2016 (10) TMI 353 - AT - Income Tax

Penalty u/s 271(1) - disallowance made under deeming provisions of section 94(7) - Held that - We find that in the case of Reliance Petro product Pvt Ltd reported (2010 (3) TMI 80 - SUPREME COURT ) in which it has been held that in order to expose to the vigour of penal provision the case is required to be strictly covered by the provisions of section 271(1)(c) of the Act. It was further held that wrong claim made by the assessee which is not accepted to the revenue cannot be subjected to the provisions of section 271(21)( c ) of the Act merely on the ground that the claim of the assessee was wrong. In this case the assessee had made genuine claim which was found to be wrong by applying deeming provisions of section 94(8) of the Act and thus the penalty was imposed by the AO and also sustained by the ld. CIT(A). In the case of Zoom Communications P Ltd (2010 (5) TMI 34 - DELHI HIGH COURT) held that where the assessee makes a claim which is not only incorrect in law but also wholly without any basis and explanations furnished by him are not bonafide for making such claim. In that case the penalty would be levied under section 271(1)(c) of the Act. In our opinion the case of the assessee is squarely covered by the ratio laid down in the case of Reliance Petro Products Ltd (supra). The facts of the case in Zoom Communications P Ltd (supra) are distinguishable from that of the assessee s case as in the case of assessee wrong claim was under bonafide belief of the accountant which was disallowed under the deeming provisions of section 94(8) of the Act and therefore the ld.CIT(A) has wrongly relied on the decision in order to uphold the order of the AO. In view of the above discussion and legal position we set aside the order of the ld. CIT(A) and direct the AO to delete the penalty. - Decided in favour of assessee.

Summary

Issues:
Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 on disallowance under section 94(7) of the Act.

Analysis:
The case involved an appeal by the assessee against the order of the Ld. CIT(A)-23, Mumbai pertaining to A.Y.2009-10. The primary issue raised was against the penalty levied under section 271(1)(c) of the Act on the disallowance of a specific amount under deeming provisions of section 94(7) of the Act. The assessee had declared a total loss in the return of income, which was selected for scrutiny. The assessment resulted in disallowances, including one related to dividend on mutual funds claimed as exempt under section 10(35) but treated as deemed interest under section 94(7). The penalty proceedings were initiated, and the AO imposed a penalty under section 271(1)(c) on the grounds of inadequate disclosure of income. The First Appellate Authority deleted the penalty on one disallowance but upheld it on the other, relying on the decision of the Hon'ble Supreme Court. The Tribunal considered the submissions and facts, noting that the assessee fully disclosed the particulars of the disallowed amount in the return of income, attributing the error to a bonafide mistake by the accountant. The Tribunal referred to relevant legal precedents, including the case of Reliance Petro Products Ltd, to conclude that the penalty was wrongly upheld. Consequently, the Tribunal set aside the order of the Ld. CIT(A) and directed the AO to delete the penalty, allowing the appeal of the assessee.

This judgment highlights the importance of full disclosure of income particulars and the impact of genuine mistakes on penalty imposition under section 271(1)(c) of the Income Tax Act. The Tribunal emphasized the bonafide belief of the assessee and the accountant's inadvertent error in the context of disallowed claims. By referencing legal precedents, the Tribunal differentiated between cases where penalties are justified due to incorrect claims made without any basis and situations where penalties are not warranted when claims are made under a genuine belief, even if later found to be wrong. The decision underscores the need for a strict interpretation of penal provisions and the consideration of bonafide explanations for erroneous claims. Ultimately, the Tribunal's ruling favored the assessee, emphasizing the disclosure of facts and the absence of deliberate misrepresentation or concealment of income.