2016 (4) TMI 1008 - AT - Income Tax

ITAT cancels penalty under Income-tax Act citing genuine reasons for disputed claims

The ITAT upheld the CIT (A)'s decision to delete the penalty of Rs. 11,64,041/- imposed under section 271(1)(c) of the Income-tax Act, 1961. The ITAT ... Penalty under section 271(1)(c) - Concealment of particulars of income - Furnishing inaccurate particulars of income - Ex-facie bogus claim - Bonafide belief and existence of two opinions on taxability - Deduction under section 43B in respect of government sanctioned loans - Dharmada collection - revenue receipt versus non taxable/charitable treatment - Write off of unusable excise holograms under statutory excise rulesPenalty under section 271(1)(c) - Deduction under section 43B in respect of government sanctioned loans - Bonafide belief and existence of two opinions on taxability - Leviability of penalty under section 271(1)(c) in respect of addition made by disallowing provision of interest on SDF loan - HELD THAT: - The Tribunal held that the assessee had a reasonable and bonafide belief that section 43B did not apply because the loan was sanctioned by the Government of India through Sugar Development Fund and merely disbursed through IFCI; there existed a bona fide two opinion situation including prior allowance in an earlier year. In those circumstances the claim could not be treated as ex facie bogus or as concealment or furnishing of inaccurate particulars to attract penalty u/s 271(1)(c). The Tribunal therefore applied the principle that absence of ex facie bogus claim or absence of a sole indisputable position precludes levy of penalty. [Paras 4, 8]Penalty deleted in respect of addition on account of provision for interest on SDF loan.Penalty under section 271(1)(c) - Dharmada collection - revenue receipt versus non taxable/charitable treatment - Bonafide belief and existence of two opinions on taxability - Leviability of penalty under section 271(1)(c) in respect of addition on account of Dharmada collection and interest on accumulated fund - HELD THAT: - The Tribunal noted that at the time of filing the return there existed case law and differing decisions on the taxability of Dharmada collections (including appellate proceedings in related years), producing a bona fide two opinion situation. Given the existence of legitimately contestable positions and prior orders in the assessee's favour in other years, the claim could not be characterised as ex facie bogus or as concealment of particulars; accordingly penalty under section 271(1)(c) was not liable. [Paras 4, 8]Penalty deleted in respect of addition on account of Dharmada collection and accrued interest.Penalty under section 271(1)(c) - Write off of unusable excise holograms under statutory excise rules - Bonafide belief and existence of two opinions on taxability - Leviability of penalty under section 271(1)(c) in respect of addition for write off of unused holograms - HELD THAT: - The Tribunal agreed with the CIT(A) that the assessee's consistent practice of writing off unused holograms was founded on the UP Excise rules which required destruction of holograms after the year and rendered them unusable thereafter. At the time of filing the return there was no adverse ITAT decision binding the assessee and the assessee held a bonafide belief that such write off was permissible. Consequently the claim was not ex facie bogus and did not amount to concealment or furnishing of inaccurate particulars, so that penalty under section 271(1)(c) could not be sustained. [Paras 4, 8]Penalty deleted in respect of addition for write off of unused holograms.Final Conclusion: The Tribunal upheld the CIT(A)'s order deleting the penalties levied u/s 271(1)(c) for AY 2009 10 in respect of (i) interest provision on SDF loan, (ii) Dharmada collection and accrued interest, and (iii) write off of unused holograms, dismissing the revenue appeal and rendering the assessee's cross objection infructuous. Issues:Deletion of penalty under section 271(1)(c) of the Income-tax Act, 1961.Analysis:1. The sole issue in the revenue's appeal is the deletion of penalty of Rs. 11,64,041/- under section 271(1)(c) of the Act. The AO had completed the assessment determining the income at Rs. 95,59,885/- and levied a penalty under section 271(1)(c) based on various additions/disallowances made. The CIT (A) deleted the penalty, stating that for penalty under section 271(1)(c) to be levied, the assessee must have filed inaccurate particulars of income or concealed the particulars of income. The CIT (A) analyzed each addition separately to determine if the penalty was justified.2. Addition on account of provision of Interest on Sugar Development Fund (SDF) for Rs. 14,45,710/-: The CIT (A) noted that the loan from the Sugar Development Fund was sanctioned by the Government of India and IFCI was only the disbursing agency. The CIT (A) found that there were reasonable grounds for the assessee to believe that section 43B was not applicable, and hence, the penalty was not justified.3. Addition on account of Dharmada collection and interest on accumulated fund: The CIT (A) observed that there were conflicting decisions on the taxability of Dharmada collection at the time of filing the return. The CIT (A) concluded that penalty under section 271(1)(c) was not justified in this case.4. Addition of Rs. 1,69,655 on account of writing off unused hologram: The CIT (A) found that the assessee had a bona fide belief that writing off unused hologram was legal as per UP Excise Rules. The CIT (A) held that the claim of the assessee was not bogus, and hence, the penalty under section 271(1)(c) was not leviable.5. The ITAT upheld the order of the CIT (A) deleting the penalty under section 271(1)(c) for all the additions. The ITAT noted that the issue was covered by its decision in the assessee's case for AY 2007-08. The ITAT agreed with the CIT (A) that the assessee had genuine reasons for the claims made, and therefore, the penalty was not justified.6. The cross objection filed by the assessee was supportive of the CIT (A)'s order. Since the ITAT had dismissed the revenue's appeal and upheld the CIT (A)'s order, the cross objection became infructuous and was dismissed.7. In conclusion, the appeal of the revenue and the cross objection of the assessee were both dismissed by the ITAT, upholding the order of the CIT (A) in deleting the penalty under section 271(1)(c) of the Act.