2021 (2) TMI 651 - HC - Income Tax

Penalty u/s 271(1)(c) - Exemption u/s 11 - AO initiated penalty proceedings and held that the Assessee furnished inaccurate particulars of income by claiming exemption under Section 11 of the Act, in respect of the business which was not incidental to the objects of the Assessee trust, and that the said mistake could not have been said to be a bona fide one - CIT(A) deleted the penalty - ITAT confirmed the order of deletion of penalty - HELD THAT - It is clear that the penalty proceedings are arising as an outcome of the assessment proceedings, which is still being debated upon. If the issue is debatable, penalty proceedings cannot lie. There is no finding that any details supplied by the Assessee in its return were found to be incorrect, erroneous or false. In fact, as noted in the impugned order dated 26th December, 2017, CIT(A) has categorically observed that no evidence had been brought on record to adduce that furnishing of inaccurate details had been done by the Assessee wilfully, in order to avoid the payments of tax, or to conceal the particulars of income. Dealing with a similar issue, the Supreme Court in Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT wherein held merely because the Assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). - Decided in favour of assessee.

Summary

Issues:
1. Exemption under Section 11 of the Income Tax Act, 1961 for a Trust.
2. Penalty under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income.

Issue 1: The judgment pertains to an appeal under Section 260A of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal regarding the exemption claimed by a Trust under Sections 11 and 12 of the Act. The Trust, registered under Section 12A, had a Katha Manufacturing Factory leased to a sister concern. The Assessing Officer (AO) denied the exemption under Section 11(4A) as the manufacturing business was not considered incidental to the trust's objects. The High Court set aside the ITAT's order, holding that the Katha business not being held under trust rendered the Trust ineligible for exemption. Subsequently, penalty proceedings were initiated under Section 271(1)(c) for furnishing inaccurate particulars, which was later deleted by the CIT(A) and ITAT.

Issue 2: The penalty proceedings were based on the contention that the Trust furnished inaccurate particulars by claiming exemption for a business not incidental to its objects. The Revenue argued that since the High Court had decided against the Trust on the exemption claim, the penalty was justified. However, the Trust contended that the information was disclosed in its income tax return and the issue was still debatable, especially considering the challenge to the High Court's judgment before the Supreme Court. The High Court reiterated the principle that penalty proceedings cannot survive if the underlying assessment is debatable, citing previous judgments where penalties were deleted due to the debatable nature of the issues.

The High Court emphasized that penalty under Section 271(1)(c) can only be levied when there is proven concealment of income, and a debatable assessment does not warrant a penalty. It highlighted that the mere rejection of a claim by the Assessing Officer does not automatically attract a penalty. The court referred to the Supreme Court's stance that the mere non-acceptance of a claim by the tax authorities does not lead to automatic penalty imposition. Ultimately, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration, and upheld the deletion of the penalty by the lower authorities.