S. 271(1)(c) penalty for concealment on CA despite disclosure, legal opinion, favourable CIT(A) order, Appeal in HC as in Tribunal’s view issue not debatable.
ACIT Vs M/s. Khanna & Annadhanam (ITAT Delhi)- Briefly, the controversy is that assessee is a firm of Chartered Accountants and carrying on profession as such. During the year the assessee had shown a sum of Rs. 1,15,70,000/- in the capital account of the partners as received from an international consultancy firm Deloitte Touche Tohmatu International (DTTI). The amount was not reflected by the assessee in its P&L a/c but directly credited to partners accounts.
On AO’s questioning, it was stated that the receipt is not taxable in firm’s hand as it is capital receipt in the hands of partners. The Assessing Officer held that it was patently a receipt of the firm liable for income tax. ITAT confirmed AO’s decision, in penalty proceedings AO further held that assessee firm camouflaged the nature of receipt by furnishing inaccurate particulars and imposed the penalty, which CIT(A) deleted. So A.O has filed this Appeal.
CIT Appeal held that it is apparent that the appellant had disclosed all the facts relating to the receipt but had not offered it to tax under a bona fide belief, based on the opinion of taxation experts, that it was in the nature of capital receipt. The mere fact that the claim of the assessee was not accepted by the Assessing Officer does not amount to concealment of income or furnishing of inaccurate particulars of income. This view has also been upheld by the High Courts in the decision reported in 259 ITR 212 (Raj.) and 300 ITR 354 (P&H). Since this case is not caught by the mischief of seciton271(1)(c), the issue of mens rea does not arise at all. The penalty levied by the Assessing Officer, therefore, appears to be unjustified and is, accordingly, cancelled.”
On Appeal by Revenue Honourable ITAT has held as follows:-
In our view, here arises the question about the assessee’s explanation, about assessee’ s bona fides and ability to substantiate its explanation. The fact that during the entire length and breadth of assessment proceedings contents of none of the legal opinions were furnished indicates that the assessee realized the ineffectiveness of these opinions and still ventured into making a claim which was basically not allowable. Our view is further strengthened by the fact that in penalty proceedings before the AO none of these legal opinions were furnished and only before CIT(A) they were filed which is evident from the paper book filed by the assessee on the query from the Bench, which is not disputed by the assessee. Ld. CIT(A) also has not adverted to any legal opinion and has failed to appreciate that they were being produced before him for the first time.
5.8. Under these circumstances, we are unable to agree with the assessee that the impugned professional receipt created any debate about its nature as the receipt was patently a revenue receipt. From above it is clear that the assessee firm has attempted to evade tax on a purely professional receipt by propping up theory of doubt as a capital receipt. Besides, in the case of a partnership firm, receipt whether capital or revenue are to be credited to P&L A/c. The assessee in order to minimize disclosure, has taken a smart route of directly crediting the above receipt in the capital accounts of partners. The strategy saved the firm from taxation and the partners took plea that this was a capital receipt in the hands of the firm and not taxable in their hands, result – the Indian revenue looses due tax in the hands of the firm as well as partners. In these facts and circumstances we are unable to accede to assessee’ s plea that any doubt could be entertained about the assessee’ s professional revenue receipt or assessee’ s explanation was bona fide as it, apart from other facts, failed to contest the particular legal opinions before lower authorities.
I.T.A. No. 1395/Del/2009
Assessment Year : 1997- 98
Asst. Commissioner of Income Tax Vs. M/s. Khanna & Annadhanam
ITAT Delhi
Date of Decision- 22.07.2011
O R D E R
PER R.P. TOLANI, JUDICIAL MEMBER:
This is revenue’s appeal against CIT(A)’s order dated 30-01-2009, canceling penalty levied u/s 271(1)(c) of the Income-tax Act, 1961 relating to A.Y. 1997-98. Sole ground raised is as under:
“Whether on the facts and circumstances of the case the Ld. CIT(A) was justified in deleting the penalty of Rs. 46,28,000/- imposed u/s 27(1)(c)”.
2. Briefly, the controversy is that assessee is a firm of Chartered Accountants and carrying on profession as such. During the year the assessee had shown a sum of Rs.1,15,70,000/- in the capital account of the partners as received from an international consultancy firm Deloitte Touche Tohmatu International (DTTI). The amount was not reflected by the assessee in its P&L a/c but directly credited to partners accounts. On AO’s questioning, it was stated that the receipt is not taxable in firm’s hand as it is capital receipt in the hands of partners. The Assessing Officer held that it was patently a receipt of the firm liable for income tax. ITAT confirmed AO’s decision, in penalty proceedings AO further held that assessee firm camouflaged the nature of receipt by furnishing inaccurate particulars and imposed the penalty which is the subject matter of this appeal.
