2020 (2) TMI 1045 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice - assessee s omission to offer interest income on Income Tax refund - According to CIT(A), the assessee cannot be held guilty of concealment of income warranting levy of penalty - whether an inadvertent and bona fide error and no contumacious conduct has been established by the AO? - HELD THAT - Show cause notices issued u/s 274 of the Act r.w.s. 271 of the Act dated 29.12.2016 issued by the AO before imposing penalty does not contain the specific charge against the assessee namely as to whether the assessee was being proceeded against for having concealed particulars of income or having furnished inaccurate particulars of income . A copy of the show cause notice u/s 274 of the Act dated 29.12.2016 was filed before us and perusal of the same reveals that AO has not struck out the irrelevant portion in the show cause notice and, therefore, the show cause notice does not specify the charge against the assessee as to whether the charge is for concealment of particulars of income or furnishing of inaccurate particulars of income . M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. Imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. - Decided against revenue. Unclaimed credit balances - Relevant assessment year - HELD THAT - CIT(A) taking note that the liability was pertaining to AY 1983-84 when the assessee/entity s income was not taxable and the liability of ₹ 1.75 cr. pertained to AY 1983-84 which was never allowed as deduction in the year in which it was debited/created so, the reversal of the same in the relevant assessment year cannot be brought to tax, which action of the Ld. CIT(A) cannot be found fault with. The judgments cited by the Ld. CIT, DR is distinguishable on the facts of this case and, therefore, we do not find any infirmity in the order of the Ld. CIT(A) and so, we confirm the same and dismiss the appeal of the revenue. Disallowing the contribution made by the assessee to Kolkata Port Trust officer s Club - HELD THAT - We note that the assessee Port Trust has been contributing every year for more than four decades annual contribution to this Officers club for the welfare of the employees and this annual contribution has been consistently allowed by the AO in earlier assessment years after scrutiny u/s. 143(3) of the Act. Therefore, based on the principles of consistency since the facts permeating in the earlier years are the same, and there is no change in the facts and law the disallowance was not warranted and, therefore, relying on the decision of CIT Vs. Radhasoami Satsang 1992 (9) TMI 71 - ALLAHABAD HIGH COURT as well as the case law referred to above, we are inclined to allow the ground of appeal raised by the assessee Disallowing the compensation claimed - AR submitted that this compensation claim has got two parts (i) unrealised portion of the compensation and (ii) realised portion - main arguments of the assessee is that the unrealised portion of the compensation of ₹ 101 cr.(approx) is capital in nature and, therefore, not taxable in the hands of the assessee - HELD THAT - Since the receipt of the portion of the compensation of ₹ 101 cr. in question is from the properties of the assessee held unauthorised by various parties, the receipt received by the assessee whether it is called compensation, damages etc. which is towards the loss of income is a revenue receipt and cannot be termed as a capital receipt since there is no loss of source of income. Therefore, this argument of the Ld. AR of the assessee is bereft of any merit and, therefore not accepted. Then coming to the taxability in respect of the unrealised portion of compensation, we are of the opinion that the quantum of amount towards loss of income respect of the property of the assessee has not been finalised since it is lis-pendence. Therefore, the amount in question has not reached finality and, therefore, not crystallised in the year under consideration, so when it gets crystallised/finalised, then it will be treated as a revenue receipt and taxed in accordance to law. Coming to this conclusion, we also apply the real income theory which is propounded in CIT Vs. M/s. Shoorji Vallabhdas Co. 1962 (3) TMI 6 - SUPREME COURT and Godhra Electricity Co. Ltd. Vs. CIT 1997 (4) TMI 4 - SUPREME COURT and since no real income has arisen for the assessee in the year under consideration in respect of the sum of ₹ 101 cr. (unrealised portion of the compensation) this amount need not be taxed in this assessment year, and we order accordingly. For this, we also rely on the decision of the Hon ble Bombay High Court in the case of DSL Enterprises (P) Ltd. Vs. Mrs. N.C. Chandratre, Income-tax Officer 2013 (3) TMI 440 - BOMBAY HIGH COURT .

Summary

Issues Involved:
1. Cancellation of penalty u/s. 271(1)(c) of the Income-tax Act, 1961.
2. Deletion of unclaimed credit balances.
3. Disallowance of contribution to Kolkata Port Trust Officer’s Club.
4. Disallowance of compensation claimed.

Detailed Analysis:

1. Cancellation of Penalty u/s. 271(1)(c):
The primary issue in ITA No. 453/Kol/2018 and CO No. 23/Kol/2019 revolves around the cancellation of a penalty levied by the Assessing Officer (AO) amounting to ?1,17,26,930/- under section 271(1)(c) of the Income-tax Act, 1961. The AO had added back ?3,50,67,785/- as interest on Income Tax Refund, which the assessee had failed to disclose in its return. The AO initiated penalty proceedings for filing inaccurate particulars of income. However, the Commissioner of Income-tax (Appeals) [CIT(A)] cancelled the penalty, holding that the omission was an inadvertent and bona fide error without any contumacious conduct. The Tribunal upheld the CIT(A)’s decision, emphasizing that the penalty notice issued by the AO was invalid as it did not specify the specific charge against the assessee, i.e., whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This decision was supported by precedents from the Karnataka High Court and the Supreme Court, which held that such vague notices render the penalty proceedings invalid.

2. Deletion of Unclaimed Credit Balances:
In ITA No. 452/Kol/2018, the issue pertains to the deletion of ?1.75 crore representing unclaimed credit balances. The AO had added this amount back to the total income of the assessee, stating that it was an outstanding liability from the year 1983-84 and not relevant to the assessment year 2014-15. The CIT(A) deleted this addition, noting that the liability pertained to a period when the assessee's income was not taxable, and thus, the reversal of the same in the relevant assessment year could not be brought to tax. The Tribunal upheld the CIT(A)’s decision, agreeing that since the liability was never allowed as a deduction in the year it was created, its reversal could not be taxed.

3. Disallowance of Contribution to Kolkata Port Trust Officer’s Club:
In ITA Nos. 367 to 369/Kol/2018, the issue involves the disallowance of contributions made by the assessee to the Kolkata Port Trust Officer’s Club. The AO disallowed ?19,42,034/- as non-business expenditure. The CIT(A) provided partial relief, allowing ?2,23,078/- contributed to the Kolkata Port Trust Officer’s Wives Association, which was registered under section 12AA and enjoyed exemption under section 80G. However, the CIT(A) confirmed the disallowance of ?17,18,956/- contributed to the officers’ club. The Tribunal allowed the assessee's appeal, noting that the contributions were for the welfare of the employees and had been consistently allowed in earlier years. The Tribunal emphasized the principle of consistency and allowed the contribution as a business expenditure.

4. Disallowance of Compensation Claimed:
The final issue pertains to the disallowance of compensation claimed by the assessee amounting to ?176,92,12,615/-. The assessee bifurcated this into unrealized compensation of ?101,84,03,098/- and realized compensation of ?75,08,09,517/-, with the latter not being contested. The AO added the unrealized compensation, stating that it represented accrued rent. The CIT(A) upheld this addition, rejecting the assessee’s claim that the compensation was capital in nature. The Tribunal, however, held that the unrealized compensation did not crystallize in the year under consideration due to ongoing litigation and uncertainties. Applying the real income theory, the Tribunal concluded that the unrealized compensation could not be taxed in the assessment year 2012-13 and should be taxed when it is finally realized.

Conclusion:
The Tribunal dismissed the revenue’s appeals and partly allowed the assessee’s appeals, emphasizing the principles of valid penalty notices, consistent treatment of business expenditures, and the real income theory in taxation.