2016 (9) TMI 1490 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance of a sum being power purchase price which was not debited by the assessee in its books of account as expenditure but claimed as deduction in the computation of the total income - Held that - Hon ble Bombay High Court in CIT Vs. Nayan Builders and Developers 2014 (7) TMI 1150 - BOMBAY HIGH COURT has also held that where High Court admitted substantial question of law in respect of which penalty was levied the impugned order of penalty was to be deleted. Therefore, respectfully following the decisions of Hon ble High Court we hold that when the issue is admitted by Hon ble High Court as substantial question of law in the case of the assessee on disallowance of ₹ 261406249/- for power purchase price difference, no penalty u/s 271(1)(c) can be levied. We are of the view that consistent approach should have been taken by revenue in this case for this year too. Hon ble Supreme Court in case of CIT Vs. Reliance Petro Products Ltd 2010 (3) TMI 80 - SUPREME COURT has stated that a mere making of the claim which is not sustainable in law by itself does not amount to furnishing of inaccurate particulars regarding the income of the assessee and does not invite penalty u/s 271(1)(c) - In the present case also the assessee has disclosed full facts about the claim made in the computation of total income filed. Further, detailed explanation about the power purchase price was given in notes to accounts in Schedule 16 of its annual account. Therefore, it cannot be said that the assessee has furnished inaccurate particulars of its claim. It also cannot be said that the claim of the assessee is not a bona fied claim because of the past history of such claim being allowed to the assessee by the tribunal. No infirmity in the order of the CIT(A) in deleting the penalty of ₹ 8.80 crores u/s 271(1)(c) of the Act.- Decided in favour of assessee.

Summary

Issues Involved:
Appeal against deletion of penalty u/s 271(1)(c) of the Income Tax Act for Assessment Year 2007-08.

Analysis:
1. The appeal filed by the revenue challenges the deletion of penalty by the ld CIT(A) for the Assessment Year 2007-08 under section 271(1)(c) of the Income Tax Act amounting to ?8.80 crores. The grounds of appeal raised by the revenue primarily focus on the contention that the assessee's claim of deduction was not legitimate and involved inaccurate particulars of income.

2. The core issue in this case revolves around the deletion of penalty u/s 271(1)(c) of the Income Tax Act. The appellant, engaged in the power distribution business, claimed a deduction for power purchase price not debited in the profit and loss account, leading to an addition of ?261,406,249 by the Assessing Officer. This claim was rejected by all appellate authorities up to the Tribunal, although the Hon'ble Allahabad High Court admitted the appeal, indicating a debatable issue.

3. The ld CIT(A) deleted the penalty based on the decision in the case of CIT Vs. Reliance Petro Products Ltd, stating that the disallowance was a legal and debatable issue. The appellant's consistent claim history being allowed in previous years by the tribunal was also considered. The Tribunal emphasized that the mere unsustainability of a claim in law does not automatically attract penalty u/s 271(1)(c) if full disclosure is made, as seen in the present case.

4. The Tribunal referred to precedents where High Courts admitted substantial questions of law related to penalty levies, leading to the deletion of penalties. The Tribunal highlighted the importance of a consistent approach by the revenue authority, especially in cases where the nature of the addition and the past history of the claim support a debatable issue.

5. Ultimately, the Tribunal upheld the ld CIT(A)'s decision to delete the penalty of ?8.80 crores u/s 271(1)(c) of the Act, emphasizing the full disclosure of facts by the assessee and the debatable nature of the claim. The Tribunal's ruling was based on the principle that the mere unsustainability of a claim does not automatically imply inaccurate particulars, especially when historical precedent and detailed explanations support the claim's legitimacy.

In conclusion, the Tribunal dismissed the revenue's appeal against the ld CIT(A)'s order, highlighting the importance of a consistent and fair approach in penalty proceedings, especially in cases involving debatable issues and historical claim allowances.