2008 (3) TMI 706 - AT - Income Tax

Tribunal Upholds Decision: No Penalties for Tax Claims Due to Full Disclosure, Bona Fide Intent.

Assistant Commissioner of Income Tax Versus Vijay Kiran Hotels (P) Ltd.

The Tribunal dismissed the Revenue's appeals for the assessment years 1997-98 and 1998-99, upholding the CIT(A)'s decision to delete penalties under ... Disallowance on deduction u/s 80-IA - primarily engaged in the hiring of marriage palace and the activity of catering and manufacture of food was only incidental - major income by way of rental charges for the banquet hall/marriage palace - not constituting an 'industrial undertaking' within the meaning of u/s 80-IA - Incurred expenditure on foreign travel of its director his sons for studies in abroad - concealed the particulars of its income? - Levy penalty u/s 271(1)(c) or Disallowed expenditure - HELD THAT:- The fact that the assessee did not prefer a claim for AY 1993-94 does not hit the bona fides of the instant claim for the reason that for AY's 1994-95 to 1996-97 the assessee had claimed such deduction although such assessments were completed in a summary manner under s. 143(1) of the Act. Furthermore, the AO, in the original assessment proceedings finalized, allowed the claim of the assessee in principle. Therefore, factually speaking, to say that the claim of the assessee made in the return of income was patently wrong and devoid of bona fides would be a misnomer. It is indeed a different matter that such a claim has ultimately not been found to be strictly in accord with law but the factum of the assessee having disclosed full particulars and the claim made for bona fide considerations cannot be disputed. In fact we have perused the order of the Tribunal in the assessee's case, rendered in connection with the s. 263 proceedings, and find that the invoking of s. 263 by the CIT was entirely on the basis of the judgment of the Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd.[2000 (8) TMI 5 - SUPREME COURT], which, according to the CIT rendered the assessment as erroneous in view of the fact that the assessee was not eligible for s. 80-IA benefits. Therefore the plea of the Revenue that the claim of the assessee was wrong even without the help of the Supreme Court judgment in the case of Indian Hotel Co. Ltd. (supra) and therefore it constituted concealment, in our view, is neither the facet which is the basis of the disallowance and nor can it be investigated at this stage. Therefore having regard to the manner in which the claim of the assessee has been denied, we do not find that the bona fides of the assessee can be doubted. The claim was based on the judgment of a High Court, although it is undeniable that a contrary view was possible. So however in such a situation when there is a divergence of opinion amongst the High Courts and in the absence of a decision of the jurisdictional High Court or the Supreme Court on such issue, the claim of the assessee made in the return of income cannot be labelled as non-bona fide. The denial of deduction on account of a subsequent judgment of the Supreme Court would not constitute concealment or furnishing of inaccurate particulars within the meaning of s. 271(1)(c) of the Act. In the result following the ratio of the judgment of the Supreme Court in the case of Dilip N. Shroff [2007 (5) TMI 198 - SUPREME COURT] we find justification for the CIT(A) having deleted the penalty. In the instant case apart from the fact that the claim of the assessee was based on the audit report of chartered accountant, it also emerges that such claim has been accepted by the AO himself during the original assessment proceedings. Therefore the claim cannot be termed as mala fide. The ratio of the decision of the jurisdictional High Court in the cases of Manoj Ahuja [1984 (1) TMI 35 - PUNJAB AND HARYANA HIGH COURT] and Deep Tools (P) Ltd.[2004 (8) TMI 52 - PUNJAB AND HARYANA HIGH COURT] squarely applies herein also. Therefore on this aspect also we affirm the decision of the CIT(A). In the result for the AY 1997-98 the appeal of the Revenue is dismissed. Disallowance sustained on expenditure - foreign travel of its director - Penalty under s. 271(1)(c) - HEDL THAT:- We find no justification for the imposition of penalty for the reason that there is no case made out by the AO that the claim for expenditure reflected any falsity. In fact, the purpose of the travel has been fully explained and the same has not been rejected as false or lacking in bona fides. Merely because there is difference of opinion as regards the allowability of the claim, the same would not constitute 'concealment' or 'furnishing of inaccurate particulars' within the meaning of s. 271(1)(c) of the Act. In our view the CIT(A) has correctly deleted the penalty. Resultantly, the appeals of the Revenue for 1997-98 and 1998-99 are dismissed. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the IT Act for the assessment years 1997-98 and 1998-99.2. Eligibility of the assessee's business for deduction under Section 80-IA of the IT Act.3. Bona fides of the assessee's claim for deduction under Section 80-IA.4. Disallowance of foreign travel expenses of the director for the assessment year 1998-99.Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c) for AY 1997-98:The Revenue appealed against the CIT(A)'s decision to delete the penalties imposed under Section 271(1)(c) of the IT Act for AY 1997-98 and 1998-99. The penalty for AY 1997-98 amounted to Rs. 1,84,529. The assessee, a company engaged in running a banquet hall/marriage palace, initially claimed a deduction under Section 80-IA amounting to Rs. 4,29,135. The AO restricted this to Rs. 3,59,100, disallowing miscellaneous incomes, hire charges, and interest income. The CIT later canceled the assessment under Section 263, following the Supreme Court's judgment in Indian Hotels Co. Ltd. vs. ITO, which led to the complete denial of the deduction under Section 80-IA in a fresh assessment. The AO imposed a penalty for concealment of income, which the CIT(A) deleted, citing the debatable nature of the issue at the time of the original return and assessment.2. Eligibility of the Assessee's Business for Deduction under Section 80-IA:The CIT(A) upheld the assessee's contention that the claim for deduction under Section 80-IA was made based on the decision of the Gauhati High Court in CIT vs. Hotel Belle Vue (P) Ltd., which classified hotel business as an industrial undertaking. The CIT(A) noted that the issue was debatable and finally settled by the Supreme Court's decision in Indian Hotels Co. Ltd. in 2000. The CIT(A) concluded that the penalty under Section 271(1)(c) could not be imposed as the claim was based on a legal issue and was made with full disclosure, supported by a chartered accountant's audit report.3. Bona Fides of the Assessee's Claim for Deduction under Section 80-IA:The Tribunal agreed with the CIT(A) that the assessee's claim was bona fide. The claim was made based on the Gauhati High Court's decision and was accepted in principle by the AO in the original assessment. The Tribunal noted that the denial of the deduction was due to the subsequent Supreme Court judgment, and the assessee had disclosed all relevant particulars. The Tribunal emphasized that the claim's bona fides could not be doubted, and the penalty under Section 271(1)(c) was not justified.4. Disallowance of Foreign Travel Expenses for AY 1998-99:For AY 1998-99, the penalty under Section 271(1)(c) included disallowances related to foreign travel expenses of Rs. 1,88,303 incurred by the director. The Tribunal found no justification for the penalty, noting that the purpose of the travel was fully explained and not found to be false or lacking in bona fides. The Tribunal concluded that a difference of opinion on the allowability of the claim did not constitute 'concealment' or 'furnishing of inaccurate particulars' under Section 271(1)(c).Conclusion:The Tribunal dismissed the Revenue's appeals for both assessment years, upholding the CIT(A)'s deletion of penalties under Section 271(1)(c). The Tribunal emphasized the bona fide nature of the assessee's claims and the lack of any deliberate act to defraud the Revenue.