2014 (7) TMI 134 - AT - Income Tax

Imposition of penalty u/s 271(1)(c) of the Act Royalty and rent paid u/s 40(a)(ia) of the Act Held that - The Assessee has paid a sum to Court Receiver as per direction of the High Court for calling bids from the partners for the purpose of fixing royalty and the higher bidder would be appointed agent of Receiver who shall carry on the business of Blood Bank which was being carried on by erstwhile partnership firm - penalty and quantum proceedings are separate and distinct - the provisions of section 194J were not applicable to an individual assessee in respect of payment of royalty - Royalty has been defined in Explanation 2 to section 9(10)(vi) of the Act - mere disallowance of any claim will not make the case fit for levy of penalty Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of assessee - 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) - as the matter has already been restored with respect to disallowance of rent made in quantum proceedings, the penalty imposed by AO has no legs to stand Decided in favour of Assessee.

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act for disallowance made under section 40(a)(ia) in respect of royalty and rent paid.

Analysis:
1. The Assessee appealed against the penalty imposed by the CIT(A) for the assessment year 2007-08 concerning disallowance under section 40(a)(ia) of the Income Tax Act related to royalty and rent payments.
2. The Assessee argued that penalty and quantum proceedings are separate, and mere disallowance in quantum proceedings should not be the sole reason for levying penalty under section 271(1)(c).
3. The Assessee contended that the payment made to the Court Receiver was not royalty within the meaning of the Act and that the provisions of Section 194J were not applicable to an individual Assessee for royalty payments.
4. The Tribunal found that the Assessee paid the sum to the Court Receiver as per the High Court's direction for business purposes, and the disallowance was restricted by the Tribunal in a previous order.
5. Referring to the Supreme Court's decision in Reliance Petro Products case, the Tribunal held that mere disallowance of a claim does not warrant the imposition of a penalty under section 271(1)(c) if full disclosure was made by the Assessee regarding the expenditure claimed.
6. The Tribunal set aside the penalty imposed for the disallowance of rent under section 40(a)(ia) as the matter was already restored to the Assessing Officer for fresh consideration after allowing the Assessee an opportunity to be heard.

This detailed analysis of the judgment highlights the key arguments, findings, and legal principles applied in the case concerning the imposition of penalties for disallowances under the Income Tax Act.