2015 (12) TMI 502 - AT - Income Tax

Penalty u/s.271(1)(c) - chargeability of income v/s concealment of income - Held that - It is clearly proved from the chronological events narrated above that difference of opinion has come out between the assessment stage and the first appellate authority stage wherein the AO had passed an order which was unfavourable for the assessee. On the other hand, the CIT(A) considered the matter and concluded the same in favour of the assessee. Hence, penalty ought not to be levied in a situation where there arises a difference of opinion. Under the circumstances discussed above, the assessee cannot be accused of any concealment of income. The notes to accounts of AY 2007-2008 also go on to clearly state the facts and circumstances of the pending litigations pertaining to AY 2005-2006 related to income tax as well as those pertaining to possession. There is also no dispute to the fact that the assessee has offered its real income for taxation and paid the tax accordingly in the return of income for AY 2007-2008 after the conveyance attained finality and all litigations concerning the subject matter of conveyance were resolved. Thus, where assessee has furnished all particulars of income, imposition of penalty is not automatic in nature. Mere making of a claim which is not sustainable in law does not amount to levying of penalty under section 271(1)(c) of the Act. It is just a matter of difference between assessee and revenue regarding year of chargeability of income and not concealment of income. - Decided in favour of assessee

Summary

Issues:
Imposition of penalty u/s.271(1)(c) of the Act for the assessment year 2005-06 on the addition of Rs. 2,77,00,000.

Analysis:

1. Background and Disputed Addition: The appeal was against the imposition of a penalty u/s.271(1)(c) of the Act for the assessment year 2005-06 on an addition of Rs. 2,77,00,000 by the CIT(A). The AO noted discrepancies in the assessee's balance sheet related to advance amounts against various projects, leading to the disallowance of the same. The CIT(A) initially deleted the addition, but the Tribunal upheld the AO's assessment order, resulting in the penalty imposition.

2. Property Transactions and Litigations: The assessee purchased land in 1972 and entered into various agreements for development. Litigations arose due to possession issues with tenants, leading to settlements and cancellation of agreements. The conveyance deed highlighted pending litigations related to property occupation and possession, impacting the transfer process.

3. Chronological Events and Tax Treatment: The events culminated in settlements and consent terms resolving possession disputes. The assessee offered income from property sales in the assessment year 2007-08, as clarified in the auditor's report. The AO initially added Rs. 2.77 cr in A.Y. 2005-06, but the CIT(A) accepted that income would be taxable when litigations were settled, leading to the deletion of the addition.

4. Penalty Imposition and Legal Interpretation: The AO initially dropped the penalty, but later re-initiated proceedings after the Tribunal's order. The Tribunal emphasized that the difference of opinion between the AO and CIT(A) did not warrant penalty imposition, as the assessee had disclosed all relevant details and offered real income for taxation in the subsequent year when disputes were resolved. The Tribunal highlighted that a mere difference in opinion on the year of chargeability did not constitute concealment of income, especially when the assessee acted in good faith and challenged tax assessments.

5. Conclusion: Considering the legal precedents and the factual circumstances, the Tribunal allowed the assessee's appeal, concluding that the penalty under section 271(1)(c) was not justified for the disputed amount, which was correctly offered for taxation in the subsequent year following the resolution of disputes. The decision was based on the principle that penalty should not be imposed in cases of genuine differences in tax treatment, where the assessee acted transparently and in accordance with legal interpretations.

This detailed analysis of the judgment highlights the complex property transactions, legal disputes, tax treatment, and the Tribunal's rationale in overturning the penalty imposition in the context of the disputed addition for the assessment year 2005-06.