A debatable claim could not result in penalty- No Penalty u/s 271 on Debatable Issue

The section 271(1) (c) of the income tax act 1961, clearly states that no penalty would be levied on an income tax payer if the claims filed by an assesse turns out to be arguable or false. Deciding on this aspect, in case of CIT vs. Harshwardhan Chemicals, it was held that No Penalty u/s 271 on Debatable Issue could be levied

The advent of income tax online return has rendered a common tax payer to file income tax return easily from your home. However, the chances of mistakes in the online filing of ITR has increased, as this task requires minute inspection of savings and income of an individual, as any ignorance might involve you in a tiff with the government.

No Penalty u/s 271 on Debatable Issue- Rajasthan High Court

The case of CIT vs. Harshwardhan Chemicals on 7 May, 2003 proceeded at the Rajasthan high court, in which the assesse was a limited company and it was convicted of claiming false and excessive subsidy from the government. However, the court did not penalize Harshwardhan Chemicals, as it was concluded that there was no enhanced income from any industrial activity.

For an individual a flaw in this respect could arise if the assesse has taken gifts from other than his relatives as defined by the income tax act 1961. The Indian gift tax act mentions the limit of gift as Rs. 50 K, if it is facilitated by a person other than his relative. A claim by the person while filing ITR online if he has taken gift from a non-relative could be deemed void for the amount exceeding 50 K. Though according to the gift tax act of India of such an amount is liable for tax deduction; amazingly, in such cases of negligence the section 271(1) (c), emerges as a savior for the assesse which prohibits the application of any legal action against him.

Acts of Malafide Claims- grave offence under Income Tax Act

Section 271(1)(c) is much of a relief for a tax payer , however it should be noted that acts of malafide claims could be assessed as grave offence under the income tax act 1961.It also states that the penalty would be levied on an individual tax payer or an institution who had fallen short of the following criteria:

1. Has concealed particulars of an income source while filing income tax return online or offline leading to discrepancy in the calculation of income tax, thereby causing monetary loss to the income tax department.
2. Has provided the income tax department with tampered particulars of an income source, which have the same effect on the government as in (1)

Law has provided, the citizens of India necessary relaxation where needed, but it has also ensured that these relaxation do not turn in abatement of malpractices.

Also Read- Penalty u/s 271 (1)(c) is a Civil Liability- High Court