2010 (8) TMI 763 - AT - Income Tax

Summary

Issues Involved:

1. Legitimacy of the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 for concealment and furnishing inaccurate particulars of income.
2. Validity of the assessee's claim for exemption under section 10 of the Act.
3. Whether the explanation provided by the assessee was bona fide and whether all material facts were disclosed.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 for concealment and furnishing inaccurate particulars of income:

The penalty under section 271(1)(c) was imposed by the Assessing Officer (AO) for the assessment years 2002-03, 2003-04, and 2004-05, on the grounds that the assessee furnished inaccurate particulars of income by claiming an exemption which was not directly received from the Asian Development Bank (ADB). The AO concluded that the assessee, being a director of Babtie Consultants (India) Pvt. Ltd., was not eligible for the exemption since the payments were made by Babtie Group Ltd., U.K., and not directly by ADB. The penalty was upheld by the CIT(A), who cited various judicial pronouncements and concluded that the assessee had deliberately and intentionally concealed the facts.

2. Validity of the assessee's claim for exemption under section 10 of the Act:

The assessee claimed an exemption for an amount of Rs. 30,26,010 under section 10 of the Act, based on a letter dated 9-11-2001 from the Head, Urban Development, ADB, certifying that the assessee was engaged by ADB as a consultant. The AO rejected the claim on the basis that the assessee was not directly employed by ADB and did not receive payments directly from ADB. The CIT(A) upheld this finding, stating that the assessee was aware that he was not eligible for the exemption and had maintained his claim despite knowing the facts.

3. Whether the explanation provided by the assessee was bona fide and whether all material facts were disclosed:

The assessee argued that he had disclosed all material facts at the time of filing the return and during the assessment proceedings, including the letter from ADB. The Tribunal noted that the AO and CIT(A) did not establish how the assessee furnished inaccurate particulars of income. The Tribunal observed that the assessee's claim was based on a bona fide belief supported by the letter from ADB and that all relevant facts were disclosed. The Tribunal referred to the Supreme Court's decision in Reliance Petroproducts (P.) Ltd., which held that merely making a claim that is not accepted does not amount to furnishing inaccurate particulars or concealment of income.

Judgment:

The Tribunal concluded that the assessee's claim for exemption, though ultimately disallowed, was made in a bona fide belief and supported by relevant documents. The Tribunal found that the assessee had disclosed all material facts and that there was no concealment or furnishing of inaccurate particulars of income. Consequently, the Tribunal vacated the findings of the CIT(A) and canceled the penalty levied by the AO for all three assessment years. The appeals were allowed, and the penalties were set aside.