2002 (12) TMI 27 - HC - Income Tax

High Court reinstates penalties for inaccurate particulars and false claims under Income-tax Act.

The High Court reinstated penalties under sections 271(1)(c) and 273(2)(a) of the Income-tax Act against the assessee, a private limited company. The ... Penalty under section 271(1)(c) and 273(2)(a) - false claim for deduction of certain amounts under section 35(1)(iv) which deals with the expenditure on scientific research - available evidence clearly shows that the sale deed produced by the assessee for the purchase of Chennai property that part of the property was meant for administrative purpose, yet the assessee claimed not only the entire amount paid but also the future amount payable and the interest also as if the assessee had incurred the expenditure towards scientific research - As far as the Gujarat property is concerned, there is absolutely no evidence at all even for the agreement of sale and there was an agreement entered into with a middleman to procure the land for the assessee from some Adivasies - assessee had not put the land for scientific research - conclusion arrived at by the Appellate Tribunal in cancelling the penalty under section 271(1)(c) is not correct - the order of the Tribunal cancelling the penalty levied under section 273(2)(a) is not sustainable Issues Involved:1. Validity of penalty under section 271(1)(c) of the Income-tax Act, 1961.2. Validity of penalty under section 273(2)(a) of the Income-tax Act, 1961.Detailed Analysis:1. Validity of Penalty under Section 271(1)(c):The assessee, a private limited company, claimed deductions for capital expenditures on properties in Chennai and Gujarat under section 35(1)(iv) of the Income-tax Act, 1961, which deals with deductions for capital expenditure on scientific research. The Assessing Officer denied these deductions, finding that the properties were not used for scientific research and levied penalties under section 271(1)(c) for furnishing inaccurate particulars of income.For the Chennai property, the Assessing Officer found that the sale deed was registered only four days before the end of the accounting period, and only a partial payment was made within the relevant year. The property was not used for scientific research, and a portion was designated for administrative purposes. The assessee's representative admitted that the property was not used for scientific research. Consequently, the claim of Rs. 59,88,893 was rejected.For the Gujarat property, the assessee claimed Rs. 42,67,054 for land purchased from farmers. The Assessing Officer found that the land acquisition agreements were not registered before the end of the accounting period, and the property was not used for scientific research. The Tribunal upheld the disallowance, noting that the intention to set up a research unit was insufficient for deduction eligibility.The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal (ITAT) upheld the Assessing Officer's findings. The ITAT found that the assessee's claim was premature and not fraudulent. The ITAT canceled the penalties, considering the claim debatable and not amounting to fraud or gross negligence.2. Validity of Penalty under Section 273(2)(a):The Assessing Officer also levied penalties under section 273(2)(a) for filing a nil estimate of advance tax despite having a positive income exceeding Rs. 1.9 crores. The ITAT canceled these penalties, reasoning that the assessee could not have anticipated the rejection of its bona fide claim.Court's Analysis and Conclusion:The High Court found that the ITAT did not properly consider the materials and evidence presented by the Assessing Officer and the Commissioner of Income-tax (Appeals). The court noted that the properties were not used for scientific research, and the claims were found to be false. The ITAT's conclusion that the claim was premature was deemed inconsistent with its own findings and the evidence.The court held that the ITAT's decision to cancel the penalties was not supported by evidence and was perverse and patently erroneous. The High Court concluded that the assessee deliberately furnished inaccurate particulars and made false claims. Consequently, the cancellation of penalties under sections 271(1)(c) and 273(2)(a) was not sustainable in law.Judgment:The High Court answered the questions in the negative, ruling in favor of the Revenue and against the assessee. The penalties under sections 271(1)(c) and 273(2)(a) were reinstated. No order as to costs was made.