2018 (3) TMI 151 - HC - Income Tax

Penalty u/s 271(1)(c) - whether the sales tax refund figures should be adopted based on the view taken by the Assessee to compute its profits dehors orders of sales tax authorities or it should be based on order of the sales tax authorities? - tribunal deleted penalty - Held that - We note that it is an undisputed fact that the practice adopted by the Assessee in the subject assessment year has been consistently followed by it in the earlier and subsequent assessment year i.e. offer the sales tax refund as a part of its income when the refund is sanctioned by the Authorities under the Sales Tax Act. Assessee has also pointed out to the authorities during the penalty proceedings, that provisions for sales tax refund, which it had reduced, from its profits to determine taxable income, was in fact offered to tax as income in a subsequent assessment year 2000-01 i.e. on passing of orders of refund by the sales tax authorities. It is particularly to be noted that the above amounts were offered to tax for assessment year 2000-01 i.e much prior to initiation of reopening proceedings by the Assessing Officer for subject assessment year 1998-99. Therefore, in the present facts, the view taken by the Tribunal is a reasonable and possible view.

Summary

Issues:
Challenge to deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The case involved an appeal challenging the deletion of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The dispute arose from the Respondent-Assessee's treatment of provisions for sales tax refund in its income computation. The Assessing Officer disallowed the deduction of sales tax refund provisions, leading to penalty proceedings. The Tribunal, however, allowed the Respondent's appeal by deleting the penalty. The Respondent argued that the sales tax refund should be included in income only when the refund order is passed by the Sales Tax Authorities, as the amount had not yet accrued. The Tribunal found that there were two possible views on when to recognize the income: either at the provision stage or when the refund order is granted. Since there was no clear rule on the matter, the Tribunal deemed the issue debatable and not warranting a penalty.

In response, the Appellant contended that once the Respondent failed in the quantum proceedings, the penalty should automatically follow. The Appellant argued that since the Respondent had included the sales tax refund in its income during computation, it could not later exclude it for tax purposes. However, the Tribunal noted that the Respondent had consistently followed the practice of recognizing sales tax refunds as income only upon the refund order being passed by the Authorities. The Respondent also demonstrated that the amounts in question were indeed included in income in a subsequent assessment year, well before the reopening proceedings for the subject assessment year.

Ultimately, the Tribunal found the Respondent's approach to be reasonable and consistent with past practices. As the issue involved differing interpretations and no clear legal directive, the Tribunal concluded that the question raised did not give rise to any substantial question of law. Consequently, the appeal was dismissed, and no costs were awarded.