Introduction: The recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi in the case of Identity Wellness Centre Pvt. Ltd. vs. DCIT has significant implications. The tribunal deleted the penalty under section 271(1)(c) of the Income Tax Act, 1961, related to the assessment year 2015-16. This article provides a comprehensive analysis of the case, highlighting the grounds for the penalty cancellation.
Detailed Analysis: The appeal filed by Identity Wellness Centre Pvt. Ltd. challenges the imposition of a penalty amounting to Rs.28,43,574 under section 271(1)(c) of the Income Tax Act for the assessment year 2015-16. The penalty was related to the disputed ‘fair market value’ of share premium received on share subscription.
During the assessment, the Assessing Officer (AO) contested the fair market value of share premium, relying on section 56(2)(viib) of the Act. The company, however, asserted that the fair market value had been determined under Rule 11UA of the Income Tax Rules, 1962, and was supported by a valuation report. The AO, despite the valuation report, alleged concealment of income and imposed the penalty.
Upon review, the ITAT Delhi found little justification for the penalty imposition. The AO had displaced the fair market value supported by a valuation report, creating a debatable issue. The variation in perception between the valuer and the AO did not automatically imply concealment.
Moreover, the AO modified the basis for the penalty from the original allegation of concealment to “furnishing inaccurate particulars of income” during the penalty proceedings. The tribunal deemed this act as untenable, and the CIT(A) was not entitled to confirm the action of the AO without considering the satisfaction drawn in the assessment.
In essence, the ITAT Delhi concluded that the penalty imposition was unsustainable in law. The dispute over fair market value, being a debatable issue, did not warrant the imposition of a penalty under section 271(1)(c) of the Act.
Conclusion: The ITAT Delhi’s decision in the Identity Wellness Centre case serves as a precedent highlighting the importance of fair market value disputes. The tribunal’s deletion of the penalty under section 271(1)(c) emphasizes the need for a justifiable basis for penalty imposition. In cases where there is a difference in perception between the taxpayer and the tax authority, and the issue is debatable, the automatic assumption of concealment may not be justified. This case underscores the significance of thorough examination and proper reasoning in penalty proceedings, ensuring a fair and just outcome.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed at the instance of the assessee against the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 (the Act) amounting to Rs.28,43,574/- concerning Assessment Year 2015-16. The order of CIT(A) dated 07.06.2023 arising from penalty order under section 271(1)(c) of the Act dated 02.07.2018 is under challenge in the captioned appeal.
2. When the matter was called for hearing, none attended for the assessee. It is seen from the record that assessee has sought adjournment time and again which was liberally granted by the Tribunal. The assessee once again moved adjournment letter dated 15.11.2023 seeking adjournment yet again. Owing to repeated request for adjournments as a matter of course, the adjournment was declined and matter fixed for hearing on 15.11.2023 was again re-fixed for today in the interest of justice. None attended for the assessee. The matter was accordingly proceeded ex parte.
3. On perusal of the penalty order passed under section 271(1)(c) of the Act, it is seen that the Assessing Officer disputed the ‘fair market value’ of share premium received on share subscription by taking recourse to section 56(2)(viib) of the Act. The assessee, in the course of the assessment, asserted that fair market value has been determined under Rule 11UA of the Income Tax Rules, 1962 and such valuation is duly supported by the valuation report. The Assessing Officer however, frowned upon the fair market value and observed that the assessee has received excessive premium on issue of shares to the extent of Rs.92,02,506/-. The Assessing Officer thus alleged ‘concealment of income’ to the aforesaid extent in the assessment order and proceeded to impose penalty under section 271(1)(c) of the Act. Pertinently, the AO however imposed penalty alleging default towards furnishing of ‘inaccurate particulars of income’. The CIT(A) in the first appeal affirmed the action of the AO on the premise of ‘furnishing of inaccurate particulars of income’.
4. I such backdrop, I see a little justification in the imposition of penalty. Firstly, the Assessing Officer has displaced the fair market value which was supported by valuation report. While the AO may possibly be right in making additions on the contour of section 56(2)(viib) of the Act in the given facts, such addition would not automatically lead to assumption of concealment alleged by the AO in the assessment order. The addition in the instant case is owing to variation in the perception of the valuer and that of Assessing Officer. The issue is apparently debatable to the core and no malafide intent can be imputed per se. Such addition could not be the basis for presence of culpability. Secondly, Assessing Officer has alleged ‘concealment of particulars of income’ in the assessment order which satisfaction derived is contrary to the facts on record. The assessee in the course of the assessment has provided the valuation report giving rise to the basis for determination of fair market value. Thus it is difficult to comprehend any concealment of particulars. The satisfaction under section 271(1B) of the Act drawn by the AO in the course of assessment is clearly unfounded.
5. Besides, the AO has modified the basis for imposition of penalty from original allegation of concealment of income to “furnishing inaccurate particulars of income” in the course of penalty proceedings. Such act is also not tenable. Likewise, the CIT(A) is also not entitled in law to confirm the action of the AO de horse the satisfaction drawn in the course of assessment. On this count also, imposition of penalty fails.
6. Thus seen from any angle, the imposition of penalty under section 271(1)(c) of the Act in the present set of circumstances is unsustainable in law.
7. I thus set aside the first appellate order and direct the AO to reverse and cancel the penalty.
8. In the result, appeal of assessee is allowed ex parte.
Order was pronounced in the open court on 22.11.2023