Facts of the Case

The assessee, Ansal Housing Limited, filed its return for the Assessment Year 2013-14. During assessment proceedings, the Assessing Officer made additions relating to four issues including deemed annual letting value of vacant/self-occupied commercial properties, disallowance of deduction under section 80-IB, employees’ contribution to PF/ESI, and disallowance under section 14A read with Rule 8D.

Consequently, the Assessing Officer passed a penalty order dated 28.03.2018 under section 271(1)(c) imposing minimum penalty at 100% of the tax sought to be evaded amounting to approximately Rs. 32.99 lakhs.

The penalty order was upheld by the National Faceless Appeal Centre (NFAC). Aggrieved by the same, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi.

Issues Involved

  1. Whether penalty under section 271(1)(c) is leviable where additions arise from debatable issues in assessment proceedings.
  2. Whether claiming deduction or taking a legal position in relation to ALV, section 80-IB deduction, PF/ESI contribution and section 14A disallowance amounts to concealment of income or furnishing inaccurate particulars.

Petitioner’s Arguments (Assessee)

  • The assessee contended that the additions were made on interpretational and debatable issues.
  • It had claimed no actual rent income from certain properties, claimed deduction under section 80-IB, and claimed deduction of ESI/PF contributions based on the due date of filing return under section 139(1).
  • The assessee also contended that no expenditure was incurred in relation to exempt income and therefore disallowance under section 14A was not warranted.
  • It was argued that mere making of a claim, even if disallowed, does not amount to concealment or furnishing inaccurate particulars of income.

Respondent’s Arguments (Department)

  • The Revenue argued that the assessee had concealed income and furnished inaccurate particulars in respect of the issues leading to additions.
  • Therefore, the penalty imposed under section 271(1)(c) by the Assessing Officer and sustained by the appellate authority should be upheld.

Court Order / Findings

The ITAT Delhi Bench rejected the Revenue’s contention and held that the penalty imposed under section 271(1)(c) was not sustainable.

The Tribunal observed that the issues involved in the quantum proceedings were debatable in nature and arose from claims made by the assessee in the course of assessment. The Tribunal relied upon the principle laid down by the Supreme Court in CIT vs Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) that mere making of a claim which is not accepted by the Assessing Officer does not automatically attract penalty for concealment of income.

It was further observed that quantum additions and penalty proceedings are separate and independent, and the mere existence of additions in assessment does not automatically justify the levy of penalty.

Accordingly, the Tribunal deleted the penalty imposed under section 271(1)(c) and allowed the appeal of the assessee.

Important Clarification

The Tribunal clarified that penalty provisions cannot be invoked merely because the assessee made a claim that was later disallowed, especially where the issue is debatable or involves interpretation of law.

The decision reiterates that penalty under section 271(1)(c) requires clear evidence of concealment of income or furnishing inaccurate particulars, and not merely the existence of additions in the assessment order.

Link to download the order -  https://itat.gov.in/public/files/upload/1736510451-7VQp7k-1-TO.pdf

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