2018 (6) TMI 147 - AT - Income Tax

Penalty u/s 271(1)(c) - deemed rental value when treatment of the addition in assessment order was confirmed by himself as concealed income - Bonafide belief -Held that - On the basis of conflicting views of two benches of the Tribunal on the issue under consideration, it could safely be concluded that as the issue under consideration was not free from doubts and debates, thus the assessee could not be subjected to levy of penalty under Sec. 271(1)(c) for adopting one of such view As the claim raised by the assessee was clearly backed by a bonafide belief on his part, that the notional income of the villa was not liable to be taxed in India, therefore, on the said count too no penalty under Sec. 271(1)(c) could have been validly imposed on the assessee - No penalty under Sec. 271(1)(c) of the Act could have been imposed on the assessee in respect of the addition of an amount made by the A.O towards notional income of the villa owned by the assessee at Dubai. The order of the CIT(A) deleting the penalty imposed by the A.O under Sec. 271(1)(c) is upheld. - Decided in favour of assessee Addition made towards Long Term Capital Gain on sale of structured product, viz. 0% debentures - Held that - Raising of an incorrect claim in law cannot be construed as furnishing of inaccurate particulars of income. As it remains an admitted position that no information given by the assessee in its return of income in respect of either the amount of sale proceeds or the cost of acquisition of the structured product, viz. 0% debentures of Deutsche Investments India Pvt. Ltd. is found to be incorrect or inaccurate, therefore, the wrong computation of the LTCG can by no means be characterised as furnishing of inaccurate particulars of income by the assessee. We find that our aforesaid view that where no information given in the return of income was found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars, for the reason that he had on the basis of said facts made an incorrect claim in law, is fortified by the judgment of the Hon ble Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) for deemed rental value.
2. Deletion of penalty under Section 271(1)(c) for incorrect deemed rental value.
3. Deletion of penalty under Section 271(1)(c) for long-term capital gain on structured products.
4. Applicability of the Supreme Court decision in CIT Vs. Reliance Petroproducts P. Ltd.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) for Deemed Rental Value:
The assessee, a film actor, owned a property in Dubai and declared an estimated rental value in his return. The Assessing Officer (A.O) argued that the deemed annual value should be taxed in India as per Section 23(1)(a) of the Income Tax Act, despite the assessee's reliance on the India-UAE Double Taxation Avoidance Agreement (DTAA). The A.O added ?47,66,952 to the assessee's income based on a higher valuation report. The CIT(A) and the Tribunal upheld the A.O's view but deleted the penalty, noting that the issue was debatable and the assessee had a bona fide belief based on the DTAA and judicial interpretations. The Tribunal concluded that no penalty under Section 271(1)(c) could be imposed for such a debatable issue.

2. Deletion of Penalty under Section 271(1)(c) for Incorrect Deemed Rental Value:
The Tribunal observed that the assessee had initially offered ?14,00,000 as notional income and later claimed exemption based on DTAA provisions. The A.O's reliance on CBDT notifications to tax the notional income was contested by the assessee, who believed the DTAA provisions prevailed. The Tribunal agreed with the CIT(A) that the assessee's claim was based on a bona fide belief and that the issue was not free from doubts and debates. Therefore, the penalty for furnishing inaccurate particulars of income was not justified.

3. Deletion of Penalty under Section 271(1)(c) for Long-Term Capital Gain on Structured Products:
The assessee computed long-term capital gain (LTCG) on the sale of 0% debentures with indexation, which the A.O corrected under Section 112, disallowing indexation and taxing the gain at 10%. The A.O imposed a penalty for furnishing inaccurate particulars of income. The CIT(A) and the Tribunal found that the assessee had disclosed all relevant details and the mistake was bona fide. The Tribunal, citing the Supreme Court's decision in Reliance Petroproducts, held that an incorrect claim in law does not amount to furnishing inaccurate particulars of income, and thus, no penalty was warranted.

4. Applicability of the Supreme Court Decision in CIT Vs. Reliance Petroproducts P. Ltd:
The Tribunal relied on the Supreme Court's judgment in CIT Vs. Reliance Petroproducts P. Ltd, which stated that making an incorrect claim in law does not tantamount to furnishing inaccurate particulars of income. The Tribunal applied this principle to both the issues of deemed rental value and LTCG on structured products, concluding that the assessee's claims were bona fide and based on a plausible interpretation of the law, thus no penalty under Section 271(1)(c) was justified.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the penalties imposed under Section 271(1)(c) for both the deemed rental value and the LTCG on structured products. The Tribunal emphasized that the issues were debatable and the assessee's claims were made in good faith based on a plausible interpretation of the law.