2019 (12) TMI 27 - AT - Income Tax

ITAT vacates penalties under Section 271(1)(c) in favor of assessee

Shabbir E. Boxwala Versus ITO-11 (1) (4), [Now, ITO-16 (1) (4) Mumbai]

The ITAT vacated penalties totaling Rs. 2,44,811/- imposed by the AO under Section 271(1)(c) and sustained by the CIT(A), allowing the appeal filed by the ... Penalty u/s 271(1)(c) - omission on the part of the assessee to account for the interest portion of the refund - HELD THAT:- We have given a thoughtful consideration and are unable to subscribe to the imposition of penalty u/s 271(1)(c) on the amount of interest of ₹ 2,455/- received by the assessee on the Income Tax Refund for A.Y 2006-07 received during the year under consideration. As observed by us the assessee had credited his ‘Capital account’ for the year under consideration by the amount of the Income Tax Refund (including interest) of ₹ 1,08,910/-. A mere bonafide omission on the part of the assessee to account for the interest portion of the refund (which though had duly been reflected in his ‘Capital account’), would though have justified an addition to the said extent, however, a levy of penalty u/s 271(1)(c) merely for the said bonafide mistake would be totally unjustified. Our aforesaid view is fortified by the judgment in the case of Price Waterhouse Coopers Pvt. Ltd. Vs. CIT [2012 (9) TMI 775 - SUPREME COURT] . We thus ‘set aside’ the penalty imposed by the A.O in respect of the addition of the Income Tax refund. On the basis of our aforesaid observations, we vacate the penalty imposed by the A.O u/s 271(1)(c), which thereafter had been sustained by the CIT(A). - Decided in favour of assessee. Issues Involved:1. Applicability of Explanation 4, para (a) of Section 271(1)(c) to a positive income with set-off of brought forward business loss.2. Levy of penalty under Section 271(1)(c) on an addition of Rs. 5,96,085/- termed as 'excess realization on account of exchange.'3. Levy of penalty under Section 271(1)(c) on an addition of Rs. 1,94,731/- on account of disallowance of business promotion expenses.4. Levy of penalty under Section 271(1)(c) on an addition of Rs. 2,455/- for interest received on income tax refund.Detailed Analysis:1. Applicability of Explanation 4, para (a) of Section 271(1)(c):The assessee contended that Explanation 4, para (a) of Section 271(1)(c) does not apply to a positive income with set-off of brought forward business loss, resulting in NIL taxable income and tax payable. The assessee argued that the machinery provisions for calculating the penalty failed in this case, and thus, the penalty should be NIL. However, this specific ground was not addressed by the CIT(A) in the appellate order.2. Levy of penalty on addition of Rs. 5,96,085/- (excess realization on account of exchange):The assessee argued that the addition of Rs. 5,96,085/- was due to a difference in the foreign exchange conversion rate applied by UTV Motion Pictures Mauritius Ltd. for TDS purposes. The AO did not accept this explanation and added the amount to the income for A.Y. 2008-09, leading to the imposition of penalty under Section 271(1)(c). The ITAT observed that the assessee had accounted for the sale consideration of USD 4,75,000 (Rs. 1,92,01,434/-) in the previous year and had not realized the exchange rate difference of Rs. 5,96,085/-. The ITAT found the explanation plausible and not disproved by the revenue, thus setting aside the penalty imposed by the AO.3. Levy of penalty on addition of Rs. 1,94,731/- (disallowance of business promotion expenses):The assessee claimed that the business promotion expenses were incurred for potential tie-ups with Turkish entities for co-producing a film. The AO disallowed the expenses, suspecting personal elements and lack of supporting evidence. The ITAT noted that the disallowance was based on a presumption and the failure to substantiate the claim did not justify the imposition of penalty under Section 271(1)(c). The ITAT vacated the penalty, stating that the mere disallowance of unsubstantiated expenses without disproving their genuineness did not warrant penalty.4. Levy of penalty on addition of Rs. 2,455/- (interest on income tax refund):The AO added Rs. 2,455/- to the income for interest on an income tax refund that the assessee had failed to account for. The ITAT observed that the omission was bona fide, as the assessee had credited the refund amount (including interest) to the capital account. Citing the Supreme Court judgment in Price Waterhouse Coopers Pvt. Ltd. vs. CIT, the ITAT held that a bona fide mistake did not justify the imposition of penalty under Section 271(1)(c) and set aside the penalty.Conclusion:The ITAT vacated the penalties aggregating Rs. 2,44,811/- imposed by the AO under Section 271(1)(c) and sustained by the CIT(A), allowing the appeal filed by the assessee. The order was pronounced in the open court on 27.11.2019.