2016 (9) TMI 1393 - AT - Income Tax

Tribunal Cancels Penalty for Genuine Belief in Expense Claims

M/s. Bhishma Realty Ltd. Versus ACIT, Circle-2 (1), Mumbai and DCIT, Range-2 (1), Mumbai

The Tribunal set aside the penalty imposed under section 271(1)(c) for Assessment Years 2005-06 & 2007-08, following the precedent of a similar case ... Penalty u/s 271(1)(c) - difference between the originally returned loss and the finally assessed loss was considered by the Assessing Officer to be ‘furnishing of inaccurate particulars of income’ - Held that:- No other income even till today and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of years. In such a situation claiming the expenses in the year of completion would have been advantages to the assessee as in that case all the expenses could have been allowed. Considering the entirety of facts and circumstances, in our view, explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalty under section 271(1)(c) in this case. See M/s. Chaitra Realty Ltd. Versus The DCIT [2011 (3) TMI 1746 - ITAT MUMBAI ] - Decided in favour of assessee. Issues involved: Penalty imposed u/s 271(1)(c) of the Act for Assessment Years 2005-06 & 2007-08.Analysis:1. Common Issue of Penalty Imposition:The appeals were filed by the assessee for Assessment Years 2005-06 & 2007-08, challenging the penalty imposed under section 271(1)(c) of the Act. The primary contention was regarding the accuracy of income particulars furnished by the assessee, leading to the penalty imposition. The case for Assessment Year 2007-08 was considered the lead case due to identical facts and circumstances.2. Background and Assessment Details:The appellant, a real estate development company, was one of the Special Purpose Vehicles (SPVs) entrusted with liabilities related to a property transferred under a rehabilitation scheme. The assessed loss for the year was significantly lower than the returned loss due to the treatment of expenses. The Assessing Officer considered the difference in the reported and assessed loss as furnishing inaccurate particulars of income, resulting in the penalty imposition.3. Comparison with Similar Case:The representative for the assessee highlighted a similar case involving M/s. Chaitra Realty Ltd., where the Tribunal had deleted the penalty under section 271(1)(c) in comparable circumstances. The factual matrix was not disputed by the Department's representative, emphasizing the relevance of the precedent set by the Tribunal in a related case.4. Tribunal's Decision and Rationale:The Tribunal referred to the case of M/s. Chaitra Realty Ltd. where the penalty was deleted based on the bonafide belief of the assessee regarding expense claims. The Tribunal emphasized that not every addition in assessment automatically leads to penalty imposition under section 271(1)(c). It was noted that the claim made by the assessee was under a genuine belief, considering the debatable nature of expense allowance timing. The Tribunal concluded that the explanation provided by the assessee was acceptable, leading to the deletion of the penalty.5. Decision and Outcome:Following the precedent and rationale from the M/s. Chaitra Realty Ltd. case, the Tribunal set aside the penalty imposed by the CIT(A) and directed the Assessing Officer to delete the penalty under section 271(1)(c) for the current case. Consequently, both appeals of the assessee for Assessment Years 2005-06 and 2007-08 were allowed based on the same reasoning.6. Final Verdict:The Tribunal's decision to delete the penalty was based on the bonafide belief of the assessee regarding expense claims, aligning with the earlier precedent set in a similar case. The appeals were allowed, emphasizing the importance of evaluating penalty imposition in light of the bonafide nature of the explanations provided by the assessee.The Tribunal's judgment focused on the bonafide belief of the assessee regarding expense claims and highlighted the importance of assessing penalty imposition based on the genuineness of explanations provided, rather than solely on the additions in the assessment.