2017 (7) TMI 497 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - sales to parties covered under Section 40A (2)(b) - Held that - Assessee cannot be held guilty for non-disclosure of income, which was determined by invoking discretionary jurisdiction under Section 40A (2)(b) of the Act.In this view of the matter, the Tribunal held that where deeming provisions are applied in assessing the income, the provisions of imposing penalty would not be attracted. There is no concealment of income or furnishing of an incorrect particulars of the income, the penalty cannot be imposed on account of addition of income by applying the deeming provisions. Accordingly, we are of the opinion that the Tribunal has not committed any error of law in removing the penalty imposed by the Assessing Authority. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under Section 271(1)(c) of the Income Tax Act in respect of sales to parties covered under Section 40A (2)(b) of the Act.

Analysis:
The appeal in question was against the Tribunal's order dated 20 August 2015 concerning the imposition of a penalty under Section 271(1)(c) of the Income Tax Act. The main issue revolved around the difference in sales made by the assessee to parties covered under Section 40A (2)(b) of the Act compared to those not covered. The Tribunal held that the assessee could not be penalized for non-disclosure of income when deeming provisions under Section 40A (2)(b) were applied to determine the income. This view was supported by the decision in S.V. Kalyanam Vs. Income Tax Officer, where it was established that when additions are made based on deeming provisions, it does not imply concealment of income to warrant penalty proceedings.

Moreover, the Tribunal's decision was further reinforced by the ruling in Commissioner of Income Tax Vs P. Rojes, where it was clarified that penalty under Section 271(1)(c) cannot be imposed solely on the estimation of income. The Supreme Court's decision in C.I.T. vs. Reliance Petroproducts Pvt.Ltd emphasized that to trigger penalty provisions, there must be concealment or furnishing of inaccurate particulars of income by the assessee. Merely making an incorrect claim in law does not amount to providing incorrect particulars for penalty imposition.

Considering the absence of concealment or furnishing of incorrect particulars in the present case due to the application of deeming provisions, the penalty could not be justified. Consequently, the High Court concurred with the Tribunal's decision and dismissed the appeal, affirming that no legal error was committed in removing the penalty imposed by the Assessing Authority.