2017 (11) TMI 857 - AT - Income Tax

Penalty u/s. 271(1)(c) - indirect expenses claimed attributable to the unsold plot - Held that - Indirect expenses incurred by the assessee attributable to unsold plots are genuine business expenses duly incurred by the assessee but the same were under a bonafide belief claimed by the assessee to be expenses of the impugned assessment year which were not allowed by the Revenue as these expenses as per version of Revenue were to be added to the cost of unsold plots of land to be allowed in the year when plots are actually sold as per accounting policy consistently followed by the assessee. In our considered view, the explanation offered by the assessee is a bonafide explanation as to the assessee was under bonafide belief that due to merger and demerger of the plots and their reconstitution, the expenses are to be claimed in the year under consideration , which explanation was however not favourably considered by Revenue which led to additions in quantum assessment which assessee accepted but this is not sufficient to fasten liability to penalty on the assessee u/s 271(1)(c). Thus in the factual matrix of the case no penalty u/s 271(1)(c) is exigible in the instant case as the case of the assessee is duly covered by the ratio of decision of Hon ble Supreme Court decision in the case of Reliance Petroproducts Private Ltd. (2010 (3) TMI 80 - SUPREME COURT). We, therefore, order deletion of the penalty levied by the AO u/s 271(1)(c) - Appeal of the assessee is allowed.

Issues Involved:
1. Validity of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Adequacy of opportunity provided to the assessee.
3. Defective show-cause notice under Section 274.
4. Recording of satisfaction by the Assessing Officer (AO).
5. Bona fide belief and honest claim of expenses.
6. Difference between quantum assessment and penalty proceedings.
7. Applicability of Supreme Court rulings.

Detailed Analysis:

1. Validity of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue was whether the penalty imposed by the AO under Section 271(1)(c) for assessment year 2010-11 was valid. The AO had added ?27,16,400 to the income of the assessee, which was attributed to a deviation from the existing accounting policy. The AO contended that this deviation led to reduced profits and lower taxes paid by the assessee, thus constituting the furnishing of inaccurate particulars of income.

2. Adequacy of Opportunity Provided to the Assessee:
The assessee argued that the AO made disallowances without providing adequate opportunity and without considering settled judicial pronouncements. The tribunal noted that the AO had initiated penalty proceedings and issued a notice under Section 271(1)(c) r.w.s. 274 for furnishing inaccurate particulars of income.

3. Defective Show-Cause Notice under Section 274:
The assessee contended that the show-cause notice was defective as it did not specify the grounds on which the penalty was sought to be imposed. The tribunal, however, focused on the substantive issues rather than the procedural defects in the notice.

4. Recording of Satisfaction by the Assessing Officer (AO):
The assessee argued that the AO had not recorded his satisfaction regarding the concealment of income or furnishing of inaccurate particulars until the conclusion of assessment proceedings. The tribunal did not specifically address this procedural argument but rather focused on the substantive merits of the case.

5. Bona Fide Belief and Honest Claim of Expenses:
The assessee claimed that the expenses were legitimate and incurred under extraordinary circumstances, such as changes in partnership and the merger and demerger of plots. The tribunal found that the explanation provided by the assessee was bona fide. It was noted that the expenses were genuine business expenses, and the change in accounting policy was due to extraordinary circumstances.

6. Difference Between Quantum Assessment and Penalty Proceedings:
The assessee argued that not filing an appeal against the quantum order should not be a reason to levy penalty, as both proceedings are different and independent. The tribunal agreed, stating that merely because a claim of expenses did not find favor with the Revenue, it was not sufficient to fasten liability of penalty under Section 271(1)(c).

7. Applicability of Supreme Court Rulings:
The tribunal heavily relied on the Supreme Court's ruling in the case of Reliance Petroproducts Pvt. Ltd., which held that mere disallowance of a claim does not amount to furnishing inaccurate particulars of income. The tribunal found that the assessee's explanation was bona fide and covered by the ratio of the Supreme Court decision.

Conclusion:
The tribunal concluded that no penalty under Section 271(1)(c) was exigible in this case. The explanation provided by the assessee was considered bona fide, and the expenses were genuine business expenses incurred under extraordinary circumstances. The tribunal ordered the deletion of the penalty levied by the AO and confirmed by the CIT(A).

Result:
The appeal of the assessee was allowed, and the penalty imposed under Section 271(1)(c) was deleted.

Order Pronounced:
The order was pronounced in the open court on 14.11.2017.

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