2016 (5) TMI 857 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Held that - There was neither furnishing of inaccurate particulars of income nor concealing the particulars of income. The assessee had filed all the details of transaction in the return of income itself. There was difference of opinion between the AO and the assessee as to under which head the sale proceeds of transaction should be taxed. The assessee had offered income under the head capital gain whereas the AO taxed the same as business income . In our opinion in such cases no penalty should be levied u/s. 271(1)(c ) of the Act. Confirmation of an addition by Appellate Authority do not justify levy of penalty u/s. 271(1)(c) as the assessment proceedings and penalty proceedings are different so decision taken during the assessment stage would not and should not lead to automatic levy of concealment penalty. It has to be seen that what explanation was offered by the assessee while filing reply to the penalty notice. After going through the explanation filed by the assessee we are of the opinion that it was one of the plausible explanation. The issue of taxing a particular income under the head business income or income arising of capital gains is a debatable issue. In our opinion no penalty should be levied in such circumstances. Therefore upholding the order of the FAA we decide the effective ground of appeal against the AO. - Decided in favour of assessee

Summary

Issues:
Challenging deletion of penalty under section 271(1)(c) of the Income Tax Act by the CIT(A)-23, Mumbai.

Analysis:
1. The appellant, an assessee-company engaged in freight forwarding and logistics, declared total income of &8377;1.12 crores but was assessed at &8377;56.19 crores under section 143(3) of the Act. The dispute arose over the treatment of a sum received for transferring its international air cargo business. The AO considered it as non-compete fee taxable under business income, making an addition of &8377;54.73 crores and initiating penalty proceedings under section 271(1)(c).

2. The First Appellate Authority (FAA) reduced the non-compete fee to &8377;4.5 crores, leading to an appeal before the Tribunal. The Tribunal dismissed both appeals, upholding the FAA's decision. The AO, however, levied a penalty of &8377;1.61 crores, alleging inaccurate particulars of income by the assessee.

3. The assessee contended that it made a genuine disclosure in its return, offering the income under the head "capital gains" and investing the proceeds in bonds for exemption u/s. 54EC. The FAA, after considering the submissions, deleted the penalty, emphasizing that a mere difference of opinion on the nature of income does not warrant penalty under section 271(1)(c).

4. The Tribunal reiterated that the issue of taxing income as capital gains or business income is a legal matter, and a disagreement between the AO and the assessee does not imply concealment. Citing the case of Anant Overseas(P) Ltd., the Tribunal highlighted that inaccurate particulars must involve a deliberate act, which was not the case here. Upholding the FAA's decision, the Tribunal dismissed the AO's appeal, emphasizing the distinction between assessment and penalty proceedings.

5. The Tribunal's decision was supported by legal precedents and established principles of tax law. The judgment underscored the necessity of proving deliberate intent or mens rea for imposing penalties under section 271(1)(c). The Tribunal concluded that the assessee's explanation was bona fide, and the issue of characterizing income as business income or capital gains was debatable, warranting no penalty imposition.

6. In light of the legal analysis and precedents cited, the Tribunal dismissed the AO's appeal, affirming the FAA's decision to delete the penalty under section 271(1)(c). The judgment highlighted the importance of distinguishing between differing interpretations of tax provisions and deliberate attempts to conceal income, ultimately upholding the assessee's position in the case.