2015 (7) TMI 739 - HC - Income Tax

Penalty levied under Section 271(1)(c) - assessee made a wrong claim of business profits on purchase and sale of land as adventure and income warranting the said penalty - Held that - In the facts of the present case and in the light of the guidance as provided by the Supreme Court in the case of Reliance Petro (2010 (3) TMI 80 - SUPREME COURT ), merely because the assessee made a claim which is not acceptable ipso facto cannot be said to have made a wrong claim by furnishing inaccurate particulars attracting penalty under Section 271(1)(c) of the Income Tax Act, for the relevant assessment year. - Decided in favour of assessee.

Summary

Issues:
Whether the Tribunal's cancellation of penalty under Section 271(1)(c) of the Income Tax Act, 1961, for a wrong claim of business profits on purchase and sale of land as adventure and income was erroneous.

Analysis:

1. The appellant, the Revenue, challenged the Tribunal's decision to cancel the penalty under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2007-08. The appellant argued that the assessee's claim of business profits on the purchase and sale of land as an adventure was false, warranting the penalty.

2. The appellant contended that the assessee had clear intentions to trade in agricultural lands for various purposes, including constructing complexes, leasing, and trading in shares. The Assessing Officer denied the exemption claimed on capital gains from the sale of agricultural lands. The appellant argued that the assessee's false claim for tax exemption justified the penalty, which was confirmed by the Commissioner.

3. The High Court analyzed the arguments and found that the Tribunal's decision was not erroneous or perverse. The Court clarified the distinction between an erroneous decision and a perverse finding of fact. It emphasized that a decision may be incorrect without being perverse, especially when based on legal principles.

4. The Tribunal had found that the assessee had legitimately earned income from leasing agricultural lands for several years. The Court noted that the land was outside municipal limits and referred to a precedent where the sale of agricultural lands was exempt from income tax. The Court cited the Supreme Court's ruling that a mere unsustainable claim in the return does not constitute furnishing inaccurate particulars for imposing a penalty.

5. The Court also considered a judgment from the Punjab & Haryana High Court, emphasizing that penalties are imposed for deliberate defaults, not mere mistakes. Since the Tribunal found the inaccurate particulars to be a mistake rather than deliberate tax evasion, the Court upheld the Tribunal's decision.

6. Relying on the Supreme Court's guidance in a previous case, the Court concluded that making an unacceptable claim does not automatically attract a penalty under Section 271(1)(c) of the Income Tax Act. Therefore, the Court found no infirmity in the Tribunal's decision and ruled in favor of the assessee, dismissing the appeal.

7. The Court dismissed the appeal without costs, closing any pending miscellaneous petitions related to the case.