2019 (9) TMI 868 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - additions towards partners remuneration, interest income and capital gain on redemption of mutual fund - HELD THAT - Disallowance of partners remuneration was made only for the reason that interest income was considered as income from other sources which in the opinion of AO did not qualify for book profit so as to compute partner s remuneration under s. 40(b). We notice that co-ordinate bench of Tribunal in some cases, namely, Akshar Associates 2015 (12) TMI 123 - ITAT AHMEDABAD and Horizan Motors 2015 (11) TMI 1789 - ITAT AHMEDABAD have taken a view that income under all the heads of income are eligible for computing partners remuneration. Without going to the correctness of the eligibility of remuneration from income generated under the head income from other sources , we firmly think that the action of the assessee cannot be discarded summarily on the face of divergent views prevailing on the subject. Thus, as claimed, the issue thus not free of debate at the time of filing of return by the assessee. The action of the assessee thus falls within the bracket of bonafide belief. In such circumstances, furnishing inaccurate particulars of income by the assessee cannot be alleged as contemplated under s. 271(1)(c) of the Act. In so far as inclusion of capital gains of maturity of mutual funds is concerned, it is noticed that the assessee has explained the sources of such investment but the effect of redemption was left out to be given in the books of accounts. The assessee has pleaded oversight and mistake. It was pointed out that mistake was committed as it was assumed that long term capital gains from units of mutual funds is exempt from taxation. The other additions towards interest income was on account of mistake in showing correct income due to non-availability of interest income arising from IDBI Ltd. The action of the assessee was however in conformity with the TDS certificate. The assessee has thus discharged the burden of explaining the circumstances of omission or mistakes. Assessee has acted bonafide and there appears to be no falsity in the explanation offered by the assessee. Imposition of penalty on fastening of tax liability is not automatic. The fulfillment of conditions stipulated in Section 271(1)(c) of the Act is a sin qua non for imposition of penalty u/s 271(1)(c) of the Act. The existence of conditions is not discernable from the case records - Decided in favour of assessee.

Summary

Issues Involved:
- Challenge against penalty order under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2008-09.
- Disallowance of partners' remuneration, interest income, and capital gain on redemption of mutual fund.
- Consideration of bonafide belief in furnishing inaccurate particulars of income.
- Explanation for omission or mistakes in showing correct income.
- Imposition of penalty and conditions under Section 271(1)(c) of the Act.

Detailed Analysis:

1. Challenge against Penalty Order:
The appeal was filed against the penalty order imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2008-09. The appellant contested the penalty on various additions and disallowances, including partners' remuneration, interest income, and capital gain on redemption of mutual fund.

2. Disallowance of Partners' Remuneration:
The Assessing Officer disallowed the partners' remuneration claimed by the assessee under section 40(b) of the Act, as the partners were HUF and no service was rendered by them. The AO also disallowed manuscript expenses for non-compliance with TDS provisions. The CIT(A) partially granted relief, and subsequent rectification reduced the disallowance of remuneration. Penalty was imposed based on these disallowances.

3. Bonafide Belief in Furnishing Inaccurate Particulars:
The Tribunal considered the issue of partners' remuneration and observed divergent views on the eligibility of remuneration from income under different heads. The Tribunal concluded that the assessee's actions fell within the bracket of a bonafide belief, and thus, furnishing inaccurate particulars of income could not be alleged under section 271(1)(c) of the Act.

4. Explanation for Omission or Mistakes:
Regarding the inclusion of capital gains and interest income, the assessee explained oversight and mistakes in the treatment of these items. The Tribunal noted that the assessee acted bonafide and provided a plausible explanation for the errors, including assumptions about tax exemptions and compliance with TDS certificates.

5. Imposition of Penalty and Conditions under Section 271(1)(c):
The Tribunal emphasized that the imposition of penalty for tax liability is not automatic and must fulfill the conditions of section 271(1)(c) of the Act. As the existence of these conditions was not evident from the case records, the Tribunal set aside the CIT(A)'s order and directed the AO to cancel the penalty imposed under section 271(1)(c) of the Act.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting the importance of bonafide belief, explanations for errors, and the necessity to meet the conditions for imposing penalties under the Income Tax Act, 1961.