2008 (11) TMI 664 - AT - Income Tax

Penalty u/s 271(1)(c) - Deduction u/s 80IA - concealment of income and furnishing of inaccurate particulars of such income in relation to the deduction claimed - CIT(A) deleted the penalty. HELD THAT - On the strength of the reasoning adopted by the Hon'ble Madras High Court in CIT vs. Ashok Leyland Ltd. 1979 (7) TMI 18 - MADRAS HIGH COURT , the assessee canvassed before the AO that the profits in question were eligible for s. 80-IA benefits. Though the subsequent development in the case of the assessee shows that the said view has not found favour with the IT authorities. However, to say that the claim of the assessee made in the return of income was fanciful or was completely untenable, would be a misnomer. Therefore, in our considered opinion, the claim of the assessee made in the return of income could be said to have rested on a bona fide consideration. Nevertheless, having regard to the fact that the assessee had made adequate disclosure in the return of income which was accompanied by a report by the auditor and under the circumstances noted, the claim did not lack in bona fides. Whether the denial of the claim made in the return of income can lead to an automatic imposition of penalty under s. 271(1)(c) of the Act? - HELD THAT - It is sufficient to say that the assessment proceedings and the subsequent penalty proceedings are independent proceedings. The findings and conclusions drawn by the authorities in the assessment proceedings are relevant but cannot be construed as conclusive so as to fasten the assessee with the charge of concealment of income and furnishing of inaccurate particulars thereof. A similar situation arose in the case of Deep Tools (P) Ltd. 2004 (8) TMI 52 - PUNJAB AND HARYANA HIGH COURT . In the said case too, the assessee had staked claim for deduction u/s 80HHC, which was declined. The AO levied penalty u/s 271(1)(c). The stand of the assessee was that the claim was mistaken but was based on bona fide considerations. The Hon'ble High Court observed that the claim, though untenable, was based on the report of a chartered accountant in terms of s. 80HHC and the said fact led to the conclusion that it was a bona fide mistake. In our view, the said parity of reasoning is applicable in the present case too. In the case of T. Ashok Pai vs. CIT 2007 (5) TMI 199 - SUPREME COURT , Hon'ble Supreme Court also observed that the penalty u/s 271(1)(c) was not exigible where the claim of the assessee was based on the report of an expert. In the present case too, as observed earlier, the accounts of the assessee are duly audited. The return of income was accompanied by the audit report required u/s 80-IA and there is nothing to suggest, rather there is no charge against the assessee, that the report of the auditor was collusive. Therefore, we are in agreement with the conclusion of the CIT(A) that penalty u/s 271(1)(c) is not exigible in this case. Appeals of the Revenue are dismissed.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the IT Act, 1961.
2. Denial of deduction under Section 80-IA of the IT Act, 1961.
3. Allegation of concealing particulars of income and furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) of the IT Act, 1961:

The Revenue appealed against the deletion of the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) for the assessment years 1997-98, 1998-99, and 2000-01. The AO had levied a penalty of Rs. 8,00,000, alleging that the assessee concealed particulars of income and furnished inaccurate particulars by claiming a wrong deduction under Section 80-IA. The CIT(A) deleted this penalty, stating that the claim was made under a bona fide belief and was supported by an auditor's report in Form No. 10CCB. The Tribunal upheld the CIT(A)'s decision, emphasizing that the claim was adequately disclosed in the return of income and accompanying documents, and the assessee's belief was based on a legitimate interpretation of the law.

2. Denial of deduction under Section 80-IA of the IT Act, 1961:

The AO denied the deduction under Section 80-IA, stating that it was only available on income derived from manufacturing or processing of goods, not from trading activities. The assessee's claim included profits from trading in raw wool and knitted cloth, which the AO excluded, resulting in a 'nil' deduction. The Tribunal noted that the assessee's claim was initially supported by the CIT(A) but later reversed by the Tribunal based on the Punjab & Haryana High Court's decision in Liberty Shoes Ltd. vs. CIT. Despite the denial, the Tribunal found the claim to be bona fide, as it was based on an auditor's report and a reasonable interpretation of the law.

3. Allegation of concealing particulars of income and furnishing inaccurate particulars of income:

The AO accused the assessee of concealing income and furnishing inaccurate particulars by claiming a deduction under Section 80-IA for trading profits. The Tribunal, however, observed that the assessee had made full disclosure of the claim in the return of income and accompanying documents, including an audit report. The Tribunal emphasized that the claim was made under a bona fide belief, supported by a legitimate legal interpretation and an auditor's report. The Tribunal concluded that the assessee's actions did not constitute concealment or furnishing of inaccurate particulars, as there was no deliberate or conscious attempt to mislead.

Conclusion:

The Tribunal affirmed the CIT(A)'s decision to delete the penalty under Section 271(1)(c), finding that the assessee's claim for deduction under Section 80-IA was made under a bona fide belief and adequately disclosed. The Tribunal dismissed the Revenue's appeals, upholding that the assessee did not conceal income or furnish inaccurate particulars. The decision applies mutatis mutandis to all three assessment years under consideration.