2014 (1) TMI 1934 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition made on account of sale tax subsidy by treating it as revenue receipt as against capital receipt declared by the assessee - HELD THAT - As decided in own case 2013 (9) TMI 1105 - ITAT CHANDIGARH in view of the debatable issue raised, the assessee is not exigible to levy of penalty u/s 271(1)(c) of the Act in the facts of the present case where the claim of the assessee that the receipts were capital in nature was rejected and the receipts were held to be revenue in nature and hence taxable. Appeal the Revenue is dismissed.

Summary

Issues Involved:
1. Justification of deletion of penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Classification of sales tax subsidy as capital receipt vs. revenue receipt.

Issue-wise Detailed Analysis:

1. Justification of Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act, 1961:

The primary contention was whether the penalty of Rs. 10,99,19,325/- levied under section 271(1)(c) of the Income Tax Act, 1961, was justified. The penalty was imposed by the Assessing Officer (AO) on the addition of Rs. 32,65,57,714/- made on account of sales tax subsidy, which the AO treated as a revenue receipt instead of a capital receipt as declared by the assessee.

The Tribunal referred to its previous decisions in the assessee's own case for the assessment years 2005-06 and 2006-07, where it was held that penalty for concealment is leviable under section 271(1)(c) of the Act only if the assessee had either concealed the particulars of its income or furnished inaccurate particulars of income. The Tribunal emphasized that the mere addition to the returned income does not automatically justify the levy of penalty under section 271(1)(c). The provisions of the Act require the assessee to be given an opportunity to prove the bonafides of their claim. If the assessee can prove the bonafides, no penalty should be levied.

The Tribunal cited the Supreme Court's judgment in CIT, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., which clarified that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income. The Court held that the details supplied in the return must be inaccurate, erroneous, or false for the penalty to apply, which was not the case here.

2. Classification of Sales Tax Subsidy as Capital Receipt vs. Revenue Receipt:

The second issue was whether the sales tax subsidy received by the assessee should be classified as a capital receipt or a revenue receipt. The assessee had treated the subsidy as a capital receipt, but the AO assessed it as a revenue receipt based on the judgment of the Punjab & Haryana High Court in CIT Vs. Abhishek Industries Ltd.

The Tribunal noted that the issue of whether sales tax subsidy is a capital receipt or a revenue receipt is debatable, as evidenced by the pending appeals in higher courts, including the Supreme Court. The Tribunal highlighted that similar issues had been adjudicated differently in various cases, such as CIT Vs. Rasoi Ltd. by the Calcutta High Court, where the subsidy was treated as a capital receipt.

The Tribunal also referred to the Punjab & Haryana High Court's judgment in CIT Vs. M/s Gurdaspur Cooperative Sugar Mills, which held that penalty under section 271(1)(c) is not imposable on debatable issues. The Court emphasized that a debatable issue, where two views are possible, does not amount to concealment or furnishing inaccurate particulars of income.

In conclusion, the Tribunal upheld the CIT(A)'s order, finding that the issue was debatable and the assessee's claim was made bonafidely. Therefore, the penalty under section 271(1)(c) was not justified. The appeal by the Revenue was dismissed.

Order:
The appeal by the Revenue is dismissed. The order was pronounced in the open court on January 28, 2014.