2016 (4) TMI 748 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - The assessee has charged the affiliate fees from the licensee for the rights granted in the agreement. As per the jurisprudence, rights and obligation go together. If a person has a right, it also has obligation to discharge. A right without corresponding obligation does not exist. Merely because the right has been granted to the affiliate under the agreement, the licensee, the assessee cannot shy to discharge his obligation under the agreement which are required to fulfill during the term of agreement In the light of the above, the decision of the Tribunal in the quantum appeal is one possible view which was taken. Whereas the other possible view could also be taken by the Tribunal, as mentioned above. Thus the treatment of the advance license fee in the assessment year or that of the three subsequent year, is vexed point and is highly debatable. We find force in the assessee s advocate s argument that the claim of the assessee is bonafide and there is no revenue loss to the department. From the above, it is established that since the claim is bonafide and is also debatable and there is no concealment of income, therefore, in view of the decision of Hon ble Supreme Court in the matter of CIT vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) and also in accordance with the judgment passed in the case of CIT vs. H.M.A. Udyog Pvt. Ltd., 2006 (8) TMI 595 - DELHI HIGH COURT , wherein it has been held that in a case where the issue is debatable, no penalty under section 271(1)(c) of the Act is permissible. In the above said back ground, we are of the view that that the assessee has not furnished inaccurate particulars of income or concealed the income and there are no finding of the AO and the ld. CIT (A) that the details furnished in the return are inaccurate or erroneous or false. In these facts and circumstances, in our view, the penalty is totally unwarranted and deserves to be deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Determination of the year in which advance license fees should be taxed.
3. Validity of the notice issued for imposition of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee contended that the imposition of penalty was unjustified as there was no concealment of income or deliberate furnishing of inaccurate particulars. The assessee argued that the penalty was imposed without a definite conclusion at the time of initiation of proceedings, and there was no satisfaction regarding the basis for penalty imposition. The assessee followed a prevalent practice in the market, amortizing the franchisee license fee over multiple years, which was properly shown in the books of account. The lower authorities erred by not awaiting the outcome of the appeal filed before the Rajasthan High Court. The Tribunal concluded that since the assessee had disclosed all particulars of the advance license fee in the audit report and return of income, there was no concealment or submission of inaccurate particulars. The Tribunal cited the Supreme Court's decision in CIT vs. Reliance Petroproducts (2010) and other judgments to support that the issue was debatable and the claim was bona fide, thus penalty under Section 271(1)(c) was unwarranted.

2. Determination of the Year in which Advance License Fees should be Taxed:
The Assessing Officer (AO) added Rs. 63,77,229/- as business income in the current year, arguing that the franchisee agreements did not prove a four-year validity, and the advance license fee should not be amortized. The CIT (A) disagreed, stating the established practice was to amortize the fee over four years, and the AO did not demonstrate how this practice was detrimental to revenue. The Tribunal, however, upheld the AO's order, noting the inconsistency in how the assessee offered the advance fees in subsequent years. The Tribunal found that the assessee did not show the receipts in a consistent manner and rejected the contention that the highest tax bracket negated any difference in tax liability. The Tribunal directed the AO to remove income offered by the assessee in subsequent years to avoid double taxation.

3. Validity of the Notice Issued for Imposition of Penalty under Section 271(1)(c):
The assessee argued that the notice for penalty was vague and lacked application of mind, as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal agreed, citing the Karnataka High Court's judgment in CIT vs. Manjunatha Cotton and Ginning Factory, which held that a cryptic and stereotype notice without clear application of mind is invalid. The Tribunal observed that the AO's notice did not disclose the basis for penalty, making it bad in law. Consequently, the Tribunal found the penalty notice technically flawed and set it aside.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the penalty of Rs. 14,58,262/- and dismissed the revenue's appeal. The Tribunal emphasized that the assessee had disclosed all relevant particulars, making the penalty unwarranted. Additionally, the notice for penalty was found to be vague and invalid, further supporting the deletion of the penalty.