Evan after addition if there is a loss penalty could be imposed if by virtue of wrong claim not made bona fide
HIGH COURT OF GUJARAT
Subhash S. Shah
TAX APPEAL NO. 129 OF 2012
DATE OF PRONOUNCEMENT : NOVEMBER 5, 2012
Akil Kureshi, J. – The appellant has challenged an order dated 20.10.2011 passed by the Income Tax Appellate Tribunal(“the Tribunal” for short) confirming penalty under section 271(1)(c) of the Income Tax Act, 1961 (“the Act” for short) of Rs. 1,18,611/- imposed on the assessee by the Assessing Officer and confirmed by the Commissioner(Appeals). For our consideration, following questions are presented :
“(A) Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was justified in law in confirming the levy of penalty of Rs. 1,18,611 u/s.271(1)(c) of the Act?
(B) Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was justified in law in totally ignoring the bone of the contention of the Appellant that though the speculation profit of Rs. 5,54,284/- was not considered in the computation of total income through oversight and by mistake, the same being otherwise eligible for set off against speculation loss of earlier years, there was neither any mala fide intention nor any revenue effect and it was merely a case of a genuine and bona fide mistake, which does not make the appellant liable to penalty under section 271(1) (c) of the Act?
(C) Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in holding that the Appellant has not explained as to who committed the mistake resulting in failure to add the amount in question to income in the Profit and Loss A/c. and in computation of total income and that, the Appellant has not explained as to how and under what circumstance, the mistake occurred and why it was not detected by the person who checked the income tax return when it was filed?
(D) Whether, on the facts and in the circumstances of the case, can it be said that the impugned order passed by the Hon’ble Tribunal suffers from the vice of non-application of mind and is perverse and hence, deserves to be quashed and set aside?”
2. The appellant assessee is a HUF. For the assessment year 2006-2007, the assessee had filed return of income on 30.10.2006 showing total income of Rs. 98,970/-. The return was selected for scrutiny under section 143(3) of the Income Tax Act (“the Act” for short). During the course of assessment, the Assessing Officer noted that the assessee had in the year relevant to assessment year in question earned speculation profit of Rs. 5,54,284/-. Such profit was credited to capital account and the assessee had not shown such profit in the total income. In addition to such speculation profit, the assessee claimed carry forward of speculation loss of previous year amounting to Rs. 16,95,220/-. With respect to nondisclosure of speculation profit of Rs. 5,54,284/-, notice was issued calling upon the assessee to show cause why in view of such speculation profit, the assessee should be held not entitled to carry forward speculation loss of Rs.16,95,220/-.
3. In response to such query, the assessee contended that said profit was derived from dealing of shares without delivery of shares. Said speculation profit is to be set off against speculation loss of previous year. Same was therefore, not included in the total income.
4. The Assessing Officer however did not accept such a stand and held that profit of Rs. 5,54,284/- which was not offered for tax is therefore, be added to income of the assessee and further that penalty under section 271(1)(c) of the Act be initiated. The Assessing Officer also held that the assessee’s claim to carry forward speculation loss of Rs. 16,95,220/- pertained to assessment years 2000-2001 and 2001-2002. Same was not to be allowed beyond four years. He therefore, added Rs. 5,54,284/- towards speculation profit and Rs. 16,95,220/- towards carry forward of speculation loss not allowed to be carried forward.
5. In appeal that the assessee filed against such order of the Assessing Officer, the Commissioner reversed the finding with respect to addition of Rs. 16,95,220/-. Be that as it may, the Assessing Officer with respect to other addition of Rs. 5,54,284/- passed order of penalty under section 271(1)(c) of the Act of Rs. 1,18,611/- being the minimum imposable under such provision.
6. Against such order the assessee carried the matter in appeal. The Commissioner(Appeals) dismissed the appeal holding that it was clearly taxable income which the assessee should have shown in the Profit and Loss Account. The Commissioner observed as under :
“2.3 I have considered the submission made by the appellant and observation of the Assessing Officer. There is no doubt, speculation profit should have been shown in the P & L account of the appellant. The argument that total income has not changed because the CIT(A) has allowed this set off of carried forward speculation loss is not acceptable because even if the assessment is made at a figure of loss or even if the losses are reduced or even if the assessment is assessed at nil still the penalty is leviable. As regards, the contention of the appellant that it had furnished all the particulars and hence it is not a case of furnishing of inaccurate particulars, I do not agree with the appellant. An income has to be shown in the profit and loss account. In this case, it is not the contention of the assessee that in the computation of income this amount was shown or that it is a question of claim. This is clearly a taxable income, which the assessee should have shown in the P & L account. It is settled law that if effort is required to find any entry then it cannot be said that the entry was disclosed. Hence it is a clear case of furnishing of inaccurate particulars. Hence the penalty levied is confirmed.”
7. Said order of Commissioner was carried in appeal by the assessee before the Tribunal. The Tribunal dismissed the appeal holding that such amount was not offered for tax. Even if such amount was liable to be set off against carried forward loss, same would have resulted into reducing unabsorbed speculation loss. The Tribunal concluded as under :
“8. Now, we consider the applicability of the judgement of Hon’ble Delhi High Court rendered in the case of Zoom Communications Pvt. Ltd. (supra) on which reliance has been placed by the Ld. D.R. In that case, it was held by the Hon’ble Delhi High Court that in the absence of assessee company telling the A.O. as to who committed the oversight resulting in failure to add the amount in question while computing the income of the assessee and under what circumstances the oversight occurred and why it was not detected by the person who checked income tax return when it was filed and by the auditors of the assessee company, it cannot be accepted that it is a bona fide mistake. On page 518 of 327 ITR, it is also observed by the Hon’ble Delhi High Court that the Court cannot overlook the facts that only a small percentage of income tax returns are selected for scrutiny and if the assessee makes a claim which is not only incorrect in law but is also without any basis and the explanation furnished by him for making such claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty u/s 271(1)(c) of the Income Tax Act, 1961. In the present case also this is not explained by the assessee as to who committed the oversight resulting in failure to add this amount in question as income in the P & L account and in the computation of total income. It is also not explained as to how and under circumstances, the oversight occurred and why it was not detected by the person who checked the income tax return when it was filed. Under these facts, we find that this judgment of Hon’ble Delhi High Court is squarely applicable in the present case and by respectfully following this judgement of Hon’ble Delhi High Court, we decline to interfere in the order Ld. CIT(A).”
8. It is this judgement of the Tribunal which is in challenge before us.
9. Learned counsel for the appellant vehemently contended that the assessee had no mala fide intention in not reflecting such amount in profit and loss account. It was a mere error and a mistake of the accountant. Penal provisions therefore, should not have been invoked. She contended that assessee had offered explanation for not disclosing such amount for the purpose of tax. Counsel further submitted that in any case, there was no revenue effect of non disclosure of such amount since assessee had much larger speculation loss which was being carried forward. Counsel relied on decision of the Apex Court in case of CIT v. Reliance Petroproducts (P.) Ltd  189 Taxman 322 to contend that a mere wrong claim would not give rise to penal provisions. Counsel also relied on decision of the Apex Court in case of Price Waterhouse Coopers (P.) Ltd. v. CIT  211 Taxman 40Dated 25.9.2012 wherein the assessee had committed an error in not offering a certain amount to tax. The Apex Court was of the opinion that penalty was not required to be imposed.
10. Having thus heard learned counsel for the parties however, we are of the opinion that present case stands on a different footing. Respondent assessee had admittedly not offered speculation profit of Rs.5,54,284/- to tax. Same was taken in capital account. The assessee had not admitted the same as a mere mistake as is being sought to be suggested before us. In the original assessment, the assessee contested the revenue’s stand that same ought to have been offered to tax. As already noted, assessee’s contention was that such amount was not required to be reflected in profit and loss account. It was nowhere contended then that same was a mere mistake and that same be permitted to be corrected, unlike in case before the Supreme Court in case of Price Waterhouse Coopers (P.) Ltd.(supra), wherein the assessee had at the very outset and immediately admitted the mistake. In the present case, the assessee had contested the case on merits before the Revenue authority. Section 271(1)(c) as is well known provides for penalty where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. Explanation(1) to section 271(1) reads as under :
“Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,-
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner Appeals or the Commissioner to be false or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause(c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”
11. In the present case, therefore, the assessee failed to offer any explanation in not offering a particular amount to tax. This was finding of the Assessing Officer as confirmed by the Commissioner(Appeals) and the Tribunal. Even if the speculation profit was eligible for set off against carry forward speculation loss, the same would have effect of diminishing such speculation loss which would be carry forwarded for future years. It is by now well settled through statutory provisions as well as decisions of the Apex Court in case of loss return also, the penalty could be imposed if by virtue of wrong claim not made bona fide, computation of loss is likely to reduce.
12. In the result, we do not find any question of law arising. Tax Appeal is dismissed.