2008 (1) TMI 909 - AT - Income Tax

Summary

Issues involved: Appeal against penalty u/s. 271(1)(c) of the Income-tax Act, 1961 for claiming deduction u/s. 80-IA as manufacturing activity.

The Appellate Tribunal ITAT BANGALORE heard the appeal filed by a limited company against the penalty imposed u/s. 271(1)(c) of the Income-tax Act, 1961. The company, engaged in providing air-conditioning facilities, claimed deduction u/s. 80-IA for assembling and installing air-conditioning systems. The Department contended it was construction, not manufacture, and penalized the company for concealment of income. The Tribunal, citing a Supreme Court decision, held that the company's genuine impression that the activity constituted manufacturing was reasonable and did not amount to concealment. The penalty was therefore quashed, and the appeal was allowed.

In the case, the company's claim for deduction u/s. 80-IA was disputed by the Department, alleging it was construction, not manufacturing. The company, in penalty proceedings, clarified its belief that the section was applicable to its activities. The Tribunal, considering the Supreme Court decision in CIT v. N.C. Budharaja and Co., acknowledged that the company's understanding that the activity constituted manufacturing was valid. Despite the activity being deemed construction, the Tribunal ruled that the company's genuine belief did not indicate concealment of income. Consequently, the penalty u/s. 271(1)(c) was revoked, and the appeal was upheld.