Penalty u/s 271(1)(c) of the Income Tax Act Requires Verification of Loss: ITAT Orders Re-Examination [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai, has remanded a penalty dispute involving concealment of income and inaccurate particulars under Section 271(1)(c) of the Income Tax Act, 1961, for fresh adjudication after finding that the penalty could not be sustained without verification of the appellant’s continuous loss position.

Kaycee Finstock Pvt Ltd., the appellant, is engaged in the business of providing loans against shares, with funds managed by refinancing from other non-banking financial companies. For the Assessment Year (AY) 2014-15, the company declared a loss under both the normal provisions of ₹11,86,42,78 and the book profit loss of ₹16,47,38,264 as per Section 115JB of theIncome Tax Act, 1961.

During assessment proceedings under Section 143(3), the Assessing Officer noted discrepancies in adjustments of debenture interest written off. An addition of ₹1,76,88,923was made, and penalty proceedings under Section 271(1)(c) were initiated, resulting in a penalty of ₹88,52,490.

The appellant acknowledged the mistake as an auditor’s error and submitted a rectified computation. The National Faceless Appeal Centre [CIT(A)] upheld the penalty, leading the assessee to approach the Tribunal after a delay of 1175 days.

The appellant, represented by Rakesh Joshi, argued that no tax benefit had been claimed from the disallowed expenditure, as the company was incurring continuous losses across multiple assessment years.

The appellant cited the Supreme Court judgment in Price Waterhouse Coopers Pvt Ltd v. CIT (2012) and relied also on the Bombay High Court decision in CIT v. Garware Chemicals Ltd. (2012), asserting that inadvertent errors without any intent to conceal should not trigger penalty under Section 271(1)(c) of the Income Tax Act, 1961.

The respondent, represented by Hemanshu Joshi, countered that the appellant would have benefited from the deduction if not for the scrutiny assessment and argued that inaccurate particulars and suppression of income had been clearly established.

The respondent relied upon general principles and precedents, including the Supreme Court decision in MAK Data Pvt Ltd v. CIT-II (2013), emphasizing that voluntary disclosure does not absolve an assessee from penalty exposure under Section 271(1)(c) of the Income Tax Act, 1961.

The Tribunal, comprising Anikesh Banerjee, Judicial Member and Om Prakash Kant, Accountant Member, ruled that while the appellant had accepted and rectified the mistake during assessment proceedings, the question of real tax advantage due to continuous losses and the impact on carry-forward loss needed factual verification.

The Tribunal condoned the delay in filing the appeal and remanded the matter to the AO with directions to verify the loss position and decide penalty imposition accordingly, affording the appellant the opportunity to be heard, and reserving the question of penalty till such verification.

Therefore, the appeal was allowed for statistical purposes, with directions to provide the assessee an opportunity of hearing.

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