2022 (7) TMI 863 - AT - Income Tax

Levy of penalty u/s 271(1) (c) - inaccurate particulars of income by claiming deduction under section 80IA on interest income - HELD THAT - The quantum addition confirmed by the ITAT was challenged before the Hon'ble High Court and same was admitted which was posted for final hearing - Thus, it was also stated when the issue is pending before the Hon'ble High Court it became debatable issue and penalty cannot be levied. It was also stated that even after the addition confirmed by the co-ordinate Benches on the quantum proceedings, the income of the assessee is still assessed under Section 115JB of the Act. Circular dated 31 December 2015 was referred to that in cases prior to 1 April 2016 as any adjustment is made, the penalty cannot be levied under Section 271(1) (c) of the Act. Even on this ground, also penalty requires to be deleted. In view of the above arguments, where individually these arguments are tested for levy of penalty levied by learned CIT (A), penalty order suffers from severe infirmities. As following the decision in Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT where in it is held that Where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)( c ), a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings . Therefore, the appeal of the assessee deserves to be allowed on this point itself. Accordingly, we quash the penalty levied by the learned CIT (A) - Appeal of assessee allowed.

Summary

Issues:
Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961 for A.Y. 2012-13.

Detailed Analysis:

1. Grounds of Appeal:
The appeal was filed against the order by the Commissioner of income-tax (Appeal)-2, Thane, where a penalty of Rs. 2,81,54,000/- was levied under Section 271(1)(c) of the Act. The appellant contested the levy of penalty, citing inaccurate particulars of income and concealment of income as reasons for the penalty.

2. Assessment and Dispute:
The assessee filed the return of income for A.Y. 2012-13, claiming deductions under Section 80IA of the Act. The Assessment made adjustments, disallowing certain deductions, leading to the initiation of penalty proceedings under Section 271(1)(c) by the Assessing Officer.

3. Contentions and Rejection:
The appellant argued that the deductions claimed were based on judicial precedents and business requirements. However, the CIT(A) rejected these contentions, holding that the deductions were not eligible under Section 80IA. The CIT(A) found that the appellant had furnished inaccurate particulars of income, leading to the penalty imposition.

4. Judicial Precedents and Bonafide Belief:
The appellant presented various judicial precedents supporting their claim for deductions. They maintained that the deductions were made in good faith based on business needs and legal interpretations. The Tribunal acknowledged the bonafide belief of the appellant in claiming the deductions.

5. Penalty Imposition and Legal Considerations:
The Tribunal examined whether the penalty under Section 271(1)(c) could be justified in this case. It noted that despite the disallowance of deductions, the penalty proceedings initiated by the Assessing Officer were later dropped. The Tribunal also considered the legal principles regarding the imposition of penalties for inaccurate particulars of income.

6. High Court Orders and Debatability of Issues:
The appellant referred to High Court orders and pending litigations to support their argument that the issues were debatable and subject to legal interpretation. They highlighted that the income assessment was still under Section 115JB of the Act, emphasizing that penalties should not be levied under such circumstances.

7. Decision and Quashing of Penalty:
In light of the arguments presented and legal precedents cited, the Tribunal quashed the penalty imposed by the CIT(A) under Section 271(1)(c) of the Act. The decision was influenced by the findings of the full Bench of the Bombay High Court, emphasizing the importance of proper satisfaction for imposing penalties.

8. Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the penalty of Rs. 2,81,51,400/- imposed under Section 271(1)(c) for A.Y. 2012-13. The decision was based on the lack of proper satisfaction recorded for imposing penalties and the debatable nature of the issues involved in the case.