2015 (3) TMI 1029 - HC - Income Tax

Penalty imposed under Section 271(1)(c) - Tribunal dismissed the appeal of the Revenue and the penalty imposed under Section 271(1)(c) has been disallowed - Held that - Additions in respect of which penalty under Section 271(1)(c) of the Act was levied, have been admitted by the High Court for consideration and thus found that the additions made were debatable and would lead credence to the bonafides of the assessee. It thus held that the matter of imposing penalty under Section 271(1)(c) of the Act, was not exigible in the case on hand. The mere admission of the appeal by the High Court on the substantial questions of law as have been quoted above, would make it apparent that the additions made were debatable. The Tribunal has thus rightly held that the admission of substantial questions of law by the High Court leads credence to the bona fide of the assessee and therefore, the penalty is not exigible under Section 271(1)(c) of the Act. Merely because the claim of the assessee has been rejected by the revenue authorities would not make the assessee liable for penalty. The Apex Court in Reliance Petroproducts ( 2010 (3) TMI 80 - SUPREME COURT ) also held that merely because the assessee had claimed the expenditure, which claim was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature - Decided in favour of assessee.

Summary

Issues:
1. Circumstances for considering an issue as debatable for imposing penalty under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of deductions and imposition of penalty under Section 271(1)(c) for concealment of income.

Issue 1: Circumstances for considering an issue as debatable for imposing penalty under Section 271(1)(c) of the Income Tax Act:

The appeal raised the question of whether a debatable issue can lead to the imposition of a penalty under Section 271(1)(c) of the Income Tax Act, even when the tax imposed on the assessee is under challenge and the appeal has been admitted by the High Court on substantial questions of law. The Tribunal observed that the additions made were debatable as they were admitted by the High Court for consideration, indicating the bonafides of the assessee. The Tribunal cited a Mumbai ITAT decision, emphasizing that the mere confirmation of disallowance does not automatically warrant a penalty. The Tribunal held that the penalty was not exigible in this case due to the debatable nature of the issues involved.

Issue 2: Disallowance of deductions and imposition of penalty under Section 271(1)(c) for concealment of income:

The case involved the disallowance of deductions claimed by the assessee related to salary payments, loans, and interest, totaling a significant amount. The Assessing Authority initiated penalty proceedings under Section 271(1)(c) for concealment of income, resulting in a penalty being levied. However, the Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee against the penalty. The Revenue challenged this decision before the ITAT, which also dismissed the appeal. The Tribunal, while dismissing the appeal, noted that the questions regarding the disallowance of deductions were debatable as they were admitted by the High Court for consideration. The Tribunal emphasized that the mere rejection of the claim by revenue authorities does not automatically make the assessee liable for a penalty under Section 271(1)(c).

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the debatable nature of the issues admitted by the High Court for consideration indicated the bona fides of the assessee. The Court cited relevant legal precedents to support its decision, highlighting that the mere rejection of a claim by revenue authorities does not automatically lead to the imposition of a penalty. Therefore, the appeal was dismissed, and no costs were awarded.