2010 (7) TMI 1057 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalty u/s 271(1)(c) of the Income Tax Act, 1961 for AY 1996-97, 1998-99, and 1999-2000.
2. Whether the assessee furnished inaccurate particulars of income.
3. Whether the CIT(A) was justified in canceling the penalty levied by the AO.

Summary of Judgment:

Issue 1: Cancellation of Penalty u/s 271(1)(c)
The Revenue appealed against the CIT(A)'s order canceling the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 for AY 1996-97, 1998-99, and 1999-2000. The penalties were imposed for furnishing inaccurate particulars of income by not deducting tax at source on royalty payments.

Issue 2: Furnishing Inaccurate Particulars of Income
The assessee, an engineering company, did not deduct tax at source while claiming a deduction for royalty payable to a non-resident foreign collaborator. The AO disallowed the deduction for royalty payments due to non-compliance with sec. 40a(ia) of the Act. The CIT(A) found that the non-deduction of tax was a bona fide mistake and not an attempt to conceal income or furnish inaccurate particulars. The CIT(A) noted that the assessee had disclosed all relevant facts and promptly agreed to the disallowance once pointed out.

Issue 3: Justification of CIT(A) in Canceling the Penalty
The CIT(A) relied on various judicial precedents to conclude that the disallowance was technical and did not amount to concealment of income or furnishing inaccurate particulars. The Tribunal upheld the CIT(A)'s findings, emphasizing that penalty proceedings are distinct from assessment proceedings and that a mere disallowance of a claim does not automatically lead to penalty u/s 271(1)(c). The Tribunal also noted that the assessee had made a bona fide mistake and had disclosed all material facts.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s order canceling the penalties for AY 1996-97, 1998-99, and 1999-2000. The Tribunal concluded that the disallowance of the royalty deduction due to non-deduction of tax at source was a technical issue and did not constitute concealment of income or furnishing inaccurate particulars. The penalties levied by the AO were thus not justified.