• Oct
  • 02
  • 2013

Rejection of claim does not raise inference of a mala fide attempt to evade tax

The Commissioner of Income-tax Versus Bal Kishan Dhawan HUF ( High Court Of Punjab And Haryana At Chandigarh) – Income TAX Appeal No.183 cf 2013 Date of Decision: 06.09.2013

The assessee filed a return cf income claiming deductions under section 18(1)(b) of the Act. The deductions were disallowed. The Assessing officer, also directed initiation cf penalty proceedings, under Sections 271(1)(c) cf the Act. The Assessing Officer’s order was affirmed up to the Income Tax Appellate Tribunal. The Assessing officer, thereafter,passed an order imposing penalty.

The controversy, in the present case, is fully covered against the assessee by a judgment of the Delhi High Court in Commissioner of Income Tax versus Zoom Communication Private Limited, 2010 (327) ITR 510 (Delhi). The Income Tax Appellate Tribunal as well as the Commissioner of Income Tax (Appeals) have fallen into error while holding that mere disallowance of deduction claimed, would not necessarily invite penalty. We have heard counsel for the  appellant, perused the impugned orders and find no reason to entertain the appeal, much less on the questions of law raised by the appellant. Counsel for the revenue’s contention that as claim for deduction was not bona fide, penalty was rightly imposed. The controversy, herein, is covered against the assessee by a judgment of the Delhi High Court in Zoom Communication Private Limited’s case (supra) and not by judgment of the Hon’ble Supreme Court in Reliance Petro Products’ case (supra) as the latter judgment is distinguishable on facts. We are not inclined to accept the submissions made by counsel for the revenue While considering the scope and ambit of penalty levied under Section 271(1)(c) of the Act, the Hon’ble Supreme Court has held in Reliance Petro Products’ case (supra) that mere raising of a claim, even if not sustainable in law, is not by itself, sufficient to hold that it denotes furnishing of inaccurate particulars with an intent as would invite a penalty.

The Hon’ble Delhi High Court has held in Zoom Communication Private Limited’s case (supra), that if an assessee is unable to explain as to in what circumstances and on account of whose mistake, deductions were claimed, it would amount to raising a mala fide claim that would invite penalty. We cannot, but agree with the observations by the Delhi High Court, but, as the situation, on facts, in the present case, is entirely different, find no reason to depart from the ratio laid down by the Hon’ble Supreme court in Reliance Petro Products’ case (supra). The deductions were claimed in a bona fide exercise of the right of an assessee to claim deduction. The fact that this claim was rejected, does not raise inference of a mala fide attempt to evade tax. A penalty is imposed only if the claim is mala fide or raised with intent to evade tax.

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