2022 (8) TMI 741 - AT - Income Tax

Tribunal upholds CIT(A)'s decision to delete penalty under Income Tax Act

The Tribunal upheld the CIT(A)'s decision to delete the penalty imposed by the AO under section 271(1)(c) of the Income Tax Act, 1961. The penalty was ... Penalty under section 271(1)(c) - bona fide explanation - furnishing inaccurate particulars - disclosure of material facts - mere disallowance not amounting to concealment - distinction between quantum and penalty proceedings - Explanation 1(B) to section 271(1)(c)Penalty under section 271(1)(c) - bona fide explanation - furnishing inaccurate particulars - disclosure of material facts - mere disallowance not amounting to concealment - distinction between quantum and penalty proceedings - Whether penalty under section 271(1)(c) is leviable where the assessee disclosed the claim in the return, offered an explanation that was found to be bona fide, and the disallowance arose from a routine/technical quantum adjustment - HELD THAT: - The Tribunal upheld the CIT(A)'s factual finding that the assessee had disclosed the particulars of the claim in the return and had offered a bona fide explanation which was substantiated. It recorded the settled principle that penalty proceedings are distinct from quantum proceedings and that mere disallowance of a claim does not automatically amount to concealment or furnishing of inaccurate particulars. The Tribunal relied on the reasoning in authority cited by the CIT(A) to the effect that where divergent or debatable legal views exist and full facts are disclosed, an assessee taking a reasonably arguable position is not liable to penalty. The CIT(A)'s conclusion that Explanation 1(B) applied - i.e., that the explanation was bona fide and all material facts were disclosed - was not rebutted by the Revenue, and the fact that the claim was accepted in the subsequent assessment year reinforced the finding of bona fides. In these circumstances the rigors of section 271(1)(c) were held not attracted and deletion of penalty was proper. [Paras 7, 8]Penalty imposed under section 271(1)(c) deleted; CIT(A)'s order upheld and Revenue's appeal dismissed.Final Conclusion: The Tribunal dismissed the Revenue's appeal against deletion of penalty for AY 2011-12, holding that the assessee had disclosed material facts, offered a bona fide and substantiated explanation and that mere disallowance in quantum did not justify invoking section 271(1)(c). Issues Involved:1. Deletion of penalty imposed by the AO despite the assessee's claim for provision for interest expense.2. Observations on whether the assessee made a false claim in the return.3. Acceptance of the assessee's contention regarding due disclosure in accounts.4. Compliance with provisions of clause (B) to explanation 1 to section 271(1)(c).5. Assessment of the assessee's explanation as bona fide.6. Additions/allowances due to technical/deeming provisions and their impact on penalty imposition.Issue-wise Detailed Analysis:1. Deletion of Penalty Imposed by the AO:The Revenue challenged the CIT(A)'s decision to delete the penalty imposed by the AO, who had levied a penalty of Rs. 56,47,400/- under section 271(1)(c) of the Income Tax Act, 1961. The penalty was based on the addition of Rs. 1,70,00,000/- due to the provision for interest on excise duty. The CIT(A) deleted the penalty, stating that the disallowance was routine and the particulars were disclosed in the return of income.2. Observations on False Claim in the Return:The CIT(A) observed that the AO did not establish that any false claim was made in the return. The mere disallowance of a claim does not automatically qualify as furnishing inaccurate particulars of income. The CIT(A) emphasized that the penalty provisions require a separate and independent consideration of explanations offered during penalty proceedings, as per the Supreme Court's opinion in CIT vs. Anwar Ali.3. Acceptance of Assessee's Contention on Due Disclosure:The CIT(A) accepted the assessee's contention that all material facts were disclosed in the return of income. The CIT(A) referred to the Delhi High Court's judgment in New Holland Tractor vs. CIT, which held that the test of bona fide should be applied based on the position when the return was filed. The CIT(A) concluded that the assessee's conduct was bona fide and the explanation offered was credible and plausible.4. Compliance with Clause (B) to Explanation 1 to Section 271(1)(c):Clause (B) to Explanation 1 to Section 271(1)(c) states that penalty should not be imposed if the explanation is bona fide and all facts material to the computation of total income have been disclosed. The CIT(A) found that the assessee had disclosed all material facts and offered a bona fide explanation. The Delhi High Court's judgment in Devsons Pvt. Ltd. vs. CIT was cited, emphasizing that divergent views on legal positions do not automatically lead to penalty imposition if the assessee has disclosed all relevant facts.5. Assessment of Assessee's Explanation as Bona Fide:The CIT(A) concluded that the assessee's explanation was bona fide and that there was no furnishing of inaccurate particulars or deliberate attempt to conceal income. The CIT(A) referred to the Supreme Court's observation in Reliance Petroproducts Pvt. Ltd. that making an incorrect claim does not amount to furnishing inaccurate particulars if the details supplied in the return are not found to be incorrect or false.6. Additions/Allowances Due to Technical/Deeming Provisions:The CIT(A) noted that the additions/disallowances were due to technical/deeming provisions and not due to any deliberate attempt to conceal income. The CIT(A) also highlighted that the assessee's claim was allowed in the next assessment year (2012-13), as per the Delhi High Court's judgment in PCIT vs. Granite Gate Properties Pvt. Ltd., which held that penalty should not be levied if the claim is allowable in the subsequent year and all details were disclosed.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the penalty, agreeing that the assessee's claim was bona fide and all material facts were disclosed. The Revenue's appeal was dismissed, and the Tribunal found no reason to interfere with the CIT(A)'s findings. The appeal of the Revenue was dismissed, and the order was pronounced in the open Court on 27th July 2022.