2016 (3) TMI 921 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition made u/s 35(2) alleging that assessing knowingly and consciously has made an excess claim of deduction u/s 35(2) in spite of the fact that the R & D unit at Chennai was not approve by DSIR - Held that - Adverting to the facts of this case, we find that the assessee has neither concealed the particulars of income nor has furnished inaccurate particulars of income warranting levy of penalty u/s 271(1)(c) of the Act in respect of this amount of ₹ 26,53,420/. Penalty proceedings operate in a different sphere because different parameters apply for levy or non-levy of penalty in contrast to the quantum additions which operate in an entirely different sphere. In case any legal or valid claim is made, which is not found to be correct by the authorities, it would not automatically lead to levy of penalty as discussed above. It is not a case where the assessee has not disclosed full and final facts rather assessee has claimed deduction u/s 35(2) of the Act. The ld.AR has relied on numerous decisions in support of his contention. The case of the Revenue is that this is a clear case of furnishing inaccurate particulars of income which the assessee has done with the aim to evade payment of tax. Before we discuss the cases relied on by the parties, we would like to mention that the assessee has made a full and true disclosure of income and has made a claim for deduction. Hence, the assessee has made a bonafide legal claim which cannot be said to be fallacious or flippant and malafide. This fact has not been disputed by the Revenue. Be that as it may, we are of the considered opinion that in case a valid claim based on law is made by the assessee after disclosing full and true facts, and the same is rejected and addition is made qua that amount, it would not tantamount to either concealment of income or furnishing of inaccurate particulars of income automatically - Decided in favour of assessee

Summary

Issues:
Penalty u/s 271(1)(c) of the Income-tax Act, 1961 - Whether penalty justified for inaccurate claim of deduction u/s 35(2) - Assessment proceedings - Concealment of income - Furnishing inaccurate particulars of income.

Detailed Analysis:

1. Penalty u/s 271(1)(c) - Inaccurate Claim of Deduction u/s 35(2):
The appeal filed by the Revenue challenged the CIT(A)'s order deleting the penalty of Rs. 26,53,420/- imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2006-07. The dispute arose from the assessee's claim of deduction u/s 35(2), which was considered excessive by the assessing authority. The Revenue alleged that the claim was made knowingly despite the R & D unit not being approved by DSIR, leading to inaccurate particulars of income. The CIT(A) granted relief to the assessee based on the arguments presented.

2. Assessment Proceedings - Concealment of Income:
The original return of income declared a business income of Rs. 1,27,93,49,010/-, later revised to Rs. 12,60,91,510/-. The assessment completed u/s 143(3) alleged inaccurate particulars of income without concealment. The CIT(A) granted relief on all grounds except for specific additions. The AO then issued a show cause notice for imposing penalty u/s 271(1)(c) based on the excess deduction claim u/s 35(2), leading to the subsequent dispute.

3. Furnishing Inaccurate Particulars of Income:
The crux of the matter revolved around whether the assessee furnished inaccurate particulars of income warranting penalty u/s 271(1)(c). The legal position highlighted that penalty can only be levied if there is concealment or furnishing of inaccurate particulars of income by the assessee. The Supreme Court's decision in Reliance Petroproducts case emphasized that incorrect claims do not automatically amount to furnishing inaccurate particulars. The authorities must establish deliberate concealment or misleading details to justify penalty imposition.

4. Legal Interpretation and Precedents:
The Tribunal analyzed various judicial pronouncements and legal precedents to ascertain the criteria for penalty imposition under section 271(1)(c). The distinction between quantum additions and penalty proceedings was emphasized, highlighting the need for deliberate acts of concealment or furnishing inaccurate particulars. The case law cited by both parties, including the Reliance Petroproducts case, supported the assessee's contention that a valid claim based on law, even if later rejected, does not automatically lead to penalty imposition.

5. Decision and Conclusion:
After thorough consideration of facts and legal arguments, the Tribunal concluded that the assessee did not conceal income or furnish inaccurate particulars to evade tax. The rejection of a claim, even if legally unsustainable, does not ipso facto warrant penalty under section 271(1)(c). The Tribunal dismissed the Revenue's appeal, confirming the cancellation of the penalty levied. The decision was based on the principles of law, precedent interpretations, and the absence of deliberate concealment or misleading particulars by the assessee.

The Tribunal's judgment focused on the distinction between inaccurate claims and deliberate concealment, emphasizing the need for establishing intentional wrongdoing to justify penalty imposition under section 271(1)(c) of the Income-tax Act, 1961. The legal analysis and reliance on precedents highlighted the importance of bona fide claims, full disclosure of facts, and the absence of deliberate attempts to mislead authorities in determining the applicability of penalties in tax matters.