2010 (11) TMI 24 - HC - Income Tax

Penalty u/s 271(1)(c) - AO did not accept the claim of deduction u/s 54EC to the extent of purchase of Rural Electrification Corporation Bonds - AO found that that the bonds were purchased beyond the prescribed period of six months. - AO also levied penalty under Section 271(1)(c) - Held that - The mistake in making the investment within the prescribed time can be the basis for disallowing the claim of deduction u/s 54EC of the Act but cannot be the basis for levy of penalty u/s 271(1)(c) of the Act.

Summary

Issues:
Appeal under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal for the assessment year 2006-07 regarding the deletion of penalty under Section 271(1)(c) of the Act.

Analysis:
The appellant, the revenue, filed an appeal under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal, Chandigarh, for the assessment year 2006-07. The substantial question of law proposed was whether the ITAT was correct in upholding the order of the CIT(A) in deleting the penalty imposed under Section 271(1)(c) of the Act. The assessee derived income from capital gains and claimed deduction for the purchase of Rural Electrification Corporation Bonds under Section 54EC of the Act. The Assessing Officer disallowed the claim stating that the bonds were purchased beyond the prescribed period of six months and levied a penalty under Section 271(1)(c) of the Act. On appeal, the CIT(A) deleted the penalty, emphasizing that the delay in investment did not amount to concealment of income as the assessee had disclosed all material facts. The Tribunal concurred with the CIT(A) and dismissed the revenue's appeal, citing that no concealment of income was found.

The Tribunal held that penalty under Section 271(1)(c) of the Act is applicable when there is concealment or furnishing of inaccurate particulars of income. In this case, the basis for the penalty was the denial of benefit under Section 54EC of the Act. The assessee had invested in bonds for deduction under Section 54EC, even though there was a slight delay in the investment. The Tribunal noted that the assessee had disclosed all relevant facts and the explanation was not false. Referring to a previous judgment, the Tribunal concluded that no malafides could be attributed to the assessee, and the penalty cancellation was justified. The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c) of the Act, dismissing the revenue's appeal.

The High Court, after hearing the appellant's counsel, observed that since both the CIT(A) and the Tribunal had found no concealment of income by the assessee, no substantial question of law arose. Consequently, the appeal was dismissed.

Conclusion:
The High Court upheld the decisions of the CIT(A) and the Tribunal, concluding that the delay in investment did not amount to concealment of income, and therefore, the penalty under Section 271(1)(c) of the Income Tax Act was rightly deleted.