2020 (2) TMI 1147 - HC - Income Tax

Penalty u/s 271(1)(c) - defective notice - non specifying what was wrong with Assessing Officer's order as of why penalty was not leviable in this case - HELD THAT - There is no dispute on the fact that during the relevant assessment year, the assessee changed the accounting method from project completion to percentage method. It was the result of change of method that certain indirect expenses claimed could not be allowed. The account books of the assessee were found to be duly audited and prepared in accordance with accepted accounting standard. The change of accounting method was also duly disclosed by the auditor. It was not the case of the revenue even before the Appellate Authority that the assessee had suppressed any material fact. At the highest, the case of the revenue was that even though the material was disclosed by the assessee but he had claimed certain inadmissible expenses. Claiming of an expense which is not sustainable in itself cannot be a ground for invoking Section 271(1)(c) of the Act. In order to impose penalty under the said section, either there has to be concealed particulars of the income or furnishing of inaccurate particulars of the income. Rejection of a claim that too where in the facts of the present case it was result of change of accounting method is not sufficient for penalising the assessee. See RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT - No interference is warranted in deletion of penalty. - Decided against revenue

Summary

Issues:
- Appeal against deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961
- Whether the penalty was justified based on the facts and circumstances of the case
- Interpretation of Section 271(1)(c) regarding concealment or furnishing inaccurate particulars of income
- Application of the Supreme Court judgment in C.I.T. Ahmedabad v. Reliance Petroproducts, 2010 (322) ITR 158

The High Court heard an appeal against the deletion of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The case involved a search and seizure at the administrative office of a company and the residential premises of its Director, resulting in an addition to income. The penalty was imposed by the Assessing Officer but deleted by the 1st Appellate Authority and upheld by the Tribunal. The revenue contended that the penalty was justified due to sustained additions. However, the Court found that the change in accounting method led to the disallowance of certain expenses, which did not amount to concealment or furnishing inaccurate particulars of income under Section 271(1)(c).

The Court analyzed Section 271(1)(c) and emphasized that penalizing an assessee requires either concealment or furnishing inaccurate particulars of income. Merely claiming unsustainable expenses does not warrant a penalty under this section. Referring to the Supreme Court judgment in C.I.T. Ahmedabad v. Reliance Petroproducts, the Court highlighted that inaccuracies must be in the details provided in the return, not just in legal claims. The Court clarified that making incorrect claims in law does not constitute furnishing inaccurate particulars of income. Without any finding of incorrect details in the return, the penalty under Section 271(1)(c) cannot be imposed.

In light of the facts and legal principles, the Court concluded that the revenue's appeal lacked merit. The penalty deletion was upheld based on the absence of concealment or inaccurate particulars of income. The Court dismissed the appeal, affirming the decision to delete the penalty under Section 271(1)(c) of the Income Tax Act, 1961.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the legal interpretations applied, and the final decision rendered by the High Court in the appeal against the penalty deletion.