2006 (10) TMI 263 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - concealment of income or filing of inaccurate particulars of income - claim of deduction u/s 80-IB filed in the original return of income - HELD THAT - The case involves genuine difference of opinion with regard to deduction provided under the statute between the assessee and the tax authorities and is thus clearly outside the scope of Explanation 1 to section 271(1) as the assessee has made full disclosure of all the relevant facts and has acted bona fide . The assessee has disclosed all the material facts necessary for its assessment and the only question is with regard to the interpretation of the relevant provision of law allowing deduction to the assessee upon fulfilling certain conditions laid down in the relevant provision of law. There is no material before us to suggest that the assessee has not disclosed any relevant particulars or facts before the authorities and has not acted bona fide. Thus we hold that it is not a fit case for levy of penalty u/s 271(1)( c ) which is accordingly cancelled and the grounds of appeal of the assessee are allowed. We want to make it clear that our decision is limited only with regard to the validity of penalty imposed u/s 271(1)( c ) and shall not effect the merits of claim of the assessee for deduction u/s 80-IB(10) of the Act which may be subject-matter of Revision Application pending before the Ld. CIT. In view of our decision cancelling the penalty imposed u/s 271(1)( c ) in this case the present Stay Application of the assessee becomes infructuous - In the result the appeal of the assessee is allowed.

Issues Involved:
1. Confirmation of minimum penalty under section 271(1)(c) of the Income-tax Act.
2. Bona fide belief and disclosure of material facts by the assessee.
3. Interpretation and applicability of section 80-IB(10) of the Income-tax Act.
4. Validity of penalty imposition under section 271(1)(c).

Detailed Analysis:

1. Confirmation of Minimum Penalty under Section 271(1)(c):
The appeal concerns the confirmation of a minimum penalty of Rs. 1,16,29,800 under section 271(1)(c) by the CIT(A). The assessee argued that the CIT(A) failed to appreciate the submissions, evidence, and material produced, which were contemporaneous in nature. The assessee contended that the penalty should be deleted in toto.

2. Bona Fide Belief and Disclosure of Material Facts:
The assessee submitted that the deduction under section 80-IB was claimed in the original return based on a bona fide belief that all conditions for the deduction were fulfilled. It was only after a survey action under section 133A and subsequent discussions with the Assessing Officer that the assessee withdrew the claim and filed a revised return. The assessee emphasized that the withdrawal was a mistake and that all necessary conditions for the deduction were indeed met. The bona fide nature of the assessee's actions was supported by a letter dated 18-12-2001 to the Assessing Officer seeking clarification on the eligibility for the deduction and a certificate from a Registered Architect confirming compliance with section 80-IB conditions.

3. Interpretation and Applicability of Section 80-IB(10):
The Departmental Representative opposed the assessee's submissions, arguing that the survey revealed non-compliance with section 80-IB conditions, such as the land area being below one acre and the project being a residential-cum-commercial project. The Department highlighted that the assessee admitted to withdrawing the claim post-survey and did not appeal the assessment order, filing a revision application only after penalty proceedings began. The Department cited relevant case law to support the position that the assessee was not entitled to the deduction.

4. Validity of Penalty Imposition under Section 271(1)(c):
The Tribunal considered whether the penalty for concealment of income under section 271(1)(c) was justified. The Tribunal noted that the allowability of the deduction under section 80-IB was pending before the CIT in revision proceedings and that the mere disallowance of a claim does not automatically justify penalty imposition. The Tribunal emphasized the importance of bona fide conduct and full disclosure of material facts by the assessee. The Tribunal found that the assessee had disclosed all relevant facts at the time of filing the original return and had acted bona fide in seeking clarification from the Assessing Officer. The Tribunal also noted that the issue of deduction under section 80-IB involved genuine differences of opinion and complexities in tax law interpretation.

The Tribunal concluded that the assessee's conduct was bona fide, and all material facts were disclosed, thus rebutting the presumption under Explanation 1 to section 271(1). Consequently, the Tribunal held that it was not a fit case for penalty under section 271(1)(c) and cancelled the penalty.

Conclusion:
The Tribunal allowed the appeal, cancelling the penalty imposed under section 271(1)(c) and clarifying that this decision was limited to the penalty's validity and did not affect the merits of the deduction claim under section 80-IB(10), which was pending in revision proceedings. The stay application for the outstanding demand became infructuous due to the cancellation of the penalty.

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