2016 (3) TMI 422 - AT - Income Tax

Penalty u/s 271 (l)(c) - disallowance u/s 35ABB - Held that - In this case it is merely the claim made was unsuccessful before two authorities but none of the authorities have held that the claim of the assessee not at all sustainable. Merely because the deduction claim was negative by the appellate authorities assessee cannot be subjected to penalty by holding that assessee has deliberately furnished inaccurate particulars of Income. In this case AO has held because the claim of the assessee was not allowed u/s 35ABB of the act assessee has deliberately furnished inaccurate particulars of income and penalty u/s 271(1) (c) was levied. We are of the view the claim made by the assessee was highly debatable and on such claims being not allowed, it does not amount to furnishing inaccurate particulars of Income. Therefore we confirm the order of CIT (A) in deleting the penalty u/s 271(1) (c) of the act in all the three appeals. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Allowability of license fee expenditure under Section 35ABB of the Income Tax Act, 1961.
3. Classification of interest income as business income versus income from other sources.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in the appeals was whether the CIT(A) was justified in deleting the penalties imposed by the Assessing Officer (AO) under Section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars. The AO had levied penalties on the grounds that the assessee's claim under Section 35ABB was disallowed, thus constituting deliberate furnishing of inaccurate particulars. The CIT(A) deleted the penalties, reasoning that the assessee had disclosed all material facts necessary for the assessment and had not concealed any income. The CIT(A) noted that the issue was debatable, and the mere disallowance of a claim did not amount to furnishing inaccurate particulars. The Tribunal upheld the CIT(A)'s decision, emphasizing that making an incorrect claim does not equate to furnishing inaccurate particulars, especially when the issue is debatable and all relevant facts have been disclosed.

2. Allowability of License Fee Expenditure Under Section 35ABB of the Income Tax Act, 1961:
The assessee claimed that the license fee expenditure paid under the Phase-I license regime was allowable in full during the year under consideration, relying on Section 35ABB(2) and a government notification. The AO disallowed the claim, treating it as a capital loss, and the CIT(A) partially allowed the claim by granting deduction of 1/10th of the license fee over ten years. The Tribunal noted that the issue was highly debatable and that the assessee's claim was based on a bona fide interpretation of the law. The Tribunal agreed with the CIT(A) that the penalty could not be levied on such a debatable issue, as the assessee had disclosed full particulars of its claim.

3. Classification of Interest Income as Business Income Versus Income from Other Sources:
The AO treated the interest income as income from other sources, contrary to the assessee's classification as business income. The CIT(A) upheld the AO's classification. The Tribunal observed that the classification of interest income was also a debatable issue and that the assessee had disclosed all relevant facts. The Tribunal reiterated that penalty under Section 271(1)(c) could not be imposed merely because the claim was not accepted, as long as the claim was bona fide and all facts were disclosed.

Conclusion:
The Tribunal concluded that the assessee had not concealed any income or furnished inaccurate particulars. The issues involved were debatable, and the assessee had made bona fide claims based on legal advice. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the penalties imposed under Section 271(1)(c) and dismissed the revenue's appeals. The order emphasized that making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars, especially when the issue is subject to different interpretations.