INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Validity - Two different views possible on disputable claims in quantum proceedings -

Assessment Order, was passed under section 143(3) wherein, inter alia, addition of Rs. 149,31,02,715 was made. AO, however, held that if in appeal the assessee's claim of treating revenues as non-taxable on account of it being uncertain would be accepted, then the provision made by assessee for the additional expense to the extent of Rs. 102,60,80,000 should be disallowed on matching principles and on the same logic as for exclusion of revenues. CIT(A) deleted the aforesaid addition of Rs. 149,31,02,715. However, the CIT(A) also agreed with the alternate stand of the AO holding that if the assessee's claim for treating revenues as non-taxable on account of it being uncertain was accepted, then the corresponding expenses to the extent of Rs. 102,60,80,000 should be disallowed on matching principles. The order of CIT(A) was upheld on this issue by Tribunal. Penalty proceedings were initiated by the AO under section 271(1)(c). Penalty Order under section 271(1)(c) was passed, in whcih the AO levied penalty on the afroesaid disallowance amounting to Rs. 1,02,60,80,000. Vide impugned appellate Order, dt. 1-12-2016, the CIT(A) deleted aforesaid penalty. Held: Assessee cannot be burdened with penalty under section 271(1)(c) if on a disputable issue of quantum addition, on which two different views were legitimately possible, the assessee decided to adopt the view which was favourable to the assessee; in a case in which all necessary details were filed by the assessee in support of the claim and when no material inaccuracies were found in these details, and when the assessee was not guilty of suppression of any material facts. In quantum proceedings, when two different views were legitimately possible on a disputable claim made by the assessee; one of which was favourable to the assessee, the multiplicity of legitimate views and disputability of the claim had the effect of excluding the scope of penalty under section 271(1)(c). In respect of such disputable claim even if the disputable claim was decided against the assessee in quantum proceedings; because in such a case the disputable claim made by the assessee neither amounts to 'concealment of particulars of income' nor to 'furnishing of inaccurate particulars of income.

Relied:Pr. CIT v. Sahara India Life Insurance Company Ltd. ITA No. 475/2019, judgment dt. 2-8-2019, Reliance Petro Products (P) Ltd. 322 ITR 158 (SC), Devsons (P) Ltd. v. CIT 329 ITR 483 (Del.), Hindustan Coca Cola Marketing Company Pvt. Ltd. v. Dy. CIT (2019) 198 TTJ 513 (Del-Trib), and Padmini Infrastructure Developers India Ltd. v. DCIT (2019) 55 CCH 420 (Del).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07

SUBSCRIBE FOR FULL CONTENT