2019 (1) TMI 548 - HC - Income Tax

Penalty u/s 271(1)(c) - addition of capital gain - Held that - The firm actually paid such amount inclusive of tax payable on such receipt to the sisters. The assessee claimed the deduction of such payments while offering the receipts by way of capital gain in the return filed for the said assessment year 2009-10. AO did not accept the Assessee s contention and insisted that the entire capital gain should have been offered by the firm itself. The assessee in such circumstance argued that in such case the tax paid on the amounts paid offered to to the sisters may be given to the credit of. The Assessing Officer accepted such requests. AO initiated the penalty proceeded for their declaration of capital gain by the assessee. The Tribunal allowed the appeal and deleted the penalty on the ground that the assessee had put-forth a bonafide claim making full disclosures and no question of penalty would therefore be arise. We are in agreement with the view of the Tribunal. The Assessee had raised a claim giving full particulars thereof. Even if such claim was found to be not sustainable, the penalty in any case could not have been levied since the assessee had raised a bonafide claim. - decided against revenue.

Summary

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

Analysis:
The High Court of Bombay heard an appeal filed by the Revenue challenging the judgment of the Income-tax Appellate Tribunal (ITAT) regarding the deletion of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The main question of law raised by the Revenue was whether the ITAT was correct in deleting the penalty. The case involved a partnership firm that had sold immovable property, resulting in capital gains. The firm claimed a deduction for payments made to three sisters as per a will of one of the partners. The Assessing Officer disagreed with the firm's contention and initiated penalty proceedings. However, the Tribunal ruled in favor of the assessee, stating that the claim made was bona fide and penalty should not be levied.

The High Court agreed with the Tribunal's decision, emphasizing that the assessee had made full disclosures and raised a genuine claim, even if it was ultimately found to be unsustainable. The court highlighted that the mere fact that a claim was not accepted did not warrant the imposition of a penalty, especially when the claim was made in good faith. Therefore, the court dismissed the income-tax appeal, upholding the deletion of the penalty under Section 271(1)(c) of the Income Tax Act, 1961.