2014 (9) TMI 395 - HC - Income Tax

Penalty u/s 271(1)(c) Concealment of income Held that - The Government of India had agreed to certain terms and conditions, including the condition relating to payment of taxes - assessee had given an intelligible and cogent explanation in this regard, which was not considered and examined or even noticed by the Tribunal the explanation was genuine and correct - in the return of income itself, the assessee had taken care and caution to reveal and state full and material facts - the assessee had specifically disclosed that consultancy fee had been treated as exempt under the Act - the subsequent application dated 20th November, 2006 was pursuant to the legal advice, but earlier the receipt was claimed as exempt in view of the terms and conditions set out in the agreement between the appellant-assessee and the ADB - The assessee had taken due care and caution to mention all relevant facts in the return of income without any attempt to conceal or withhold information or details - No reference was made to Section 10(8A) of the Act in the notes - The Tribunal has also recorded that the application filed on 20th November, 2006 has not been disposed of, which also means that the application had not been rejected - it is not a fit case for imposition of penalty u/s 271(1)(c) of the Act and as the appellant-assessee had been able to explain the reason and cause why the income was claimed as exempt and the reason and cause was bona fide and it cannot be a case of the Revenue that all material facts and particulars were not placed before the AO Decided in favour of assessee.

Summary

Issues:
Levy of penalty for concealment of income under Section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The case involved an appeal by a non-resident company against the Income Tax Appellate Tribunal's order upholding the penalty for concealing income under Section 271(1)(c) of the Act for the Assessment Year 2005-06. The appellant had received a consultancy fee from the Asian Development Bank (ADB) and claimed it as exempt from tax based on the agreement between them and the obligations of the Government of India. However, the Assessing Officer added the amount to the taxable income, leading to the imposition of a penalty. The Tribunal upheld the penalty, questioning the timing of the application for exemption under Section 10(8A) filed after the return of income and scrutiny notice. The Tribunal alleged lack of bona fides on the part of the appellant.

The appellant's explanation was that they believed the income was exempt based on the agreement with ADB and the obligations of the Government of India. They later applied for exemption under Section 10(8A) upon advice from tax consultants. The appellant disclosed all relevant facts in the return of income and specifically noted the consultancy fee as exempt under the Act, citing the agreement with ADB. The subsequent application under Section 10(8A) was made after the return filing due to legal advice. The Tribunal did not consider this explanation, alleging lack of good faith, despite no attempt to conceal information. The Tribunal also noted that the application was pending, indicating it was not rejected.

The High Court found that the appellant acted in good faith, providing a genuine explanation for claiming the income as exempt based on the agreement with ADB. The appellant had disclosed all material facts in the return without concealment. The Court emphasized that even if the appellant misunderstood the law or received incorrect legal advice, it did not indicate mala fide intent. The Court ruled in favor of the appellant, stating it was not a suitable case for penalty under Section 271(1)(c) as all relevant details were disclosed, and the explanation provided was reasonable and bona fide. The appeal was allowed in favor of the appellant against the Revenue.