2014 (1) TMI 1282 - AT - Income Tax

Imposition of Penalty u/s 271BA of the Act Bonafide belief on non-applicability of section 92B of the Act Investment made in subsidiary companies Condonation of delay on the reasonable cause for non-obtaining of report u/s 92E of the Act Held that - As per the wording of section 271BA, the AO may direct the concerned person to pay the penalty - The word may used in the section denotes that it is the discretion of the AO to impose or not to impose the penalty - This discretion is subject to the restrictions as imposed by Section 273B of the Act - The word may also includes the word may not Relying upon Malik Ram v. State of Rajasthan 1961 (4) TMI 84 - SUPREME COURT - the words may approve in the section, properly construed, must also include may not approve - The AO did not consider the explanation of reasonable cause of bonafide belief given by the assessee in its failure to furnish the report under Section 92E in time - Even CIT(A) did not bother to look into or consider the said explanation given by the assessee - The authorities below failed to take note of provisions of Section 273B as well as the use of word may in Section 271BA. The explanation given by the assessee is satisfactory to the effect that the delay in furnishing the report under Section 92E was not intentional, rather due to mistaken bonafide belief that the transaction involving the investment of money in equity shares of its subsidiary company by the assessee-company was not within the scope of International transactions as defined under Section 92B of the Act - As soon as, the assessee-company came to know that it was required to furnish the report under Section 92E, it filed the same before the AO - The explanation put forth by the assessee-company falls within the scope of phrase reasonable cause as provided under Section 273B of the act thus, the penalty imposed upon the assessee set aside Decided in favour of Assessee.

Summary

Issues:
Imposition of penalty under Section 271BA of the Income Tax Act, 1961 for failure to furnish report in Form 3CEB on time.

Analysis:
The case involved an appeal against the penalty imposed by the Assessing Officer (AO) under Section 271BA of the Income Tax Act, 1961, confirmed by the CIT(A), due to the delay in obtaining and submitting the transfer pricing report in Form No. 3CEB. The appellant argued that there was a reasonable cause for the delay as they were under a bonafide belief that the transactions did not fall under Section 92B. The AO imposed a penalty of Rs. 1,00,000/- on the appellant, leading to the appeal.

The key contention was whether the delay in obtaining the report under Section 92E was intentional or due to a bonafide mistaken belief. The appellant argued that the delay was unintentional and that there was no tax effect on the company due to the delay. The AO, however, imposed the penalty citing technical default in submitting the report as required by law.

The Tribunal analyzed the relevant sections of the Income Tax Act, specifically Sections 92B, 92E, 271BA, and 273B. It noted that Section 271BA grants the AO discretion to impose a penalty, denoted by the term 'may,' subject to the provisions of Section 273B. Section 273B states that no penalty shall be imposed if the assessee proves a reasonable cause for the failure. The Tribunal highlighted that the use of 'may' in Section 271BA allows for discretion in penalty imposition, while the mandatory nature of not imposing a penalty if a reasonable cause is proven is outlined in Section 273B.

The Tribunal found merit in the appellant's argument that the delay was due to a bonafide mistaken belief, falling within the scope of a "reasonable cause" as per Section 273B. It observed that the authorities had not considered the appellant's explanation adequately and had failed to acknowledge the discretionary nature of penalty imposition under Section 271BA. Consequently, the Tribunal ordered the deletion of the penalty imposed by the AO and confirmed by the CIT(A), ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, emphasizing that the penalty was unjustified given the appellant's reasonable cause for the delay. The judgment highlighted the importance of considering bonafide beliefs and reasonable causes in penalty proceedings under the Income Tax Act, ultimately leading to the deletion of the penalty in this case.