2015 (6) TMI 1129 - AT - Income Tax

Penalty u/s 271(1)(c) - received 1 million Euros for forgoing the right to sue/initiate legal proceedings for breach of pre-emptive right to purchase shares - decision on nature of the said receipt - Revenue is of the opinion that the said receipt constitutes revenue receipt against the assessee s claim that it falls in capital zone - AO taxed the same u/s 28(va) - Held that - We find there is no dispute before us so far as disclosure of information in the return of income is concerned. Assessee furnished all relevant particulars relating to the impugned receipt. Whatever is relied upon by the Assessing Officer in the penalty proceedings the same are emanated from the return of income furnished by the assessee in normal course. There is also dispute on the nature of the said receipt whether it is a capital or revenue receipt. While the ITAT upheld the revenue nature of the receipt the Hon ble High Court admitted the appeal of the assessee. Therefore we find debtability on this issue. It is also undisputed fact that the Hon ble High Court has admitted the appeal and the same is pending for final adjudication. Considering all these undisputed facts we find no default in disclosure of information in the return of income by the assessee. Debatability is evident as narrated by the ld. Counsel for the assessee before us. On the other hand the Revenue failed to prove the absence of debatability on the issue. Considering the overall factual matters of the case we are of the opinion that it is not a fit case for levying penalty u/s 271(1)(c) of the Act - Decided against revenue

Summary

Issues:
Appeal against deletion of penalty u/s 271(1)(c) - Nature of receipt - Taxability under different heads of income - Debatability of the issue - Levying penalty u/s 271(1)(c) - Disclosure of information in return of income - Dispute on nature of receipt - Admittance of appeal by High Court - Fit case for penalty imposition.

Analysis:

1. Deletion of Penalty u/s 271(1)(c): The appeal revolved around the deletion of penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act. The issue stemmed from a receipt of 1 million Euros by the assessee for forgoing the right to sue for breach of pre-emptive right to purchase shares. The Revenue argued that the receipt was a revenue receipt, while the assessee claimed it fell under the capital zone.

2. Taxability under Different Heads of Income: The CIT(A) initially held the receipt taxable under the head 'income from other sources' invoking section 56 of the Act. However, the ITAT disagreed and treated it as a revenue receipt. The Hon'ble High Court admitted the appeal, indicating the debatability of the issue, as the nature of the receipt was still under dispute.

3. Levying Penalty u/s 271(1)(c): The Assessing Officer imposed a penalty under section 271(1)(c) despite the appeal being admitted by the High Court. The assessee argued that the debatability of the issue made the penalty imposition invalid, citing various judicial precedents to support the claim.

4. Disclosure of Information in Return of Income: It was established that the assessee had provided all relevant particulars in the return of income. The dispute primarily revolved around the nature of the receipt, with the ITAT and the High Court holding differing views on its taxability.

5. Admittance of Appeal by High Court: The High Court admitting the appeal and granting a stay on further proceedings indicated the complexity and debatability of the issue. The Tribunal acknowledged the lack of clarity on the nature of the receipt, leading to the dismissal of the Revenue's appeal for penalty imposition.

6. Fit Case for Penalty Imposition: Considering the facts presented, the Tribunal concluded that the case was not suitable for levying a penalty under section 271(1)(c) of the Act. The Tribunal emphasized the debatability of the issue and the absence of default in disclosing information, ultimately dismissing the Revenue's appeal and upholding the deletion of the penalty.

In conclusion, the Tribunal's judgment dismissed the Revenue's appeal against the deletion of the penalty, highlighting the debatability of the issue regarding the taxability of the receipt and the lack of clarity on its nature. The decision underscored the importance of disclosing relevant information and the inappropriateness of penalty imposition in cases where the issue is subject to debate and pending adjudication.