Background:
During the assessment proceeding for the AY 1992-93, the AO had assessed an amount of Rs.2.63 Crores being goodwill as chargeable to capital gain tax on account of the fact that the above amount was debited to partners capital accounts during the AY 1992-93. The AO while passing the assessment order also directed that penalty proceedings be initiated under Section 271(1)(c) of the said Act against the assessee.
Assessee’s contentions:
No penalty is imposable even if, their contention that no capital gains tax on account of goodwill is payable, is not found acceptable on merits. This is for the reason that there was no concealment of any income nor furnishing of any inaccurate particulars of income on its part. The assessee had not offered the amount attributable to goodwill to tax after having fully disclosed all facts in its return of income and balance sheet which was filed by them.
Assessing Officer’s contention:
Submissions of the assessee are not acceptable as there was a blatant violation of law on the part of the assessee in having acted in breach of Section 45 (4) of the said Act.
CIT(A)’s order:
The penalty has been imposed merely on account of a different interpretation being given to the provisions by the revenue from that given by the respondent assessee.
Tribunal’s order:
The Tribunal by its order dated 27 February 2008 upheld the order of the CIT(A) deleting the penalty levied under Section 271(1)(c) of the said Act. This was on account of the fact that on merits, by an order dated 26 October 2006, the Tribunal had accepted the respondent assesse’s stand that no capital gain tax is payable by writing off the goodwill in the books of accounts by debiting the partners account.
High Court’s ruling:
- There has been no concealment of particulars of income or furnishing of inaccurate particulars of income on the part of the respondent assessee in filing its return of income.
- Merely making of a claim which is found to be not sustainable and would not warrant imposition of penalty under Section 271 (1)(c) of the said Act as held by the Supreme Court in the matter of CIT v/s. Reliance Petro Products Ltd. reported in 321 ITR 158.
- The sinequanon for imposition of penalty under Section 271 (1)(c) of the said Act is concealment of income or furnishing inaccurate particulars of income which is admittedly not so in this case. Moreover the view taken by the respondent assessee was a possible view as the Tribunal by order dated 26 October 2006 in quantum appeal accepted the view.