2018 (10) TMI 234 - AT - Income Tax

Penalty u/s. 271(1)(c) - debatable issue - Held that - In view of the observations of the Tribunal in quantum proceedings, it is clear that the issue relating to which the penalty is levied is a debatable issue in respect of which no penalty could be levied. It is not a matter of either concealment of income or furnishing of inaccurate particulars of income, but it is only a question of application of law while making disallowance and that ended up in addition and consequent penalty proceedings such as penalty cannot be sustained. With this view of the matter, we quash the penalty proceedings and direct the AO to delete the penalty in dispute. - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty order under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2007-08 based on concealment of income and inaccurate particulars.

Analysis:
The appeal was filed by the Assessee against the penalty order of &8377; 2,41,56,197/- imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961. The original assessment for the relevant year was completed with a total income at NIL, which was later revised by the Commissioner of Income Tax (Appeals) due to the capital gain on the sale of land not being considered for calculating book profit under section 115JB. The penalty proceedings were initiated as the long-term capital gain on the land sale was not reflected in the profit and loss account, leading to alleged inaccurate particulars of income. The Assessee's contention was that the addition in book profit was a debatable legal issue, supported by conflicting High Court judgments, and therefore, no concealment or inaccurate particulars were involved. The Assessee argued that penalties should not apply when the claim is bona fide or debatable, citing relevant case law.

The Tribunal noted that the quantum addition issue leading to the penalty was indeed debatable, as evidenced by conflicting High Court judgments. Despite the Tribunal deciding against the Assessee in the quantum appeal, it acknowledged the debatable nature of the issue. The Tribunal held that the penalty was not a result of concealment or furnishing inaccurate particulars but rather a question of the application of law in making disallowances. Therefore, the Tribunal concluded that the penalty could not be sustained in a situation where the issue was debatable, and directed the Assessing Officer to delete the penalty. The Tribunal quashed the penalty proceedings, allowing the Assessee's appeal against the penalty order.

In conclusion, the Tribunal's decision in this case emphasized the importance of considering the debatable nature of tax issues when imposing penalties under section 271(1)(c) of the Income Tax Act, 1961. The judgment highlighted that penalties should not be levied solely based on differences in interpretation or application of tax laws, especially in situations where there are conflicting judicial opinions. The Tribunal's ruling in favor of the Assessee underscored the principle that penalties should be reserved for cases of deliberate concealment or clear inaccuracies, rather than genuine legal uncertainties.