2010 (2) TMI 979 - AT - Income Tax

Penalty u/s 271(1)(c) - Deduction u/s 80-O disallowed - wrong claim of deduction of section 80-O which is not allowable - HELD THAT - Keeping in view that the assessee's explanation that the claim of deduction u/s 80-O was claimed on the basis of advice of the tax consultant supported by tax audit report was not found to be false or untrue, we are of the view that there is no concealment or furnishing of inaccurate particulars on the part of the assessee. This view also finds support from the judgment of Chandrapal Bagga v. ITAT 2003 (1) TMI 55 - RAJASTHAN HIGH COURT held that when the assessee has disclosed the transaction which is the basis for capital gains tax and though wrongly claimed exemption from the capital gains tax, but that cannot be a case of penalty u/s 271(1)(c). If it has claimed any exemption after disclosing the relevant basic facts, and not offered that amount for tax, in such cases, penalty should not be imposed. In this view of the matter and keeping in view the ratio of decisions relied on by learned counsel for the assessee the penalty imposed by the AO and sustained by the learned CIT (A) is deleted. The grounds taken by the assessee are therefore, allowed. Assessee's appeal stands allowed.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for wrong deduction claimed under section 80-O.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for a wrong deduction claimed under section 80-O. The assessee, an individual deriving income from consultancy and other sources, had claimed a deduction of Rs. 14,12,642 under section 80-O in the assessment year 2003-04. However, the Assessing Officer disallowed this deduction, considering it as commission income rather than technical consultancy eligible for deduction under section 80-O. The Assessing Officer initiated penalty proceedings under section 271(1)(c) due to the alleged furnishing of inaccurate particulars of income. Despite the assessee's explanation citing ignorance of tax and legal provisions, the penalty of Rs. 4,44,981 was imposed and sustained by the Commissioner of Income-tax (Appeals).

Upon appeal, the assessee argued that the deduction claim was made in good faith based on advice from a tax consultant and that upon realizing the error during assessment, the disallowance was accepted and tax paid. Citing legal precedents, the assessee contended that the penalty should not be levied for a mistake of law made in good faith. In contrast, the Departmental representative supported the penalty imposition, emphasizing the incorrect claim of deduction under section 80-O.

The Tribunal analyzed the case, emphasizing that penalty proceedings are distinct from assessment proceedings and that each addition in assessment does not automatically lead to a penalty. It noted that the assessee's claim was based on advice from a tax consultant, and the Revenue did not challenge the bona fide belief of the assessee. The Tribunal highlighted that as long as complete particulars were disclosed in the return of income, penalty cannot be imposed. It further cited legal principles stating that if a deduction is claimed erroneously but in good faith, penalty should not be levied. Relying on relevant case law, including a judgment from the Rajasthan High Court, the Tribunal concluded that there was no concealment or furnishing of inaccurate particulars by the assessee. Consequently, the penalty imposed by the Assessing Officer and upheld by the Commissioner of Income-tax (Appeals) was deleted, and the assessee's appeal was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the penalty under section 271(1)(c) for the wrong deduction claimed under section 80-O should be deleted based on the facts and legal principles discussed during the proceedings.