2009 (5) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) of the Income Tax Act.
2. Taxability of amounts received under keyman insurance policies.
3. Adequacy and nature of disclosure in the return of income.
4. Bona fide explanation and difference of opinion between the assessee and the AO.

Summary:

Issue 1: Levy of Penalty u/s 271(1)(c)
The assessee contested the penalty levied u/s 271(1)(c) for the assessment years 2003-04 and 2004-05, arguing that the penalty was imposed without considering relevant judgments and that the provisions of the section were not applicable to the facts of the case. The CIT(A) upheld the penalty, but the Tribunal found that the explanation provided by the assessee was bona fide and that the issue of taxation of the amount received was highly debatable. Therefore, the penalty was not justified.

Issue 2: Taxability of Amounts Received under Keyman Insurance Policies
The AO added Rs. 5,20,24,913 to the assessee's income, considering the difference between the amount paid by the company and the amount paid by the assessee for the assignment of keyman insurance policies. The AO also included Rs. 2.85 crores received on the maturity of a policy, treating it as income u/s 2(24)(xi). The Tribunal, however, directed that only the surrender value should be assessed as income at the time of maturity, indicating that the issue was debatable.

Issue 3: Adequacy and Nature of Disclosure in the Return of Income
The assessee disclosed the receipt of Rs. 2,51,13,308 from LIC as exempt u/s 10(10D) but did not provide complete details of the policy. The Tribunal noted that the disclosure was partial and that the actual amount received was Rs. 2.85 crores. Despite this, the Tribunal found that the explanation was bona fide, as the issue of taxation was debatable.

Issue 4: Bona Fide Explanation and Difference of Opinion
The Tribunal considered the explanation provided by the assessee, which argued that the assignment of the policy was not a taxable event and that the maturity amount was not from a keyman insurance policy. The Tribunal found that the explanation was bona fide and that the issue involved interpretation of the provisions, making it a matter of considerable debate. Therefore, the penalty u/s 271(1)(c) was not justified.

Conclusion:
The Tribunal allowed the appeals, concluding that the explanation provided by the assessee was bona fide and that the issue of taxation of the amounts received was debatable. The penalty levied by the AO was not upheld.