2017 (12) TMI 1413 - AT - Income Tax

Penalty u/s 271(1)(c) - Exemption u/s 11 denied - Held that - In the present case, it is an admitted fact that the claim of the assessee for exemption u/s 11 of the Act was earlier allowed by the AO up to the assessment year 1988-89 and thereafter upto assessment year 2007-08, for the year under consideration also the claim of the assessee was allowed by the ITAT. Subsequently the Hon ble Jurisdictional High Court did not allow the claim of the assessee u/s 11 of the Act. However, SLP is pending before the Hon ble Supreme Court. Therefore, it can be said that the issue relating to the claim of exemption u/s 11 of the Act is highly a debatable and legal issue. Therefore, it cannot be said that the assessee furnished inaccurate particulars of income or concealed its income. See CIT vs. Reliance Petro Products 2010 (3) TMI 80 - SUPREME COURT In the present case also the claim of the assessee for exemption u/s 11 has not been allowed by the AO on the basis of the judgment of the Hon ble High Court. Therefore, not allowing the claim of the assessee u/s 11 of the Act itself cannot tantamount to furnishing of inaccurate particulars of income - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act for claiming exemption u/s 11 of the Act in respect of business not incidental to trust's objects.

Analysis:
The case involved the deletion of penalty levied by the AO under section 271(1)(c) of the Income Tax Act, concerning the claim of exemption u/s 11 of the Act for a business not incidental to the trust's objects. The AO disallowed the exemption, resulting in a penalty of ?36,14,670. The CIT(A) observed that the penalty was imposed due to a mistake by the assessee, but no evidence showed willful inaccurate details to avoid tax payments. The CIT(A) noted that the claim was debatable and had been allowed in previous years. Relying on case laws, including CIT vs. Reliance Petro Products, the CIT(A) deleted the penalty.

The Department appealed the CIT(A)'s decision, arguing that since the claim was disallowed by the High Court, the assessee concealed income by making a false claim. The assessee contended that the claim was based on bona fide belief and expert opinion. The ITAT considered the debatable nature of the claim, citing the Supreme Court's judgment in CIT vs. Reliance Petro Products, emphasizing that incorrect claims do not necessarily constitute inaccurate particulars. As the claim was not allowed by the High Court, it did not amount to furnishing inaccurate particulars of income.

The ITAT dismissed the department's appeals, stating that the issue was debatable and legal, and not providing inaccurate particulars. The decision was in line with the Supreme Court's interpretation that incorrect claims do not automatically lead to inaccurate particulars. The findings in the case for the assessment year 1992-93 applied to similar cases. Consequently, the appeals by the department were dismissed.

This comprehensive analysis highlights the key legal issues, arguments presented by both parties, and the judicial reasoning leading to the dismissal of the department's appeals.