2016 (11) TMI 803 - HC - Income Tax

Penalty under Section 271(1)(C) - Held that - Merely because an addition has been made during the course of the assessment proceedings would not ipso facto lead to imposition of the penalty as the condition precedent for imposition of penalty under Section 271(1)(c) of the Act is filing of inaccurate particulars of income and / or concealment of income before the penalty can be imposed. The explanation offered by the respondent assessee for not having disclosed the income on dormant contracts in the subject Assessment Year 2007-08 was that it was offered to tax in the subsequent Assessment Years 2008-09 and 2009-10 is an explanation which has been accepted by the CIT(A) and the Tribunal. In the present facts, undisputedly the income has been declared in the subsequent assessment years before the assessment proceedings for the subject Assessment Year 2007-08 was initiated. Thus, the only issue which arises is about the year of taxability of income and it is certainly not a question of concealment of income and / or filing of inaccurate particulars of income by the respondent assessee.

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act for Assessment Year 2007-08 regarding penalty under Section 271(1)(c) for advances received on dormant contracts.

Analysis:
The appellant challenged the Tribunal's order imposing a penalty under Section 271(1)(c) of the Income Tax Act for advances received on dormant contracts. The respondent, engaged in manufacturing elevators, declared an income of ?89.04 crores for the subject assessment year. The Assessing Officer added ?7.35 crores for advances on dormant contracts, resulting in a taxable income of ?156.05 crores and initiated penalty proceedings. The respondent argued that the advances were offered to tax in subsequent years, thus no penalty was warranted. The Assessing Officer disagreed and imposed a penalty of ?2.47 crores for concealing income.

In the penalty proceedings, the respondent explained that the advances were declared in subsequent assessment years before proceedings for the subject year began. The CIT(A) found that the amounts were indeed offered to tax in later years, prior to the assessment proceedings for the subject year. Consequently, the CIT(A) deleted the penalty imposed by the Assessing Officer. The Revenue appealed to the Tribunal, which held that the advances were taxed in subsequent years before any inquiry for the subject year, indicating no concealment but a dispute over the taxable year.

Both the CIT(A) and the Tribunal established that the income from dormant contracts was declared in later assessment years before proceedings for the subject year commenced. The condition for penalty under Section 271(1)(c) requires inaccurate particulars or concealment of income, which was not the case here. The explanation by the respondent, accepted by the authorities, clarified the taxability of income in subsequent years, not a concealment issue. The concurrent findings of the CIT(A) and the Tribunal were deemed acceptable, leading to the dismissal of the appeal as it did not raise substantial legal questions.

Therefore, the appeal challenging the penalty under Section 271(1)(c) for advances on dormant contracts was dismissed, with no costs imposed.