Penalty under s 271(1)(c)

If in quantum appeal the issue relating to SAP expense and s 14A had been set aside, the penalty cannot be imposed under s 271(1)(c).

As long as the assessee had not given any information in the return which were incorrect, making an incorrect claim in law is not tantamount to furnishing inaccurate particulars.

The assessee-company filed its return declaring total income of Rs. 55,08,96,440 and thereafter the return was revised declaring a slightly higher total income. The assessment was completed under s 143(3), and the AO made certain additions and disallowances. The CIT(A) upheld certain additions. Following the disposal of the assessee’s appeal by the Tribunal, the AO levied 100 per cent penalty on income sought to be evaded by the assessee, including short-term capital loss incurred on the sale of mutual fund units that were disallowed under s 94(7); SAP expenses incurred by the assessee; expenses relatable to investments under s 14A; and deduction under s 80G and s 80HHC, which was recomputed. In an appeal, the CIT(A) granted part relief to the assessee. Being aggrieved, the assessee has filed the present appeal.

The issue is whether the penalty under s 271(1)(c) can be imposed as the assessee had set off the loss on the sale of its mutual fund units against profit on short-term investments but did not claim the loss as a deduction as the provisions of s 94 were clearly applicable to such a transaction and when in quantum appeal the issue relating to SAP expense and s 14A had been set aside, the penalty can still be imposed and whether the penalty can still be imposed if the assessee had furnished all particulars of the individual components in computing the s 80HHC relief which is supported by certificate.

The assessee has wrongly claimed the loss when he was aware that the provisions of s 94 are applicable to such transactions. The CIT(A) had held that the assessee had adjusted the loss against the profit on the sale of short-term capital gains which was illegal. Having furnished inaccurate particulars of income, the levy of a penalty under s 271(1)(c) was justified. The order of the CIT(A) was confirmed as the assessee had wrongly claimed the loss when the provisions of s 94 were clearly applicable to such transactions.

Regarding the penalty on SAP expenses, it is seen that in the quantum appeal, as the issue had been set aside, along with issue of expenses on s 14A investments, the penalty levied was also set aside.

Regarding the deduction under s 80G, there was no infirmity in the CIT(A)’s order as the receipt had not been made available before more than one authority, in clear violation of the section. The penalty on this issue was confirmed.

Computation of relief under s 80HHC was controversial as this section had undergone numerous amendments. The assessee had furnished all particulars of the individual components in computing the s 80HHC relief. The particulars were accurate and supported by a certificate by the Chartered Accountant. Following the apex court decision, holding that as long as the assessee had not given any information in the return which were incorrect, making an incorrect claim in law was not tantamount to furnishing inaccurate particulars and the penalty under s 271(1)(c) was not attracted, as well as the decision of the Delhi High Court, the penalty levied in respect of the disallowance under s 80HHC was deleted.

If assessee sets off loss on sale of its mutual fund units against profit on short-term investments but does not claim the loss as a deduction, penalty under s 271(1)(c) can be imposed as provisions of s 94 were clearly applicable to such transactions — as held by MumTrib in Merck Ltd v ACIT — In favour of: The Assessee (Partly) ; ITA No. 916/Mum/2008 : Assessment Year: 2002–2003

Decided on: 27 April 2011