2013 (3) TMI 370 - HC - Income Tax

Penalty u/s 271(1)(c) - as per AO the assignment transaction between the assessee and MIRC was a sham transaction / colourable device and brought to tax an amount of Rs.26.68 crores in the hands of MIRC on account of cessation of sales tax liability under Section 41(1) of the Income Tax Act - Tribunal deleted the penalty - Held that - Tribunal was of the view that the assessee had disclosed the accounting policy adopted by it in determining profits from the assignment of business, that the assignment of liability and purchase of debts were two integral part of assignment of business and the net realizable value of the debt made by the assessee was bona fide and honest. The basis adopted by the Tribunal in the quantum proceedings to determine the income of the assessee from assignment business was entirely different from the one adopted by the assessee as also the basis adopted by the assessing officer and, therefore, it is clear that the issue of determination of exact income of the assessee from assignment business was not free from debate on which different views were possible. Accordingly, the Tribunal held that in the facts and circumstances of the case, it cannot be said that the assessee had concealed income so as to attract penalty under Section 271(1)(c) of the Act. The decision of the Tribunal in deleting the penalty inter alia on the ground that all the relevant particulars about the income relating to assignment of business were fully furnished and even the accounting policy adopted for determining the said income was disclosed, cannot be faulted - in favour of assessee.

Summary

Issues:
1. Justification of deleting penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2004-2005.

Analysis:
In this case, the appellant, the Revenue, challenged the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961 by the Tribunal for the assessment year 2004-2005. The dispute revolved around the transaction between the respondent-assessee and M/s.MIRC Electronics Limited (MRRC) regarding the assignment of deferred sales tax loan liability and receivables. The assessing officer considered the transaction as a sham and brought to tax certain amounts. The CIT (A) upheld the additions made by the assessing officer. However, the Tribunal differed in its opinion, acknowledging that the assessee had earned a higher profit than declared. The Tribunal confirmed an addition to the income of the assessee, leading to the penalty proceedings.

Regarding the penalty, the assessing officer imposed a penalty of 100% of the tax sought to be evaded on the addition made to the total income of the assessee. The Commissioner of Income Tax (A) upheld this penalty. However, the Tribunal, in its impugned order, decided to delete the penalty. The Tribunal reasoned that the assessee had disclosed its accounting policy for determining profits from the assignment of business. It emphasized that the assignment of liability and purchase of debts were integral parts of the business assignment, and the net realizable value of the debt was genuine. The Tribunal noted the differing bases adopted by the assessing officer, the assessee, and itself in determining the income from the assignment business, indicating a debate on the issue. Consequently, the Tribunal concluded that the assessee had not concealed income to attract penalty under Section 271(1)(c) of the Act.

The High Court upheld the Tribunal's decision to delete the penalty. It noted that all relevant particulars about the income from the assignment of business were disclosed, including the accounting policy adopted. The Court found no fault in the Tribunal's reasoning and concluded that the appeal by the Revenue had no merit. As a result, the appeal was dismissed with no order as to costs.