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Despite disclosure, legal opinion, favourable CIT(A) order & High Court appeal on merits, s. 271(1)(c) penalty leviable if issue not “debatable” in Tribunal’s view
The assessee, a firm of Chartered Accountants, was one of the “associate members” of Deloitte Haskins & Sells pursuant to which it was entitled to practice in that name. Deloitte desired to merge all the associate members into one firm. As this was not acceptable to the assessee, it withdrew from the membership and received consideration of Rs. 1.15 crores from Deloitte. The said amount was credited to the partners’ capital accounts & claimed to be a non-taxable capital receipt by the assessee. The AO rejected the claim though the CIT (A) accepted it on the ground that it had “great force“. The Tribunal reversed the CIT (A). The AO levied s. 271(1)(c) penalty which the CIT(A) deleted. On appeal by the department to the Tribunal, the assessee argued that penalty was not leviable because (i) there was a disclosure of the facts in the computation & the balance sheet, (ii) the opinion of 3 tax experts had been taken, (iii) the issue was debatable & (iv) the assessee’s appeal on the merits had been admitted by the High Court. HELD allowing the appeal:
(i) S. 271(1)(c) imposes “strict civil liability“. It is not understandable how a CA firm can have any doubt about the receipt being clearly a professional receipt. If it is so, it is not understandable how the assessee can discharge its role as a professional consultant. It is unimaginable that a professional firm will have any doubt on such a simple proposition of professional receipt. The advance tax payment is an indication of the mindset of the assessee;
(ii) The fact that the legal opinions were not furnished during the assessment proceedings (but were furnished only during the CIT(A) penalty proceedings) indicates that the assessee realized the ineffectiveness of these opinions and still ventured into making the non-allowable claim;
(iii) Though there was disclosure in the computation and balance sheet, in order to minimize disclosure, the assessee took the “smart route” of directly crediting the receipt in the capital accounts of partners to evade tax;
(iv) The fact that a substantial question of law on the merits was admitted by High Court does not mean penalty is not leviable (Rupam Mercantiles 91 ITD 237 (Ahd) (TM) not followed);
In my view the order is ex facie wrong. Once the Return of Income contains a Note giving complete factual information, there is no case of concealment of particulars of income or furnishing inaccurate particulars thereof. Assuming that legal position is doubtful, that would never mean that the claim made would result into levy of penalty. This order would mean that an Assessee would not be able to make any claim of a legally “doubtful” nature even after making a full disclosure unless he is prepared to suffer the penalty in case he loses in quantum proceedings!!!
now that the Delhi high court has come to the rescue in the quantum appeal , all the discussions made above are only on paper.