2015 (2) TMI 398 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of ₹ 22,79,123/- being compensation paid to M/s Hyderabad Industries Ltd. pursuant to the settlement between the parties - Held that - This is an issue where the question is the year of allowability of the particular claim of the assessee. There is a genuine difference of opinion on this issue which is debatable. Just because the assessee has made the claim during the current financial year and this claim has been disallowed, in our view penalty cannot be imposed on the ground of furnishing of inaccurate particulars of income. Thus cancel the order of the Ld. CIT(A) confirming the penalty levied u/s 271(1)(c) - Decided in favour of assessee. Disallowing of living allowance paid to Russian expats by invoking the provisions of Section 40(1))(ia) - Held that - When the Commissioner of Income Tax (TDS) is of the view that no TDS need be made on these living allowances paid to the Russian experts, the question of sustaining, the disallowance u/s 40(a)(ia) does not arise. The contention of the Ld. DR that the order of the first Ld. CIT(TDS) is for certain other assessment years and hence cannot be applied to this assessment year is devoid of merits on the issue involved is the same. In the result we delete the disallowance u/s 40(a)(ia)- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of compensation paid to M/s Hyderabad Industries Ltd.
2. Penalty levied under section 271(1)(c) for furnishing inaccurate particulars of income.

Issue 1: Disallowance of Compensation Paid to M/s Hyderabad Industries Ltd.:
The appeal was filed against the disallowance of compensation paid to M/s Hyderabad Industries Ltd. The AO disallowed the claim as the assessee did not deduct TDS on the interest amount paid to M/s. Hyderabad Industries. The dispute arose from the supply of equipment and subsequent arbitration leading to a settlement. The AO disallowed the claim of Rs. 22,79,123 as project expenses settlement amount. The first appellate authority upheld the disallowance.

Issue 2: Penalty Levied under Section 271(1)(c) for Furnishing Inaccurate Particulars:
The AO imposed a penalty under section 271(1)(c) for furnishing inaccurate particulars of income. The first appellate authority upheld the penalty, stating that the claim made by the assessee was incorrect and an attempt to evade taxes. The assessee contended that there was no difference between the returned income and the assessed income, thus no penalty should be levied. The penalty was justified based on the AO's findings of deliberate attempt to defraud the revenue.

Legal Arguments:
The assessee argued that the liability did crystallize during the year and hence no penalty should be imposed. The Gujrat High Court's decision in a similar case was cited to support the argument. The assessee also highlighted the issue of TDS and the year of allowability of the claim to contest the penalty imposition.

Judgment:
The Tribunal held that there was a genuine difference of opinion on the year of allowability of the claim, making it a debatable issue. As the claim was disallowed due to a dispute regarding the year, penalty for furnishing inaccurate particulars of income was not justified. Citing the Gujrat High Court's decision, the Tribunal allowed the appeal and canceled the penalty. In another appeal regarding disallowance of living allowance to Russian experts, the Tribunal ruled in favor of the assessee based on the Commissioner of Income Tax's previous order exempting such payments.

In conclusion, both appeals of the assessee were allowed, and the penalties were canceled based on the debatable nature of the issues involved.

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