2018 (7) TMI 660 - HC - Income Tax

Penalty u/s 271(l)(c) - whether penalty is automatically levied when the assessee makes a claim of write off which consequently reduces the tax incidence to be borne by the assessee? - Held that - The assessee disclosed all the particulars of his income. The AO has disallowed his claim without holding it to be bogus or false. Hence, the genuineness of the loss occurred is not at question here The intention of the Parliament cannot be taken to have been to penalize everyone who makes a wrong claim for deduction. The legislature does not intend to penalize every person whose claim is disallowed. This is not the aim of the legislature. The Tribunal in the facts of this case, therefore, correctly reached this conclusion. The question of law is answered in favour of the assessee and against the Revenue

Summary

Issues:
1. Interpretation of Section 271(1)(c) of the Income Tax Act, 1961 regarding penalty imposition for inaccurate claim.
2. Whether the assessee's claim of writing off capital work-in-progress justifies penalty imposition.
3. Application of the principles of concealment and furnishing inaccurate particulars of income in penalty proceedings.

Issue 1: Interpretation of Section 271(1)(c) regarding penalty imposition for inaccurate claim

The High Court considered the question of law arising in the revenue's appeal under Section 260A of the Income Tax Act, 1961. The core issue was whether the Income Tax Appellate Tribunal (ITAT) erred in holding that the assessee was not liable to penalty under Section 271(1)(c) for an inaccurate claim. The court analyzed the provisions of Section 271(1)(c) and emphasized that penalty is not automatic but requires intentional wrongdoing to be established by the Revenue.

Issue 2: Justification of penalty imposition for writing off capital work-in-progress

The case involved the assessee company's decision to write off capital work-in-progress related to an unviable project. The Assessing Officer disallowed the claim as a revenue loss, leading to penalty proceedings under Section 271(1)(c). The court examined whether the claim for writing off amounts that were never utilized could attract penalty. It was argued that the claim reduced the tax incidence, but the court emphasized that penalty is not levied automatically and must meet the conditions of intentional wrongdoing.

Issue 3: Application of concealment and furnishing inaccurate particulars in penalty proceedings

The court delved into the meaning of "concealment" and "furnishing inaccurate particulars of income" under Section 271(1)(c). Referring to legal precedents, the court highlighted that penalty can only be imposed when intentional wrongdoing is proven. The court emphasized that the provision is penal and not based on strict liability. It was clarified that merely making an incorrect claim in law does not automatically attract penalty unless intentional concealment or furnishing inaccurate particulars is established. The judgment favored the assessee, emphasizing that not every disallowed claim warrants penalty, aligning with the legislative intent.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee and against the Revenue. The judgment underscored the importance of establishing intentional wrongdoing for penalty imposition under Section 271(1)(c) and clarified that not every disallowed claim leads to penalty, aligning with the legislative intent and legal principles.