2010 (2) TMI 951 - AT - Income Tax

Penalty under section 271(1)(c) of the Act assessee claimed deduction in respect of provision made for non-performing asset (NPA) subsequently he withdrew its claim in respect of provision made on account of NPA by submitting that the provision was made as per RBI Guidelines but on the legal advice received subsequently the said claim is withdrawn and revised computation is filed - Held that - Claim was a bona fide claim and even the withdrawal of such claim was also based on sound legal opinion - action can also be considered to be a bona fide action so as to exonerate the assessee from the clutches of penalty under section 271(1)(c) of the Act - particulars were correctly filed - penalty levied under section 271(1)(c) of the Act set aside

Summary

Issues:
- Challenge to cancellation of penalty levied under section 271(1)(c) of the Income-tax Act, 1961.
- Bona fide nature of claim for deduction in respect of provision made for non-performing asset (NPA).
- Consideration of legal advice leading to withdrawal of claim and its impact on penalty imposition.

Analysis:
1. The appeal and cross-objection before the Appellate Tribunal ITAT Delhi revolved around the cancellation of penalty levied under section 271(1)(c) of the Income-tax Act, 1961. The Revenue challenged the cancellation, while the assessee supported the order of the Commissioner of Income-tax (Appeals) regarding the penalty imposed for the assessment year 1999-2000.

2. The primary issue was the claim for deduction concerning a provision made for non-performing asset (NPA) by the assessee-company engaged in trading and investment. The assessee initially claimed the deduction based on RBI guidelines but later withdrew the claim after receiving legal advice, leading to penalty proceedings initiated by the Assessing Officer.

3. The contention of the Revenue was that the withdrawal of the claim was not voluntary, as it was done only after the Assessing Officer raised queries regarding the provision for NPA. The Revenue argued that the claim reversal was not based on genuine reasons and thus, penalty under section 271(1)(c) was justified.

4. In response, the assessee argued that the claim withdrawal was voluntary and based on subsequent legal advice. The assessee cited various judgments to support the claim's legitimacy, emphasizing that the claim was made in good faith and in line with prevailing judicial opinions at the time of filing the return.

5. The Commissioner of Income-tax (Appeals) found that the penalty was not leviable based on the facts of the case and the legal precedents cited by the assessee. However, the Revenue appealed this decision before the ITAT Delhi.

6. During the proceedings, the Departmental representative contended that the withdrawal of the claim was not bona fide and amounted to furnishing inaccurate particulars of income. On the other hand, the counsel for the assessee argued that the claim withdrawal was based on sound legal advice and the claim was made in good faith as per prevailing judicial interpretations.

7. The Tribunal examined whether the original claim for deduction and its subsequent withdrawal were made in good faith. It was observed that the claim was based on RBI guidelines and supported by judicial opinions, indicating its bona fide nature. The withdrawal was also considered a bona fide action to avoid potential litigation, thus not warranting penalty imposition under section 271(1)(c).

8. Referring to a similar case, the Tribunal highlighted that debatable issues supported by legal interpretations do not constitute furnishing inaccurate particulars of income. Citing relevant case laws, the Tribunal concluded that the penalty was not justified in the present case due to the genuine nature of the claim and its subsequent withdrawal based on evolving legal interpretations.

9. Ultimately, the Tribunal dismissed the appeal and allowed the cross-objection, concluding that the penalty under section 271(1)(c) was not applicable in the given circumstances, considering the bona fide nature of the claim and its withdrawal based on evolving legal interpretations and advice.