2022 (9) TMI 178 - AT - Income Tax

Penalty levied u/s 271(1)(c) - assessee made claim for deduction of expenses which were not allowable - CIT-A deleted penalty levy - HELD THAT - As section 271 (1) (c) applies where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income . The present was not a case of concealment of the income. As regards the furnishing of inaccurate particulars, no information given in the Return was found to be incorrect or inaccurate. The words inaccurate particulars mean that the details applied in the Return are not accurate, not exact or correct, not according to truth or erroneous. In the absence of a finding by the AO that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271(l)(c). The argument of the revenue that submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 27I(l)(c). That is clearly not the intendment of the Legislature. The law laid down in Dilip Shroff 2007 (5) TMI 198 - SUPREME COURT as to the meanings of the words conceal and inaccurate continues to be good law because what was overruled in Dharmendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT was only that part in Dilip Shroff where it was held that mens rea was an essential requirement for penalty u/s 271(l)(c). The judgment of Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT clearly shows the rejection of claim would not result in penalty consequences to the appellant. The penalty is therefore not sustainable and is deleted - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2014-15.

Analysis:
The case involves the appeal by the Revenue against the deletion of a penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2014-15. The assessee, a public sector sick industrial undertaking, initially filed a return declaring a loss of Rs. 89,65,48,539/- for the year. Subsequently, a revised computation of income was submitted based on audited accounts, declaring a total loss of Rs. 105.74 crores. The Assessing Officer completed the assessment based on the revised computation and initiated penalty proceedings under section 271(1)(c) of the Act, which was later imposed. The issue revolved around whether the penalty was justified for claiming deductions that were not allowable under the law. The Ld. CIT(A) deleted the penalty, emphasizing that merely making a claim for expenses not allowable under the law does not automatically lead to the imposition of a penalty for furnishing inaccurate particulars of income.

The penalty order was based on the claim that the assessee made deductions for expenses that were not allowable, leading to a reduced tax liability. However, the explanation provided by the assessee was that the original return was filed on an estimated basis due to the unaudited accounts and finalized after the accounts were audited. The Ld. CIT(A) observed that the company being a sick undertaking under BIFR faced challenges in finalizing accounts due to staff shortage and heavy losses, justifying the initial estimated filing. The penalty provision under section 271(1)(c) applies when there is concealment of income or furnishing of inaccurate particulars, and in this case, the explanation provided by the assessee was considered bona fide.

The judgment referred to the precedent set by the Supreme Court in Reliance Petroproducts, emphasizing that even if a claim is unsustainable, it does not automatically lead to a penalty under section 271(1)(c). The court clarified that the mere making of a claim not sustainable in law does not amount to furnishing inaccurate particulars regarding the income of the assessee. The Ld. CIT(A) concurred with this interpretation, leading to the deletion of the penalty. The Tribunal dismissed the appeal by the Revenue, upholding the decision to delete the penalty under section 271(1)(c) for the assessment year 2014-15.

In conclusion, the judgment highlights the importance of distinguishing between unsustainable claims and deliberate concealment or furnishing of inaccurate particulars of income when imposing penalties under section 271(1)(c) of the Income Tax Act. The decision in this case underscores the need for a bona fide explanation and adherence to legal provisions before penalizing taxpayers for claims that may not be allowable under the law.