penalty u/s 271(1)(c) on improper claim of set off

[JB]

There is a decision reported at 12 Taxmann.com 358 on the above subject. Can any one provide full text thereof?

[pawansingla]

IT : Penalty under section 271(1)(c) cannot be levied on basis that a wrong claim for carried forward loss to be set off has been made, particularly when this fact was already within knowledge of department


[2011] 12 taxmann.com 358 (All. - ITAT)

IN THE ITAT ALLAHABAD BENCH

Assistant Commissioner of Income-tax, Circle - II

v.

A.H. Wheelers & Co. (P.) Ltd.*

H.L. KARWA, VICE-PRESIDENT
AND N.K. SAINI, ACCOUNTANT MEMBER
I.T. APPEAL NO. 272 (ALL.) OF 2010
C.O. NO. 47 (ALL.) OF 2010
[ASSESSMENT YEAR 2004-05]
MAY 18, 2011

Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 2004-05 - Assessing Officer levied penalty under section 271(1)(c) upon assessee on ground that carried forward of losses had been claimed excessively in return of income filed by assessee - Whether even if assessee failed to provide correct figures relating to set off of carried forward loss, it was duty of Assessing Officer to consider correct figures while allowing benefit of set off particularly when amount to be set off was relating to earlier years and record, in shape of income-tax returns pertaining to earlier years, was already available with Department - Held, yes - Whether merely on basis that wrong figures, by mistake, were provided by assessee, Assessing Officer could not reject claim and, consequently, levy penalty under section 271(1)(c) considering wrong claim as concealment of income - Held, yes

FACTS

The assessee was engaged in the business of trading of books and periodicals. For relevant assessment year, it filed its return of income declaring certain loss which also included brought forward losses of earlier years. The Assessing Officer, after going through the past records, noticed that carried forward of losses had been claimed excessively in the return of income. When the discrepancies were pointed out to the assessee, the same were rectified before the finalisation of the assessment. The Assessing Officer however, held that the assessee had furnished inaccurate particulars of its income at the time of filing of return and, therefore, imposed penalty under section 271(1)(c). He also imposed penalty under section 271(1)(c) in respect of additions made on account of loss on sale of equity shares, on account of charity and donation and on account of false claim of deduction under section 80G. On appeal, the Commissioner (Appeals) deleted the penalty.

On revenue's appeal :

HELD

In the instant case, the fact relating to the loss determined for each of the earlier assessment years to be set off and carried forward of such loss for each assessment year was within the knowledge of the department and, so, it was the duty of the Assessing Officer to verify from the record and allow the set off for which the assessee was actually eligible in accordance with law. The mistake in question occurred on the part of the consultant who filed the income-tax return form on the basis of the audit report under section 44AB. Since the mistake occurred under a bona fide belief based on the advice of the tax consultant, it could not be held that there was any concealment of income or furnishing of inaccurate particulars of income, particularly when the amount, to be set off was relating to the earlier years and the record, in the shape of income-tax returns pertaining to the earlier years, was already available with the department. [Para 7.1]

It was the duty cast on the Assessing Officer to apply the relevant provisions of the Act for the purpose of determining the true figure of the assessee' s taxable income and the consequential tax liability and even if the assessee failed to provide the figures relating to set off of the loss already determined by the department, it was the duty of the Assessing Officer to consider the correct figure while allowing the benefit of the set off and merely on the basis that wrong figures, by mistake, were provided by the assessee, the Assessing Officer could not have rejected the claim and, consequentially, levied the penalty under section 271(1)(c) considering the wrong claim as concealment of income. As regards to the loss carried forward to be set off, there was neither concealment of the income nor inaccurate particulars of income were furnished because the correct figures were already available on record with the Assessing Officer in the form of Income-tax returns of earlier years wherein loss to be set off and carried forward in the succeeding year was determined, and so, he should have considered only those figures, which were correct. Furthermore, the Assessing Officer himself admitted that the mistake in question was rectified by the assessee during the course of the assessment proceedings. When it was crystal clear that the mistake, which was inadvertent, was rectified before finalization of the assessment, the penalty was not leviable under section 271(1)(c) on the basis that the assessee had mentioned wrong figures of the loss carried forward to be set off against the income of the year under consideration, particularly when the mistake occurred due to negligence of the tax consultant. [Para 7.5]

Therefore, the penalty under section 271(1)(c) was not leviable on account of wrong figures taken for set-off of carried forward losses. [Para 7.8]

So far as addition made on account of loss on sale of equity shares was concerned, that issue was the subject-matter of the assessee's appeal for the assessment year 2004-05. That addition had been deleted by holding that the said loss was not a business loss but a loss under the head capital gains. Therefore, the penalty was also not leviable on the aforesaid amount. [Para 7.9]

So far as addition made on account of donation and charity was concerned, the explanation of the assessee was that the said sum also included a sum of Rs. 75,000 the donation to 'Wheeler Sewa Trust'. So, the only amount on account of donations and charities was Rs. 19,001 and those were necessary for business exigencies. Since the Assessing Officer, while levying the penalty under section 271(1)(c), wrongly included the amount of Rs. 75,000 while making the addition of Rs. 94,001, it appeared that the Assessing Officer had not applied his mind while levying the penalty under section 271(1)(c) . Furthermore, the amount of donation and charity amounting to Rs. 19,001 was a negligible amount considering the nature of business activities of the assessee and it could not be denied that in such type of cases these type of expenses are required to be incurred for smooth functioning of business. The Commissioner (Appeals) rightly deleted the penalty levied by the Assessing Officer on that addition. [Para 7.10]

So far as donation claimed by the assessee at the rate of 50 per cent of the donation under section 80G amounting to Rs. 75,000 made to 'Wheeler Sewa Trust' was concerned, the said claim was made by the assessee for the reason that recognition under section 80G was available to 'Wheeler Sewa Trust' earlier and, therefore, there was a bona fide belief to claim deduction under section 80G. So, it could not be said that the assessee furnished inaccurate particulars or concealed the income in respect of above amount. Therefore, the said disallowance might be relevant for making the addition in the assessment proceedings but not liable for the penalty under section 271(1)(c). [Para 7.11]

CASES REFERRED TO

Yogesh R. Desai v. Asstt. CIT [2010] 2 ITR 267 (Mum. - Trib.) (para 4.3), ITO v. Ram Das Deokinandan Prasad [1985] 14 ITD 155 (All.) (para 4.3), Dy. CIT v. Rajan H. Shinde [2005] 93 ITD 1/143 Taxman 36 (Mag.) (pune)(TM) (para 4.4), Asstt. CIT v. M.V. Kenlucky [1997] 60 ITD 492 (Pune) (para 4.4), Omrao Industrial Corpn. (P.) Ltd. v. ITO [1987] 20 ITD 739 (All.) (para 4.5), Navinbhai M. Patel v. ITO [1988] 27 ITD 411 (Ahd.) (para 4.5), Asstt. CIT v. Supreme Industries Ltd. [2009] 28 SOT 19 (Mum.) (para 7.5), Madan Gopal Bansal & Sons v. IAC [1984] 19 TTJ (Delhi) 493 (para 4.5), CIT v. Manmohan Das [1966] 59 ITR 699 (SC) (para 6), T. Ashok Pai v. CIT [2007] 292 ITR 11 /161 Taxman 340 (SC) (para 8), CIT v. Sri Saradha Textile Processors (P.) Ltd. [2006] 286 ITR 499 (Mad.) (para 8), CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 6) and CIT v. Mahalaxmi Sugar Mills Co. Ltd. [1986] 160 ITR 920/27 Taxman 267 (SC) (para 6).

Jagdish for the Appellant. N.C. Agarwal for the Respondent.