2019 (4) TMI 2140 - HC - Income Tax

Penalty u/s 271(1)(c) - debatable issue - bonafide claim by disclosing income and particulars of such income - ITAT deleted addition as High Court has admitted the appeal on quantum addition by framing substantial question of law for consideration ignoring all other material facts considered for levying the penalty - HELD THAT - Firstly it is undisputed that the assessee had made full disclosure of income and the particulars of income. The assessee had made bonafide claim of depreciation on lease assets. Whether such claim eventually stands legal requirement or not what is important is that the assessee had raised such a bonafide claim by disclosing income and particulars of such income. As is held by the Supreme Court in its decision in the case of CIT Ahmedabad Vs. Reliance Petroproducts Pvt Ltd 2010 (3) TMI 80 - SUPREME COURT merely because a claim is not acceptable in law would not give rise to penalty proceedings. Decided in favour of assessee.

Summary

Issues involved:
1. Challenge to the judgment of the Income Tax Appellate Tribunal regarding the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the Tribunal was correct in deleting the penalty based on the debatable nature of the issue due to the admission of appeal on quantum addition by the High Court.

Analysis:
The High Court of Bombay heard appeals filed by the Revenue challenging the judgment of the Income Tax Appellate Tribunal, Mumbai, dated 1.4.2016. The main issue revolved around the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, which the Tribunal had deleted. The Tribunal considered the facts on record and concluded that the penalty was not justified. It noted that the High Court had admitted the appeal on quantum addition, leading to the question of whether the issue was debatable, thus justifying the deletion of the penalty. The High Court did not delve into testing this conclusion of the Tribunal, as the record indicated that the assessee had claimed depreciation on leased assets, supported by relevant material. The Assessing Officer disagreed with this claim, leading to the disallowance of the depreciation claim.

The counsel for the assessee highlighted that the issue required resolution by a special bench of the Tribunal, and even the High Court entertained an appeal against the Tribunal's judgment. The High Court emphasized that in such a scenario, where the assessee had made full disclosure of income and particulars, and had raised a bona fide claim of depreciation on leased assets, the question of imposing a penalty did not arise. The High Court referred to the Supreme Court's decision in CIT, Ahmedabad Vs. Reliance Petroproducts Pvt Ltd., stating that the mere non-acceptance of a claim in law does not automatically lead to penalty proceedings. Consequently, the Income Tax Appeals were dismissed, upholding the Tribunal's decision to delete the penalty under Section 271(1)(c) of the Income Tax Act, 1961.