2014 (3) TMI 1243 - HC - Income Tax

Revenue's penalty appeal dismissed as assessee's convertible debentures restructuring wasn't tax avoidance under Section 271(1)(c)

Bombay HC dismissed Revenue's appeal challenging ITAT's decision on penalty under Section 271(1)(c) of Income Tax Act, 1961. ITAT found no penalty ... Penalty u/s 271(1)(c) - case fit enough for imposition of penalty - substantial question of law or fact - There is no finding of the AO, according to the Tribunal, that the details filed by the Assessee were incorrect or erroneous - HELD THAT:- We find that the AO has observed that the contentions of the Assessee are considered, but found not acceptable. From the contentions, what has been deduced is that the particulars of income filed by the Assessee were not correct or to put it in the language of the Act, the Assessee has filed inaccurate particulars of its income. The Assessing Officer has observed that the Assessee has not stated any reasonable cause for failure on its part to report its true and correct profit. The AO has then perused the explanation given and found that same will not absolve the Assessee from penal proceedings. Tribunal has held that this was not a simple case of increase of authorized capital because the Assessee has sought to issue to the IDBI Bank the optional convertible debentures in view of the restructuring scheme of the said Bank. The Assessee was not trying to seek any tax advantage because even after disallowance of this expenditure, huge loss was assessed. In such circumstances in the opinion of the Tribunal, this was not the case falling within the purview of the provisions enabling imposition of penalty. This was not the matter which would enable the Assessing Officer to exercise his discretion and impose penalty on the grounds permissible and particularly u/s 271(1)(c) - To our mind, such findings of fact and rendered in the light of legal provision, do not give rise to any substantial question of law. Appeal allowed. The Bombay High Court, in dismissing the Revenue's appeal, upheld the Income Tax Appellate Tribunal's decision regarding penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal found that the case did not warrant penalty imposition as there was 'no finding... that the details filed by the Assessee were incorrect or erroneous.' Although the Assessing Officer contended that the Assessee 'has concealed particulars of his income or furnished inaccurate particulars,' the Tribunal concluded the Assessee's actions related to issuance of optional convertible debentures under a restructuring scheme, not an attempt to seek tax advantage. The Tribunal emphasized that even after disallowance, a 'huge loss was assessed,' negating grounds for penalty. The High Court agreed, holding that the Assessing Officer lacked discretionary grounds for penalty under Section 271(1)(c), and that the factual findings did not raise any substantial question of law. The appeal was dismissed with no costs.