2025 (7) TMI 1108 - AT - Income Tax

Penalty proceedings u/s. 271(1)(c) - Disallowance of selling and distributing expenses - HELD THAT - As addition made under the similar facts and circumstances has also been deleted by the Hon ble ITAT Ahmedabad in A.Y. 2006-07 2016 (5) TMI 1306 - ITAT AHMEDABAD Thus it is clear that issue under consideration is highly debatable since two views are existing. In view of the various decisions relied upon by the Ld. Authorized Representatives hold that penalty u/s. 271(1)(c) is not imposable. Penalty u/s. 271(1)(c) in respect of disallowance made u/s.14A deleted because there was no evidence in respect of furnishing inaccurate particulars of income. Penalty on repairing expenses - Assessee had furnished all the details of its expenditure as well as income in its return which details in themselves were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure which claim was not accepted or was not acceptable to the revenue that by itself would not attract the penalty u/s 271(1)(c). If the contention of the revenue was accepted then in case of every return where the claim made was not accepted by the AO for any reason the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. Levy of penalty u/s. 115JB on provisions for doubtful debts advances - As relied upon the judgement of Citi Tiles Ltd. reported in 2014 (5) TMI 400 - GUJARAT HIGH COURT wherein the Hon ble High Court has deleted the penalty levied u/s. 271(1)(c) as answered the question Whether simply because before and after additions assessee remained a MAT company and paid tax under section 115JB or such similar provision that by itself does not mean that no penalty could be imposed as yes. Validity of the penalty - As argued AO had not recorded proper satisfaction and initiated penalty proceedings under both the limbs of section 271(1)(c) i.e. for concealment of particulars of income and furnishing inaccurate particulars of income - During the assessment proceedings the Ld AO clearly invoked and recorded his specific satisfaction for initiating the penalty proceedings while making the additions/ disallowances in the assessment order i.e. either for concealment of particulars of income or/and furnishing inaccurate particulars of income . Consequently the ld AO while levying Penalty u/s. 271 1 c of the Act stick to the same stand. Therefore the question non-striking off in the statutory notice issued u/s. 274 namely for concealment of particulars of income or furnishing inaccurate particulars of income does not arise. Thus the case laws relied by the assessee on this issue are clearly distinguishable and there is no merit in the Ground No.2 raised by the assessee and the same is dismissed. Levy of penalty on the addition in the book profit u/s. 115JB being the remuneration received from Partnership firms - HELD THAT - We note that recently in the case of PCIT vs. M/s Ankit Metal Power Ltd. 2019 (7) TMI 878 - CALCUTTA HIGH COURT held that items of receipt which are not income under the provision of section 2(24) of the Act cannot be made subject to tax under the provisions of MAT while calculating the profit under section 115JB.

Summary

ISSUES:

1. Whether penalty under section 271(1)(c) of the Income Tax Act, 1961 is leviable for furnishing inaccurate particulars of income or concealment of particulars of income in respect of disallowance under section 14A read with Rule 8D.
2. Whether penalty under section 271(1)(c) is sustainable on disallowance of expenditure treating revenue expenses as capital expenditure.
3. Whether penalty under section 271(1)(c) is leviable on addition of provision for doubtful debts and advances while computing book profits under section 115JB.
4. Whether penalty under section 271(1)(c) is leviable on addition of remuneration received from partnership firms excluded from book profits under section 115JB.
5. Whether the Assessing Officer recorded proper and specific satisfaction for initiation of penalty proceedings under section 271(1)(c) and whether the penalty notice under section 274 is valid despite not specifying the exact charge.
6. Whether rectification proceedings under section 154 of the Act were validly initiated and whether penalty confirmed in rectification order is sustainable.

RULINGS / HOLDINGS:

1. Penalty under section 271(1)(c) for disallowance under section 14A read with Rule 8D was deleted as there was "no evidence to show that the assessee furnished inaccurate particulars of income" and the issue was "highly debatable" with existing conflicting views.
2. Penalty on disallowance of expenditure treating revenue expenses as capital expenditure was deleted since "mere claim of the assessee not admitted as revenue in nature cannot give the authority to hold that the assessee has furnished inaccurate particulars of income" and the issue involved bona fide difference of opinion.
3. Penalty on addition of provision for doubtful debts and advances under section 115JB was deleted because the relevant provision was not in statute at the time of filing return, and the assessee was under a bona fide belief based on Supreme Court decisions; thus, no concealment or furnishing inaccurate particulars was established.
4. Penalty on addition of remuneration received from partnership firms excluded from book profits under section 115JB was deleted following coordinate bench decisions and judicial precedents holding that such receipts, if bona fide and explained, do not attract penalty under explanation 1 to section 271(1)(c).
5. The Assessing Officer had recorded "specific satisfaction for initiating the penalty proceedings" during assessment proceedings, fulfilling the requirement under section 271(1B), and the penalty notice under section 274, though in standard form, was valid as the penalty order clearly specified that penalty was imposed for "furnishing of inaccurate particulars of income."
6. The rectification order under section 154 confirming penalty was set aside following the principle that no penalty should be confirmed on issues that are "highly legal and debatable" and where the assessee had bona fide belief and full disclosure.

RATIONALE:

1. The Court applied the provisions of section 271(1)(c) of the Income Tax Act, 1961, including Explanation 1 and Explanation 4 thereto, which clarify conditions for penalty imposition for concealment or furnishing inaccurate particulars of income.
2. Judicial precedents, including decisions of the Hon'ble Supreme Court and various High Courts, were relied upon to interpret the scope of penalty under section 271(1)(c), emphasizing that mere disallowance or addition does not automatically attract penalty unless there is evidence of concealment or furnishing inaccurate particulars with mens rea.
3. The Court referred to coordinate bench decisions of the Tribunal in earlier assessment years of the same assessee, which held that bona fide differences of opinion on tax matters and genuine claims do not attract penalty under section 271(1)(c).
4. The Court relied on the statutory requirement under section 271(1B) that the Assessing Officer must record satisfaction before initiating penalty proceedings and held that recording satisfaction in the assessment order suffices.
5. The Court distinguished cases where penalty notices do not specify the charge at initiation but clarified that the penalty order must specify the charge, which was done in the present case, rendering the penalty notice valid.
6. Regarding rectification proceedings under section 154, the Court held that such proceedings cannot be used to confirm penalty on issues that are debatable or where the assessee had bona fide belief, consistent with the principle against penalizing reasonable tax positions.