2022 (11) TMI 387 - HC - Income Tax

Penalty u/s 271(1)(c) - amount received on extinguishment of rights and claims from a foreign collaborator and hence declared in ITR as capital receipt - HELD THAT - To attract the provision of Section 271 (1)(c) the satisfaction is to be recorded that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. In the present case, the respondent disclosed the source of income as a capital receipt. The source of receipt of the amount of Rs.5,18,02,396/- from Michelin Company was correctly disclosed. It might be on the basis of the opinion given the by tax consultant or Charted Accountant, it was shown in the capital receipt in the return however, that was a debatable issue, therefore, the reference was sent to High Court. Division Bench of this Court in case of Dadabhoy's New Chirmiri Ponri Hill Colliery Company Pvt. Ltd. Vs. Commissioner of Sales Tax 1978 (10) TMI 138 - MADHYA PRADESH HIGH COURT has examined the imposition of penalty on the assessee u/s 43 (1) of the M.P. General Sales Tax Act, 1958 read with Section 9(3) of the Central Sales Tax Act, 1956 and opined that when facts are disclosed in a return and are misstated, the raising of a legal plea of the exemption cannot make the return a false return within the meaning of Section 43(1). Therefore, in view of the above discussion, the Appellate Tribunal of IT has not committed any error while setting aside the order passed by the Assessment Officer as well as CIT in respect of the imposition of penalty under Section 271 (1) (c). We do not find any substantial question of law involved in favour of the appellant hence the question of law No.1 is answered against the appellant and in favour of the respondent. So far as issue No.2 is concerned, as discussed above no case of imposition of penalty under Section 271(1) (c) - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Classification of compensation received as revenue receipt or capital receipt.

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271(1)(c) of the Income Tax Act

The appellant, Commissioner of Income Tax, challenged the Income Tax Appellate Tribunal's (ITAT) decision to set aside the penalty imposed on the respondent/assessee under Section 271(1)(c) of the Income Tax Act. The primary question was whether the ITAT was justified in concluding that no case of concealment of income was made out, thereby invalidating the penalty of Rs.3,53,38,900/-.

The appellant argued that the penalty was rightly imposed due to the respondent's concealment of income and furnishing of inaccurate particulars. The First Appellate Authority had imposed the penalty at 100%, and the appellant contended that the debatable nature of the issue should not preclude the imposition of the penalty. The appellant cited cases such as Commissioner of Income Tax v. Prakash S. Vyas and Commissioner of Income Tax v. Dharamshi B. Shah to support this contention.

In contrast, the respondent argued that the High Court had already found the issue debatable and adjudicated it, indicating no concealment of income. The respondent disclosed the income based on advice from their Tax Consultant/Chartered Accountant, and the ITAT rightly held that this did not constitute concealment or furnishing inaccurate particulars. The respondent cited several judgments, including Commissioner of Income Tax v. Reliance Petroproducts Private Limited and Price Waterhouse Coopers Private Limited v. Commissioner of Income Tax, Kolkata-1, to support their argument.

The court examined the provision of Section 271(1)(c) and noted that to attract this provision, there must be concealment of income or furnishing of inaccurate particulars. The court found that the respondent disclosed the source of income as a capital receipt, based on the opinion of their tax consultant or Chartered Accountant. The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. Similarly, in Price Waterhouse Coopers Private Limited v. Commissioner of Income Tax, Kolkata-1, the Supreme Court held that inadvertent and bona fide errors do not attract penalty under Section 271(1)(c).

The court concluded that the ITAT did not err in setting aside the penalty, as there was no deliberate attempt to conceal income or furnish inaccurate particulars. The question of law was answered against the appellant, and no case for imposition of penalty under Section 271(1)(c) for the assessment year 1992-93 was made out.

Issue 2: Classification of Compensation Received as Revenue Receipt or Capital Receipt

The respondent received a total of Rs.5,18,02,396/- from Michelin Foreign Collaborator, which they declared as a capital receipt in their Income Tax Return (ITR). The appellant argued that the respondent deliberately categorized this amount as a capital receipt, despite knowing its true nature as revenue receipt. The court had previously adjudicated this issue, holding that the amount constituted a revenue receipt and was rightly taxed as business income for the Assessment Year 1992-93.

The court noted that the respondent disclosed the receipt of the amount from Michelin Company correctly but categorized it as a capital receipt based on the advice of their tax consultant or Chartered Accountant. The court found that this was a debatable issue, and the reference was sent to the High Court for adjudication.

In conclusion, the court held that the ITAT did not commit any error in setting aside the penalty imposed by the Assessment Officer and CIT. The appeal was dismissed, and no substantial question of law was found in favor of the appellant.

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