2012 (4) TMI 747 - HC - Income Tax

High Court dismisses Revenue's appeal against penalty for claiming expenditure without considering relevant section

The Gujarat High Court dismissed the Revenue's appeal against the deletion of penalty imposed on the assessee for claiming certain expenditure under ... Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Untenable claim in view of newly inserted statutory prohibition - Absence of suppression, concealment or incorrect statement as a defence to penaltyPenalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Untenable claim in view of newly inserted statutory prohibition - Absence of suppression, concealment or incorrect statement as a defence to penalty - Liability to penalty under section 271(1)(c) where an assessee claims a deduction later found to be untenable by reason of a newly inserted statutory provision but has not given any incorrect or untrue particulars nor concealed or suppressed material facts. - HELD THAT: - The Tribunal set aside the penalty imposed on the assessee which had claimed expenditure under section 37 while overlooking the subsequently inserted section 14A. The Court, following the Supreme Court's decision in CIT v. Reliance Petroproducts (P) Ltd., held that imposition of penalty under section 271(1)(c) requires incorrect, untrue or misleading particulars or suppression/concealment of material. Where the claim is merely 'untenable' because a statutory prohibition applies, but there is no incorrect statement, non-disclosure despite demand, or concealment, the conduct does not attract penalty. The Court observed that treating every untenable claim as penalisable would deter assessees from advancing novel or arguable claims under the Act and is therefore not permissible.Penalty under section 271(1)(c) cannot be sustained where the claim is only untenable by reason of a newly inserted statutory provision and there is no incorrect statement, suppression or concealment; the Tribunal's deletion of penalty is upheld.Final Conclusion: Revenue's appeal is dismissed; the tribunal's order deleting the penalty imposed under section 271(1)(c) for Assessment Year 2001-02 is affirmed. Issues involved: Appeal u/s 260A of the Income Tax Act against deletion of penalty u/s 271(1)(c) for claiming expenditure under section 37 overlooking section 14A.Summary:The Gujarat High Court dismissed the appeal filed by the Revenue against the deletion of penalty imposed on the assessee for claiming certain expenditure under section 37 of the Income Tax Act without considering the newly inserted provisions of section 14A. The Tribunal, following the decision in CIT vs. RELIANCE PETROPRODUCTS (P) LTD, held that since there was no incorrect information or concealment, the penalty was not justified. The main issue was whether an assessee making an untenable claim due to a new provision, without incorrect statements or concealment, should be liable for penalty u/s 271(1)(c). The Court held that if there is no incorrect information or suppression of material, and the claim is only untenable due to a prohibition in the Act, penalty cannot be imposed. Imposing penalty for an untenable claim would discourage assessees from raising new questions, fearing penalty if the claim is deemed untenable. The appeal was dismissed as it lacked merit.