2014 (7) TMI 1204 - AT - Income Tax

Penalty u/s.271(1)(c)- disallowance of loss on RBI Bonds - Held that - We are not in agreement with the findings of learned CIT(A) because the nature of the receipt the amount receipt on maturity on tax free RBI bonds as well as other related information was placed before the Revenue Department at the time of filing of the return. Therefore it can be opined that there was no concealment about the particulars of the facts regarding the maturity of RBI bonds. On those facts being disclosed before the Revenue Department a legal question has cropped up whether the assessee was eligible for the short term capital loss or not. Although it is true that the loss was not permissible in the eyes of law but the correct position of law could only be ascertained by the Revenue Department after examining the facts of each case. Because of this reason we hereby hold that the case of Reliance Petro Product Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) is applicable and the penalty deserves to be deleted - Decided in favour of assessee

Summary

Issues:
Levy of penalty on disallowance of loss on RBI Bonds based on inaccurate particulars of income.

Analysis:
The appeal was filed by the Assessee against the order of the CIT(A) upholding the penalty levy of Rs. 2,65,490 on the disallowance of loss on RBI Bonds due to furnishing inaccurate particulars of income. The facts revealed that the disallowance was made regarding a short-term capital loss claimed on maturity of tax-free RBI bonds amounting to Rs. 7,88,730. The AO disallowed the set-off of loss and requested an explanation from the Assessee regarding the incurred losses on the sale of Relief Bonds. The Assessee's contention was that the purchase of tax-free Relief Bonds at a premium resulted in a short-term capital loss on maturity. However, the AO rejected this explanation stating that the tax-free nature of the bond and the face value received on maturity did not justify the claimed loss, leading to the disallowance of the capital loss.

Upon appeal, the CIT(A) affirmed the penalty levy, stating that the Assessee was aware that the claim was not permissible under the law, constituting a case of furnishing inaccurate particulars rather than a debatable issue. However, the ITAT disagreed with the CIT(A)'s findings. They noted that all relevant information regarding the receipt on maturity of tax-free RBI bonds was disclosed to the Revenue Department during the return filing. The ITAT opined that there was no concealment of facts regarding the maturity of the bonds, and the eligibility for the short-term capital loss was a legal question to be determined by the Revenue Department. Citing the case of Reliance Petro Product Pvt. Ltd., the ITAT held that since the correct position of law could only be ascertained by the Revenue Department, the penalty deserved to be deleted. Consequently, the ITAT allowed the Assessee's appeal, directing the deletion of the penalty.

In conclusion, the ITAT set aside the penalty levied on the Assessee for the disallowance of loss on RBI Bonds, emphasizing that the case did not involve concealment of facts but rather a legal question of eligibility for the claimed loss, which warranted the deletion of the penalty based on the principles laid down in the Reliance Petro Product Pvt. Ltd. case.