2013 (10) TMI 1370 - HC - Income Tax

High Court overturns ITAT penalty decision under Section 271(1)(c) of Income-tax Act.

Ravindra Bahl Versus Assistant Director of Income-tax, Circle - 1 (1)

The High Court held that the ITAT was not justified in imposing a penalty under Section 271(1)(c) of the Income-tax Act, 1961, as the assessee had ... Penalty u/s 271(l)(c) - Held that:- This is a fit case wherein the explanation offered by the assessee establishes and proves his bona fides. The same should be accepted especially when he had filed a detailed note and had also paid tax and had asked for refund of tax. The question of law is accordingly, answered in favour of the appellant and against the revenue. Penalty under Section 271(1)(c) is directed to deleted. Issues Involved:1. Justification of the Income Tax Appellate Tribunal's decision regarding the assessee's failure to discharge onus under Explanation 1 to Section 271(1)(c) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Justification of the Income Tax Appellate Tribunal's Decision:The primary issue in this appeal was whether the Income Tax Appellate Tribunal (ITAT) was justified in holding that the assessee failed to discharge the onus under Explanation 1 to Section 271(1)(c) of the Income-tax Act, 1961. The case pertains to the assessment year 2000-01, where the assessee received USD 10 lakhs from HCL-Deluxe, N.V. (HDX) under an agreement dated 6.4.1999.a. Facts and Penalty Imposition:The assessing officer levied a penalty of Rs. 1,43,33,963 under Section 271(1)(c) of the Income-tax Act, 1961. However, the Commissioner of Income-tax (Appeals) deleted the penalty, noting that the assessee had made a claim that certain receipts were capital in nature and thus not liable to tax. Full taxes were paid on the 'capital' receipt before filing the return, accompanied by a detailed note explaining the claim and requesting a refund. The Commissioner observed that there was no concealment as all facts were disclosed in the return, and the explanation was based on a bona fide belief.b. Tribunal's Reversal:The ITAT reversed the Commissioner's findings, referencing Section 17(3) Clauses (i) & (iii) of the Act, which state that compensation received due to termination of employment is taxable as profit in lieu of salary. The Tribunal noted that the assessee had paid advance tax on the amount received but failed to declare it as income in the return, thereby furnishing inaccurate particulars of income, attracting penalty under Section 271(1)(c).c. High Court's Analysis:The High Court analyzed whether the explanation provided by the assessee was bona fide and whether all facts material to the computation of income were disclosed. The Court noted that the assessee had disclosed the quantum of payment and the terms of the agreement in a detailed note attached to the return, fulfilling the first requirement of Sub-clause 'B' to Explanation 1 of Section 271(1)(c).d. Bona Fides of the Explanation:The Court examined the second requirement, which is the bona fides of the claim. It was observed that the payment included several obligations accepted by the assessee post-termination of employment, making the claim that the receipt was capital in nature plausible. The Court emphasized that taxation provisions can be complex and debatable, and when an assessee discloses true facts and takes a position in law that is plausible, penalty should not be imposed. The Court cited several judgments to support this view, including CIT v. Reliance Petroproducts (P.) Ltd. and CIT v. Dharampal Premchand Ltd.e. Conclusion:The High Court concluded that the assessee's explanation was bona fide, as he had disclosed all relevant facts and paid the full amount of advance tax. The claim, although not accepted, was not devoid of substance and merited examination. Therefore, the penalty under Section 271(1)(c) was not justified. The question of law was answered in favor of the assessee, and the penalty was directed to be deleted.Summary:The High Court held that the ITAT was not justified in imposing a penalty under Section 271(1)(c) of the Income-tax Act, 1961, as the assessee had disclosed all relevant facts and provided a bona fide explanation for the receipt in question. The penalty was directed to be deleted, and the appeal was disposed of with no orders as to costs.