2012 (4) TMI 323 - AT - Income Tax

Penalty u/s.271 (1)(c) - assessee, Gujarat State Road Transport Corporation engaged in the business of Mass Transport facilities and allied services - CIT (A) deleted the penalty in respect of loss of Rs. 33,55,15,227/- on the ground of bonafideness of the assessee, however, the CIT (A) confirmed the penalty u/s. 271(1)(c) of Rs. 2 crore as the assessee disclosed this amount of loss only in response to notice u/s. 148 and the assessee has failed to discharge the onus cast upon it within the meaning of Explanation-1 to section 271(1) (c) - In the assessment proceedings the AO while ascertaining the total income chargeable to tax would be in a position to detect the specific or definite particulars of income concealed or of which false particulars are furnished - The deemed concealment is provided in explanations often a question arose whether in cases where additions or disallowances made by the AO the penal provisions of section 271(1)(c) would attract - The essence of part B of the explanation is that the person must provide an explanation which is bona fide and he should substantiate that explanation by some evidence with him - Held that when the assessee is able to offer reasonable explanation based on some evidence, the AO cannot invoke Part B of the explanation unless he has given finding based on some contradictory evidence to disapprove that explanation offered by the assessee - There is no finding of the AO based on some contradictory evidence to disapprove that explanation offered by the assessee was false or the assessee was not able to substantiate the explanation furnished or fails to prove that such explanation is not bona fide and that all the facts relating to the same and material to the computation of his total income has not been disclosed by him - Decided in favor of the assessee

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Applicability of section 43B for employees' contribution to PF.
3. Determination of bonafide claim and concealment of income.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in both appeals was the levy of penalty under section 271(1)(c) of the Act. The assessee filed a revised return reducing the loss due to disallowances and later, a further return in response to a notice under section 148, addressing unpaid employees' contributions to PF. The AO levied a penalty on the grounds of making a false claim under section 43B and failing to substantiate the bona fide nature of the claim. The CIT (A) deleted the penalty for the larger amount but upheld it for Rs. 2 crore, citing failure to discharge the onus under Explanation-1 to section 271(1)(c).

2. Applicability of Section 43B for Employees' Contribution to PF:
The assessee's claim under section 43B was disputed. The AO contended that employees' contributions to PF are not deductible under section 43B, referencing section 2(24)(x) read with section 36(i)(va). The DR supported this view, citing various judicial precedents. The assessee argued that the issue was controversial with conflicting judgments from different courts, thus making the claim bona fide.

3. Determination of Bonafide Claim and Concealment of Income:
The Tribunal examined whether the assessee's claim was bona fide and whether there was concealment of income. It was noted that penalty under section 271(1)(c) applies to cases of concealment or furnishing inaccurate particulars of income. The Tribunal emphasized that mere non-acceptance of an explanation by the AO does not constitute concealment; there must be definite evidence. The Tribunal found that the assessee provided a reasonable explanation and supporting evidence for its claim, and there was no contradictory evidence from the AO to disprove it.

Conclusion:
The Tribunal concluded that the issue of whether employees' contributions are deductible under section 43B was indeed controversial, with judicial precedents supporting both views. It was determined that the assessee's claim was made in good faith, supported by the fact that even the auditor did not flag the issue. The Tribunal ruled that the penalty under section 271(1)(c) was not applicable as the assessee had not concealed income or furnished inaccurate particulars. Consequently, the Tribunal upheld the CIT (A)'s decision to cancel the penalty of Rs. 33,55,15,227 and further cancelled the penalty of Rs. 2 crore, thereby annulling the entire penalty of Rs. 12,75,41,087.

Final Judgment:
The appeal of the assessee was allowed, and the appeal of the revenue was dismissed.