2019 (5) TMI 1868 - AT - Income Tax

Tribunal Overturns Tax Authority's Order, Upholds Assessee's Appeal

The Tribunal allowed the appeals of the assessee, setting aside the Principal Commissioner of Income Tax's order under Section 263 for both Assessment ... Revision u/s 263 - order passed by the A.O. dropping the penalty proceedings initiated u/s 271(1)(c) - as per CIT A.O. had failed to examine the complete dimension of the facts and circumstances of the case and also failed to apply the correct proposition of law and, therefore, the order of the A.O. dropping the penalty u/s 271(1)(c) of the Act for the impugned year was erroneous in so far as it was prejudicial to the interest of the Revenue - HELD THAT:- It is not disputed that in the impugned year also penalty proceedings were initiated on the same addition made of interest on FDR’s, in the same facts as circumstances, as in A.Y 2007-08 to A.Y 2009-10 and A.Y 2012-13 and A.Y 2013-14 - In view of the fact that in all those years penalty levied was deleted by the ITAT/CIT(A), considering the backdrop of the case as stated, we have no hesitation in holding that the A.O’s view that no penalty was leviable for the impugned year i.e. A.Y 2011-12, was a plausible view and not outrightly incorrect as canvassed by the Revenue/Pr.CIT. That the Department has contested the deletion of penalty by the I.T.A.T. in assessment years 2008-09 and 2009-10 is, we hold, wholly irrelevant for the conclusion that the view of the A.O. was a plausible view. The Department is well within its rights to contest any order as legally permissible, but merely by so contesting it does not make the orders challenged as being wholly untenable in law. Interpretation of fact by the A.O. that the issue was identical to A.Y 2007-08, was correct. In A.Y 2007-08 the penalty had been deleted on the basis of agreement between the assessee and the department, as recorded in the ROD, to not levy penalty. This agreement, we hold, was applicable to the impugned year also. The reason being, the agreement was regarding the issue whether the assessee was a nodal agency of Chandigarh Administration or not. Even otherwise, we hold, that the claim of the assessee that the interest income was not taxable in its hands, was based on a bonafide belief that the funds invested in FDR’s did not belong to it and were collected by it as a nodal agency of the Chandigarh administration. This stand was consistently taken by the assessee and was conceded only by amicable settlement with the department on taking a prima facie view of the matter. It is not that the claim was found outrightly untenable by any authority. Therefore till the date of settlement of the dispute the claim of the assessee was undoubtedly under a bonafide belief. In view of the same therefore the assessee could not be charged with having concealed or furnished any inaccurate particulars of income so as to levy penalty u/s 271(1)(C) of the Act. We therefore hold that the order passed by the AO dropping penalty proceedings initiated u/s 271(1)(C) of the Act was not erroneous and the order passed by the Ld.Pr.CIT u/s 263 of the Act is therefore set aside. The appeal of the assessee is therefore allowed. Issues Involved:1. Whether the Assessing Officer (AO) erred in dropping penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act for the Assessment Year (AY) 2010-11.2. Whether the Principal Commissioner of Income Tax (Pr.CIT) was justified in invoking Section 263 of the Income Tax Act to revise the AO's order.Detailed Analysis:1. Dropping of Penalty Proceedings by AO:Facts and Background:- The AO dropped penalty proceedings initiated under Section 271(1)(c) for AY 2010-11, based on the assumption that the facts were identical to AY 2007-08, where the ITAT had deleted the penalty.- The Pr.CIT noted that the addition of Rs. 16,84,86,188/- on account of interest earned on FDRs was confirmed by both the CIT(A) and the ITAT.- The AO had dropped the penalty proceedings considering similar deletions in AYs 2008-09 and 2009-10 by the ITAT, which were under appeal by the department.Pr.CIT's Observations:- The Pr.CIT found that the facts of AY 2007-08 were not identical to AY 2010-11. The penalty for AY 2007-08 was deleted due to an amicable settlement directed by the High Court and sanctioned by the Supreme Court, which was specific to that year.- The Pr.CIT noted that the AO had failed to exercise due diligence in examining the records and had wrongly appreciated the facts.Assessee's Defense:- The assessee argued that the AO's decision was plausible, considering the directions of the High Court, the Record of Discussion (ROD), and the Supreme Court's observations that no penalty would be levied.- The assessee pointed out that similar penalties for AYs 2008-09 and 2009-10 were deleted by the ITAT, and for AYs 2012-13 and 2013-14, the CIT(A) had also deleted similar penalties.Tribunal's Findings:- The Tribunal found that the AO's view was plausible and not outrightly incorrect.- The Tribunal noted that the agreement for no penalty was issue-specific and applied to all years affected by the issue, not just AY 2007-08.- The Tribunal held that the claim of the assessee was based on a bona fide belief that the funds did not belong to it, and thus, no penalty was leviable.2. Invocation of Section 263 by Pr.CIT:Pr.CIT's Action:- The Pr.CIT invoked Section 263, stating that the AO's order was erroneous and prejudicial to the interest of the Revenue.- The Pr.CIT directed the AO to pass a fresh order, considering the correct facts and legal propositions.Assessee's Grounds of Appeal:- The assessee challenged the invocation of Section 263, arguing that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue.- The assessee contended that the AO had taken a plausible view, and the Pr.CIT's direction to pass a fresh order was uncalled for.Tribunal's Decision:- The Tribunal held that the AO's order was not erroneous as it was based on a plausible view.- The Tribunal set aside the Pr.CIT's order under Section 263, concluding that the AO had rightly dropped the penalty proceedings.Conclusion:- The Tribunal allowed the appeals of the assessee, setting aside the Pr.CIT's order under Section 263 for both AY 2010-11 and AY 2011-12.- The Tribunal confirmed that the AO's decision to drop the penalty proceedings was justified and based on a plausible interpretation of the facts and law.