2017 (9) TMI 484 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - deduction u/s 80HHB - profits derived from business of execution of foreign projects - Held That - mere making of a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. - assessee is not guilty of deliberate furnishing of inaccurate particulars / concealment of income and is not liable to be mulcted with penalty under Section 271(1)(c) of IT Act.- Decided in favor of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Determination of substantial questions of law under Section 260A of the Income Tax Act, 1961.
3. Interpretation of "concealment of income" and "furnishing inaccurate particulars of income."
4. Applicability of precedents from the Supreme Court regarding penalties under the Income Tax Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Revenue initiated penalty proceedings under Section 271(1)(c) due to the restriction of the Assessee's claim for deduction under Section 80HHB of the IT Act. The Assessee contended that the error was inadvertent and due to a new Chartered Accountant's mistake. The CIT(A) and ITAT both found that the Assessee had not furnished inaccurate particulars or concealed income, and thus, the penalty was deleted. The High Court upheld this view, noting that the Revenue did not have any incriminating evidence against the Assessee and that the error was bona fide.

2. Determination of Substantial Questions of Law under Section 260A of the Income Tax Act, 1961:
The Revenue proposed two substantial questions of law regarding the deletion of the penalty by the ITAT. The High Court examined these questions under the framework of Section 100 of the CPC, as mandated by Section 260A(7) of the IT Act. The Court concluded that the proposed questions did not qualify as substantial questions of law since they were heavily fact-based and did not involve debatable legal issues.

3. Interpretation of "Concealment of Income" and "Furnishing Inaccurate Particulars of Income":
The Court emphasized that for a penalty under Section 271(1)(c), there must be a deliberate act of concealment or furnishing inaccurate particulars. The Assessee's case was found to be a result of a bona fide error by the Chartered Accountant, and there was no finding by the AO that the details furnished were incorrect or false. The Court also referred to the Supreme Court's judgments in Price Waterhouse Coopers Private Ltd. vs. CIT and CIT vs. Reliance Petroproducts Pvt. Ltd., which held that a mere unsustainable claim does not amount to furnishing inaccurate particulars.

4. Applicability of Precedents from the Supreme Court Regarding Penalties under the Income Tax Act:
The High Court relied on the Supreme Court's rulings in Price Waterhouse Coopers Private Ltd. vs. CIT and CIT vs. Reliance Petroproducts Pvt. Ltd. to conclude that the Assessee's error did not warrant a penalty. The Court also discussed other relevant Supreme Court judgments, such as K.P. Madhusudhanan vs. CIT and Union of India vs. Dharamendra Textile Processors, to clarify that the presence of mens rea is not required for imposing a penalty under Section 271(1)(c) if the Assessee fails to offer a bona fide explanation.

Conclusion:
The High Court dismissed the appeal, confirming the ITAT's order that deleted the penalty. The Court found no substantial question of law and upheld that the Assessee was not guilty of deliberate concealment or furnishing inaccurate particulars. The appeal was dismissed without costs, and the orders of the CIT(A) and ITAT were affirmed.