Income Tax Appellate Tribunal (ITAT) Mumbai in a recent judgment, followed the Supreme Court and held mere making of wrong claim in the return of income would not tantamount to furnishing of inaccurate particulars of income for levy of penalty u/s 271(1)(c)

Case Details:
ITA No.210-211/MUM/2015 ; AY-2009-10
Anurag Toshniwal / Arun Toshniwal (Appellants) vs DCIT (Respondent)
Date of Order: 30-09-2015

Brief Facts of the Case:
In both the cases the facts were quite similar. In ITA-211, the appellant filed his return of income declaring total income at Rs.88,33,904/- which comprised of income from salary from M/s. Toshbro Medicals Pvt. Ltd. and Chemito Technologies Pvt. Ltd. along with income from house property, income from capital gains and income from other sources. The assessment under section 143(3) of the Act was completed whereby the total income was assessed at Rs.5,88,33,904/-. The difference between the reported and the assessed income of Rs.5.00 crores was on account of ‘Non-compete fees’ received by the assessee from M/s. Termo Electron LLS India Pvt. Ltd. In the return of income assessee had declared the said sum of Rs.5.00 crores as a long term capital gain (LTCG) against which he claimed deduction under section 54EC to the tune of Rs.50.00 lacs and the balance amount of Rs.4.50 crores was deposited in the capital gain saving account. The Assessing Officer (AO) differed with the assessee and held that the ‘Non-Compete Fee’ was liable to be treated as an income under the head ‘profits or gains from business or profession’ on the strength of section 28(va) of the Income Tax Act, 1961. This stand of the AO had since been upheld by the CIT(A) as well as by the Tribunal.

Subsequently, the AO held the assessee guilty of concealment/furnishing of inaccurate particulars of income within the meaning of section 271(1)(c). As per AO, the assessee had willfully claimed the ‘Non-Compete fee’ as LTCG to avoid taxability of business income resulting in loss of revenue. CIT(A) also affirmed the penalty.

Contentions of the assessee:
The assessee argued that assessee had made complete disclosure in the return of income filed and therefore there was no concealment. Secondly, the addition made by AO by invoking section 28(va) was merely based on an interpretation of law. According to the appellant, at the time of filing of ITR the decision of Mumbai Bench of the Tribunal in the case of Mrs. Hami Aspi Balsara Vs. ACIT, 126 ITD 100(Mum) supported the stand of the assessee and, therefore, the claim made by assessee was a bona-fide claim. It was pointed out that it is a case where a claim made in the return of income had been found to be unsustainable and, no penalty under section 271(1)(c) of the Act is leviable having regard to the judgment of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd., 322 ITR 158(SC). Also that there was no variation in the amount of ‘Non-Compete fee’ disclosed and the amount assessed and merely the head of income had changed, which does not justify the levy of penalty which was supported by the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Bennet Coelman & Co. Ltd., Income Tax Appeal (LOD) No. 2117 of 2012 dated 26/2/2013.

Excerpts from the ITAT Judgment:
…… the claim made by the assessee in his return of income to the effect that the Non-Compete fee and Non-Solicitation fee received from M/s. Termo Electron LLS India Pvt. Ltd. was a long term capital gain, cannot be construed to be non-bonafide or fanciful, because it was supported by the decision of the Tribunal in the case of Mrs. Hami Aspi Balsara(supra), which was prevailing at the relevant time. In fact the Ld. Representative for the assessee also referred to another decision of the Tribunal in the case of Savita Mandhana in ITA No.3900/Mum/2010 for Assessment Year 2006-07 dated 7/10/2011, wherein also the proposition laid down by the Tribunal in the case Mrs. Hami Aspi Balsara(supra) has been affirmed. The decision of the Special Bench of the Tribunal in the case of Dr. V.V. Raju (supra), which has disagreed with the earlier rulings has been pronounced on 13/02/2012, which is much after the return of income filed by the assessee on 30/07/2009. Therefore, in our view, the return of income filed by the assessee claiming the impugned sum as a long term capital gain cannot be construed as a claim made ‘to avoid taxability of the business income’, as charged by the Assessing Officer in the impugned penalty order.

As per Hon’ble Supreme Court, where no information given in the return of income is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. As per the Hon’ble Supreme Court, mere making of wrong claim in the return of income would not tantamount to furnishing of inaccurate particulars of income. ………….. sustainable in law. As per the authoritative pronouncement of the Hon’ble Supreme Court in the case of Reliance Petro Products Ltd. (supra), such a fact-situation does not amount to furnishing of inaccurate particulars regarding income within the meaning of section under 271(1)(c) of the Act. Thus, on this aspect itself the penalty is unsustainable.

The Hon’ble Bombay High Court in the case of M/s. Bennett Coleman & Co. Ltd.(supra) held that where there is only a change of head of income and in the absence of facts to show that the claim of the assessee was not bonafide penalty under section 271(1)(c) of the Act is not maintainable.

Before parting, we may refer to the reliance placed by the CIT(A) as well as by the Ld. Departmental Representative on the judgment of Hon’ble supreme Court in the case of Mak Data P. Ltd.(supra) to justify the levy of penalty in the present case. We have carefully perused the judgment of Hon’ble Supreme Court and find that the said decision has been rendered under different facts and circumstances and the same is not applicable to the facts of the present case.

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