Penalty 271(1)(C) in case of loss

[anil goenka]

In course of Scrutiny ACIT added some expenses & issued penalty notice u/s 271(1)(C). The Ld CIT(A) allow partly. For the confirming part the ACIT was to impose penalty u/s 271(1)(C). 

Total income as calculated by ACIT under section 143(3) is loss and order  U/s 250/143(3) computation is also for loss. Till date the assessee has not utilized the full B/f Loss as claim in the Return.

If the assessee do not set off b/f loss amounting to confirming disallowance  is he get benefit u/s 271(1)(C)

[Shailesh Doshi]

It is immaterial whether b/f loss is set-off till date. You have not specified the nature of addition. If the expenses are disallowed on ad-hoc or estimated basis by ACIT and if the said disallowance is partially confirmed by CIT (A), no penalty u/s 271(1)(c) would be attracted. There are several judgments which clearly stipulate that no penalty u/s 271(1)(c) would be attracted on ad-hoc or estimated additions. 

[DEV KUMAR KOTHARI]

Mere disallowance of expenses itself is not a suffecient ground to levy penalty u/s 271.1.c.

As part of expenses ahve beenallowed by the CIT(A), the matter is contentious on which difference of opinion exists. So penalty is not leviable.

The nature of expenses and evidence should be to establsih pramafacie allowability of the case.If similar expenses have been allowed  fully in past (even in order u/s 143.1, the claim is established and a disallowance cannot be ground for penalty.

Even a bonafide mistake can be a ground not to impose penalty - see cases of Reliance Petrolium and PWC.

Even after amendment of s.271.1.c and some judgments of SC holdign that amendment is retrospective,and penalty can be levied in case of loss, the merits of claim and arguablable status will absolve from levy of penalty.

It would be better to file appeal against order of CIT(A) to seek further relief. In case revenue has filed an appeal, then assessee can file appeal by way of Cross Objections without any fees for ITAT.

Eligible B/f losses have to be set off, there is no legal option not to set off losses except in case of some capital gains.

AI Summary

Penalty under section 271(1)(c) may not apply where additions are ad hoc, estimated, or genuinely disputed-appeal recommended. Levy of penalty under section 271(1)(c) hinges on the nature and merit of additions: ad hoc or estimated disallowances, genuinely disputed claims partly allowed on appeal, prima facie allowability, prior allowance, or bona fide mistakes ordinarily preclude penalty; merits and arguability remain determinative despite retrospective amendments, and taxpayers should pursue appellate remedies while noting carried forward losses generally must be set off.