2014 (3) TMI 774 - HC - Income Tax

Penalty u/s 271(1)(c) of the Act Applicability of section 43(1) of the Act Held that - In order to invoke the penalty proceedings under Section 271(1)(c) of the Act, the Revenue should prove that the claim made was not sustainable in law and if the assessee had made a concealment of the particular income Relying upon CIT vs. Reliance Petroproducts Pvt., Ltd. 2010 (3) TMI 80 - SUPREME COURT - in order to expose the assessee to penalty, the Revenue should show that there was contumacious conduct on the part of the assessee in suppressing the income in the return - in order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked - Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty u/s 271(1)(c) of the Act. The facts clearly disclose that the contention raised by the assessee was not held to be not according to truth or inaccurate particulars furnished or with a view to conceal the actual income - The AO while completing the assessment proceedings, chose to adopt the WDV - by itself would not amount to furnishing inaccurate particulars or with a view to conceal the actual income the order of the Tribunal upheld Decided against Revenue.

Summary

Issues:
1. Whether the Tribunal rightly deleted the penalty imposed under Section 271(1)(c) in the case?
2. Whether the Tribunal was correct in deleting the penalty based on the applicability of Explanation 3 to Section 43(1) rather than Explanation 4?

Analysis:
1. The case involved an appeal by the Revenue against the order passed by the Income Tax Appellate Tribunal regarding the imposition of penalty under Section 271(1)(c) for the assessment year 1996-97. The Assessing Officer initiated penalty proceedings based on the claim of the assessee company for higher depreciation in sale and lease back transactions. The Tribunal, in its order, noted that the first Appellate Authority found that the assessee had provided full details of the transactions and explained the difference between market value and Written Down Value (WDV) of assets. The Tribunal observed no malafide intention on the part of the company and held that penal provisions were not attracted as the explanation offered was not false.

2. The Tribunal also addressed the issue of applicability of Explanation 3 to Section 43(1) instead of Explanation 4 in the case. It pointed out that Explanation 4(1) was not applicable for the assessment year 1996-97, as established in previous judgments. The Tribunal emphasized that when an explanation is offered and found to be not false, the penal provision is not triggered. The Revenue contended that the claim for depreciation exceeded the entitlement of the assessee, justifying the invocation of Section 271(1)(c). However, the assessee argued that all relevant details were provided to the Assessing Officer, and the adoption of WDV in assessment did not constitute furnishing inaccurate particulars or concealment of income.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that to impose a penalty under Section 271(1)(c), there must be evidence of contumacious conduct or deliberate suppression of income by the assessee. The Court cited Supreme Court precedents to clarify that mere disallowance of a claim not accepted by the Assessing Officer does not automatically warrant a penalty. In this case, the Court found that the assessee had provided explanations and details of transactions, and the Assessing Officer did not establish deliberate design to inflate costs. Therefore, the Tribunal's decision to delete the penalty was deemed appropriate, and the appeal by the Revenue was dismissed.