Penalty for inadmissibility of legal claim not justified

Merely because a legal claim has been made, and even though the said claim has been found to be inadmissible, penalty under section 271(1)(c) cannot be imposed

ACIT Vs Sumit P. Bhattacharya (ITAT Mumbai)- Assessee was an employee of M/s Procter and Gamble India Ltd., which is a group company of Procter and Gamble of USA. The company had given appreciation rights to the assessee. As regards the judgement of the Apex Court in the case of Union of India Vs. Dharmender Textiles, 306 ITR 307, we find that CIT(A) as well as ITAT have not cancelled penalty on the ground of mens rea, therefore, the judgement of the Apex Court in this case is not applicable to the facts of the case under consideration. Contrary to that, the case under consideration is covered by the judgment of the Apex Court in the case of Reliance Petroproducts P. Ltd. Cited supra. In the light of above discussion, we hereby cancel the penalty levied u/s 271(1)(c) of the Act.

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI

BEFORE SHRI D.K. AGARWAL, J.M AND SHRI A.L. GEHLOT, A.M.

ITA No. 2442/M/2009

Assessment Year: 1998- 99

Appellant by : Mr. Ajay Kumar Srivastava

Respondent by : Ms. Hiral Sejpal

Date of Judgement: 11th day of June, 2010.

O  R  D  E  R

PER A.L. GEHLOT, A.M.:

This appeal filed by the Revenue is directed against the order of CIT(A)-XVI, Mumbai, passed on 22.12.2008 for the assessment year 1998-99.

2. The ground raised by the revenue in this appeal is in respect of levy of penalty u/s 271(1)(c) of the Act. It is stated in the ground that the CIT(A) erred in appreciating that wilful attempt or concealment is not an essential ingredient for attracting the penalty which has been duly supported by the decision in the case of Union of India Vs. Dharmender Textile Processor reported in 306 ITR 277.

3. Briefly the facts of the case are that the assessee was an employee of M/s Procter and Gamble India Ltd., which is a group company of Procter and Gamble of USA. The company had given appreciation rights to the assessee, which are as under:-

 4. In the quantum matter, the assessee did not show this income in the return of income, however, a note is given contending that in the absence of any employer-employee relationship between the parent company and the assessee, the amount received was not liable for taxation under the head ‘income from salaries’. It was a capital receipt in whose acquisition the assessee did not incur any cost and therefore the amount would not be taxable under the head ‘capital gains’ on the basis of the decision of the Honourable Supreme Court in the case of CIT Vs. B.C. Srinivas Shetty, 128 ITR 294. The AO assessed the said amount as income from salary. The CIT(A) confirmed the order of AO. The special bench of ITAT had also confirmed the order of AO. On receipt of the order of ITAT, the AO levied penalty, which was cancelled by the CIT(A) by observing as under:-

“8. I have carefully considered the submissions of the appellant. The occasion for the levy of penalty is the non admittance as income by the appellant of the amount of Rs. 4,79,13,851/- received from procter and Gamble USA. The appellant had disclosed this fact in the computation statement f iled along with the return of income for the AY 1998-99. The reason for the non-admittance of the amount received as income was that there was no employer-employee relationship between Procter and Gamble USA and the appellant. Therefore, the receipt would not partake the nature of salary. The appellant was of the view that what he received was capital in nature and since there was no cost of acquisition, no capital gains was asses-sable on the basis of the Supreme Court decision in CIT Vs. B.C. Srinivasa Shetty (128 ITR 294). The AO did not agree with the stand taken by the appellant. The AO observed that there was an employer – employee relationship between the appellant and the proctor and gamble group. If not for the employment of the appellant with Proctor and Gamble, he would not have received the benefit which he had received and therefore the rights were rightly asses-sable as a perquisite u/s 17 of the Income Tax Act. This conclusion was also conf irmed by the Honourable ITAT in its order dated 3^rd of January, 2008 in ITA No. 238/Mum/05. The reason for imposition of penalty by the AO is that the appellant deliberately tried to confuse the issue by stating that he has had no employer-employee relationship with the grantor of the rights, Proctor and Gamble USA and that this was attempt to offer an explanation which is found by the AO to be false. Therefore, the provisions of explanation 1 to section 271 would apply to the case. The facts of the matter is that the appellant had disclosed the information in the computation of statement filed with the return of income for the AY 1998-99. At the same time, he did not admit the amount received as an income for the year. This is on the basis that the amount was received from the parent company in USA with which he had had no employer-employee relationship and not from his immediate employer, Proctor and Gamble India Ltd. He was also of the view that this was a capital receipt. The issue, in short was debatable in nature and this is borne out by the fact that the matter was brought before the ITAT on two occasions and ultimately the Special Bench had to deliberate on the matter and reach a conclusion. So it becomes clear that there was no deliberate attempt to conceal the facts and the non-admittance of the income was the belief on the part of appellant that the receipt was not taxable. I also do not think that the appellant had deliberately tried to mislead the revenue by giving false explanations. The appellant expressed his views on the matter and these explanations were not found acceptable to the revenue. This cannot be considered as an explanation which was found to be false by the AO. Therefore, I am of the view that provisions of section 271(1)(c) or even the provisions of explanation (1) to section 271 are not applicable in this case. As pointed out by the appellant, the Honourable Bombay High Court in CIT Vs. Shivlal Desai & Sons (114 ITR 317) has held that additions/ dis-allowances in the assessment proceedings would not bring in its wake levy of penalty. I am of the view that penal ty is leviable only when there is concealment of the particulars of income which would point to a deliberate attempt to suppress facts or to mislead revenue. In this case, it does not appear that such a situation had prevailed. Therefore levy of penalty is not justifiable.

9. In view of this discussion, I come to the conclusion that levy of penalty u/s 271(1)(c) is not warranted in this case and as a result the penalty levied u/s 271(1)(c) is deleted.”

5. The learned AR at the outset submitted that similar additions confirmed in the case of Anil Kumar Nehru following the decision of Special Bench in the case of the assessee reported in 112 ITD SB 1. The learned AR further submitted that when the penalty matter u/s 271(1)(c) came before the ITAT in the case of Anil Kumar Nehru in ITA Nos. 3398 to 3340/Mum/08 vide order dated 31.03.2010, the ITAT cancelled the penalty observing as under:-

“6. It is thus clear that as held by the coordinate bench with which we are in considered agreement, merely because a legal claim has been made, and even though the said claim has been found to be inadmissible, penalty under section 271(1)(c) cannot be imposed. That is precisely what has now been held by the Hon’ble Supreme Court in its judgment dated 17^th March, 2010 in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd.  It has been observed by the Hon’ble Supreme Court that “By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars”. Their Lordships have further observed that ‘it is up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty u/s 271(1)(c). If we accept the contention of the revenue then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under section 271(1)(c). In the case before us, there is nothing more than inadmissibility of claim which has resulted in the impugned penalty. It is not even revenue’s case that any factual particulars have been concealed and given wrongly. In these circumstances, and bearing in mind the above discussions, we are of the considered view that it was indeed not a f it case for imposition of penalty under section 271(1)(c). We, therefore, delete the impugned penalties. The assessee gets relief accordingly.”

6. The learned DR, on the other hand, relied upon the order and submitted that it is not a covered matter. The penalty matter u/s 271(1)(c) is required to be decided after considering the facts of each case. The learned DR further submitted that mere enclosing a note along with return of income is not sufficient unless the same is substantiated by the assessee. The learned DR submitted that it is not a case of bonafide reason of the assessee to treat that there is no employer-employee relationship. The assessee has taken factually wrong stand, therefore, there are inaccurate particulars and concealment of particulars of income by wrong presumption of the assessee. The learned DR further submitted that the case of the assessee is squarely covered by clauses (A) and (B) of Explanation 1 to section 271(1). He further submitted that judgement of Honourable Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158(SC) is also not applicable to the facts of the case of the assessee. The learned DR in support of his contention relied upon the following decisions:-

1. Addl. CIT V. Jeevan Lal Sah (SC), 205 ITR 244

2. CIT Vs. Gurbachan Lal,250 ITR 157 (Del.)

3. CIT Vs. Vidyagauri Natverlal & Ors., 238 ITR 91 (Guj.)

7. We have heard the learned representatives of the parties and perused the record. We find that on identical set of facts, the ITAT in case of Anil Kumar Nehru cited supra wherein the addition in the quantum matter has been confirmed, following the decision of ITAT Special Bench in the case of the present assessee. But the penalty u/s 271(1)( c) has been cancelled by the ITAT as per finding of ITAT reproduced in para 5 of this irder. When facts are identical to maintain consistency in the light of following decisions we bound to follow the order of coordinate bench:-

“i) CIT Vs. Good lass Nero-lac Paints Ltd. 188 ITR 1(Bom.): Page 5- This, however does not mean that subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal in the same case for an earlier year on a similar set of facts. Such a thing may not be in the larger public interest as it is likely to shake the confidence of the public in the system.

ii) Sayaji Iron & Engg. Co. Vs. CIT [2002] 253 ITR 749 (Guj.) : [Page 753] – 9.4: In relation to the aforesaid approach of the CIT(A) and the Tribunal we cannot do better than reiterate what Madras High Court has stated in the case of CIT Vs. L.G. Ramamurthi & Ors. 1977 CTR (Mad) 416: (1977) 110 ITR 453 (Mad) : : ” No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. – If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. ”

iii) Radhasoami Satsand Vs. CIT [1992] 193 ITR 321 (SC) : [1992] 60 Taxman 248 – Assessments are certainly quasi- judicial and these observations equally apply.

9. We are aware of the fact that, strictly speaking, resjudicata does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to al low the posit ion to be changed in a subsequent year.”

8. In the light of above discussion, we respectfully follow the order of ITAT in the case of Mr. Anil Kumar Nehru cited supra and in the light of that penalty levied u/s 271(1)(c) is liable to be cancelled.

9. As regards the decisions relied upon by the learned DR, we find that those cases are distinguishable on facts, which are not similar to the facts of the case under consideration. As regards the judgement of the Apex Court in the case of Union of India Vs. Dharmender Textiles, 306 ITR 307, we find that CIT(A) as well as ITAT have not cancelled penalty on the ground of mens rea, therefore, the judgement of the Apex Court in this case is not applicable to the facts of the case under consideration. Contrary to that, the case under consideration is covered by the judgement of the Apex Court in the case of Reliance Petro products P. Ltd. Cited supra. In the light of above discussion, we hereby cancel the penalty levied u/s 271(1)(c) of the Act.

14. In the result, the appeal of the revenue is dismissed.

Pronounced in open Court on this 11th day of June, 2010.