2013 (9) TMI 1105 - AT - Income Tax

Levy of penalty u/s 271 (1) (c) - Held that - As in view of the debatable issue raised, the assessee is not exigible to levy of penalty u/s 271(1)(c) of the Act in the facts of the present case where the claim of the assessee that the receipts were capital in nature was rejected and the receipts were held to be revenue in nature and hence taxable.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the assessment years 2005-06 and 2006-07.
2. Classification of sales tax subsidy as capital receipt versus revenue receipt.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The appeals concern the levy of penalties under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment years 2005-06 and 2006-07. The penalties were imposed following additions made by the Assessing Officer (AO), who classified sales tax subsidies as revenue receipts, contrary to the assessee's claim of them being capital receipts. The penalties in question amounted to Rs. 7,40,38,379 for 2005-06 and Rs. 8,80,74,063 for 2006-07.

2. Classification of Sales Tax Subsidy:
The core issue revolves around whether the sales tax subsidy received under the West Bengal Incentive Scheme, 1993, should be treated as a capital receipt or a revenue receipt. The assessee argued that the subsidy was a capital receipt, exempt from tax, while the AO, relying on the Punjab & Haryana High Court's decision in CIT vs. Abhishek Industries Ltd., classified it as a revenue receipt.

Findings and Judgments:

Assessment Year 2005-06:
- The AO considered the sales tax subsidy as a revenue receipt, leading to an addition of Rs. 20,22,09,664 to the total income of the assessee. Penalty proceedings under Section 271(1)(c) were initiated, resulting in a penalty of Rs. 7.40 crores.
- The CIT (Appeals) deleted the penalty, observing that the issue was debatable, especially since the Supreme Court had admitted an SLP against the Punjab & Haryana High Court's decision in Abhishek Industries Ltd. The CIT (Appeals) cited various judgments, including those from the Delhi High Court and the Supreme Court, emphasizing that a mere claim, even if unsustainable, does not amount to furnishing inaccurate particulars of income.

Assessment Year 2006-07:
- Similar to the previous year, the AO classified the sales tax subsidy as a revenue receipt, adding Rs. 26,16,57,943 to the total income and levying a penalty of Rs. 8.80 crores.
- The CIT (Appeals) again deleted the penalty, reiterating that the issue was debatable and referencing the pending appeals and SLPs in higher courts.

Tribunal's Analysis:
- The Tribunal examined whether the penalties were justified under Section 271(1)(c), which requires either concealment of income or furnishing of inaccurate particulars.
- It was noted that the assessee had disclosed all relevant facts and made a bona fide claim based on a possible view, supported by various judicial precedents.
- The Tribunal referenced the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that a mere unsustainable claim does not attract penalty under Section 271(1)(c).
- The Tribunal also cited the Punjab & Haryana High Court's decisions in CIT vs. Gurdaspur Cooperative Sugar Mills and CIT vs. Tek Ram (HUF), which supported the view that penalties are not warranted on debatable issues.

Conclusion:
- The Tribunal upheld the CIT (Appeals) decisions, concluding that the issue of whether the sales tax subsidy was a capital or revenue receipt was debatable. Consequently, the penalties under Section 271(1)(c) were not justified.
- Both appeals filed by the Revenue were dismissed, affirming that the assessee had not concealed income or furnished inaccurate particulars.

Order:
The consolidated order pronounced on 25th September 2013 dismissed both appeals by the Revenue, thereby upholding the CIT (Appeals) decisions to delete the penalties imposed under Section 271(1)(c) for the assessment years 2005-06 and 2006-07.

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