2009 (10) TMI 903 - HC - Income Tax

Summary

Issues Involved:
1. Whether ITAT was correct in law in deleting the penalty on the ground that no satisfaction was recorded by the Assessing Officer in the assessment order.
2. Whether ITAT was correct in law in deleting the penalty with regard to disallowance of public issue expenses.

Summary:

Issue 1: Recording of Satisfaction by Assessing Officer
The revenue challenged the deletion of penalty by the ITAT on the ground that no satisfaction was recorded by the Assessing Officer (AO) in the assessment order. The Tribunal had deleted the penalty following the judgments in CIT v. Ram Commercial Enterprises Ltd. and CIT v. Super Metal Re-Rollers (P.) Ltd., which required the AO to record satisfaction of concealment in the assessment order. The court noted the amendment to section 271 of the Act by the Finance Act, 2008, inserting sub-section (1B) with retrospective effect from 1-4-1989. The court remitted the case back to the Tribunal to decide whether the satisfaction of the AO could be discerned from the order based on the principles laid down in Ms. Madhushree Gupta v. Union of India.

Issue 2: Deletion of Penalty on Public Issue Expenses
The revenue questioned the deletion of penalty related to the disallowance of public issue expenses claimed u/s 35D of the Act. The assessee, a finance company, claimed 1/10th of the public issue expenses, which was disallowed by the AO on the ground that the assessee was not an 'industrial undertaking'. The CIT(A) deleted the penalty, considering the claim bona fide based on the advice of the assessee's auditors and the directions of the Tribunal to reconsider the claim under any other head. However, the court disagreed, stating that the claim was ex facie inadmissible for a finance company and constituted a 'false claim'. The court cited the case of CIT v. Escorts Finance Ltd., emphasizing that a claim based on a Chartered Accountant's opinion does not absolve the assessee if the claim is ex facie bogus. The court held that the penalty on this account was rightly imposed by the AO and set aside the orders of the CIT(A) and the Tribunal.

Conclusion:
1. The orders of the CIT(A) and the Tribunal regarding the deletion of penalty on account of section 35D are set aside, and it is held that the penalty was rightly imposed by the AO.
2. The matter is remitted back to the Tribunal to determine the satisfaction recorded by the AO based on the principles laid down in Ms. Madhushree Gupta's case.