2019 (4) TMI 974 - HC - Income Tax

High Court upholds Tribunal decision on tax penalty, emphasizing genuine beliefs & burden of proof

The High Court dismissed the Revenue's appeal, upholding the Income Tax Appellate Tribunal's judgment. The Court affirmed the Tribunal's decision not to ... Penalty u/s 271(1)(c) - excess claim of exemption u/s 54EC - HELD THAT:-  As decided in THE PR. COMMISSIONER OF INCOME-TAX-18 VERSUS SHRI BHARATKUMAR MANEKLAL PARIKH [2019 (3) TMI 583 - BOMBAY HIGH COURT] assessee had not offered certain receipts to tax under bonafide belief that the same was not taxable. Quite apart from the existence of the letter dated 20th September, 2010 not being disputed by the revenue either before the CIT (Appeals) or the Tribunal, during the assessment proceedings undoubtedly the assessee had made full representation why according to his belief the receipt was not chargeable to tax. Merely because the AO did not accept such a stand of the assessee, would not automatically permit revenue to levy penalty. So much, it made abundantly clear by the Supreme Court through series of judgments particularly in case of Reliance Petroproducts Pvt. Limited [2010 (3) TMI 80 - SUPREME COURT] . Further, the reference to the Chartered Accountant's opinion in favour of the assessee made by the Tribunal also cannot be discarded. We do not find any assertion of the revenue at any stage of the proceedings that no such opinion existed.   Penalty for breach of Section 54EC - HELD THAT:- Amount involved is extremely small and we therefore, do not entertain the question without going into merits thereof. We however record the confession for the assessee that the question whether investment under section 54EC can be total of ₹ 50 lakhs in all or would be capped to ₹ 50 lakhs in a assessment year, permitting similar such investment in the next year was not free from doubt. The assessee had no intention to breach this ceiling.  - Decided in favour of assessee Issues:1. Challenge to the judgment of the Income Tax Appellate Tribunal by the Revenue.2. Justification of not upholding the penalty under Section 271(1)(c) of the Income Tax Act.3. Reduction of penalty related to excess claim of exemption under Section 54EC of the Act.Issue 1: Challenge to ITAT JudgmentThe High Court considered the appeal filed by the Revenue challenging the ITAT judgment. The key questions for consideration were whether the ITAT was justified in not upholding the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act, and whether the CIT (A) was correct in reducing the penalty related to an excess claim of exemption under Section 54EC of the Act.Issue 2: Section 271(1)(c) PenaltyThe Revenue contended that the assessee did not make full disclosures of income in the filed return, attempting to suppress income. However, the Tribunal found that the assessee had not offered certain receipts to tax under a genuine belief that they were not taxable. The Tribunal referred to the Supreme Court's decision in Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd., emphasizing that penalty does not automatically apply if the claim is found to be unsustainable in law. The Tribunal also noted that the assessee had obtained an opinion from a Chartered Accountant supporting the non-taxability of the receipt. The Court upheld the Tribunal's decision, emphasizing that the burden of proof shifted to the revenue, and the Tribunal's decision was based on sound reasoning.Issue 3: Penalty under Section 54ECRegarding the penalty related to a breach of Section 54EC of the Act, the Court found the amount involved to be small and did not delve into the merits. The Court acknowledged the ambiguity regarding the investment ceiling under Section 54EC but noted the assessee's lack of intention to breach the limit. Ultimately, the Court dismissed the Income Tax Appeal without providing separate reasons, affirming the decisions of the Tribunal.In conclusion, the High Court dismissed the appeal filed by the Revenue, upholding the ITAT judgment. The Court emphasized the importance of genuine beliefs in tax matters, the burden of proof on the revenue, and the need for sound reasoning in penalty imposition decisions.