2015 (8) TMI 1212 - HC - Income Tax

Penalty under Section 271(1)(c) - compensation in lieu of giving up their right received - CIT(A) deleted penalty confirmed by ITAT - Held that - The Court finds that in the present case the order of the CIT (A) explaining why Section 271(1)(c) is not attracted in the facts and circumstances of the case merits no interference. The issue that arose for determination in the quantum appeal does appear to have been debatable as is evident from the narration of facts. There was a reference made by the Assessee itself in the note of computation, that pursuant to the settlement agreement with Schneider, it had received compensation in lieu of giving up their right under Press Note 18, which debarred the collaborator from carrying out business in India, without the permission of JV partners . The compensation was also in lieu of agreeing not to use the name after an interim period i.e. to give up the benefit over a period of time of being known in the market as a joint venture partner of TE . Secondly, the Assessee armed itself with a legal opinion. These facts are sufficient to distinguish the present case from the facts in Zoom Communication (2010 (5) TMI 34 - DELHI HIGH COURT ) where the Court observed that apart from a making wrong claim, the Assessee did so not on the basis of any advice given to it by an auditor or tax expert. Even in MAK Data (2013 (11) TMI 14 - SUPREME COURT) the Supreme Court held on facts that the Assessee there had no intention to declare its true income and no explanation was offered by it for the concealment of income. In the facts of the present case, the Court is satisfied that no error of law was committed either by the CIT (A) or the ITAT in holding that Explanation 1 to Section 271(1)(c) of the Act was not attracted. This was not a case of an Assessee furnishing inaccurate particulars. - Decided in favour of assessee.

Summary

Issues:
1. Penalty appeal by Revenue under Section 260A (1) of the Income Tax Act, 1961 against ITAT order for AY 2004-05.
2. Treatment of compensation received by Assessee as capital gain and subsequent penalty imposition under Section 271(1)(c) of the Act.

Analysis:
1. The Respondent Assessee, engaged in manufacturing, declared total income for AY 2004-05 as &8377; 3,88,72,503, treated a sum as capital gain, and invested it in bonds for deduction under Section 54EC.
2. AO reopened the case noting the capital gain treatment and rejected Assessee's explanation, treating the sum as taxable income under Section 28(va)(a), a decision upheld by CIT (A) and ITAT.
3. The penalty under Section 271(1)(c) was imposed on Assessee for furnishing inaccurate income particulars, which was challenged by Assessee in appeal to CIT (A) and subsequently allowed.
4. CIT (A) found the treatment of compensation as business income debatable, differing from AO and ITAT, leading to the penalty imposition being set aside.
5. Revenue argued for penalty imposition based on precedents, while Assessee relied on the debatable nature of the issue and legal opinions obtained.
6. The Court upheld the decisions of CIT (A) and ITAT, emphasizing the debatable nature of the issue and Assessee's actions to distinguish it from cases of intentional concealment, dismissing the appeal.

This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the treatment of compensation, penalty imposition, and the reasoning behind the decisions of the authorities and the Court.