2018 (6) TMI 1580 - HC - Income Tax

Penalty levied u/s 271 1 (c) - addition on account of capital gain wrongly claimed as exempt by the assessee? - assessee had not offered the amount of tax on the basis of artificial dispute with mala fide intention and mere disclosure in notes did not protest the assessee from penal action provided under Section 271 1 (c) - HELD THAT - Issue pertains to penalty. Quantum additions have been confirmed upto the stage of the Tribunal. The Department desired to levy penalty from the assessee. The Tribunal, however, deleted the penalty principally on the ground that the full disclosures were made and the issue was not free from doubt. In the opinion of the Tribunal, thus, the claim was not free from doubt or devoid of any basis. We further notice that the assessee in addition to having made full disclosure, also claimed that he had been under legal advice. The Tribunal also noted that even in quantum additions, the appeal is entertained by the High Court and is pending. No question of law arises.

Summary

Issues:
1. Penalty under Section 271(1)(c) of the Income Tax Act for the deletion of capital gain wrongly claimed as exempt by the assessee.
2. Penalty under Section 271(1)(c) of the Income Tax Act for not offering the tax amount based on an artificial dispute with mala fide intention.

Issue 1 - Penalty for Deletion of Capital Gain:
The case involves an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the deletion of a penalty of &8377; 1,28,78,000 levied under Section 271(1)(c) of the Income Tax Act in relation to an addition of &8377; 6,43,60,000 on account of capital gain wrongly claimed as exempt by the assessee. The Tribunal justified the deletion of the penalty by stating that the assessee had made full disclosures and that the issue was not free from doubt. The Tribunal's opinion was that the claim was not devoid of any basis. Moreover, the assessee claimed to have been under legal advice, and the Tribunal observed that the appeal on quantum additions was pending in the High Court, indicating no clear question of law. As a result, the High Court dismissed the Tax Appeal.

Issue 2 - Penalty for Artificial Dispute:
The second issue pertains to the penalty under Section 271(1)(c) of the Income Tax Act for not offering the tax amount due to an artificial dispute with a mala fide intention. The Tribunal deleted the penalty without appreciating the Revenue's argument that the assessee had not offered the tax amount based on an artificial dispute and that a mere disclosure in notes did not protect the assessee from penal action under Section 271(1)(c) of the Income Tax Act. However, the Tribunal considered the full disclosure made by the assessee and the fact that the issue was not free from doubt. The Tribunal also noted that the appeal on quantum additions was pending in the High Court, indicating no clear question of law. Consequently, the Tribunal dismissed the Revenue's appeal against the deletion of the penalty.

This judgment highlights the importance of full disclosure by the assessee and the presence of doubt in the tax claims made. It also emphasizes the significance of legal advice and the pending status of appeals in determining the imposition of penalties under the Income Tax Act.