2015 (10) TMI 2301 - AT - Income Tax

Penalty u/s.271(1)(c) - disallowance under the head payment made by the Branch Office to the Head Office (HO) - Held that - The prime factors required to be considered while imposing penalty under section 271(1)(c) are concealment of particulars of income or submission of inaccurate particulars of such income. There is no dispute that the assessee had disclosed all details about its HO Expenses and therefore it could not be treated as concealment of particulars of its income or furnishing inaccurate particulars of income. We also hold that as long as there was a possibility to understand the provision in different ways and the assessee had chosen one, the occasion to invoke section 271 did not arise. In the matter of Jugalkishore Hargopal Das (2000 (1) TMI 32 - KERALA High Court) held that if an assessee offers an explanation, the AO has to consider the acceptability of the explanation and pass necessary orders, that if the explanation is found acceptable, notwithstanding addition made by treating the amount as income from undisclosed sources penalty may not be levied. Also see NG Technologies Ltd. 2014 (12) TMI 481 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues:
- Deletion of penalty u/a. 271(1)(c) of the Income tax Act, 1961.
- Interpretation of law regarding HO expenses and allowance under section 44C.
- Difference of opinion between AO and assessee on expenditure claimed.
- Principles governing the levy of concealment penalty under section 271(1)(c).

Analysis:

The judgment revolves around the challenge to the order of the CIT(A)-10, Mumbai by the Assessing Officer (AO) regarding the deletion of penalty u/a. 271(1)(c) of the Income tax Act, 1961. The assessee, a company in the diamond-trade financing business, filed its return of income declaring a total income of &8377; 21.91 Crores, which was later assessed by the AO at &8377; 23.87 Crores. The main issue pertains to the penalty imposed by the AO for furnishing inaccurate particulars of income.

The primary contention was related to the disallowance of &8377; 88,56,354/- under the head of payment made by the Branch Office to the Head Office (HO). The FAA confirmed the AO's order, leading to the imposition of a penalty by the AO. However, the FAA later deleted the penalty after considering the arguments presented by the assessee, which included the claim for deduction of general administrative expenditure under section 44C of the Act. The FAA found that the issue of HO expenses was debatable, and the assessee had disclosed all necessary facts while filing the return, indicating no concealment of income or furnishing of inaccurate particulars.

During the proceedings, the DR supported the AO's order, while the AR highlighted the Tribunal's decision in a similar case, emphasizing the deletion of penalty by the FAA. The Tribunal, after considering the arguments, observed that the issue of HO expenses was debatable, and the assessee had disclosed all relevant details. The Tribunal cited legal precedents emphasizing that the imposition of a penalty under section 271(1)(c) requires a clear case of concealment or submission of inaccurate particulars, which was not established in this case.

The Tribunal further referred to judicial principles governing the levy of concealment penalty, emphasizing that penalty should not be imposed in cases where the assessee offers a bona fide explanation supported by disclosed facts. Considering the consistent allowance of similar expenses in earlier and later years, the Tribunal upheld the FAA's decision to delete the penalty, concluding that the order did not have any legal infirmity. Consequently, the appeal filed by the AO was dismissed, affirming the decision of the FAA.

In conclusion, the judgment highlights the importance of disclosing all relevant details, the debatability of certain issues, and the necessity of a clear case of concealment or submission of inaccurate particulars to impose a penalty under section 271(1)(c) of the Income tax Act, 1961.