Penalty u/s 271(1)(c) not justified for unsustainable claim which was fully disclosed

Hon’ble High Court held that making of an incorrect claim would not tantamount to furnishing inaccurate particulars of income when Assessee has made full disclosure of relevant Facts and of Claim Made as held by Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts  Pvt.  Ltd. 322 ITR 158.

Facts of the Case

The respondent­ assessee had on 27 January 1995 entered into a Development Agreement with the owners of land at Pune by paying a   consideration of Rs.54 Lakhs.  During the previous year relevant to the subject Assessment Year 2005­06 the aforesaid agreement dated 27 July 1995 was canceled and the owners of the land paid the petitioners a sum of Rs.1.65 Crores (including the amount of Rs.54 Lakhs originally paid by the respondent­assessee).   The respondent­ assessee was of the view that the amount of Rs.1.11 Crores (Rs.1.65 Crores less R. 54 Lakhs) was not income but capital receipt which is not chargeable to tax as capital gains.  The aforesaid view was reflected in the notes forming part of the Accounts   as   well   as   in   the   covering   letter   dated   29   October   2005 accompanying its Return of Income.

The   Assessing   Officer   did   not  accept  the   contention   of  the respondent­ assessee and held that the receipt to be taxable under the  head of Capital Gains and after allowing expenses brought to the tax an amount of Rs.69.92 Lakhs as Capital Gains.   The respondent­ assessee being   aggrieved   with   the   order   of   the   Assessing Officer   agitated   the matter   before   the   CIT   (A)   but   without   any   success.     Thereafter,   the respondent­ assessee   accepted   the   finality   of   the   order   passed   by   the Assessing Officer bringing to tax an amount of Rs.69.92 Lakhs under the head Capital Gains.

Thereafter, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act against the respondent­ assessee.  The Assessing Officer did not accept the respondent­assessee’s contention that as complete disclosure of facts had been made and the claim made is bonafide no penalty is imposable in view of the decision of the Apex Court in CIT Vs. Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158.   The Assessing Officer held that the respondent­ assessee had filed inaccurate   particulars   and   imposed   penalty   of   Rs.13.13   Lakhs   under Section 271(1)(c) of the Act.

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