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2017 (4) TMI 625 - AT - Income TaxLevy of penalty u/s. 271(1)(C) - addition was made on disputed point of share of profit exempt in the hand of partner u/s. 10(2A) - Held that - Addition has been made due to the reason that assessee has claimed exemption for the entire share of income of the partnership form. However, the revenue has found that the act only postulates exemption of the share of profit of the firm. Hence, assessee s claim of exemption qua the rental income of the firm was denied. In this factual scenario we are of the considered opinion that assessee can be considered to be under a bona fide belief that the entire income from the firm is exempt. Such a belief of the assessee cannot be held to be contumacious warranting levy of penalty u/s. 271 (1) C. See Hindustan Steel Ltd. vs. State of Orissa 1969 (8) TMI 31 - SUPREME Court - Decided in favour of assessee.
Issues:
1. Upholding of penalty under section 271(1)(c) by Ld. CIT-A. 2. Disallowance of exemption claimed by the assessee on income from the partnership firm. 3. Consideration of bona fide belief of the assessee in claiming exemption. Analysis: 1. The appeal was against the order of the Ld. CIT-A upholding the penalty of ?1,81,043 levied by the assessing officer under section 271(1)(c). The grounds of appeal raised by the assessee challenged the correctness of the penalty imposition, arguing that the addition was made on a disputed point regarding the share of profit exempt under section 10(2A), which was pending before the Hon'ble ITAT. The Ld. CIT-A was criticized for not considering the factual aspects and correct interpretation of the law in upholding the penalty. 2. The assessing officer disallowed ?5,32,638 claimed as exempt income by the assessee from the partnership firm, stating that the claim exceeded what was permissible under section 10(2A). The AO emphasized that only the share of profit was exempt, not all incomes of the firm. Consequently, a penalty of ?1,81,043 was imposed, without recording the assessee's submissions adequately. Despite the absence of the assessee during the appeal hearing, the ITAT considered it necessary to examine the issue further. 3. The ITAT analyzed that the disallowance was due to the assessee claiming exemption for the entire income from the partnership firm, while the law allowed exemption only for the share of profit. The ITAT acknowledged that the assessee's belief in claiming full exemption could be considered bona fide, especially in light of a precedent involving Hindustan Steel Ltd. vs. State of Orissa. Relying on this decision, the ITAT concluded that the penalty under section 271(1)(c) was not warranted and set aside the orders of the lower authorities, thereby deleting the penalty. In conclusion, the ITAT allowed the appeal filed by the assessee, emphasizing the importance of a bona fide belief in interpreting tax laws, and ruled in favor of the assessee by deleting the penalty.
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