ITAT cancels penalties under Section 271(1)(c) for Assessment Years 2004-07, ruling in favor of assessee

The Income Tax Appellate Tribunal (ITAT) set aside the penalties imposed under Section 271(1)(c) for Assessment Years 2004-05, 2005-06, and 2006-07, ruling in favor of the assessee. The ITAT found that the assessee had disclosed all necessary facts, and the penalty was unwarranted as making an unsustainable claim does not amount to furnishing inaccurate particulars. The ITAT directed the Assessing Officer to cancel the penalties for all three years, allowing the assessee's appeals.

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Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act for Assessment Years 2004-05, 2005-06, and 2006-07.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:

Facts of the Case:
The assessee, a private limited company, derived income from dividend and rent during the relevant years while constructing a building for its business. The rental income was derived from letting out part of the partly constructed building and open spaces for marriages and ceremonies. The returns for the relevant assessment years were filed late, declaring losses and claiming depreciation on fixed assets.

Assessment Proceedings:
During scrutiny, the Assessing Officer (AO) questioned the depreciation claim, noting the assessee had not carried out any business during the concerned period, the rent was offered as "Income from house property," and the assets were not used for business purposes. The assessee agreed to the disallowance of depreciation, leading to additions in the assessed income.

Appeal to CIT(A) and Tribunal:
The CIT(A) upheld the disallowance of depreciation, a decision confirmed by the Tribunal, which found no sufficient material to interfere with the lower authorities' orders.

Penalty Proceedings:
The AO initiated penalty proceedings under Section 271(1)(c), asserting the assets were not used for business activity. The assessee argued the disallowance was agreed upon under a bona fide belief that no penalty would follow and that there was no concealment or inaccurate particulars of income. The AO, however, levied penalties for all three years.

Appeal to CIT(A) on Penalty:
The assessee contended that the depreciation claim was made under a bona fide belief, supported by legal precedents, and that mere rejection of a legal claim does not constitute furnishing inaccurate particulars. The CIT(A) rejected these arguments, relying on Supreme Court and High Court decisions, and upheld the penalties.

Arguments Before ITAT:
The assessee's counsel argued that all material facts were disclosed, the income was derived from a partly constructed building, and the penalty was unjustified as there was no concealment of income. The Departmental Representative maintained that the assessee failed to satisfactorily explain the difference in income, justifying the penalty.

ITAT's Analysis and Decision:
The ITAT considered the facts, including the disclosure of rental income and payment of property tax, which indicated the building's existence and use. It noted that the AO's addition was based on disclosed particulars, not independent investigation. Citing Supreme Court and High Court decisions, the ITAT concluded that making an unsustainable claim does not equate to furnishing inaccurate particulars. The ITAT found that the assessee had disclosed all necessary facts and the penalty was not justified.

Conclusion:
The ITAT set aside the CIT(A)'s order and directed the AO to cancel the penalties for all three years, allowing the assessee's appeals.

Pronouncement:
The judgment was pronounced in the open court on 20.5.2015.

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