2009 (2) TMI 2 - HC - Income Tax

Penalty u/s 271 (1) (c) was imposed on 3 items - Disallowance of claim of liability on account of L/C opened with Andhra Bank - Disallowance of claim of liability on account of L/C opened with UBI - Disallowance of fine in lieu of confiscation - held that the liability in respect of first two item had infact being incurred, no penalty can be imposed - in respect of third item accepting the contention of the assessee that the lapse was not deliberate, no penalty ought to have been imposed

Summary

Issues:
Penalty under Section 271(1)(c) of the Income-tax Act for three items: (i) Disallowance of liability on L/C with Andhra Bank, (ii) Disallowance of liability on L/C with UBI, (iii) Disallowance of fine in lieu of confiscation of goods.

Analysis:

1. Item (i) - Disallowance of liability on L/C with Andhra Bank:
The court noted a previous judgment in a related case where it was established that the liability of Rs.9,75,876 had indeed been incurred by the assessee. As a result, the court concluded that no penalty under Section 271(1)(c) could be levied for this item, given the factual finding from the previous case.

2. Item (ii) - Disallowance of liability on L/C with UBI:
Although initially an issue, the Union Bank of India relieved the assessee from the obligation to pay Rs.28,89,093. The liability in this regard was found to have been incurred by the assessee based on the reasoning and grounds mentioned in a previous judgment. Consequently, the court ruled that no penalty could be imposed under Section 271(1)(c) for this item.

3. Item (iii) - Disallowance of fine in lieu of confiscation of goods:
The disallowance of the fine was based on an order by the Government of India received after the relevant assessment year had ended. The assessee contended that they followed the mercantile system, making book entries when the liability accrued, which were reversed in the subsequent year. The revenue accepted that the amount was offered for tax in the next year. The court acknowledged that any error was inadvertent and not deliberate, leading to the conclusion that no penalty should have been imposed for this item.

In conclusion, the court answered the referred question in the negative, favoring the assessee and ruling against the revenue. The judgment disposed of the reference with no order as to costs.