2015 (3) TMI 616 - HC - Income Tax

High Court upholds Tribunal decision on Income Tax penalty, finding respondent's disclosure genuine. Precedents distinguished, no penalty imposed.

Commissioner of Income Tax-12 Versus M/s. SM. Construction

The High Court upheld the Tribunal's decision to delete a penalty imposed under Section 271(1)(c) of the Income Tax Act, finding that the ... Penalty u/s 271(1)(c) - assessee had claimed the Receipt of ₹ 1.11 crore as capital receipt in order to evade tax - Tribunal upholding the decision of the CIT(A) in deleting the penalty - Held that:- The respondent-assessee had originally paid an amount of ₹ 54 Lakhs as a consideration for the development agreement in 1995. In the previous year relevant to assessment year, the respondent-assessee received from the vendor an amount of ₹ 1.65 Crores which included an amount of ₹ 54 Lakhs which was originally paid in 1995 by the assessee to the vendor. Therefore, only an amount of ₹ 1.11 Crores which was received in excess of amount paid by the respondent-assessee to the original vendor could be a subject matter of taxation and we find that the disclosure of ₹ 1.11 Crores which was made by the petitioners as a part of its notes to accounts as well as letter dated 29 October 2005 alongwith its claim of not being taxable was filed along with the Return of Income. Thus there has been a complete disclosure of all facts as held by CIT(A) and the Tribunal. Besides the claim made by the respondentassessee of not being taxable was not found to be not bonafide. As held by the Supreme Court in Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) making of an incorrect claim would not tantamount to furnishing inaccurate particulars of income. In this case, the assessee bonafide believed that the difference of ₹ 1.65 Crores and ₹ 55 Lakhs is not chargeable to tax and had so stated before the Assessing Officer. The fact that the explanation of assessee is not accepted in quantum proceedings would not ipso facto visit the assessee with penalty in the absence of the claim being held to be not bonafide. - Decided in favour of assessee. Issues:- Challenge to order deleting penalty under Section 271(1)(c) of the Income Tax Act- Questions of law formulated by the appellant-revenue- Interpretation of receipt as capital or taxable income- Assessment of penalty under Section 271(1)(c) by the Assessing Officer- CIT (A) and Tribunal's findings on disclosure of facts and bonafide claim- Comparison with relevant legal precedents- Grievance of revenue regarding disclosure and applicability of legal precedents- Analysis of disclosure and bonafide claim by respondent-assessee- Consideration of bonafide view and applicability of legal precedents- Conclusion on penalty imposition and absence of substantial question of lawDetailed Analysis:1. The High Court of Bombay heard an appeal by the Revenue challenging the Tribunal's order deleting a penalty imposed under Section 271(1)(c) of the Income Tax Act. The Tribunal dismissed the revenue's appeal from the CIT (A)'s order deleting the penalty of Rs. 13.30 Lakhs.2. The appellant-revenue formulated questions of law regarding the Tribunal's decision on upholding the deletion of the penalty under Section 271(1)(c) despite the assessee's claim of a capital receipt to evade tax.3. The respondent-assessee entered into a Development Agreement, and upon its cancellation, received Rs. 1.65 Crores, claiming Rs. 1.11 Crores as a capital receipt not chargeable to tax. This claim was reflected in the Accounts and Return of Income.4. The Assessing Officer disagreed with the claim, assessing the amount as taxable under Capital Gains. The CIT (A) upheld this assessment, leading to penalty proceedings under Section 271(1)(c) against the respondent-assessee.5. The Assessing Officer imposed a penalty, alleging inaccurate particulars by the assessee. However, the CIT (A) found that the disclosure was complete, and the claim, though unsustainable in law, did not amount to furnishing inaccurate particulars.6. The Tribunal upheld the CIT (A)'s decision, emphasizing the disclosure of facts by the assessee and the bonafide nature of the claim. It distinguished the case from relevant legal precedents cited by the Revenue.7. The Revenue challenged the order, arguing incomplete disclosure and the applicability of legal precedents. The High Court analyzed the disclosure of Rs. 1.11 Crores by the assessee and the bonafide nature of the claim.8. The High Court found that the disclosure was complete, and the claim, though not accepted, was bonafide. It distinguished the case from the legal precedent cited by the Revenue, emphasizing the absence of defiance of law in the assessee's stand.9. The High Court concluded that no penalty should be imposed on the respondent-assessee, as there was complete disclosure and a bonafide claim. It found no substantial question of law for consideration and dismissed the appeal.10. In the final order, the High Court dismissed the appeal without costs, based on the findings of complete disclosure and bonafide claim by the respondent-assessee.