2021 (8) TMI 585 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - whether the impugned proceedings were initiated on the ground that the Appellant has concealed particulars of its income or on the ground that it furnished inaccurate particulars of its income? - HELD THAT - 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 attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the LegislatureAO has not brought any material on record to prove that the assessee has furnished inaccurate particulars of income or concealed particulars of income. In our opinion, this is not a fit case for levy of penalty u/s. 271(1)(c) of the Act - Decided in favour of assessee.

Issues Involved:
1. Legality of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the penalty proceedings are separate and distinct from the assessment proceedings.
3. Adequacy of disclosures made in the return of income and/or submissions filed during the course of assessment/penalty proceedings.
4. Computation of penalty concerning the "amount of tax sought to be evaded."
5. Specificity of the notice under section 274 regarding the grounds for initiating penalty proceedings.
6. Levy of penalty on the amount of reduction in section 10A claim and non-realization of export proceeds.
7. Levy of penalty for claiming short-term capital loss on shares under section 94(7) of the Act.

Detailed Analysis:

1. Legality of the Penalty Levied Under Section 271(1)(c):
The Tribunal examined whether the penalty levied under section 271(1)(c) was justified. The assessee contended that the penalty was erroneously upheld by the CIT(A) without proving deliberate furnishing of inaccurate particulars or concealment of income. The Tribunal found that the penalty could not be levied merely based on additions or disallowances made during assessment unless intentional concealment or furnishing of inaccurate particulars was proved.

2. Separate and Distinct Nature of Penalty Proceedings:
The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings. It was highlighted that any additions or disallowances in the assessment order do not automatically lead to a penalty unless it is established that the assessee deliberately furnished inaccurate particulars or concealed income. This principle was upheld, reinforcing the need for a separate evaluation of penalty proceedings.

3. Adequacy of Disclosures:
The assessee argued that adequate disclosures were made in the return of income and during the assessment/penalty proceedings. The Tribunal reviewed the case and found that the assessee had indeed made necessary disclosures, and there was no evidence of deliberate concealment or furnishing of inaccurate particulars. Thus, the penalty under section 271(1)(c) was deemed unwarranted.

4. Computation of Penalty:
The Tribunal noted that the penalty is leviable concerning the "amount of tax sought to be evaded," which should be calculated as the tax on assessed income minus the tax on returned income. The assessee argued that the AO erred in computing the penalty on the total amount of reduction in section 10A claim without considering the specific concealment related to the non-realization of export proceeds. The Tribunal found merit in this argument and ruled that the penalty computation was incorrect.

5. Specificity of Notice Under Section 274:
The assessee raised an additional ground citing the binding judgment of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory, which mandates that the notice under section 274 should clearly indicate whether the penalty proceedings were initiated for concealment of income or furnishing inaccurate particulars. The Tribunal acknowledged this requirement but dismissed the additional grounds as they were not pressed during the hearing.

6. Penalty on Section 10A Claim and Non-realization of Export Proceeds:
The Tribunal reviewed the penalty levied due to the non-realization of export proceeds within the prescribed time under section 10A. It was found that the quantum addition related to this issue was already adjudicated by the Tribunal in a previous order, which ruled in favor of the assessee. Consequently, there was no basis for sustaining the penalty on this account.

7. Penalty for Short-term Capital Loss Under Section 94(7):
The Tribunal examined the penalty levied for claiming short-term capital loss on shares, which was disallowed under section 94(7). The assessee contended that it had disclosed all relevant transactions and there was no intention to conceal income. The Tribunal referred to similar cases, including the decision in Administrator of the Estate of late Mr. E.F. Dinshaw, where it was held that a bona fide claim, even if disallowed, does not warrant a penalty if there is no concealment or furnishing of inaccurate particulars. The Tribunal found that the assessee's claim was bona fide and that all necessary details were provided, thus ruling out the imposition of penalty.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified on both counts—section 10A claim and short-term capital loss under section 94(7). The appeal of the assessee was allowed, and the penalty was deleted. The judgment emphasized the necessity for clear evidence of deliberate concealment or furnishing of inaccurate particulars to levy a penalty under section 271(1)(c).

← Previous Next →