2015 (2) TMI 156 - AT - Income Tax

Penalty u/s 271(1)(c) - whether penalty survives when the addition has become debatable? - Held that - The penalty was imposed on the basis of addition so made, therefore, when the addition on the basis of which the penalty was imposed has become doubtful/debatable, therefore, penalty imposed u/s 271(1)(c) of the Act cannot survive. Decided in favour of assesse.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in upholding the penalty on the disallowance of Long Term Capital Loss without giving adequate opportunity to the appellant.
2. Whether the penalty of Rs. 66,36,077/- under section 271(1)(c) was justified on the grounds of alleged concealment of income and furnishing inaccurate details of income.

Issue-wise Detailed Analysis:

1. Adequate Opportunity and Disallowance of Long Term Capital Loss:
The appellant contended that the Commissioner of Income Tax (Appeals) erred in upholding the penalty levied by the Assistant Commissioner of Income Tax on the disallowance of Long Term Capital Loss on the repurchase of US 64 units of Unit Trust of India. The appellant argued that adequate opportunity was not given to provide satisfactory evidence. The Tribunal noted that the appellant failed to furnish evidence supporting the claim that the notice was received late and did not communicate before the order was passed. Therefore, the Tribunal found no discrepancy in the findings of the AO and upheld the decision of the CIT(A).

2. Justification of Penalty under Section 271(1)(c):
The appellant argued that the CIT(A) erred in upholding the penalty of Rs. 66,36,077/- under section 271(1)(c) on the grounds of alleged concealment of income and furnishing inaccurate details. The appellant claimed that the capital gains on the conversion of US 64 units into tax-free bonds should be computed under normal provisions of section 45(1) and not section 45(6). The appellant provided several legal precedents to support the argument that there was no concealment or furnishing of inaccurate particulars. The Tribunal noted that the AO disallowed the claim of long-term capital loss and allowed short-term capital loss, which was later enhanced by the CIT(A).

The Tribunal further observed that the CIT(A) has the authority to make enhancements and that the appellant did not offer the disallowance under section 10(33) in its return of income, making the claim of loss not bonafide. The Tribunal referenced the Supreme Court judgment in Union of India vs Dharmendra Textile Processors, which held that willful concealment is not essential for attracting civil liability under section 271(1)(c). Therefore, the Tribunal upheld the penalty imposed by the AO.

Debatable Nature of Addition and Penalty:
The Tribunal emphasized that since the substantial question of law regarding the entitlement to claim the loss of Rs. 6.34 crore on conversion of US 64 units into tax-free bonds was admitted by the Hon'ble High Court, the addition became debatable. The Tribunal referenced the jurisdictional High Court's decision in CIT vs M/s Nayan Builders & Developers, which held that no penalty is imposable under section 271(1)(c) when the addition is debatable. Consequently, the Tribunal found that the penalty imposed under section 271(1)(c) could not survive and allowed the appeal of the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, stating that the penalty under section 271(1)(c) cannot survive when the addition has become debatable. However, it clarified that if the Tribunal's order on quantum addition is upheld by the Hon'ble High Court, the Department is free to proceed in accordance with the law on penalty proceedings.