The Madhya Pradesh High Court has held that penalty u/s 271(c) of the Income Tax Act, 1961 is not imposable in the absence of deliberate concealment and inaccurate particulars.
M/s S Kumar Tyres Manufacturing co. ltd., the respondent company was established in the year 1985 and engaged in the manufacturing of tyers and trading of fabrics. The respondent filed an Income Tax return on 31/12/1992 showing the loss of Rs. 1,02,86,772/- with a Tax Audit Report both for the Tyer Division and Fabric Division. During the assessment proceedings, the respondent/assessee offered an income of Rs.4,64,164/- on account of power subsidy and addition of Rs.12,33,469/- on account of interest payable to the financial institution.
The assessee argued that the amount was received on extinguishment of rights and claims from a foreign collaborator and declared in Income Tax Return as capital receipt.
The appellant contended that the respondent deliberately showed the receiving of the amount as a capital receipt, further stated that the respondent was having knowledge of the real nature of the transaction i.e. nature of such damage and the receipt, therefore ought to have correctly shown in the returns, thus the assessee furnished inaccurate particulars of such income by attempting to categorize them as a capital receipt.
The HC Bench comprise of Justice Vivek Rusia & Justice Amar Nath (Kesharwani) found that there was no deliberate attempt to conceal the particular of the income or furnishing any inaccurate particulars thereof does not make the respondent guilty of any violation resulting in the imposition of penalty under Section 271 (1) (c) of the Income Tax Act.
It was observed that since the respondent was following the mercantile system, therefore, the receipt of Rs. 2,29,50,782/- accrued to the account of the respondent in the assessment year 1992-93 but was disclosed in the assessment year 1993-94, therefore, there was no occasion to disclose the receipt in the return of the assessment year 1992-
To attract the provision of Section 271 (1)(c) the satisfaction is to be recorded that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The respondent disclosed the source of income as a capital receipt and the source of receipt of the amount of Rs.5,18,02,396/- from Michelin Company was correctly disclosed. It might be on the basis of the opinion given the by tax consultant or Charted Accountant, it was shown in the capital receipt in the return which was a debatable issue.
The HC held that “the Appellate Tribunal of Income Tax has not committed any error while setting aside the order passed by the Assessment Officer as well as CIT in respect of the imposition of penalty under Section 271 (1) (c) and dismissed the petition.
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