Case Note & Summary
The case involves an appeal by the Commissioner of Income Tax under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) dated 8.12.2009. The respondent, M/s. Aditya Birla Nova Limited (successor to M/s. Birla Global Finance Limited), is a non-banking financial company. For the assessment year 2000-2001, the respondent claimed a deduction of Rs.11,47,989/- under Section 35D of the Act, which was disallowed by the Assessing Officer on the ground that the respondent was not an industrial undertaking. The respondent also claimed a deduction of Rs.9,94,399/- on account of diminution in the value of shares held by it, which was disallowed on the ground that the shares were held as investments and any profit or loss on sale would be considered under the head 'capital gains'. The quantum proceedings were concluded against the respondent. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act. The Commissioner of Income Tax (Appeals) confirmed the penalty in respect of the claim for diminution in value of shares but deleted the penalty in respect of the Section 35D claim. Both parties appealed to the ITAT. The ITAT dismissed the Revenue's appeal and partly allowed the respondent's appeal, deleting the penalty on both issues. The Revenue appealed to the High Court raising two questions of law: whether the Tribunal was right in deleting the penalty of Rs.11,47,987/- under Section 35D and whether the Tribunal was right in deleting the penalty of Rs.9,49,399/- on account of diminution in value of shares investment. The High Court held that the matter was clearly covered by the Supreme Court's judgment in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that merely because a claim is disallowed does not attract penalty under Section 271(1)(c) unless there is concealment or furnishing of inaccurate particulars. The Court found that the respondent's claims were bonafide and did not warrant penalty. Accordingly, the appeal was dismissed with no order as to costs.
Headnote
A) Income Tax - Penalty under Section 271(1)(c) - Bonafide Claim - The issue was whether penalty can be imposed for making a claim which is disallowed in quantum proceedings - The Court held that merely because a claim is disallowed does not attract penalty under Section 271(1)(c) unless there is concealment or furnishing of inaccurate particulars - Following CIT vs. Reliance Petroproducts Pvt. Ltd., the Court held that the assessee's claims were bonafide and no penalty was leviable (Paras 3-7). B) Income Tax - Deduction under Section 35D - Industrial Undertaking - The assessee, a non-banking financial company, claimed deduction under Section 35D which was disallowed as it was not an industrial undertaking - The Court held that the claim was bonafide and did not warrant penalty (Paras 4-7). C) Income Tax - Diminution in Value of Shares - Capital Loss - The assessee claimed deduction for diminution in value of shares held as investments, which was disallowed as capital loss - The Court held that the claim was bonafide and no penalty was leviable (Paras 4-7).
Issue of Consideration
Whether the Income Tax Appellate Tribunal was correct in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 in respect of disallowance of deduction under Section 35D and disallowance of claim for diminution in value of shares investment.
Final Decision
The appeal is dismissed with no order as to costs.
Law Points
- Penalty under Section 271(1)(c) cannot be imposed for making a bonafide claim which is disallowed in quantum proceedings
- Bonafide claim does not amount to concealment of income or furnishing inaccurate particulars
- Section 35D deduction is available only to industrial undertakings
- Diminution in value of shares held as investments is a capital loss not allowable as revenue expenditure
