2012 (6) TMI 648 - AT - Income Tax

Penalty under section 271(1)(c) - explanation versus bona finde explanation versus proper disclosure - held that - assessee claimed deduction for ₹ 33.63 crores in its Profit and loss account towards the amount paid to NOPL for use and occupation of the property. The claim was made on actual payment and the assessee did offer the explanation in support of the claim. If the claim had been not been genuine or the assessee had not offered any explanation, the case would have been covered in clause (A) of Expl. 1 itself. The Assessing Officer was not convinced with the claim and disallowed the deduction. It shows that the assessee offered an explanation about the claim of deduction but could not satisfy the Assessing Officer as to its allowability. First condition is that the assessee offers an explanation, which he is not able to substantiate or prove. It divulges that condition (i) is satisfied in this case. Penalty under section 271(1)(c) - bona fide explanation - held that - A claim shall lack bona fide if the facts are manufactured to give a colour of genuineness to the deduction; or if there is not even a far-flung possibility of forming a legally sustainable opinion about the deduction either because of the facts prevailing in a particular case or because no judicial precedent in favour of allowability of such deduction or if an issue is still virgin and had not received attention of the Courts so far, then simple and plain interpretation of the provision leaves no chance to a reasonably prudent person to form an opinion that such a deduction is allowable. These are only some of the instances in which a claim for deduction shall be short of bona fide. - by no standard the claim of the assessee for deduction of ₹ 33.63 crores can be categorized as not bona fide in any manner. Penalty under section 271(1)(c) - proper disclosure - held that - when the disclosure made by the assessee in its Profit and loss account and by way of Note in the Balance sheet is considered in the backdrop of ongoing litigation of the assessee with the Department for last three years on the same point, no hesitation in coming to the conclusion that the assessee made a proper disclosure of the facts material to this claim. In accordance with the opinion of the majority of members, we hold that on the facts and circumstances of the case penalty u/s. 271(1)( c) of the Act is not leviable.

Issues Involved:
1. Confirming the penalty of Rs. 15.00 crores levied under Section 271(1)(c) of the Income Tax Act.
2. Determining whether the appellant concealed income or furnished inaccurate particulars.
3. Assessing the nature of the payment made by the appellant-whether it was for business purposes or family settlement.
4. Evaluating the adequacy of disclosure made by the appellant in the return of income.
5. Considering the bona fides of the appellant's explanation for the claim of deduction.
6. Analyzing the relevance of previous allowances of similar expenses in earlier years.
7. Reviewing the legal principles and precedents applicable to the case.

Detailed Analysis:

1. Confirming the Penalty of Rs. 15.00 Crores:
The appellant challenged the penalty of Rs. 15.00 crores levied under Section 271(1)(c) of the Income Tax Act, arguing that the penalty was unjustified as there was no concealment of income or furnishing of inaccurate particulars. The tribunal examined whether the conditions for imposing the penalty were met and whether the appellant's explanation was bona fide and adequately disclosed.

2. Concealment of Income or Furnishing Inaccurate Particulars:
The tribunal analyzed whether the appellant concealed income or furnished inaccurate particulars. It was noted that the appellant did not conceal the particulars of income or furnish inaccurate particulars, as the payment was disclosed in the Profit & Loss Account and a note in the Balance Sheet. The tribunal concluded that the appellant's claim was based on a bona fide belief and legal advice, and thus, there was no concealment or furnishing of inaccurate particulars.

3. Nature of the Payment:
The tribunal examined the nature of the payment made by the appellant to Narang Overseas Private Limited (NOPL). It was argued that the payment was for the use and occupation of the premises and not for family settlement. The tribunal noted that the payment was made in terms of a court decree and was related to the business premises occupied by the appellant. The tribunal found that the payment was for business purposes and not for settling family disputes.

4. Adequacy of Disclosure:
The tribunal considered whether the disclosure made by the appellant in the return of income was adequate. The appellant had disclosed the payment in the Profit & Loss Account and provided a note in the Balance Sheet. The tribunal found that the disclosure was sufficient and that the appellant had provided all necessary details to the Assessing Officer. The tribunal rejected the argument that the disclosure was inadequate.

5. Bona Fides of the Appellant's Explanation:
The tribunal evaluated the bona fides of the appellant's explanation for the claim of deduction. It was noted that similar expenses were allowed in earlier years, and the appellant had obtained legal advice supporting the claim. The tribunal found that the appellant's explanation was bona fide and that the claim was made in good faith based on legal advice and past allowances.

6. Previous Allowances of Similar Expenses:
The tribunal reviewed the fact that similar expenses were allowed in earlier years and that the appellant's claim was based on the same grounds. The tribunal noted that the appellant had consistently claimed and been allowed similar expenses in previous years, which supported the bona fides of the appellant's claim.

7. Legal Principles and Precedents:
The tribunal referred to various legal principles and precedents, including the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd., which held that mere disallowance of a claim does not automatically lead to the imposition of penalty under Section 271(1)(c). The tribunal also considered the decision of the Special Bench in the case of Narang Overseas (P.) Ltd., which held that the receipt of the payment was a capital receipt not chargeable to tax.

Conclusion:
The tribunal concluded that the appellant had not concealed income or furnished inaccurate particulars, and the claim for deduction was bona fide and adequately disclosed. The tribunal held that the penalty under Section 271(1)(c) was not leviable and directed the Assessing Officer to levy the penalty at 100% of the tax sought to be evaded, instead of the maximum of 300%. The appeal of the appellant was partly allowed.

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