No Section 271(1)(c) Penalty Even For Unsustainable Claims: Bombay High Court

 

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The following important judgement is available for download at itatonline.org.

CIT vs. Nalin P. Shah (HUF) (Bombay High Court)

No s. 271(1)(c) penalty even for unsustainable/ non-debatable claims if there is disclosure in the return

 

Though the income from the transfer of units of a mutual fund is exempt u/s 10(33), the assessee claimed a deduction for the loss of Rs. 3.08 crores suffered by him on transfer of US 64 units. The AO disallowed the loss on the ground that the exemption in s. 10(33) applied to a loss as well and imposed penalty u/s 271(1)(c). The CIT(A) confirmed the penalty. On appeal by the assessee, the Tribunal allowed the appeal on the ground that as the assessee had disclosed the details with the return, he had not filed inaccurate particulars of his income and that the making of a wrong claim / incorrect claim did not attract penalty u/s 271(1)(c). On appeal by the department to the High Court, HELD dismissing the appeal:

 

As the assessee had disclosed all details in the return of income, at the highest it can be said that the claim of the assessee was not sustainable in law. But as there was no furnishing of inaccurate particulars or concealment of income on the part of the assessee. penalty u/s 271(1)(c) could not be levied (Reliance Petroproducts 322 ITR 158 (SC) referred).

 

Note: In Pravin Shah Trust (included in file), a connected matter with identical facts, the Tribunal has taken the contrary view that as the claim has no legal basis and is not debatable, penalty should be imposed (the appeal was, however, allowed only because the facts were identical)

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Regards,

 

Editor,

 

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