Penalty us 271(1)(c) invoking discretionary jurisdiction us 40A(2)(b) invalid – Allahabad High Court

Penalty us 271(1)(c) invoking discretionary jurisdiction us 40A(2)(b) invalid. Income assessed on the basis of deeming provisions would not amount to non-disclosure-Allahabad High Court

ABCAUS Case Law Citation:
ABCAUS 1287 (2017) (07) HC

The Issue:
The only point of the litigation was regarding the levy of penalty under Section 271(1)(c) of the Act in respect of sales to parties covered under Section 40A (2)(b) of the Income Tax Act (‘the Act’)..

Assessment Year : 2006-07

Important Case Laws Cited/relied upon:
Commissioner of Income Tax Vs P. Rojes (2013) 260 CTR (Mad) 397
S.V. Kalyanam Vs. Income Tax Officer (2011) 237 CTR (Mad) 491,
C.I.T. vs. Reliance Petroproducts Pvt.Ltd (2010) 230 CTR (SC) 320

Brief Facts of the Case:
The respondent assessee was a Private Limited Company. During the relevant assessment year, the company sold certain scrap to parties not covered under Section 40A(2)(b) of the Act @ Rs. 17,340/- per metric tone whereas it was sold at a lower rate of @ Rs. 5000/- per metric ton to parties covered under Section 40A (2)(b) of the Act.

The Assessing Officer (‘AO’) added  the value of the difference of the scrap sold to the income of the assessee company and accordingly a penalty was imposed under Section 271 (1)(c) of the Act for concealment of income.

The Tribunal by the impugned order held that the assessee company could not be held guilty for non-disclosure of income, which was determined by invoking discretionary jurisdiction under Section 40A (2)(b) of the Act. The Tribunal held that where deeming provisions are applied in assessing the income, the provisions of imposing penalty would not be attracted. 

Observations made by the High Court:
The Hon’ble High Court observed that the Division Bench of the Madras High Court had held that where additions are made in the income by applying the deeming provisions the department could not presume that there is concealment of income so as to attract penalty proceedings. In other words, where income is assessed on the basis of deeming provisions it would not amount to non-disclosure and as such it is not proper to impose penalty under Section 271 of the Act. 

It was also noted that  again a Division Bench of the Madras High Court had held that penalty under Section 271 (1)(c) of the Act cannot be imposed on the basis of estimation of income. In the aforesaid decision, reliance was placed upon the landmark decision of the Supreme Court in Reliance Petroproducts Pvt.Ltd in which it was observed that in order to bring the case under Section 271 (1)(c) of the Act there has to be concealment of particulars of the income of the assessee and the assessee must have furnished inaccurate particulars of his income. It was further held that making an incorrect claim in law cannot tantamount to furnishing of incorrect particulars so as to attract the penalty provisions. 

In view of the aforesaid facts and circumstances, the Hon’ble High Court opined that there was no concealment of income or furnishing of an incorrect particulars of the income, the penalty could not be imposed on account of addition of income by applying the deeming provisions. 

Held:
It was held that the Tribunal did not commit any error of law in removing the penalty imposed by the Assessing Authority.  The appeal was dismissed being having no merit.