Whether penalty is imposable if assessee makes false claim of Sec 80IA benefits on sub-contracted work and also furnishes CA Certificate in this regard - YES: Delhi HC

THE issues before the Bench are - Whether no penalty u/s 271(1)(c) is warranted even if assessee makes false claim of Sec 80IA benefits on sub-contracted work and also furnishes a CA Certificate in this regard; Whether the onus of establishing that the explanation was bonafide and the facts and material relating to computation of his income disclosed, is on the assessee, so that penalty is not attracted and Whether penalty for concealment can be imposed and is justified when interpretation or claim of the assessee is rejected. And the verdict favours the Revenue.

Facts of the case

The assessee is a joint venture company by the name of M/s. HCIL ARSSPL TRIVENI and M/s. HCIL KALINDEE ARSSPAL. The assessees had claimed deduction under section 80IA for executing certain work for M/s. Rail Vikas Nigam Ltd and M/s. Rites Ltd. The AO disallowed the deduction as the assessee had not done any actual work but had only subcontracted the work. The AO levied penalty under section 271(1) (c) for concealment of facts. The CIT(A), upheld the penalty levied by the AO. On appeal, the ITAT deleted the penalty.

On appeal of the Revenue, the High Court held that,

++ penalty under Section 271(1)(c) of the Act is imposed when an assessee has concealed his income or furnished inaccurate particulars. In terms of the explanation quoted above, we have to examine whether the case falls within sub-clause (A) or (B) and the effect thereof. The assessee had made a wrong claim for deduction under Section 80IA and, therefore, had furnished inaccurate particulars as the claim was not admissible. Sub-clause (B) of the explanation is, therefore, applicable and we have to examine the two conditions whether: (1) The assessee has been able to show that the explanation was bonafide; and (2) Facts and material relating to computation of his income had been disclosed. Onus of establishing that the assessee satisfied the two conditions is on him i.e. the assessee;

++ mere filing of the said forms/certificate cannot absolve and protect an assessee who furnishes in-accurate particulars. If the explanation and the reasoning of the Tribunal is accepted, then in all cases where a form/certificate is furnished by the Chartered Accountant but a wrong claim of deduction is made, no penalty under Section 271(1)(c) can be imposed. Merely because the assessee complies with the statutory procedural requirement of filing the prescribed form and certificate of the Chartered Accountant, cannot absolve the assessee of its liability if the act or attempt in claiming the deduction was not bonafide;

++ explanation to Section 80IA (13) stipulates that benefit under the said Section was/is not available to a contractor carrying on works contract. The said “clarificatory” explanation was inserted by the Finance Act, 2007 with retrospective effect from 01.04.2000. The returns of income were filed by assessees on 01.11.2007. An amendment of this nature invariably attracts attention and is seldom missed. Such amendments become topic of discussion and conversation in the professional circles. To show and establish bonafides, the assessees had to show some more “tangible material” or basis as to why a clear statutory provision which excludes works contracts was ignored;

++ we are not stating or holding that penalty for concealment can be imposed and is justified merely because interpretation or claim of the assessee is rejected. For interpretation and understanding tax laws assessees necessarily and do rely on professional or expert opinion and they cannot be subjected to penalty when the assessee discharges the onus that the claim was bonafide;

++ the Act is one of most vexed and complicated legislation. It has been subjected to numerous amendments from time to time. It requires highest degree of interpretative skills and divergent views on interpretation of tax provisions have been subject matter of plethora of judgments. It is not necessary that there should be uniformity or consistency of opinion on aspects of law. Law does not postulate that an assessee must accept an interpretation against him, even when a favourable view is credible and tenable. Penalty of concealment cannot be imposed because the assessee has taken a particular stand or had preferred an interpretation which was plausible and reasonable, but has not been accepted, unless the assessee had not disclosed facts before the authorities. Such cases have to be distinguished from cases where the claim of the assessee is farcical or farfetched. Dubious and fanciful claims under the garb of interpretation, are a mere pretence and not bonafide;

++ The explanation added was clear and categorical. The Tribunal has not referred to the Explanation to Section 80IA as to why and on what basis divergent interpretations were possible. Absurd or illogical interpretations cannot be pleaded and become pretence and excuses to escape penalty. “Bonafides” have to be shown and cannot be assumed;

++ order of the Tribunal deleting penalty is held to be contrary to law. Penalty imposed is upheld.