Advocate Akhilesh Kumar Sah
Many cases are emerging out in which it is being held that where a claim by assessee is in respect of a debatable issue, penalty under section 271(1)(c ) of the Income tax Act, 1961(for short ‘the Act’) cannot be imposed. Recently, in DCIT vs. PVR Ltd. [ITA No. 1577/Del/2014, A.Y.: 2006-07, decided on 01.11.2017], one of the issue related to the penalty on disallowance of Rs.70,08,183/- on account of ESOP expenditure, the accounts of the assessee were duly audited, tax audit report, computation of income and income tax return were not at variance and relevant details were filed by the assessee during the course of assessment proceedings against which the Assessing Officer had not made any adverse observation. The amount of expenditure claimed on ESOP was duly reflected in the P&L account and also in the notes to accounts. The Chennai Bench of the ITAT and Bangalore Special Bench of the ITAT had taken a view that such expenditure was a deductible expenditure whereas ITAT Delhi Bench in the assessee’s case and in other cases had held that the same was not a deductible expenditure. Although the ITAT Delhi had held the quantum issue against the assessee in the assessee’s own case, the fact remained that the issue was a debatable legal issue and, further, no instance of concealment of income or furnishing of inaccurate particulars of income had been pointed out either by the Assessing Officer or by the Sr. DR during the course of proceedings. The learned Members of the ITAT were of the considered opinion that penalty will not be leviable on this issue as mere making of a claim, which is not otherwise acceptable in law, will not tantamount to concealment of income or furnishing inaccurate particulars, especially when the bona fides of the assessee are not under doubt.
With regard to the provisions of section 271 (1) (c) of the Act pertaining to penalty, the Hon’ble Apex court has laid down that making of a claim by the assessee which is not sustainable will not amount to furnishing inaccurate particulars. In the case of CIT vs. Reliance Petroproducts (P) Ltd reported in 322 ITR 158 (SC), the Hon’ble Apex Court has held:-
A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word “particular” is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word “particulars” used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that “submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income”. We do not think that such can be the
interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:- “13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.”
The learned Member of the Delhi ITAT held that there is no reason to interfere with the order of the CIT (A) on the issue.