2012 (7) TMI 766 - AT - Income Tax

Penalty U/s. 271(1)(c) of the Act alleged that assessee was not able to substantiate its wrong claim of technical know-how - Assessing Officer while framing assessment for the year under consideration disallowed assessee s claim for royalty payment under the provisions of Section 40(a)(ia) of the Act and also disallowed 1/6th of Technical know-how expenses under the provisions of Se4ction 35AB of the Act - CIT(A) deleted the disallowance of claim of deduction u/s. 35AB of the Act - mere making of the claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars of income - Revenue s appeal is dismissed

Issues Involved:

1. Deletion of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Substantiation and bona fide nature of the assessee's claim regarding technical know-how.
3. Applicability of the Supreme Court's decision in Dharmendra Textiles regarding wilful default.
4. Consideration of the Delhi High Court's decision in CIT vs. Sohon Singh regarding the need for a bona fide explanation by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c):
The core issue in these appeals is the deletion of penalties levied under Section 271(1)(c) for different assessment years. The Revenue contended that the penalties were justified as the assessee failed to substantiate its claims and provide bona fide explanations. However, the Ld. CIT(A) deleted the penalties, which was upheld by the Tribunal. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings, and the mere disallowance of a claim does not automatically lead to the imposition of penalties. The Tribunal relied on the Supreme Court's judgment in Reliance Petroproducts Pvt. Ltd., which held that merely making a claim that is not sustainable does not amount to furnishing inaccurate particulars of income.

2. Substantiation and Bona Fide Nature of the Assessee's Claim:
The Tribunal examined whether the assessee's claim for technical know-how expenses was bona fide and whether all relevant facts were disclosed. The assessee had claimed a deduction under Section 35AB, which was disallowed by the Assessing Officer (AO) and confirmed by the ITAT. However, the Tribunal noted that the assessee had disclosed all relevant facts and that the AO did not find the explanation to be false or fabricated. The Tribunal concluded that the assessee's claim was bona fide and that the penalty could not be sustained merely because the claim was disallowed. The Tribunal also referenced the Rajasthan High Court's decision in Shiv Lal Tak, which distinguished between a false explanation and one that is not substantiated but bona fide.

3. Applicability of the Supreme Court's Decision in Dharmendra Textiles:
The Revenue argued that the Supreme Court's decision in Dharmendra Textiles, which held that wilful default is not an essential ingredient for levying penalties under Section 271(1)(c), supported the imposition of penalties. However, the Tribunal clarified that the decision in Dharmendra Textiles does not negate the requirement for the AO to demonstrate that the assessee's explanation was either false or not bona fide. The Tribunal reiterated that penalties cannot be imposed solely based on the rejection of a claim.

4. Consideration of the Delhi High Court's Decision in CIT vs. Sohon Singh:
The Revenue also cited the Delhi High Court's decision in CIT vs. Sohon Singh, which emphasized the need for the assessee to provide a bona fide explanation and disclose all material facts. The Tribunal found that the assessee had indeed provided a bona fide explanation and disclosed all relevant facts. The Tribunal noted that the mere rejection of an explanation does not automatically lead to the conclusion that the explanation was not bona fide.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s decision to delete the penalties, emphasizing that the assessee had provided a bona fide explanation and disclosed all relevant facts. The Tribunal found no evidence of false or fabricated claims by the assessee. The Tribunal dismissed the Revenue's appeals, concluding that the penalties under Section 271(1)(c) were not justified in these cases. The Tribunal's decision was consistent with the principles laid down by the Supreme Court and other High Courts, which require a clear demonstration of concealment or furnishing of inaccurate particulars for penalties to be imposed.

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