2014 (7) TMI 556 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Declaration of necessary particulars Failure to prove the submissions as false Held that - The assessee is a corporate entity and it had purchased a residential property after selling an immovable property, that LTCG arising on sale of property was not offered for taxation, that it claimed deduction u/s. 54 of the Act - there is a basic and fundamental difference between a debatable claim and an inadmissible claim - claims made under the second category have no legs of their own to stand, because such claims are tenable neither legally nor factually - disputable claims and inadmissible claims are to be treated differently - An assessee making a blatantly inadmissible claim is like a car driver who crosses the red light at the traffic signal and takes a chance of not being caught and not being penalised by the authorities implementing law. A person taking risk of not obeying the law of land has to be visited by penal provisions. Invoking penal provision and imposing exemplary penalty has become necessary as most of the returns filed by the assessee are being accepted by the department without scrutiny - if an assessee claims any deduction, he has to substantiate the claim by producing positive evidence-otherwise it cannot escape the rigor of penal provisions - penalty u/s 271(1)(c)cannot be imposed because an assessee takes a particular legal stand - just because something is mentioned in the return of income does not prove that the claim made in it is justified and allowable - Filing of return does not tie down the hands of an AO - The phrase particulars of income appearing in section 271(1)(c), has to be interpreted as facts leading to correct computation of income - whenever any material fact is not filed for correct computation of income or if filed is inaccurate, then penalty has to be imposed. Perusal of the provisions of Explanation 1 to the section provide that such penalty can be imposed only if the person fails to offer an explanation or offers an explanation which is found by them to be false or offers an explanation which assessee is not able to substantiate and fails to prove such explanation is bona fide and all the facts relating to the same and material to computation of total income have been disclosed by him. Bona fide belief of an assessee in making a claim has limited role for deciding the issue of penalty to be imposed u/s. 271(1)(c) - if an assessee, disregarding all the relevant facts and circumstances, interprets a section that suits its interest then such interpretation cannot be held bona fide belief - In the garb of the bona fide claim an assessee cannot escape levy of penalty - AO as well as FAA has given a factual and categorical finding that assessee had furnished inaccurate particular of income and had concealed income - Both of them found that explanation filed by the assessee was not as per the provisions of law. Onus was not on the AO to prove the negative - once a claim was filed by it u/s. 54 of the Act, it should have led some evidence that a reasonable prudent person would consider the same as sufficient - the issue is not about sufficiency of evidences, but non-existence of the claim that has been shown in books of accounts and that was verified to be true in the return filed - A return of income is not a just piece of paper it gives details of income, positive or negative of an assessee - It is expected from the assessees that they would filed true and accurate particulars of their income - The assessee is not a small trader of a remote place of India-it is a company that had filed return of income of more than 50 lakhs and is assisted by the professionals - A higher degree of responsibility is expected from the corporate entities - details filed by the assessee were not true and same amounted to furnishing of inaccurate particulars thus, the order of the FAA is upheld Decided against Assessee.

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) for concealment of income.
2. Whether the assessee-company was entitled to claim deduction under Section 54 of the Income Tax Act.
3. Applicability of the Supreme Court decision in CIT v. Reliance Petro Products Ltd. to the case.
4. Determination of whether the claim made by the assessee was debatable or patently wrong.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) for Concealment of Income:
The core issue revolves around the imposition of penalty under Section 271(1)(c) of the Income Tax Act for concealment of income by the assessee-company. The assessee had claimed a deduction under Section 54, which was not permissible for a corporate entity. The Assessing Officer (AO) found that the assessee had furnished inaccurate particulars of income by claiming an ineligible deduction, thereby concealing its income. The penalty of Rs. 41,00,754 was levied as a result.

2. Entitlement to Claim Deduction under Section 54:
The assessee-company, engaged in the business of letting out immovable property, sold a property and claimed a deduction under Section 54 of the Act. The AO and the First Appellate Authority (FAA) held that the deduction under Section 54 was only applicable to individuals or Hindu Undivided Families (HUFs), not to companies. The assessee's claim was deemed patently wrong and inadmissible, making it liable for penalty.

3. Applicability of the Supreme Court Decision in CIT v. Reliance Petro Products Ltd.:
The assessee argued that the penalty should be deleted based on the Supreme Court's decision in CIT v. Reliance Petro Products Ltd., where it was held that merely making a claim which is not sustainable in law does not amount to furnishing inaccurate particulars. However, the Tribunal distinguished this case by stating that the claim made by the assessee was not debatable but patently wrong. The Tribunal emphasized that there is a fundamental difference between a debatable claim and a blatantly inadmissible claim.

4. Determination of Whether the Claim was Debatable or Patently Wrong:
The Tribunal analyzed various judgments to differentiate between debatable claims and patently wrong claims. It concluded that the assessee's claim under Section 54 was a clear case of making an ineligible claim after due application of mind. The Tribunal cited several cases where courts have upheld penalties for making false or bogus claims, emphasizing that such claims are neither legally nor factually tenable. The Tribunal held that the assessee's claim was not a bona fide error but a deliberate attempt to evade tax, thus justifying the imposition of penalty.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, confirming the penalty imposed by the AO and FAA. It held that the assessee had furnished inaccurate particulars of income and concealed its income by claiming a deduction under Section 54, which was not permissible for a corporate entity. The Tribunal emphasized that making a patently wrong claim, as opposed to a debatable one, attracts penalty under Section 271(1)(c) of the Income Tax Act.

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