2015 (4) TMI 679 - HC - Income Tax

Penalty u/s 271(1)(c) - Whether the Appellate Authorities were correct in holding that there was no concealment or furnishing of inaccurate particulars when the original amount declared was ₹ 25,07,933/- to which an additional of ₹ 42,08,079/- was made by relying on the judgment of the Apex Court in Ashok Pai & Dilip Shroff 2007 (5) TMI 199 - SUPREME Court it is no longer good law? - Held that - The use of phrases like (a) penalty proceedings are being initiated separately, and (b) penalty proceedings under section 271(1)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the Income-tax Officer whether or not take action, it cannot be described as a direction. It is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside. Therefore, the appellate Authority was justified in setting aside the order imposing penalty. Accordingly, the substantial question of law is answered in favour of the assessee and against the revenue.

Issues involved:
- Appeal against imposition of penalty under Section 271(1)(c) of the Income Tax Act
- Validity of penalty proceedings based on deliberate suppression of income and furnishing inaccurate particulars
- Appropriate treatment of short term capital gain and long term capital loss
- Disallowance of depreciation claimed as 'Income from business' instead of 'Income from house property'
- Interpretation of legal precedents regarding concealment of income and penalty imposition

Analysis:

Issue 1: Appeal against imposition of penalty under Section 271(1)(c) of the Income Tax Act
The revenue filed an appeal challenging the order passed by the Tribunal upholding the Appellate Authority's decision to set aside the penalty imposed under Section 271(1)(c) of the Income Tax Act. The Appellate Authority found that the penalty was not justified as there was no deliberate concealment of income or furnishing of inaccurate particulars by the assessee.

Issue 2: Validity of penalty proceedings based on deliberate suppression of income and furnishing inaccurate particulars
The Assessing Authority initiated penalty proceedings under Section 271(1)(c) alleging that the assessee deliberately concealed income and furnished inaccurate particulars. However, the Commissioner of Income Tax and the Tribunal accepted the explanation provided by the assessee, ruling that the penalty imposition was not in accordance with the law. The Tribunal dismissed the appeal by the Revenue, leading to the current appeal.

Issue 3: Appropriate treatment of short term capital gain and long term capital loss
The assessee claimed short term capital gain and long term capital loss, which the Assessing Officer found to be deliberately set-off to inflate the short term capital gain. The addition made by the Assessing Officer was contested by the assessee, who argued that the set-off was in accordance with the law applicable at the time. The Tribunal found in favor of the assessee, stating that it was not a case of deliberate suppression of income.

Issue 4: Disallowance of depreciation claimed as 'Income from business' instead of 'Income from house property'
The assessee claimed depreciation on the property let out as 'Income from business', while the revenue treated it as 'Income from house property'. The Appellate Authority held that the claim for depreciation was a bona fide error made by the assessee, and once the mistake was pointed out, the assessee paid the tax accordingly. The imposition of penalty was deemed contrary to law, as the assessment order did not contain a clear direction to initiate penalty proceedings.

Issue 5: Interpretation of legal precedents regarding concealment of income and penalty imposition
The Apex Court's judgment in Mak Data (P.) Ltd. v. CIT was cited to emphasize that voluntary disclosure or payment of tax does not absolve an assessee from penalty if there is concealment of income or furnishing of inaccurate particulars. The Court highlighted the burden on the assessee to provide reliable evidence to rebut the presumption of concealment. The Appellate Authority's decision to set aside the penalty was justified based on the legal position established in the case law.

Overall, the High Court dismissed the appeal, ruling in favor of the assessee, and emphasizing that the penalty imposition was not automatic and should be based on a deliberate act of suppression or furnishing inaccurate particulars, which was not the case here.

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