Director of Income Tax vs Hongkong and Shanghai Banking Co. Ltd.

In this appeal by the revenue for the assessment year 1992-93, the following questions have been proposed for our consideration.

Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting penalty levied u/s 271(1)(c) when the assessee has claimed these losses as allowable losses by hiding merits and the bona fides of the case and thereby showing less income and offered the same for taxation and thus the assessee has made non bona fides claims and thereby filed inaccurate particulars of income and also concealed the particulars of its income?

Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in holding that penalty order was time barred without appreciating the fact that finality attained only after the shadow of Miscellaneous Application was removed and in such circumstances, the reference point should move the earlier order of ITAT to the order disposing Miscellaneous Application?

Brief facts

(a) On 22-3-1995, the assessing officer passed an assessment order for the assessment year 1992-93 u/s 143(3) of the Income Tax Act, 1961 (the Act). While passing the assessment order, the assessing officer disallowed a loss of Rs. 3.71 crores incurred on ready forward basis. At the same time, the assessing officer also initiated penalty proceeding u/s 271(1)(c) of the Act against the respondent.

(b) In appeal against the order dt. 22-3-1995 on quantum proceeding, the CIT(A) by order dt. 9-11-1998 while upholding the quantum of Rs. 3.71 crores gave a direction to the assessing officer to set off the aforesaid loss against the income earned on CIS (Client Investment Scheme). On further appeal by the respondent-assessee to the Tribunal in quantum proceeding also upheld the order of the CIT(A) by retreating that such loss can be set off from profits/income arising from CIS and directing the assessing officer to do so.

(c) In the meantime, by an order dt. 31-8-2009, the assessing officer imposed a penalty of Rs. 2.19 crores u/s 271(1)(c) of the Act upon the respondent. This was on the ground that the respondent-assessee had furnished inaccurate particulars of income which led to concealment of income to the extent of Rs. 3.71 crores.

(d) In first appeal, in penalty proceeding, the CIT(A) by order dt. 26-8-2010 upheld the imposition of penalty of Rs. 2.19 crores by the assessing officer. In second appeal, the Tribunal by its order dt. 30-4-2012 allowed respondent-assessees appeal by holding that disallowance made on a speculation loss cannot be considered to be concealment of income for imposition of penalty u/s 271(1)(c) of the Act. This is particularly so when the disallowed amount of Rs. 3.71 crores can be set off to speculation income as directed by the CIT(A) and the Tribunal in the quantum proceeding. Further, the Tribunal held on facts that the respondent-assessee had furnished all particulars at the time of assessment including the speculation loss of Rs. 3.71 crores. Therefore, it cannot be said that the respondent had furnished inaccurate particulars. The claim of loss of Rs. 3.71 crores being disallowed cannot by itself lead to imposition of penalty as held by the Apex Court in the matter of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., .

We note that mere disallowance for claim made in the assessment order cannot lead to conclusion that there was inaccurate furnishing of particulars so as to evade payment of tax. In view of the above, the finding of fact reached to by the Tribunal, cannot be entertained as the revenue has not shown that the same is perverse. Therefore, question (a) is dismissed.

In view of our decision on question (a) and question (b) becomes academic. Hence, question (b) not entertained. Accordingly, the appeal is dismissed with no order as to costs.