2010 (6) TMI 501 - AT - Income Tax

Penalty - The assessee is a company engaged in the business of, inter alia, investment, horse breeding, and horse racing - The expenses were quantified at56,44,906, though in appeal the quantum of these expenses was reduced to18,25,828 - The Assessing Officer further observed that, in terms of provisions of Section 74A of the Income Tax Act, the expenses so incurred on maintenance of race horses could only be set off against gains from race horses - mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee Held that appeal is allowed impugned penalty is set aside

Summary

Issues:
- Justification of upholding penalty under section 271(1)(c) of the Income Tax Act, 1961 by the CIT(A).

Analysis:
1. The primary issue in this appeal was whether the CIT(A) was correct in upholding the penalty of Rs. 6,39,040 imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 1999-2000.

2. The case revolved around the disallowance of expenses incurred by the assessee for maintaining horse races, which were initially quantified at Rs. 56,44,906 but later reduced to Rs. 18,25,828. The Assessing Officer disallowed these expenses in the computation of business profits, citing Section 74A of the Income Tax Act, which allows such expenses to be set off only against gains from race horses. The penalty under section 271(1)(c) was imposed for alleged concealment of income particulars, following which the assessee appealed to the CIT(A) unsuccessfully and further to the Tribunal.

3. The Tribunal analyzed the factual matrix and legal position, emphasizing the subjective nature of determining the dominant purpose of the assessee's activities. The Tribunal noted that the expression 'furnishing of inaccurate particulars of income' implies providing details not in conformity with facts or truth, specifically related to factual income details, not subjective areas like taxability or legal interpretation.

4. Referring to a Supreme Court case, the Tribunal highlighted that a claim, even if legally unsustainable, does not amount to furnishing inaccurate income particulars. In this case, the penalty was imposed due to the legal inadmissibility of the deduction claim under Section 74A, not because of false factual particulars provided by the assessee. Therefore, the Tribunal concluded that it was not a suitable case for penalty under section 271(1)(c) and directed the Assessing Officer to delete the penalty.

5. Consequently, the Tribunal allowed the appeal, emphasizing that the penalty was not justified, and pronounced the decision on June 25, 2010.