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The Commissioner of Income Tax-17 Versus M/s. Estate Enterprises

2015 (9) TMI 333 - BOMBAY HIGH COURT

Penalty levied u/s. 271(1)(c) - furnishing inaccurate particulars of income by making inadmissible claim on account of interest paid to foreign party - Tribunal deleted the penalty - Held that:- It is a settled position in law that mere disallowance in quantum proceedings would not ipso facto lead to imposition of penalty. The tests to be applied in imposing penalty are different and distinct from the tests to be applied in disallowing an expenditure in quantum proceedings. In the present case, .....

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orrect or false, penalty cannot be imposed. A mere making of an claim not sustainable in law, would not invite penalty. - Decided in favour of assessee.

Furnishing inaccurate particulars of income by making inadmissible claim on account of compensation paid - non deduction of TDS - Tribunal deleted the penalty - Held that:- Tribunal records the fact that due to the negotiation with the Shahs, the amount of compensation was reduced from ₹ 64.72 lakhs to ₹ 45 lakhs and the R .....

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mpensation was payable, as it was still under negotiation. It was only on the amount of compensation payable being determined and paid that tax was deducted. The decision of the Apex Court in Reliance Petro Products (supra) which Mr. Mohanty, sought to distinguish would continue to apply as the distinctions made do not touch the aspect with which we are concerned viz. Is penalty imposable if particulars are disclosed but the claim is disallowed. In such a case the Apex Court has held that penalt .....

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. N C Mohanty and Ms. Padma Divakar For the Respondent : Mr. Niraj Seth with B G Yewale i/b. Rajesh Shah ORDER P. C. This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 8th March, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order relates to Assessment Year 2005-06. 2. Although multiple questions have been raised in the memo of appeal, Mr. Mohanty, learned Counsel appearing for Revenue presses only the following questi .....

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f furnishing inaccurate particulars of income by making inadmissible claim of ₹ 64,74,300/ - on account of compensation paid? 3. Regarding Question (a): - (a) The Respondent-Assessee had debited the interest payment of ₹ 64.02 lakhs on an External Commercial Borrowing (ECB) loan taken from are Eyleen Financial Corporation in United Kingdom. However, the Respondent-Assessee did not deduct the tax at source on the interest. During the assessment proceeding, the aforesaid expenditure wa .....

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ake the payment, was still awaited. Thus, no sooner the permission of RBI was obtained for remitting the amount, the TDS was deducted. This was particularly so as the payment of interest was subject to approval of RBI. The Assessing Officer did not accept the explanation and imposed a penalty upon the Respondent-Assessee essentially on the ground that the appeal of the Respondent-Assessee in quantum proceedings had been rejected by the Commissioner of Income Tax (Appeals) [CIT(A)]; (c) On appeal .....

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part of the Respondent-Assessee that it was not required to deduct tax on such uncertain liability. This after having made full disclosure. In any case, tax had been deducted and deposited on obtaining permission from the RBI to remit the amount of interest to the lender in U.K. Thus, holding no penalty under Section 271(1)(c) of the Act was imposable upon the Respondent-Assessee; (d) On further appeal by the Revenue, the Tribunal upheld the finding of the CIT(A). The impugned order of the Tribu .....

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nt of legal provisions namely - Section 40 (a) (i) of the Act disallow an expenditure on account of nondeduction of tax would not lead to the conclusions that the expenses are not genuine. Accordingly, by the impugned order, the Revenue's appeal was dismissed; (e) Mr. Mohanty, learned Counsel appearing for the Revenue challenges the finding of the Tribunal in penalty proceedings by placing reliance upon the order passed by the Tribunal in quantum proceedings. It is submitted that in view of .....

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to imposition of penalty. The tests to be applied in imposing penalty are different and distinct from the tests to be applied in disallowing an expenditure in quantum proceedings. Section 271 (1)(c) of the Act provides that where an Assessee has concealed the particulars of his income or furnished inaccurate particulars of such income but if the explanation offered for the same is found to be satisfactory, then no penalty is imposed upon the party. In the present case, Respondent-Assessee has ma .....

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A mere making of an claim not sustainable in law, would not invite penalty. In this case, there is a concurrent finding of fact by the CIT(A) and the Tribunal that the claim made by the Respondent-Assessee was bona fide. This finding is not shown to be perverse and/or arbitrary. Therefore, Question (a) as proposed, does not give rise to any substantial question of law. Accordingly, we see no reason to entertain Question (a). 4 Regarding Question (b): - (a) The Respondent-Assessee had entered int .....

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to deduct tax under Section 40(a)(i) of the Act. This, disallowance of ₹ 64.72 lakh was upheld by the Tribunal and accepted by the Respondent-Assessee; (b) In penalty proceedings, the Assessing Officer did not accept the Respondent-Assessee's explanation. In particular, its submission that no inaccurate particulars had been filed and they had made a bona fide claim, was not accepted. Besides, it imposed penalty upon the Respondent-Assessee on the ground that in quantum proceedings, ap .....

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ovided for in it accounts, it could not be claimed as expenditure. In the above facts, penalty imposed by the Assessing Officer was upheld; (d) On further Appeal, the Tribunal in the impugned order records that the reason for imposing penalty by the Assessing Officer was the disallowances made in the quantum proceeding for failure to deduct TDS. Although, the expenditure claimed has not been held to be false or bogus. It is further recorded that in the subsequent year, the TDS has been deducted .....

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g the TDS, appears to be bona fide. Therefore, the impugned order of the Tribunal records that no penalty is imposable; (e) Mr. Mohanty, learned Counsel appearing for the Appellant point outs that the penalty in this case ought not to have been disturbed by the Tribunal. This is because, two authorities under the Act imposed penalty upon the Respondent-Assessee. It is submitted that the decision in Reliance Petro Products (supra) would have no application to the present case. In particular, he i .....

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ed a penalty on the basis that in quantum proceeding, the expenditure has been disallowed in view of the failure to deduct the tax under Section 40(a)(i) of the Act. In Appeal, the CIT(A) held the Respondent-Assessee liable to pay penalty not only on the ground of failure to deduct tax with regard to expenditure of ₹ 64.74 lakhs claimed but also on the ground that the expenditure claimed in terms of contract, was premature i.e. payment of compensation was payable to the Shahs at the time o .....

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