2019 (2) TMI 788 - AT - Income Tax

Tribunal Cancels Penalty on Assessee for Taking Favorable View on Disputable Tax Issue

The Tribunal allowed the Assessee's appeal, canceling the penalty imposed under Section 271(1)(c) for Assessment Year 2006-07. The penalty was deemed ... Penalty u/s 271(1)(c) - deduction claimed by the assessee U/s 80IB(10) disallowance under normal provisions; and under special provisions of I.T. Act U/s 115JB - Held that:- the assessee’s claim U/s 80IB of I.T. Act has been upheld by Co-ordinate Bench of ITAT, Delhi. Therefore, no penalty U/s 271(1)(c) of I.T. Act is leviable in respect of quantum additions under normal provisions of Income Tax Act, under which the AO had made addition, on account of disallowance of deduction U/s 80IB of I.T.Act Issue as to whether amount of deduction U/s 80IB of I.T. Act is to be included as Book Profit for the purpose of Section 115JB of I.T. Act was disputable, on which two different views were legitimately possible; one such view being in favour of the Assessee. On a the disputable issue of quantum addition, on which two different views are legitimately possible, of which the one favourable to the assessee has been adopted by the assessee; eventually, the Assessee may or may not succeed in the quantum proceedings and the disputable issue, on which two different views were possible, may eventually be decided against the Assessee in quantum proceedings. However, the assessee cannot be burdened with penalty U/s 271(1)(c) of I.T. Act, if on a disputable issue of quantum addition, on which two different views were legitimately possible, the Assessee decided to adopt the view which was favourable to the assessee; in a case in which all necessary details were filed by the Assessee in support of the claim and when no material inaccuracies were found in these details, and when the assessee is not guilty of suppression of any material facts. As regards the contention for Assessee, that the AO did not make specific charge against the assessee - whether the penalty proceedings were for ‘concealment of the particulars of income’ or for ‘furnishing of inaccurate particulars of income’ it is already found that the disputable claim made by the assessee neither amounts to ‘concealment of particulars of income’ nor to ‘furnishing of inaccurate particulars of income’; it is immaterial whether the Assessing Officer made specific charge against the assessee whether the penalty proceedings were for ‘concealment of the particulars of income’ or for ‘furnishing of inaccurate particulars of income’. Therefore, presently we decline to express an opinion on this contention of the Ld. Counsel for assessee; because this is merely any academic issue at present. Issues Involved:1. Legitimacy of the penalty under Section 271(1)(c) of the Income Tax Act.2. Jurisdictional and procedural correctness of the penalty imposition.3. Validity of the disallowance under Section 80IB(10) and its impact on Book Profit under Section 115JB.4. Specificity of the charge in the penalty notice.Issue-wise Detailed Analysis:1. Legitimacy of the Penalty under Section 271(1)(c) of the Income Tax Act:The Assessee challenged the penalty of Rs. 60,77,308/- imposed under Section 271(1)(c) for Assessment Year 2006-07, arguing that the penalty was levied without proper jurisdiction and against the facts of the case. The Tribunal noted that the penalty proceedings were initiated on two counts: disallowance under Section 80IB(10) and addition under Section 115JB. The Assessee succeeded in the appellate proceedings concerning the disallowance under Section 80IB(10), as upheld by the ITAT in a previous order. Therefore, no penalty under Section 271(1)(c) was leviable for the quantum additions under normal provisions.Regarding the addition under Section 115JB, the Assessee contended that the deduction claimed under Section 80IB should not be added to the Book Profit. The Tribunal found that this issue was disputable with two legitimate views possible, one in favor of the Assessee. The Tribunal held that on a disputable issue where two views are possible, the Assessee cannot be penalized under Section 271(1)(c) for adopting the view favorable to them. The Tribunal cited various judicial precedents supporting this view, including CIT vs. Reliance Petroproducts and CIT vs. Samurai Techno Trading (P) Ltd., concluding that the penalty was not justified.2. Jurisdictional and Procedural Correctness of the Penalty Imposition:The Assessee argued that the penalty was imposed without assuming proper jurisdiction and was procedurally flawed. The Tribunal reviewed the procedural history and found that the penalty was imposed following the due process, including multiple show-cause notices issued to the Assessee. However, the Tribunal emphasized that the penalty's legitimacy hinges on the disputability of the quantum addition. Since the quantum addition under Section 115JB was disputable, the penalty lacked a solid basis.3. Validity of the Disallowance under Section 80IB(10) and its Impact on Book Profit under Section 115JB:The Tribunal noted that the Assessee's claim under Section 80IB(10) was upheld in appellate proceedings, negating the penalty for quantum additions under normal provisions. The core issue was whether the deduction under Section 80IB(10) should be added to the Book Profit under Section 115JB. The Tribunal found that judicial precedents, such as M/s Neha Home Builders (P) Ltd., supported the Assessee's view that the deduction should not be added. Therefore, the Assessee's claim was disputable, and no penalty was warranted for adopting a view that was legally tenable.4. Specificity of the Charge in the Penalty Notice:The Assessee contended that the penalty notice did not specify whether the penalty was for 'concealment of particulars of income' or 'furnishing of inaccurate particulars of income.' The Tribunal acknowledged this contention but found it academic since the penalty was already deleted based on the disputability of the claim. The Tribunal noted that this issue was raised for the first time before the ITAT and was not a ground in the appeal. Therefore, the Tribunal declined to express an opinion on this contention, deeming it immaterial to the case's outcome.Conclusion:The Tribunal allowed the Assessee's appeal, canceling the penalty imposed under Section 271(1)(c) and setting aside the CIT(A)'s order. The Tribunal emphasized that on a disputable issue with two legitimate views, the Assessee's adoption of a favorable view does not constitute concealment or furnishing of inaccurate particulars of income, thereby excluding the scope of penalty under Section 271(1)(c).