2019 (9) TMI 654 - AT - Income Tax

Tribunal cancels penalty under Income Tax Act citing bona fide disclosure

The Tribunal allowed the appeal, canceling the penalty imposed under section 271(1)(c) of the Income Tax Act. The Tribunal held that the assessee provided ... Levy of penalty u/s 271(1 )(c) - validity of notice issued for initiation of penalty - debatable issue - security deposit forfeited represented capital loss and hence, not allowable as deduction - HELD THAT:- The issue involved is only of the interpretation of the transaction of loss of security. According to the assessee, it was in the nature of revenue expenditure whereas according to the Assessing Officer, it is capital loss, not allowable against the business profit. There is no doubt that there were two opinions, whether the advances written off could be considered as revenue expenditure or capital expenditure. See MYSORE SUGAR COMPANY LIMITED [1962 (5) TMI 3 - SUPREME COURT] Hon’ble High Court of Punjab and Haryana in the case of Commissioner of Income Tax versus Amtek Auto Limited [2013 (6) TMI 133 - PUNJAB AND HARYANA HIGH COURT] has held that “merely because assessee claimed expenditure as revenue, which was held as capital by the Assessing Officer, penalty for concealment could not be imposed where assessee discloses nature of transaction”. In the case of Commissioner of Income Tax Vs. Electrolux Kelvantro Ltd. [2013 (9) TMI 970 - DELHI HIGH COURT] held that where the issue involved is debatable and not free from doubt, no penalty can be levied. - Decided in favour of assessee. Issues Involved:1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.2. Validity of the notice issued for initiation of penalty under section 271(1)(c)/274 of the Act.Detailed Analysis:1. Levy of Penalty under Section 271(1)(c):Ground 1:The assessee contested the penalty of Rs. 905,664 levied under section 271(1)(c) for the addition made on account of the write-off of a forfeited security deposit. The assessee argued that the deduction of the write-off was a debatable issue and relied on various judicial precedents. The CIT(A) upheld the penalty, stating that the issue was not debatable and relied on decisions in Robert Addie & Sons’ Collieries and Bharat Collieries Ltd.Ground 1.1:The assessee argued that penalty under section 271(1)(c) cannot be levied where more than one legal view is possible. The CIT(A) erred in not appreciating the judicial precedents cited.Ground 1.2:The CIT(A) erroneously relied on decisions in Robert Addie & Sons’ Collieries and Bharat Collieries Ltd., which were not fully applicable to the assessee's case.Ground 1.3:The CIT(A) alleged that the claim was made in the hope that the return would not be scrutinized and held that penalty provisions do not require culpable mens rea.Tribunal’s Findings:The Tribunal noted that the assessee disclosed all facts in the return and assessment proceedings. The issue was whether the loss of the security deposit was a revenue or capital expenditure, a matter of interpretation. The Tribunal relied on the Supreme Court's decision in Mysore Sugar Company Ltd. and other cases, concluding that there were two possible views. The Tribunal also referenced decisions where no penalty was levied when the nature of the transaction was disclosed, and the issue was debatable.Conclusion:The Tribunal held that Explanation 1 of section 271(1)(c) was not attracted since the assessee provided a bona fide explanation and disclosed all material facts. The penalty was canceled, and the appeal was allowed.2. Validity of the Notice Issued for Initiation of Penalty:Additional Ground:The assessee challenged the validity of the notice issued for initiating the penalty, arguing that it was vague and did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars.Tribunal’s Findings:The Tribunal admitted the additional ground as it was legal and based on facts already on record. However, the assessee's counsel agreed that the charges were clear in the assessment order and did not press the additional ground further. The Tribunal dismissed the additional ground.Conclusion:The Tribunal found that the notice's validity was not a significant issue since the charges were clear in the assessment order. The primary focus remained on whether the penalty was justified based on the facts and legal interpretations.Final Judgment:The appeal filed by the assessee was allowed. The penalty levied under section 271(1)(c) was canceled, and the Tribunal set aside the findings of the CIT(A). The order was pronounced on August 7, 2019.