2013 (8) TMI 870 - AT - Income Tax

Penalty u/s 271(1)(c) - advances of dormant contracts received - whether Commissioner of Income-tax (Appeals) is justified in law in deleting the penalty levied under section 271(1)(c) disregarding the fact that, the advances received by the assessee on dormant contracts was shown under the head 'current liabilities' and were only offered to tax in subsequent assessment years 2008-09 and 2009-10 after the objection was raised by the Assessing Officer - Held that - first appellate authority has rightly deleted the penalty - assessee had offered the advances for taxation in subsequent assessment years before the Assessing Officer made any inquiry about them. The first appellate authority has given a categorical finding about the dates of inquiry initiated by the Assessing Officer and offering of advances for subsequent years and from his order it is clear that the assessee had on its own paid tax on the amounts-in-question. It is not a case where the assessee had concealed the facts of earning of income rather it is a case where the year of taxability of income was in dispute. The Assessing Officer and the assessee had different opinions about the year in which the same should be taxed. In our opinion, in such matters penalty under section 271(1)(c) cannot be levied. - Decided against Revenue.

Summary

Issues:
1. Justification of deleting penalty under section 271(1)(c) for advances of dormant contracts.
2. Justification of deleting penalty under section 271(1)(c) for advances shown under current liabilities.

Analysis:

Issue 1:
The case involved the challenge against the order of the Commissioner of Income-tax (Appeals) regarding the deletion of penalty under section 271(1)(c) for advances of dormant contracts received prior to the year 2004. The Assessing Officer levied a penalty of Rs. 2,47,59,926 for furnishing inaccurate particulars of income, arguing that the assessee offered the income for taxation only after it was raised during assessment proceedings. The first appellate authority held that the assessee showed the advances as current liabilities and offered them for taxes in subsequent assessment years before any inquiry by the Assessing Officer. The authority concluded that the penalty was not justified as the dispute was about the taxability of income, not about concealing any income. Citing the case of Deputy CIT v. Ms. Aishwarya Rai, the authority emphasized the bona fide explanation of the assessee and canceled the penalty.

Issue 2:
The second issue revolved around the deletion of penalty under section 271(1)(c) for advances shown under current liabilities. The first appellate authority highlighted that the assessee had voluntarily paid tax on the amounts in question before any inquiry by the Assessing Officer. It was clarified that the disagreement between the assessee and the Assessing Officer was regarding the year in which the income should be taxed, not about concealing income. The Appellate Tribunal upheld the authority's decision, emphasizing that in cases where the year of taxability of income is in dispute, penalty under section 271(1)(c) cannot be levied. Consequently, all grounds of appeal were decided against the Assessing Officer, leading to the dismissal of the appeal.

In conclusion, the Appellate Tribunal affirmed the deletion of penalties under section 271(1)(c) for both issues, emphasizing the importance of the bona fide actions of the assessee and the genuine disagreement over the taxability of income. The case serves as a reminder that penalties should not be imposed when arguable or controversial issues are involved, and when the assessee has acted in good faith to rectify any discrepancies in tax filings.