2021 (4) TMI 275 - HC - Income Tax

Levy penalty under Section 271(1)(c) - new claim in line with the change in its accounting policy in its fresh return - Cumulative expenditure comprising interest paid on borrowings, brokerage and other expenses claimed on an accrual basis - a change in the accounting policy vis-avis the aforementioned expenses to align it with Accounting Standard-7 - assessee has made a fresh claim under section 153A - Before the Tribunal, in the quantum appeal, the assessee gave up its claim qua the expenses which was made on an accrual basis assessment year-in-issue had been completed - HELD THAT - Since this was not a case where the assessee had either concealed particulars of its income and/or furnished inaccurate particulars of its income which are the prerequisite for imposition of penalty, the conclusion reached by the Tribunal that the penalty imposed by the assessing officer was correctly cancelled, by the CIT (A), cannot be found fault with. Where basic facts are disclosed or where a new claim is made because of a change in accounting policy, albeit in a fresh return, and given up because the law, as declared, did not permit such a claim, in such circumstances, initiation of penalty proceedings against the assessee, in our view, is not mandated in law. As the assessee attempted a change in the method of accounting, concerning the aforementioned expenses. The method of accounting, as noticed by us, was in line with the AS-7. The only reason that the assessee in the quantum appeal preferred before the Tribunal gave up its claim was on account of the fact that it was a new claim which was sought to be incorporated in the fresh return filed by it in pursuant to the proceedings carried out under Section 153A of the Act - which, as per the advice received, could not have passed muster given the state of law, unless incriminating material had been found qua the assessee in the course of the search. Therefore, we are unable to agree with Mr. Maratha that the judgment rendered in Zoom Communication Pvt. Ltd. 2010 (5) TMI 34 - DELHI HIGH COURT applies to the facts obtaining in the present case. No substantial question of law

Summary

Issues:
1. Disallowance of expenses claimed by the assessee in the fresh return filed under Section 153A of the Income Tax Act.
2. Imposition of penalty under Section 271(1)(c) of the Act by the assessing officer.
3. Appeal against the penalty order by the assessee.
4. Tribunal's decision on the penalty imposition.

Issue 1: Disallowance of Expenses Claimed by the Assessee:
The case involved the disallowance of expenses claimed by the assessee in the fresh return filed under Section 153A of the Income Tax Act. The assessing officer disallowed the expenses as they were not claimed in the original return filed by the assessee under Section 139 of the Act. The CIT (A) upheld the disallowance, leading to penalty proceedings under Section 271(1)(c) of the Act.

Issue 2: Imposition of Penalty:
The assessing officer imposed a penalty of ?4,43,47,750 under Section 271(1)(c) of the Act due to the disallowance of expenses claimed by the assessee. The penalty was based on the contention that the claim of the assessee was not acceptable under the accounting principles and method of accounting followed.

Issue 3: Appeal Against Penalty Order:
The assessee appealed against the penalty order dated 28.03.2013. The CIT (A) set aside the penalty imposed by the assessing officer, leading to the revenue's appeal to the Tribunal challenging the CIT (A)'s decision.

Issue 4: Tribunal's Decision on Penalty Imposition:
The Tribunal rejected the revenue's appeal and upheld the CIT (A)'s decision to set aside the penalty. The Tribunal observed that the assessee's claim was based on accounting principles and a change in the method of accounting, which did not warrant penalty imposition under Section 271(1)(c) of the Act. The Tribunal emphasized that the mere rejection of a claim, found untenable, does not lead to a penalty for furnishing inaccurate particulars.

In conclusion, the High Court dismissed the appeal, stating that the penalty imposition was not justified as the assessee's claim was based on a change in accounting policy and the new claim made in the fresh return was not a case of concealing income or furnishing inaccurate particulars. The Court referenced relevant case laws to support its decision and highlighted that penalty proceedings are not warranted when basic facts are disclosed or when a new claim is made due to a change in accounting policy.