HELD THAT: - The Tribunal examined applicability of section 115QA and the consequential applicability of section 10(34A). Section 115QA taxes distributed income on buy-back where consideration paid exceeds the amount received by the company on issue; the definition of 'distributed income' requires that the buy-back consideration exceed the issue amount. In the present case the buy-back consideration (Rs. 125.75 per share) was less than the issue price (Rs. 310 per share), so there was no 'distributed income' within section 115QA. Accordingly section 10(34A), which exempts income to a shareholder on account of buy-back as referred to in section 115QA, had no application. The Assessing Officer's denial of carry forward of the long-term capital loss therefore was legally incorrect. The Tribunal held that the alleged misstatement amounted at best to an incorrect claim or an error in legal interpretation, not to furnishing of inaccurate particulars of income warranting penalty under section 271(1)(c). In view of settled authority that penalties under section 271(1)(c) are not leviable for bona fide incorrect claims or questions of law, the penalty was deleted and the Assessing Officer was directed to give effect to this order. [Paras 8, 9, 11, 12]Penalty under section 271(1)(c) deleted and grounds challenging the penalty allowed.Final Conclusion: The appeal is partly allowed; the penalty levied under section 271(1)(c) is deleted and the Assessing Officer is directed to give effect to this order. Issues involved:1. Challenge to the levy of penalty under section 271(1)(C) of the Income-tax Act, 1961.2. Applicability of section 115QA and section 10(34A) to the case.3. Denial of carrying forward long-term capital loss by the Assessing Officer.Detailed Analysis:The judgment pertains to an appeal against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2015-16. The assessee challenged the levy of a penalty under section 271(1)(C) of the Income-tax Act, amounting to Rs. 57,98,464. The Assessing Officer denied the benefit of carrying forward a long-term capital loss of Rs. 2,81,47,885, citing the provisions of section 115QA and section 10(34A) of the Act. The penalty was imposed on the grounds of furnishing inaccurate particulars of income (para 3, 6).The assessee company was engaged in various business activities and incurred a long-term capital loss due to the buyback of shares held in another company. The Assessing Officer contended that since the income arising from the buyback of shares is exempt under section 10(34A), the corresponding loss should not be allowed to be carried forward. The company claimed ignorance of the provision introduced in 2013, but this was not accepted as a valid excuse for the penalty (para 4, 7).The Tribunal analyzed the applicability of section 115QA and section 10(34A) to the case. It was observed that the consideration paid for the buyback of shares was less than the issue price, indicating no distribution of income as per section 115QA. Consequently, the provisions of section 10(34A) could not be applied either, as section 115QA was not applicable (para 8, 9, 10).The Tribunal held that the denial of carrying forward the long-term capital loss by the Assessing Officer was legally incorrect. Since the assessee did not challenge this in the quantum proceedings, the penalty was imposed. However, the Tribunal ruled that the denial of the loss was not sustainable in law, and thus, no penalty for furnishing inaccurate particulars of income could be justified. Citing relevant judicial precedents, the Tribunal directed the Assessing Officer to delete the penalty under section 271(1)(C) (para 11, 12).In conclusion, the Tribunal partially allowed the appeal of the assessee, directing the deletion of the penalty levied under section 271(1)(C) of the Income-tax Act. The order was pronounced in open court on 29/08/2024 (para 13).