2011 (10) TMI 29 - HC - Income Tax

High Court Rules Penalty Unjustified under Income Tax Act

The High Court held that the penalty imposed under Section 271(1)(c) of the Income Tax Act was unwarranted as the assessee had disclosed all necessary ... Penalty u/s 271(1)(c) - disclosure of true and correct facts - Held that:- the argument of the revenue that in the light of the judgment of this Court in the case of Chaturbhuj Kapadia (2003 -TMI - 12097 - BOMBAY High Court ) the assessee ought to have revised the return of income for AY 2002-03 cannot be accepted. - when the amount received from time to time have been disclosed by the assessee, it could not be said that the assessee concealed the income or furnished inaccurate particulars of income. - if the assessing officer himself could not take any definite stand regarding the assessment year in which the amount received by the assessee was taxable, it would be improper to penalise the assessee for not offering the amount to tax in AY 2002-03. - ITAT were not justified in holding that the assessee had concealed income and furnished inaccurate particulars of income and accordingly impose penalty under Section 271(1)(c) of the Act. Issues Involved:1. Justification of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Justification of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961:- Background and Facts:- The assessment year involved is AY 2002-03.- The assessee entered into a Memorandum of Understanding (MoU) with M/s. Maitri Associates on 24/8/2001 for property development, followed by a formal agreement on 21/3/2002.- As per the agreements, the assessee was to receive Rs. 6 crores upfront and 40% of the sale proceeds from the construction and sale of flats.- In the financial documents for AY 2002-03, Rs. 6 crores was shown as an advance against the sale of property and was not offered to tax in the return filed on 31/10/2002.- The assessee received part of the balance consideration in FY 2005-06 and paid advance tax in AY 2006-07.- A search action under Section 132 of the Income Tax Act was conducted on 12/9/2006, leading to the filing of a return for AY 2006-07 offering long-term capital gains to tax.- Legal opinions received by the assessee suggested different years for taxing the capital gains, leading to multiple revised returns.- Assessment and Penalty Proceedings:- The assessing officer issued various show cause notices proposing different years and heads for taxing the income.- Ultimately, the assessment order for AY 2002-03 was passed on 31/12/2008, taxing the total consideration received during 2002-2008 under 'income from capital gains' at a discounted value.- The assessing officer also held that the assessee had concealed particulars of income and furnished inaccurate particulars, imposing a penalty of Rs. 3,44,40,616/- under Section 271(1)(c).- Appeal and Tribunal's Decision:- The CIT(A) deleted the penalty, holding that the assessee had neither concealed income nor furnished inaccurate particulars.- The ITAT reversed the CIT(A)'s decision, holding that the assessee failed to disclose fully and truly all material facts related to the computation of income.- High Court's Analysis:- The court noted that on the date of filing the original return, the prevailing decision (DCIT V/s. Asian Distributors Ltd.) supported the assessee's stance that transfer occurs only on the payment of the last installment.- The receipt of Rs. 6 crores was disclosed as an advance in the original return, indicating no concealment or furnishing of inaccurate particulars.- The court found the revenue's argument about revising the return post the Chaturbhuj Kapadia decision unconvincing, as the decision was not to affect transactions concluded prior to it and was itself challenged by the revenue.- The assessing officer's uncertainty about the year and head of taxability until the assessment order indicated that penalizing the assessee was improper.- Conclusion:- The court held that the assessee had disclosed all necessary materials for the assessment in AY 2002-03.- The assessing officer and ITAT were not justified in holding that the assessee had concealed income or furnished inaccurate particulars, thus imposing the penalty under Section 271(1)(c) was unwarranted.- The question of law was answered in favor of the assessee, and the appeal was disposed of with no order as to costs.