Income Tax Appeal No. 779 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 779 of 2010 Date of decision: 8.2.2011 Commissioner of Income Tax Faridabad --- Appellant Versus M/s. Rubber Udyog Vikas (P) Ltd. Faridabad --- Respondent --- CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant-revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 31.3.2010, passed by the Income Tax Appellate Tribunal Delhi Bench ‘F’, New Delhi (in short “the Tribunal”) in ITA No. 4435/Del/2009, relating to the assessment year 1994-95. 2. The following substantial questions of law have been claimed for determination by this Court: Income Tax Appeal No. 779 of 2010 2 (1) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in deleting the penalty of Rs. 6,30,930/- levied by the Assessing Officer, under Section 271(1)(c) of the Income Tax Act, 1961, even though the assessee had failed to discharge the onus to explain satisfactorily inaccurate furnishing of income through wilful attempt of setting off of brought forward business losses against the capital gains of the current year by deliberate violation of the specific provisions of Section 72 and 71(2) of the Income Tax Act, 1961? (2) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in deleting the penalty of Rs. 6,30,930/- levied by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 by holding that it was not a fit case for levy of penalty merely by declining assessee’s claim for set off of business loss against other heads of income even though the penalty of leviable on contravention of the provisions of a civil statute, like Income Tax Act and it is settled law that breach of a civil obligation attracts levy of penalty and is contrary to the decision of Hon’ble Supreme Court in the case of Union of India and others vs. Dharmendra Textiles Processors and others (2008) 306 ITR 277 (SC)?” 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee filed its return for the assessment year in question, on 23.8.1994 declaring a loss of Rs. 2,51,500/- and Income Tax Appeal No. 779 of 2010 3 thereafter revised return on 30.11.1995 declaring loss of Rs. 8,51,615/-. In the proceedings that were initiated under Section 143 (3) of the Act, the assessing officer under the provisions of Sections 71(2) and 72 of the Act made various disallowances, particularly, the claim of the assessee for setting off of the brought forward business losses of the assessment years 1991-92 to 1993-94 against the capital gains during the current year, vide order dated 27.3.1997. The appellate authority i.e. Commissioner of Income-tax (Appeals) {in short “the CIT(A)”} also did not agree to the submission made on behalf of the assessee in regard to not allowing the setting off of the assessed business loss for the assessment years 1991-92 to 1993-94 against the capital gains during the current year, in the appeal carried by it. The appeal was consequently dismissed on 16.7.1997. In further appeal at the instance of the assessee, the order of the CIT(A) was upheld by the Tribunal. 4. In view of the aforesaid, the assessing officer levied a penalty of Rs. 6,30,930/- under Section 271(1)(c) of the Act on the assessee, vide order dated 23.3.2004. The CIT(A) in appeal against that order drew support from a decision of this Court in M/s. Manish Iron Stores vs. CIT (2003) 263 ITR 484 and observed that since no satisfaction had been recorded by the assessing officer either during the assessment proceedings or in the assessment order for initiating penalty proceedings under Section 271(1)(c) of the Act and, thus, ordered that the penalty imposed under that provision stood cancelled. The Tribunal, on appeal by the Revenue against the order of the CIT (A) in the matter of penalty, vide order dated 25.9.2009 remitted the Income Tax Appeal No. 779 of 2010 4 case to the CIT(A) with a direction to decide the question of levy of penalty under Section 271(1)(c) of the Act on merits. Thereafter the CIT(A) dismissed the appeal of the assessee and confirmed the penalty. However, the assessee succeeded before the Tribunal and the appeal carried by it against the order of the CIT(A), dated 29.10.2009 was allowed vide order dated 31.3.2010. 5. We have heard learned counsel for the Revenue and have perused the record. 6. The point in issue in this appeal is, whether the Tribunal was justified in deleting the penalty by holding that the claim of the assessee with regard to set off of unabsorbed business losses against capital gains did not amount to deliberate concealment or furnishing of inadequate particulars. 7. The Tribunal, while deleing the penalty had held as under: “We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated upon the various case laws cited by the learned AR and discussed by lower authorities in their respective orders. From the record, we found that assessee has claimed set off of unabsorbed business loss against the capital gains earned during the year. As a result of AO’s action for declining of such set off, penalty was imposed under Section 271(1)(c). Contention of the assessee was that claim was made in bona fide way for setting off carry forward business loss against the income arising on sale of business assets. Along with the return of Income Tax Appeal No. 779 of 2010 5 income, the assessee has also submitted director’s report duly disclosing the fact of sale of building and utilisation of the amount for the purpose of business. Thus, we found that assessee has furnished all the particulars of income which is evident from the computation of income, director’s report etc. filed along with return of income. In the quantum order, the AO declined assessee’s claim of set off. Nowhere AO has alleged that assessee’s claim is mala fide. Thus, it was a simple case of denial of assessee’s claim of set off of business loss against the capital gain. In this regard, Hon’ble Supreme Court in the case of Reliance Petro Products (P) Ltd. (supra) while confirming the order of Hon’ble High Court deleting the penalty imposed u/s 271(1)(c) for denial of assessee’s claim of deduction of interest expenditure, has categorically observed that “By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars.” Accordingly, it was held that decline of assessee’s claim of interest against the loan utilised for making investment in tax free securities, will not amount to furnishing of inaccurate particulars so as to attract penalty under Section 271(1)(c) of the Act. Hon’ble Supreme Court in this case after considering the proposition of law laid down in the case of Dilip N. Shoroff- 291 ITR 519 (SC) and Dharmender Textile Processors – 306 ITR 277 (SC), held as under: Income Tax Appeal No. 779 of 2010 6 “A mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.” 8. The Tribunal held that making incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with mala fide intention or had claimed deductions being aware of the well settled legal position. Further, a perusal of the findings recorded by the Tribunal shows that the assessee had claimed deductions on account of set off of unabsorbed business losses against the income from the capital gains, which was held not to be mala fide. The Tribunal had observed in plain words that the assessee had disclosed all the particulars along with the return of income and, it was not a fit case for levy of penalty. Income Tax Appeal No. 779 of 2010 7 9. Learned coursed for the appellant could not show that the above findings of the Tribunal are illegal or perverse in any manner so as to persuade this Court to interfere therewith. 10. Accordingly, finding no merit in the appeal the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) February 8, 2011 JUDGE *rkmalik*