2008 (5) TMI 299 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Concealment Of Income - Whether addition made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in section 271(1)(c) - CIT imposed penalty in respect of addition of sum made by him to the total income of the assessee by way of enhancement on account of security deposit received by it from DMIL under memorandum of understanding treating the same as the income accrued to the assessee in the year under consideration - HELD THAT - In the case of Delhi Development Authority v. Durga Chand Kaushish 1973 (8) TMI 161 - SUPREME COURT held that in considering the document, one must have regard to the meaning of the words it has used and not to the presumed intention of the parties. If the memorandum of understanding between the assessee and DMIL especially the relevant clauses, i.e., clauses 8 to 11 thereof, is interpreted by applying this principle laid down by the Supreme Court, it can be seen that the interpretation given by the assessee to the said document while taking the stand that the amount in question was its security deposit and did not represent any income accrued during the year under consideration, was a possible one and the stand so taken was bona fide. We are of the view that the claim of the assessee treating the amount in question received from DMIL as security deposit was bona fide as the same was based on the interpretation given to the memorandum of understanding especially the relevant clauses which was possible as discussed and although the said claim was not found to be acceptable in the quantum proceedings on the merits, it was not a case of concealment as envisaged in section 271(1)(c) attracting levy of penalty especially when all the material facts relevant to the said claim were duly furnished by the assessee before the AO. In that view of the matter, we set aside the impugned order of the ld CIT(A) imposing the penalty u/s 271(1)(c) and cancel the penalty so imposed. In the result, the appeal of the assessee is allowed.

Issues Involved:
1. Imposition of penalty under section 271(1)(c) for concealment of income.
2. Nature of the amount of Rs. 3 crores received by the assessee from DMIL.
3. Interpretation of the clauses of the memorandum of understanding (MOU) between the assessee and DMIL.
4. Determination of whether the amount of Rs. 3 crores constituted income accrued during the year under consideration.
5. Bona fide belief and disclosure of particulars by the assessee.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The appeal was directed against the order of the Commissioner of Income-tax (Appeals) who imposed a penalty under section 271(1)(c) for 100% of the tax sought to be evaded concerning the addition of Rs. 3 crores. The penalty was imposed on the grounds that the assessee had furnished inaccurate particulars of income by showing the amount as a security deposit instead of income.

2. Nature of the Amount of Rs. 3 Crores:
The assessee, a company acting as a liaison and service agent for DMIL, received Rs. 3 crores from DMIL. The amount was shown as a trade deposit in the assessee's books. The Commissioner of Income-tax (Appeals) held that this amount was non-refundable and represented the income accrued to the assessee on the signing of the MOU, thus enhancing the income by Rs. 3 crores.

3. Interpretation of the Clauses of the MOU:
The relevant clauses of the MOU between the assessee and DMIL were scrutinized. Clause 8 specified that DMIL would pay a fee equal to 1% of the contract value, subject to a minimum of Rs. 3 crores. Clause 9 stated that the fee would accrue on the date the contract was signed or an order was placed by DTC. Clause 10 mentioned an interest-free deposit of Rs. 3 crores, and Clause 11 stated that this deposit would be non-refundable if DMIL withdrew or no order was placed by DTC.

The Commissioner of Income-tax (Appeals) interpreted these clauses to mean that the amount was a non-refundable fee and thus income accrued to the assessee. The Tribunal upheld this interpretation, stating that the amount was not a deposit but minimum fees paid by DMIL.

4. Determination of Income Accrued During the Year:
The assessee argued that the amount did not accrue as income during the year under consideration since none of the events specified in Clause 9 occurred within that period. However, the Commissioner of Income-tax (Appeals) and the Tribunal concluded that the amount represented income accrued on the signing of the MOU, as it was non-refundable and not contingent on future services.

5. Bona Fide Belief and Disclosure of Particulars:
The assessee contended that its treatment of the amount as a security deposit was based on a bona fide belief and professional advice. The assessee disclosed all relevant particulars, including the MOU, to the Assessing Officer, who initially accepted the assessee's stand. The Tribunal noted that the assessee's claim was based on a possible interpretation of the MOU clauses and that all material facts were disclosed.

Conclusion:
The Tribunal held that the claim made by the assessee was bona fide and based on a possible interpretation of the MOU. Since the assessee had disclosed all relevant particulars, it could not be said to have concealed income or furnished inaccurate particulars. The penalty under section 271(1)(c) was therefore not justified. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) imposing the penalty and allowed the appeal.

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