2016 (3) TMI 323 - HC - Income Tax

Penalty u/s 271 - Held that - It may be true that the assessing officer did not accept the explanation offered by the assessee and made additions which the latter did not challenge in appeal but it is also true that the learned Tribunal in paragraph 5 of its judgement quoted above opined that since the matter is subjudice it is not a realized or realizable income in the hands of the assessee . In that view of the matter even the first condition was not satisfied. As regards the second condition there is concurrent finding of the CIT(A) and the Tribunal that the explanation was bona fide. This finding is not under challenge before us. It is not even alleged that the assessee failed to prove that all the facts relating to and material to the computation of his total income were not disclosed by him. Thus, the requirements appearing from the explanation remain unfulfilled. As a result Section 271(1)(c) cannot operate against the assessee. Therefore, the assessee cannot be held to have furnished inaccurate particulars or concealed particulars of his income. Hence, the imposition of penalty under Section 271(1)(c) was rightly set aside both by CIT(A) and the learned Tribunal. - Decided in favour of assessee

Summary

Issues Involved:
1. Bona fide belief of the assessee regarding non-taxability of interest income.
2. Justification for treating interest received on income-tax refund as contingent.
3. Furnishing of inaccurate particulars of income by the assessee.

Detailed Analysis:

1. Bona fide Belief of the Assessee Regarding Non-Taxability of Interest Income:
The Revenue questioned whether the disclosure of interest income in the notes to accounts, without including it in the total income computation, constituted a bona fide belief by the assessee that such income was not taxable upon receipt. The assessee received Rs. 101.45 lakhs as interest on income-tax refunds for assessment years 1993-94 to 1996-97, disclosed in the notes to accounts but not included in the profit and loss account. The Assessing Officer (AO) added this amount to the taxable income and initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The assessee argued that the disclosure was made in good faith, believing the income was contingent and taxable only upon finality of proceedings. The CIT(A) and Tribunal upheld the assessee's bona fide belief, noting that the disclosure was made, and thus, the penalty for concealment was not justified.

2. Justification for Treating Interest Received on Income-Tax Refund as Contingent:
The Revenue contended that the assessee was unjustified in treating the interest on income-tax refunds as contingent, as there is no provision in the Income Tax Act for such treatment. The assessee argued that the interest income was contingent due to ongoing appeals by the Revenue against the CIT(A)'s orders. The CIT(A) and Tribunal found that the assessee's treatment of the interest as contingent was reasonable and supported by judicial precedents, including cases where penalties were not imposed when two views were possible. The Tribunal emphasized that the income was not realized or realizable until the appeals were finalized, supporting the assessee's contingent treatment.

3. Furnishing of Inaccurate Particulars of Income by the Assessee:
The Revenue argued that the assessee furnished inaccurate particulars by not including the interest income in the taxable income, despite judicial views that such interest is taxable in the year of receipt. The AO imposed a penalty, stating that the assessee's failure to offer the interest income for taxation constituted furnishing inaccurate particulars. However, the CIT(A) and Tribunal disagreed, noting that the assessee disclosed the interest income in the notes to accounts and acted in good faith. The Tribunal referenced the Supreme Court's judgment in Reliance Petroproducts Pvt. Ltd., which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. The Tribunal concluded that the assessee did not conceal income or furnish inaccurate particulars, and the penalty was rightly set aside.

Conclusion:
The High Court upheld the CIT(A) and Tribunal's decisions, affirming that the assessee acted in good faith and disclosed the interest income, thus not warranting a penalty under Section 271(1)(c). The questions of law were answered in favor of the assessee, and the appeal was dismissed.