2012 (4) TMI 496 - AT - Income Tax

Deletion of penalty u/s 271(1)(c) LTCG on sale of factory land and building at Siliguri - deduction u/s 54G denied and penalty imposed on ground that area where assessee s undertaking was located was not declared to be urban area Held that - Claim is declined on the ground that the place where assessee s industrial undertaking is located has not been declared to be an urban area - something which is highly technical and it cannot be against the preponderance of probabilities, particularly in the light of legal advice rendered to the assessee, that the assessee made the error bona fide. As long as there is a reasonable explanation for the conduct of the assessee, the onus of the assessee stands discharged. CIT(A) was justified in deleting the penalty Decided against the Revenue.

Summary

Issues:
Challenge to correctness of penalty order under section 271(1)(c) for assessment year 2006-07.

Analysis:
The appeal questions the deletion of a penalty of Rs. 5,60,000 imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961. The primary issue is whether the CIT(A) was justified in canceling the penalty. The Assessing Officer noted discrepancies in the assessee's claim for exemption under section 54 G concerning the sale of factory land and building. The AO imposed the penalty for concealment of income and furnishing inaccurate particulars. The CIT(A) found the Assessing Officer's observations baseless and held that the claim was made bona fide based on legal advice. The CIT(A) quashed the penalty, leading to the AO's appeal.

The main contention revolves around the applicability of section 54 G exemption, with the Departmental Representative arguing its inapplicability due to the location not being declared an 'urban area'. However, the Tribunal emphasized the importance of the claim's bonafide nature rather than its correctness. The Tribunal considered that obtaining legal advice supported the claim's bonafide nature, irrespective of its technical correctness. The Tribunal cited the Supreme Court's stance that a legal claim, even if incorrect, does not necessarily constitute furnishing inaccurate particulars of income.

Furthermore, the Tribunal highlighted that the mere existence of an explanation, even if legally incorrect, does not automatically warrant a penalty. The Tribunal referenced legal precedents emphasizing that the explanation provided by the assessee must be reasonable and acceptable. In this case, the Tribunal found the explanation provided by the assessee to be valid and reasonable, especially given the technical nature of the claim regarding the 'urban area' status. The Tribunal upheld the CIT(A)'s decision to quash the penalty, emphasizing the importance of a bona fide explanation.

In conclusion, the Tribunal dismissed the appeal, affirming the CIT(A)'s decision to cancel the penalty. The Tribunal stressed the significance of a reasonable and bona fide explanation by the assessee, even if the legal claim was technically incorrect. The decision underscored that the onus is on the assessee to provide a valid explanation, which, if deemed reasonable, can discharge the burden of penalty under section 271(1)(c).