2013 (3) TMI 457 - AT - Income Tax

Penalty U/s 271(1)(c) - Guidance note for the accounting of finance lease transaction a per ICAI - The assessee had reduced the equalization account from the income earned from the leasing and hire purchase - Held that - We rely on the judgment of Hon ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd.(2010 (3) TMI 80 - SUPREME COURT ). The claim of assessee has been disallowed, is a debatable matter and under such circumstances, no penalty can be levied under section 271(1)(c). - Decided against revenue.

Summary

Issues: Appeal against cancellation of penalty under section 271(1)(c) of the Income Tax Act for assessment year 1997-98 based on disallowance of lease equalization claim.

Analysis:
1. Disallowance of Lease Equalization Claim: The main issue in this case revolves around the disallowance of the lease equalization claim made by the assessee. The Assessing Officer disallowed the claim stating that lease equalization is merely an accounting treatment and not allowable under the Income Tax Act. The assessee, on the other hand, relied on the guidance note issued by the Institute of Chartered Accountants of India (ICAI) for the accounting of finance lease transactions. The ICAI guidance note explained the concept of lease equalization and how it should be accounted for in financial statements. The assessee argued that lease equalization is not in the nature of income but a capital recovery, and hence, not subject to income tax.

2. Legal Basis for Claim: The Assessing Officer rejected the assessee's claim, emphasizing that the claim must be decided based on income tax law and not solely on accounting principles. However, the first appellate authority supported the assessee's claim, considering it as based on the ICAI guidance note and not a malafide claim. The Tribunal highlighted that the assessee maintained its books in accordance with the ICAI guidance note, which laid down the manner of determining income in finance lease transactions. The Tribunal also noted that conflicting views existed on the issue of lease equalization treatment, with various benches taking different stances.

3. Precedents and Tribunal Decisions: The Tribunal referred to precedents where similar claims based on ICAI guidance notes were allowed. In the case of JCIT v/s Pact Securities and Financial Ltd., the Hyderabad Bench had ruled in favor of the assessee regarding the allowability of lease equalization. Similarly, the Delhi Bench decision in Vertual Soft Systems Ltd. v/s ACIT supported the applicability of ICAI guidance notes. The Tribunal also mentioned that in a previous assessment year, the Assessing Officer had allowed the same claim by the assessee.

4. Penalty Imposition: The Tribunal ultimately held that the disallowance of the claim was a debatable matter, and therefore, no penalty could be levied under section 271(1)(c) of the Income Tax Act. Citing the judgment of the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd., the Tribunal concluded that making a debatable claim does not amount to furnishing inaccurate particulars or concealing income. As a result, the Tribunal dismissed the Revenue's appeal against the cancellation of the penalty.

In conclusion, the Tribunal's decision in this case highlights the importance of considering industry-specific guidance notes, such as those issued by the ICAI, in determining the tax treatment of certain transactions. The judgment emphasizes the need for a thorough analysis of legal and accounting principles in resolving disputes related to income tax assessments.