Facts of the Case

The assessee filed its original return for AY 2007–08 declaring taxable income of ₹93,72,590, which was processed under Section 143(1) of the Income Tax Act, 1961. Subsequently, the case was selected for scrutiny and notice under Section 143(2) was issued.

A search and seizure operation under Section 132 was conducted on 05.01.2009 in the Taneja Puri Group, leading to proceedings under Sections 132 and 153A. Pursuant thereto, the assessee filed a fresh return claiming additional expenditure amounting to ₹13.42 crores on an accrual basis, including interest, brokerage, and other expenses.

The Assessing Officer disallowed these expenses on the ground that they were not claimed in the original return. The CIT(A) upheld the disallowance. Thereafter, penalty proceedings under Section 271(1)(c) were initiated, and a penalty of ₹4.43 crores was imposed.

However, CIT(A) deleted the penalty. The ITAT upheld this deletion, leading to an appeal by the Revenue before the Delhi High Court.

Issues Involved

  1. Whether penalty under Section 271(1)(c) can be imposed when the assessee makes a fresh claim in a return filed under Section 153A.
  2. Whether a change in accounting policy (aligned with AS-7) leading to a new claim amounts to furnishing inaccurate particulars.
  3. Whether mere disallowance of a claim automatically attracts penalty.

Petitioner’s Arguments (Revenue)

  • The assessee made a dual claim of expenses in the return filed under Section 153A.
  • The fresh claim was not permissible as it was not part of the original return.
  • Reliance was placed on CIT vs Zoom Communication Pvt. Ltd. (2010) to argue that untenable claims attract penalty.

Respondent’s Arguments (Assessee)

  • The claim was made due to a change in accounting policy in line with Accounting Standard-7 (AS-7).
  • All material facts were fully disclosed; there was no concealment or misrepresentation.
  • The claim was bona fide and based on recognized accounting principles.
  • Mere rejection of a claim does not amount to furnishing inaccurate particulars.

Court’s Findings / Order

The Delhi High Court dismissed the Revenue’s appeal and upheld the deletion of penalty, holding:

  • The assessee had disclosed all material facts, and there was no concealment of income.
  • The claim arose due to a change in accounting policy, which was permissible under AS-7.
  • The claim was ultimately given up due to legal constraints (absence of incriminating material in Section 153A proceedings).
  • Mere making of an unsustainable claim does not attract penalty under Section 271(1)(c).

The Court relied on the principle laid down in:

  • CIT vs Reliance Petroproducts Pvt. Ltd. (322 ITR 158, SC)
  • CIT vs Thakur Prasad Sao & Sons Pvt. Ltd.
  • CIT vs Bhoj Raj & Co.

The Court also distinguished Zoom Communication Pvt. Ltd. on facts.

Final Order:
The appeal was dismissed as no substantial question of law arose.

Important Clarification by Court

  • Penalty under Section 271(1)(c) requires concealment of income or furnishing of inaccurate particulars.
  • A bona fide claim based on accounting changes, even if disallowed, does not attract penalty.
  • In Section 153A proceedings, new claims without incriminating material may fail, but failure does not automatically trigger penalty.
  • Disclosure of primary facts is key to avoiding penalty liability.

Sections Involved

  • Section 132 – Search and Seizure
  • Section 153A – Assessment in case of search
  • Section 143(1), 143(2), 143(3) – Assessment provisions
  • Section 271(1)(c) – Penalty for concealment / inaccurate particulars
  • Section 139 – Filing of return

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:1095-DB/RAS24032021ITA112019_121734.pdf

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