2020 (2) TMI 1175 - AT - Income Tax

Penalty levied u/s 271(1)(c) - assessee has furnished inaccurate particulars of its income while claiming the expenditure for which neither the liability has arisen nor revenue has accrued - CIT-A deleted the penalty - HELD THAT - Penalty proceedings u/s 271(1)(c) were neither initiated by the AO during assessment proceedings nor by the Ld. CIT(A) during the appellate proceedings in respect of the aforesaid disallowance - CIT(A) has also not levied any penalty under Section 271(1)(c) of I.T. Act. Scope of penalty proceedings u/s 271(1)(c) of IT Act cannot be widened later to include within its scope such additions which were not sought to be covered within the scope of penalty U/s 271(1)(c) of IT Act, at the time when penalty proceedings were initiated and assessment order was passed. Regarding disallowance and consequent addition amounting to aforesaid ₹ 102,60,80,000/- was highly disputable issue, on which two different views were legitimately possible. There was full disclosure of materials facts and circumstances by the assessee in the Returns of Income and during assessment proceedings; and that no relevant information of fact was withheld by the assessee from the revenue s authorities during assessment proceedings. When there was full disclosure of materials facts and circumstances by the assessee in the Return of Income and during assessment proceedings; then, on a the disputable issue of quantum addition, on which two different views are legitimately possible, of which the one favourable to the assessee has been adopted by the assessee; eventually, the Assessee may or may not succeed in the quantum proceedings and the disputable issue, on which two different views were possible, may eventually be decided against the Assessee in quantum proceedings Assessee cannot be burdened with penalty u/s 271(1)(c) if on a disputable issue of quantum addition, on which two different views were legitimately possible, the Assessee decided to adopt the view which was favourable to the assessee; in a case in which all necessary details were filed by the Assessee in support of the claim and when no material inaccuracies were found in these details, and when the assessee is not guilty of suppression of any material facts. In quantum proceedings, when two different views are legitimately possible on a disputable claim made by the assessee; one of which is favourable to the assessee, the multiplicity of legitimate views and disputability of the claim has the effect of excluding the scope of penalty U/s 271(1)(c) in respect of such disputable claim even if the disputable claim is decided against the assessee in quantum proceedings; because in such a case the disputable claim made by the assessee neither amounts to concealment of particulars of income nor to furnishing of inaccurate particulars of income CIT(DR) has failed to bring any facts and circumstances legal provision or judicial precedents to our attention to persuade us to take a view different from the view taken by the Ld. CIT(A) deleting the aforesaid penalty vide his impugned appellate order dated 01.12.2016 - this is not a fit case for penalty under Section 271(1)(c) - Decided in favour of assessee

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Furnishing of inaccurate particulars of income by the assessee.
3. Matching principle for revenue recognition and expense disallowance.
4. Full disclosure of material facts by the assessee.
5. Initiation and satisfaction for penalty proceedings by the Assessing Officer (AO).

Detailed Analysis:

Issue 1: Deletion of Penalty Levied under Section 271(1)(c) of the Income Tax Act
The appeal was filed by the assessee against the appellate order dated 01.12.2016 passed by the Commissioner of Income-Tax (Appeals)-7, New Delhi, which deleted the penalty levied under Section 271(1)(c) of the Income Tax Act. The AO had levied a penalty amounting to ?34,53,78,528/- on the disallowance of ?102,60,80,000/- claimed as an expense by the assessee. The Ld. CIT(A) deleted this penalty on the grounds that the assessee had disclosed all facts and there was no concealment or furnishing of inaccurate particulars of income.

Issue 2: Furnishing of Inaccurate Particulars of Income by the Assessee
The AO had initially added ?149,31,02,715/- to the assessee's income, which was later deleted by the Ld. CIT(A). However, the Ld. CIT(A) agreed with the AO's alternate stand that if the revenue amounting to ?149,31,02,715/- is not taxed, then the corresponding expenses amounting to ?102,60,80,000/- should be disallowed on matching principles. The AO initiated penalty proceedings under Section 271(1)(c) for the disallowed expenses but not for the revenue addition. The Ld. CIT(A) deleted the penalty, stating that the assessee had disclosed all relevant particulars and there was no concealment or furnishing of inaccurate particulars of income.

Issue 3: Matching Principle for Revenue Recognition and Expense Disallowance
The AO held that if the revenue amounting to ?149,31,02,715/- is not recognized, then the corresponding expenses amounting to ?102,60,80,000/- should be disallowed on matching principles. The Ld. CIT(A) upheld this view, leading to the disallowance of the expenses. However, the Ld. CIT(A) deleted the penalty, noting that the assessee had acted in a bona fide manner and had disclosed all relevant facts.

Issue 4: Full Disclosure of Material Facts by the Assessee
The Ld. CIT(DR) conceded that there was full disclosure of material facts by the assessee in the return of income and during the assessment proceedings. The assessee had disclosed the claim of ?102,60,80,000/- in the notes to the computation of income and in the audited accounts. The Ld. CIT(A) noted that the assessee had made full disclosures and there was no concealment of income or furnishing of inaccurate particulars.

Issue 5: Initiation and Satisfaction for Penalty Proceedings by the AO
The AO had failed to specifically record his satisfaction for initiating penalty proceedings under Section 271(1)(c) for the disallowed expenses of ?102,60,80,000/-. The Ld. CIT(A) also did not initiate penalty proceedings for this disallowance. The ITAT held that when the AO specifically initiates penalty proceedings for certain additions but not for others, it indicates that the latter were not intended to be considered for penalty. The ITAT concluded that the AO's failure to record satisfaction for the disallowed expenses barred the levy of penalty for those expenses.

Conclusion:
The ITAT upheld the Ld. CIT(A)'s order deleting the penalty of ?34,53,78,528/-, noting that the assessee had made full disclosures and there was no concealment or furnishing of inaccurate particulars of income. The appeal filed by the Revenue was dismissed.

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