2007 (12) TMI 470 - HC - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80HHE of the IT Act.
2. Penalty proceedings u/s 271(1)(c) of the IT Act.

Summary:

1. Deduction u/s 80HHE of the IT Act:
The assessee, engaged in software export technical services, claimed a deduction u/s 80HHE of the IT Act for services rendered abroad. During assessment, a survey u/s 133A revealed agreements related to job placement. The AO concluded that the assessee was providing human resource services, not technical services for software development, and disallowed the deduction claim. The CIT(A) confirmed the AO's decision, which became final as the assessee did not pursue it further.

2. Penalty proceedings u/s 271(1)(c) of the IT Act:
Post the quantum appeal decision, the AO initiated penalty proceedings u/s 271(1)(c) and imposed a penalty. The CIT(A) upheld this penalty. However, the Tribunal ruled in favor of the assessee, stating no penalty was needed as the assessee neither filed inaccurate particulars nor concealed income. The Tribunal referenced CBDT's Notification No. 11521 and Circular No. 3 of 2004, which clarified that human resource services could qualify for deductions u/s 80HHE, supporting the assessee's bona fide belief.

The Tribunal's decision was challenged, questioning the legality of deleting the penalty. The Tribunal cited the Supreme Court's interpretation in T. Ashok Pai vs. CIT and other cases, emphasizing that penalty u/s 271(1)(c) requires proof of deliberate concealment or furnishing of inaccurate particulars. The Supreme Court highlighted that mere omission or negligence does not constitute concealment and that penalty provisions must be construed strictly.

Conclusion:
The High Court, considering the Tribunal's findings and the Supreme Court's legal exposition, found no illegality in the Tribunal's order. The appeal was dismissed, upholding the Tribunal's decision to delete the penalty imposed u/s 271(1)(c) of the IT Act.