2016 (11) TMI 801 - HC - Income Tax

Penalty under Section 271(1)(c) - entitled to the exemption under Section 54G - whether the explanation by the assessee that the non-reporting of income was on account of the belief held that the benefit accrued under Section 54G, on account of the advice of the CA was either a false explanation or no explanation at all explanation 1(A) or whether it was not bona fide Explanation 1(B) - Held that - This Court is of the opinion that the exposition made in N.G. Technologies (2014 (12) TMI 481 - DELHI HIGH COURT ) has to be applied in a fact-specific manner and not in the amplitude that the learned counsel for the revenue suggests. The Court cannot be oblivious of the fact that the companies are advised by experts and CAs who, more often than not, finalise reports. To expect assessees to scan each assessment with a fine comb, as is suggested by the revenue, and thereafter be told that the explanation about its reliance upon expert advice is not bona fide, in the facts of this case, at least do not appeal to this Court. Being a finding of fact based upon broad probabilities, the Court is of the opinion that no substantial question of law arises. - Decided against revenue

Summary

Issues:
1. Setting aside of penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the explanation provided by the assessee for non-reporting of income was bona fide or not.
3. Interpretation and application of Explanation 1(A) and 1(B) to Section 271(1)(c) in the context of the case.

Analysis:

1. The appeal under Section 260A of the Income Tax Act involved the revenue challenging the setting aside of the penalty imposed by the Assessing Officer under Section 271(1)(c). The case revolved around the assessee reporting a transaction of sale of its assets during the AY 2008-09. The Assessing Officer questioned why the gains from the transfer were not offered to tax. The assessee claimed exemption under Section 54G due to a belief that the gains were entitled to such exemption. The penalty was imposed under Section 271(1)(c), which was upheld by the Commissioner of Income Tax (Appeals) but set aside by the Income Tax Appellate Tribunal (ITAT) based on the reasoning that no inaccurate particulars of income were furnished.

2. The revenue contended that the explanation provided by the assessee was not bona fide and did not justify the discharge of the penalty under Section 271(1)(c). Citing a judgment, it was argued that the reliance on the Chartered Accountant's alleged mistake did not absolve the assessee from the duty to disclose the correct income. However, the ITAT found that no incorrect or inaccurate information was provided by the assessee, and making an incorrect claim in law did not amount to furnishing inaccurate particulars of income. The ITAT directed the Assessing Officer to delete the penalty under Section 271(1)(c), as the case did not strictly fall under the penalty provision.

3. The ITAT considered Explanation 1(A) and 1(B) to Section 271(1)(c), which deal with failure to offer an explanation, offering a false explanation, or providing an unsubstantiated explanation. The key question was whether the assessee's explanation for non-reporting of income was false, unsubstantiated, or not bona fide. The Court, in dismissing the appeal, emphasized the need to apply judgments in a fact-specific manner and recognized that companies rely on expert advice from professionals like Chartered Accountants. The Court found that no substantial question of law arose in this case, indicating that the explanation provided by the assessee was acceptable in the given circumstances.