No penalty section 271(1)(c) if Complete disclosure of facts

By | August 19, 2015
(Last Updated On: August 19, 2015)

Question : Can the penalty be levied in  section 271(1)(c) if the Assessee has disclosed all the facts ?

Where there was complete disclosure of facts by assessee that an amount of Rs. 1.11 crore, which was received on account of a project not being fructified, was credited to partner’s capital account and assessee’s claim was not found acceptable, no penalty could be imposed on assessee under section 271(1)(c)

As held by the Supreme Court in CIT v.Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 making of an incorrect claim would not tantamount to furnishing inaccurate particulars of income.

HIGH COURT OF BOMBAY

Commissioner of Income-tax-12

v.

S.M. Construction

M.S. SANKLECHA AND G.S. KULKARNI, JJ.

IT APPEAL NO. 412 OF 2013

MARCH  3, 2015

FACTS

■         The assessee entered into a development agreement with owner of a land at Pune after paying him a consideration of Rs. 54 lakh. During the relevant previous year, the aforesaid agreement was cancelled and the owner of the land paid the assessee a sum of Rs. 1.65 crore, including the amount of Rs. 54 lakh originally paid by the assessee. The assessee contended that the total amount received was not income, but capital receipt which was not chargeable to tax as capital gain.

■         The Assessing Officer did not accept the contention of the assessee and held that the receipt to be taxable under the head of capital gain and after allowing expenses brought to tax an amount of Rs. 69.92 lakh as capital gains.

■         On appeal, the Commissioner (Appeals) had not accepted the assessee’s contention. The assessee accepted the finality of the order passed by the Assessing Officer bringing to tax an amount of Rs. 69.92 lakh under the head capital gains.

■         The Assessing Officer also initiated penalty proceedings under section 271(1)(c). The Assessing Officer held that the assessee had filed inaccurate particulars and imposed penalty of Rs. 13.13 lakh under section 271(1)(c).

■         On appeal, the Commissioner (Appeals) rendered a finding of fact that the assessee had disclosed the receipt of the above amount of Rs. 1.11 crore and a claim unsustainable in law would not amount to furnishing of inaccurate particulars. He further held that the Assessing Officer had not given any finding that the receipt of the aforesaid amount was not intimated to the Assessing Officer. The Commissioner (Appeals) deleted the penalty.

■         On appeal, the Tribunal upheld the order of the Commissioner (Appeals) and held that the assessee had disclosed that an amount of Rs. 1.11 crore was received on account of a project not being fructified, had credited the same to the partner’s capital account and it was not being offered to tax as the same was a receipt for capital account outside the scope of section 45.

■         On appeal before the High Court:

HELD

■         The assessee had originally paid an amount of Rs. 54 lakhs as a consideration for the development agreement in 1995. In the previous year relevant to assessment year, the assessee received from the vendor an amount of Rs. 1.65 crore which included an amount of Rs. 54 lakh which was originally paid in 1995 by the assessee to the vendor. Therefore, only an amount of Rs. 1.11 crores which was received in excess of amount paid by the assessee to the original vendor could be a subject matter of taxation and the disclosure of Rs. 1.11 crore which was made by the petitioners as a part of its notes to accounts as well as letter alongwith its claim of not being taxable was filed alongwith the return of income. Thus, there has been a complete disclosure of all facts as held by the Commissioner (Appeals) and the Tribunal. Besides the claim made by the assessee of not being taxable was not found to be not bona fide. As held by the Supreme Court in CIT v.Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 making of an incorrect claim would not tantamount to furnishing inaccurate particulars of income. In this case, the assessee bona fide believed that the difference of Rs. 1.65 crore and Rs. 55 lakh is not chargeable to tax and had so stated before the Assessing Officer. The fact that the explanation of the assessee is not accepted in quantum proceedings would not ipso facto visit the assessee with penalty in the absence of the claim being held to be not bona fide.

■         The stand taken by the respondent could be said to be in defiance of law and thus not bona fide. In this case it is not the case of the revenue that the claim made by the petitioner was not on the basis of bona fide view. On appreciation of the facts, two authorities have concurrently come to finding of fact that there was complete disclosure of facts and the claim made though not found acceptable was bona fide to conclude that no penalty be visited on assessee. There was no substantial question of law arising for consideration. [Para 9]

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