Concealment Penalty u/s 271(1)(c) for claiming capital loss as business loss. No Penalty when the assessee disclosed all the material in the computation of his income.- High Court
ABCAUS Case Law Citation:
ABCAUS 2487 (2018) 08 HC
Important Case Laws Cited/relied upon by the parties:
CIT Vs. Siddharth Enterprises 322 ITR 80
Commissioner of Income-tax, Ahmedabad vs. Reliance Petroproducts (P.) Ltd.:  189 Taxman 322(SC)
Commissioner of Income-tax v. NG Technologies Ltd.:  370 ITR 7 (Delhi)
CIT Vs. Zoom Communication (P) Ltd. 327 ITR 510 (Del.)
Dilip N. Shroff v. Jt. CIT  6 SCC 329
The instant appeal was filed by assessee against the order of the Income Tax Appellate Tribunal (ITAT/Tribunal) in confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).
The assessee was a limited company which filed return of its income declaring a loss. Return was processed under Section 143(1) of the Act and the case was taken up in scrutiny.
The Assessing Officer (the AO) noted that the assessee had inter alia debited an amount in Profit and Loss account as business loss incurred on account of sale of assets. The AO finalised the assessment order under Section 143(3) of the Act and treated this loss as capital loss and held that the same could not have been debited in Profit and Loss account as business loss. The AO added back this amount and calculated total assessed income.
The AO was also of the view that the assessee had intentionally entered the capital loss in the profit and loss account in order to decrease profits, hence, penalty proceedings under Section 271(1)(c) of the Act were to be initiated and issued the show cause notice (the SCN) under Section 271(1)(c) of the Act to the assessee.
The quantum appeal filed by the assessee before the CIT(A) was dismissed.
In reply to the SCN, the assessee said that despite the additions, no tax was payable by the assessee as per the AO’s order under Section 154 of the Act in which the AO had allowed the entire amount as deduction under Section 80-IB(9) of the Act and, therefore, income was assessed as Nil in the order passed under Section 154 of the Act by the AO. If there was no income, there could not be any penalty.
The AO after considering reply to the SCN filed by the assessee passed the order of penalty under Section 271(1)(c) of the Act. The AO rejected the contention of the assessee and held that the penalty under Section 271(1)(c) of the Act could be levied even if the return income was a loss.
The AO was of the view that the assessee had intention to conceal particulars of its income and, therefore, penalty under Section 271(1)(c) of the Act was imposable. Accordingly, the AO levied 100% penalty of tax.
Aggrieved by the aforesaid penalty order, the assessee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal and upheld the order passed by the AO.
The Tribunal held that the claim of the assessee to treat loss on sale of assets as business loss was not a bona-fide mistake and, therefore, the penalty under Section 271(1)(c) of the Act was imposable. The claim was actuated by mala-fide to evade the tax that was otherwise payable by the assessee. Hince, the Tribunal vide impugned order had dismissed the appeal.
Before the Hon’ble High Court, the appellant assessee submitted that the company could have wrongly claimed loss incurred on sale of assets as business loss in the Profit and Loss account which was a capital loss. However, the assessee had disclosed every detail in the return which was before the AO. Nothing was concealed from the assessment authority. There was no concealment of particulars of its income in any manner. Only the assessee had treated an amount as business loss which was to be treated as capital loss. This was not an attempt to conceal the income, therefore, penalty under Section 271(1)(c) of the Act was not imposable on these facts.
It was further submited that in view of the order passed under Section 154 of the Act by the AO whereby the assessed income of the assessee was assessed to be Nil, no penalty could have been levied inasmuch as under Section 271(1)(c) of the Act, the penalty proceedings can be initiated when the assessee has concealed the particulars of income. When the income itself has been assessed to be Nil, there was no question of any concealment of income and, therefore, the initiation of penalty proceedings as well as the penalty order are bad in law.
The assessee placed reliance on the judgment of the Supreme Court to support his submission that merely because the assessee had claimed expenditure, which was not accepted or was not acceptable, that, by itself, would not attract penalty under Section 271(1)(c) of the Act.
On the other hand, the Revenue submitted that showing loss in the sale of assets as business loss was not a bona-fide mistake but it was a deliberate attempt on the part of the assessee to furnish inaccurate particulars of income and, therefore, the authorities had rightly imposed penalty under Section 271(1)(c) of the Act.
In support of his submission, the Revenue placed reliance on the judgment of Delhi High Court, against which the SLP was dismissed by the Supreme Court.
The Hon’ble High Court observed that under the provisions of Section 271(1)(c) of the Act, there has to be concealment of the particulars of income by the assessee or he should have furnished inaccurate particulars of the income.
The Hon’ble High Court observed that the Hon’ble Supreme Court had explained terms ‘concealment of income’ and ‘furnishing inaccurate particulars of income’ and held that in order to attract the penalty under Section 271(1)(c) of the Act, mens rea was necessary inasmuch as the word ‘inaccurate’ signifies a deliberate act or omission on behalf of the assessee.
The Hon’ble High Court further observed that the jurisdiction under Section 271(1)(c) of the Act is a discretionary jurisdiction vested upon the assessing authority and the amount of penalty could not be less than the amount sought to be evaded by reason of such concealment of particulars of income but it could exceed three times thereof.
It was noted that the term ‘Inaccurate particulars’ is not defined anywhere in the Act. In order to attract the provision of Section 271(1)(c) of the Act, the assessee must be found to have failed to prove that explanation offered is not only bona-fide but all the facts relating to the same and material to the computation of his income have been disclosed by him. If the assessee has disclosed all facts and material in computation of his income, it cannot be said that he has furnished inaccurate particulars of his income.
The Hon’ble High Court observed that in the instant case, it was clear that the assessee had disclosed particulars of the loss in sale of assets which was not in dispute. Instead of treating that loss as capital loss the assessee had treated the same as business loss. Thus, the assessee cannot as such be said to have not disclosed all the material to the computation of his income. This was a wrong belief of the assessee that loss in sale of assets could be treated as business loss and not the capital loss.
The Hon’ble High Court opined that there was no concealment of the income by the assessee and, therefore, the penalty proceedings should not have been initiated against the assessee.
Accordingly, the impugned judgment passed by the Tribunal was set aside and the appeal of the assessee was allowed by answering all the questions of law in favour of the assessee and against the Revenue.