2018 (1) TMI 737 - HC - Income Tax

Penalty u/s 271(1)(c) - issue of interpretation of the word payable appearing in section 40(a)(ia) - Held that - Some High Courts had taken the view that the expression payable did not include the amount paid, while others had taken the view that the expression payable included amounts paid during the year. As pointed out above, the Supreme Court finally resolved the controversy in Palam Gas Service case (2017 (5) TMI 242 - SUPREME COURT) by holding that the expression payable included not only the amount which remained payable at the end of the year, but also the amounts paid during the year. Consequently, in our view, when the assessee made the claim, this issue was debatable and, therefore, in so far as the deduction of TDS on amounts paid is concerned, the position is that, while it can be made the subject of disallowance, it cannot form the basis for imposing a penalty. Therefore, on this aspect, the enhancement of the penalty amount by the Commissioner of Income-tax (Appeals) is clearly not justifiable. The respondent-assessee having furnished all the details of its expenditure as well as income in its return, it was up to the authorities to accept his claim or to reject it. But merely because the respondent-assessee had claimed an expenditure which was not accepted by the Revenue, that by itself would not attract the penalty of section 271(1)(c). See Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee

Issues Involved:
1. Interpretation of the word "payable" in Section 40(a)(ia) of the Income-tax Act, 1961.
2. Applicability of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
3. Whether the Tribunal was right in deleting the penalty imposed by the Assessing Officer and enhanced by the Commissioner of Income-tax (Appeals).

Issue-wise Detailed Analysis:

1. Interpretation of the word "payable" in Section 40(a)(ia):

The controversy centered around whether the term "payable" included amounts already paid during the year. The Revenue argued that "payable" encompassed both amounts due at the end of the year and those paid during the year. The assessee contended that "payable" referred only to amounts outstanding at the year's end. The court referenced the Supreme Court's decision in Palam Gas Service v. CIT, which clarified that "payable" included amounts already paid. This interpretation was crucial in the quantum proceedings, where the Supreme Court's decision settled the debate favorably for the Revenue.

2. Applicability of penalty under Section 271(1)(c):

The penalty proceedings originated from the Assessing Officer's order imposing a penalty of ?63,85,940, which the Commissioner of Income-tax (Appeals) enhanced to ?2,05,43,868. The Commissioner based this on the interpretation that "payable" included amounts paid during the year, thus requiring TDS on the entire amount. The Tribunal later deleted the penalty, following a precedent from its Hyderabad Bench. The court noted that the issue of interpreting "payable" was debatable until the Supreme Court's decision. Therefore, disallowance based on this interpretation could not justify a penalty for concealment or inaccurate particulars of income.

3. Tribunal's Deletion of Penalty:

The Tribunal deleted the penalty, which the Revenue challenged. The court examined whether disallowance under Section 40(a)(ia) automatically led to a penalty under Section 271(1)(c). It concluded that a debatable issue, like the interpretation of "payable," could not form the basis for a penalty. The court also considered whether the penalty could be imposed for amounts that were "payable" at the end of the year. It found that the assessee had not conceded applicability of Section 194C at the time of filing the return, arguing instead that the payments were part of business costs under Section 28. The court cited the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., which clarified that merely making an unsustainable claim did not amount to furnishing inaccurate particulars. The court emphasized that the assessee had disclosed all details in the return, and the rejection of a claim did not equate to concealment or inaccuracy. Consequently, the Tribunal's deletion of the penalty was upheld, though based on different reasoning.

Conclusion:

The court affirmed the Tribunal's decision to delete the penalty, answering the substantial question of law in favor of the assessee and against the Revenue. The appeal was dismissed, reinforcing that a debatable issue could not justify a penalty for concealment or inaccurate particulars of income.

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