2016 (5) TMI 1132 - AT - Income Tax

Penalty u/s. 271(1)(c) - claim of exemption of salary in India as per Article 16(1) of the Treaty disallowed - assessee is a Resident and Ordinarily Resident individual - Held that - Mensrea was a essential requirement of penalty u/s 271(1)(c). If the contention of the revenue is accepted then in case of every return where the claim is not accepted by the Assessing Officer for any reason, the assessee will invite the penalty u/s 271(1)(c). This is clearly not the intendment of legislature. See CIT vs. Reliance Petro Products Ltd. 2010 (3) TMI 80 - SUPREME COURT . Mere making the claim which is not sustainable in law, itself would not amount to furnishing of inaccurate particulars of income - Decided in favour of assessee

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income Tax Act for assessment year 2011-12.

Analysis:
The appeal was against the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act. The Assessee claimed exemption under Article 16(1) of the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The AO disallowed the exemption claim, held the Assessee as a resident of India, and subjected the global income to tax in India. The penalty was imposed for furnishing inaccurate particulars of income. The Commissioner of Income Tax (Appeals) upheld the penalty, leading to the appeal before the Tribunal.

The Assessee argued that all information was disclosed during assessment proceedings, and there was no attempt to conceal income. Citing a Supreme Court decision, the Assessee contended that the penalty should be deleted. The Department, however, supported the lower authorities' order upholding the penalty.

The Tribunal analyzed the case, noting the Assessee's residential status and entitlement to exemption under the DTAA. It considered the tie-breaker analysis under Article 4(2) of the Treaty, determining the Assessee's residency status for the relevant period. The Tribunal found that the penalty under section 271(1)(c) requires a finding of furnishing inaccurate particulars or concealment of income. It observed that the Assessee's conduct did not warrant a penalty in this case.

Relying on legal precedents, including the Supreme Court's decision in CIT vs. Reliance Petro Products Ltd., the Tribunal emphasized that penalty should not be imposed for every disagreement between the Assessee and the Assessing Officer. It referenced the Hindustan Steel case to highlight the discretionary nature of imposing penalties for statutory obligations. Ultimately, the Tribunal held that the penalty imposition was unjustified and set aside the lower authorities' orders, deleting the penalty.

In conclusion, the Tribunal allowed the Assessee's appeal, pronouncing the order in open court on 05/5/2016.