Penalty cannot be levied in case of huge loss

The Bombay High Court in the case of The Commissioner of Income Tax vs. M/s Garware Chemicals Ltd., Income Tax Appeal No. 916 of 2012 dated 10.3.2014 has held that penalty cannot be levied in case of huge loss and in absence of any tax advantage for the assessee.

Facts and circumstances of the case:

The Assessing Officer observed that if the contentions of the assessee are considered, they do not appear to be acceptable. From the contentions made by the assesee, the particulars of the income of the assessee have been deduced and they do not appear to be correct or in other words, it was found that the Assessee has filed incorrect particulars of income.
The Assessing Officer observed that the Assessee failed to give any reasonable ground for the failure on its part to state its true and correct profit. Thereafter, the Assessing Officer considered the explanation given by the assessee and found that it shall not absolve the assessee from penalty.
However, the Tribunal in the impugned order held that this was not only a simple case involving hike of capital as the assessee asked the IDBI Bank to issue the convertible debentures for the restructuring scheme of the bank. It was further observed that the assessee did not make any attempt to avail any tax advantage due to the reason that even after disallowance of these expenses, huge loss was assessed.
In such circumstances as per the Tribunal, the case did not fall within the purview of the provisions which normally impose penalty. It was held that it was not the matter enabling the said Assessing Officer to exercise his discretion for imposing penalty on the grounds as provided in Section 271(1)(c) of the Income Tax Act, 1961.

The judgment:

As per the judgment of the Bombay High Court, the findings of the Tribunal regarding the facts and given as per law does not involve any question of law which requires adjudication.
The double bench consisting of J. S.C. Dharmadhikari and J. Agarish S. Kulkarni of the Bombay High Court allowed the Appeal of the Respondent after going through the orders of the Commissioner of Income Tax (Appeals) and that of the Tribunal.
The High Court observed that the Tribunal has referred to Section 271(1) (c) of the Act. The issues were also examined from all angles. It held that it was not a case fit where penalty could be levied. It was found that there was no finding of the Assessing Officer that the details filed by the Assessee were inaccurate.
In view of the above reasons, the Appeal was found to lack any merit and was accordingly dismissed. No
order as to costs was made.