2019 (8) TMI 501 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of deduction u/s 80IA - HELD THAT - Not only tax audit report but also audited financial statements were filed well within the time and only due to the shortage of fund, the assessee could not pay self-assessment tax, therefore, return could not be filed before due date. While declining claim of deduction u/s 80IA no defect was pointed out by the A.O. with regard to assessee s eligibility save and except there was delay in filing return of income. Eligible amount of deduction U/s 80IA was mentioned in the tax audit report and clause (26) of Form 3CD. Thus, there was a substantial compliance of the provisions of Section 80IA read with Section 80AC of the Act by filing tax audit report with audited financial statement well in time. Under these facts and circumstances when there was full disclosure by the assessee and there was no failure on the part of the assessee to fully disclosed all the material facts with regard to claim of deduction U/s 80IA Penalty is not an automatic consequence for every addition to returned income. Merely because an addition is made to the income declared by the assessee, penalty u/s.271(1)(c) could not be imposed. Raising a bona fide legal claim in the return of income, even if it is ultimately found to be legally not acceptable, could not amount to concealing particulars of income or furnishing of inaccurate particulars of income. The assessee could not be saddled with penal consequences merely because a bona fide legal claim was made in the return of income and the same has not been accepted by the tax authorities or appellate authorities so far. Thus, the case of assessee could not be said to be a case of 'concealing particulars of income' or 'furnishing of inaccurate particulars of income' as contemplated under section 271(1)(c) In this case, all the material facts relevant to the computation of total income was duly furnished by the assessee and no deficiency in furnishing of such facts was pointed out either by the A.O. or by the ld. CIT(A). Deeming fiction of Explanation 1 to Section 271(1)(c) was not applicable to the assessee's case and merely on account of disallowance of certain claim, penalty cannot be imposed u/s 271(1)(c) of the Act - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of deduction under Section 80IA due to delay in filing the return of income.
3. Interpretation of the provisions of Section 80AC and its mandatory or directory nature.
4. The distinction between assessment proceedings and penalty proceedings.
5. Applicability of Explanation 1 to Section 271(1)(c) regarding furnishing of inaccurate particulars.

Analysis of Judgment:

1. Imposition of Penalty under Section 271(1)(c):
The core issue was whether the penalty under Section 271(1)(c) was justified when the deduction under Section 80IA was disallowed due to a delayed filing of the return. The assessee argued that all relevant documents, including the tax audit report and audited financial statements, were filed on time, and the delay was due to a genuine shortage of funds to pay the self-assessment tax. The Tribunal noted that penalty proceedings are distinct from assessment proceedings and that the mere disallowance of a claim does not automatically justify the imposition of a penalty.

2. Disallowance of Deduction under Section 80IA:
The AO disallowed the deduction claimed under Section 80IA because the return was filed 31 days late. The Tribunal observed that the tax audit report and audited financial statements were filed on time, and the delay was due to circumstances beyond the assessee's control. The Tribunal emphasized that the provisions of Section 80AC, which require timely filing of the return for claiming deductions, should be interpreted liberally, especially when the delay is not deliberate.

3. Interpretation of Section 80AC:
The assessee contended that Section 80AC should be considered directory rather than mandatory. Citing the case of CIT Vs. M/s Unitech Ltd. and CIT Vs. Gujarat Oil & Allied Industries, the Tribunal agreed that procedural requirements should not override substantial justice. The Tribunal found that the assessee had substantially complied with the provisions by filing the necessary reports on time, although the return was delayed.

4. Distinction Between Assessment and Penalty Proceedings:
The Tribunal reiterated that penalty proceedings are separate from assessment proceedings. The mere fact that a claim was disallowed does not automatically lead to a penalty. The Tribunal referenced various judicial pronouncements, including CIT v. Reliance Petroproducts (P) Ltd., to underline that making an unsustainable claim in law does not amount to furnishing inaccurate particulars.

5. Applicability of Explanation 1 to Section 271(1)(c):
The Tribunal found that Explanation 1 to Section 271(1)(c), which deals with furnishing inaccurate particulars, was not applicable in this case. The assessee had disclosed all material facts relevant to the computation of total income, and there was no concealment. The Tribunal emphasized that the penalty is not a consequence of every addition to the returned income and should be imposed only when the conditions of Section 271(1)(c) are met.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not justified in this case. The assessee had made a bona fide claim for deduction under Section 80IA and had disclosed all relevant facts. The delay in filing the return was due to genuine reasons, and there was no intention to furnish inaccurate particulars. Therefore, the Tribunal directed the AO to delete the penalty of ?27,35,224 imposed under Section 271(1)(c). The appeal of the assessee was allowed, and the order was pronounced in open court on 05th August 2019.

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