2015 (3) TMI 704 - AT - Income Tax

Penalty under section 271(1)(c) - bona fide or mala fide with an intention to evade taxes - addition of ₹ 225 crores on account of expenditure incurred on the development of infrastructure in the form of setting up of international airport at Mohali - Held that - The assessee in present case having paid for the establishment of an International Airport at Mohali was under the bona fide belief that the expenditure is duly allowable as revenue expenditure and same was so claimed in the profit and loss account. The said expenditure has been held by the Tribunal not to have been incurred for the purpose of business. It has also been held by the Tribunal that the expenditure is in nature of capital expenditure and therefore, the same is not allowable. Mere disallowance of expenditure in the hands of the assessee does not establish the charge of concealment in the hands of the assessee. Various courts have time and again laid down the principle that where the assessee has bona fide explanation of non-exclusion of receipts as its income or for claiming particular item of expenditure as deduction, even where claim of the assessee is rejected, no penalty for concealment of income or furnishing of inaccurate particulars of income could be levied under section 271(1)(c) of the Act. The assessee having declared complete facts with regard to expenditure of ₹ 225 crores and the claim of the assessee being bona fide, though not allowed as expenditure in the hands of the assessee, does not justify levy of penalty under section 271(1)(c) of the Act, much less penalty at the rate of 150 per cent. of the tax sought to be evaded. We thus hold that the assessee, in the present set of facts and circumstances, is not exigible to levy of penalty under section 271(1)(c) of the Act where the claim of the assessee vis-a-vis expenditure incurred on establishment of an international airport had been rejected. Accordingly, we delete the penalty levied under section 271(1)(c) of the Act and the Assessing Officer is directed to delete the same. - Decided in favour of assessee. Penalty u/s 271(1)(c) - addition made on account of instalments received during the year on account of for sale of houses/flats - Held that - The present issue of addition on account of instalments received on sale of houses/flats has been remitted back to the file of the Assessing Officer with directions to recompute the income in the hands of the assessee arising on account of the instalments received on sale of houses/flats after holding that the same are includible in the hands of the assessee in view of the mercantile system of accounting followed by the assessee. The Assessing Officer was directed to recompute the income after considering the receipts and expenditure incurred by the assessee on this account. Consequently, the addition on this issue has been cancelled and the issue sent back to the Assessing Officer with directions to decide the same de novo. In view thereof, we hold that the issue of levy of penalty under section 271(1)(c) of the Act in relation to the aforesaid addition on account of instalments received on sale of flats/houses does not stand as the said addition has not been upheld by the Tribunal and the matter has been sent back to the file of the Assessing Officer. However, in the interest of justice, we hold that the Assessing Officer shall be at liberty to initiate and complete the penalty proceedings under section 271(1)(c) of the Act after deciding the issue of addition on account of instalments received on sale of houses/flats and the proportionate expenditure allowable against the same, under the regularly employed method of accounting followed by the assessee. we delete the penalty levied under section 271(1)(c) of the Act on the addition made on account of sale/purchase of houses/flats with the liberty to reinitiate the said proceedings after giving appeal effect to the order of the Tribunal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Levy of penalty on addition of Rs. 225 crores for expenditure on infrastructure development.
3. Levy of penalty on instalments received on sale of houses/flats.

Detailed Analysis:

Issue 1: Deletion of Penalty under Section 271(1)(c) of the Income-tax Act, 1961
The Revenue filed appeals against the deletion of penalty under section 271(1)(c) for various assessment years. The Tribunal consolidated these appeals for convenience. The Tribunal noted that the assessee had furnished all necessary details in the return and that the claim made was bona fide. As per the Supreme Court's ruling in CIT v. Reliance Petroproducts P. Ltd., merely making a claim that is not accepted does not amount to furnishing inaccurate particulars. The Tribunal found no evidence of falsehood in the assessee's accounts and held that the penalty was not justified.

Issue 2: Levy of Penalty on Addition of Rs. 225 Crores for Expenditure on Infrastructure Development
The main contention was whether the Rs. 225 crores paid for developing an international airport at Mohali was a business expenditure under section 37(1) of the Act. The Assessing Officer disallowed this expenditure, categorizing it as capital expenditure. The Tribunal upheld this disallowance but emphasized that the mere disallowance of an expenditure does not automatically lead to penalty under section 271(1)(c). The Tribunal cited multiple judgments, including Reliance Petroproducts and Amtek Auto Ltd., to support that a bona fide claim, even if disallowed, does not attract penalty. The Tribunal concluded that the assessee's claim was bona fide and that complete facts were disclosed, thus deleting the penalty.

Issue 3: Levy of Penalty on Instalments Received on Sale of Houses/Flats
The Revenue appealed against the deletion of penalty on instalments received from the sale of houses/flats. The Tribunal noted that the assessee had changed its accounting method to a mercantile system but did not recognize these instalments as income. The Tribunal had previously remitted this issue back to the Assessing Officer for recomputation. Consequently, the penalty on this issue was deemed premature. The Tribunal directed that the Assessing Officer could reinitiate penalty proceedings after recomputing the income based on the Tribunal's directions.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the penalties levied under section 271(1)(c) for the addition of Rs. 225 crores and the instalments received on the sale of houses/flats. The Tribunal emphasized that a bona fide claim, even if disallowed, does not automatically attract penalty and that complete disclosure of facts by the assessee negates the charge of concealment. The Revenue's appeals were dismissed, with the liberty granted to the Assessing Officer to reinitiate penalty proceedings after recomputing the income.