2012 (10) TMI 1137 - HC - Income Tax

Levying a penalty u/s 271 - deduction under Section 10B - Held that - There is no dispute that the appellant disclosed all the facts. The appellant did not conceal any facts. Based on the disclosed material the appellant sought the deduction which was denied on the ground that it was not entitled to the same as a matter of law. The Tribunal was in error in holding that merely because the claim for deduction was denied the appellant is liable to pay a penalty.

Summary

Issues involved:
Appeal under Section 260A of the Income Tax Act 1961 against ITAT order for Assessment Year 2005-06; Justification of penalty for denied deduction under Section 10B of the Act.

Analysis:
Issue 1: Appeal against ITAT order
The judgment involves an appeal under Section 260A of the Income Tax Act 1961 against the ITAT order dated 13th April, 2011 for Assessment Year 2005-06. The primary question of law in this appeal was whether the Tribunal was justified in sustaining a penalty that was levied based on the appellant's denied claim for deduction in its return.

Issue 2: Justification of penalty for denied deduction
The appellant had claimed a deduction under Section 10B of the Act, which was subsequently denied. Despite disclosing all relevant facts and being supported by a Chartered Accountant's certificate, the claim was rejected in the assessment proceedings. The Tribunal upheld the penalty under Section 271 of the Act, leading to the question of whether the denial of deduction alone warranted the penalty.

The judgment highlighted that the appellant had fully disclosed all necessary facts, and there was no intent to conceal any information. The denial of the deduction was based on a legal interpretation rather than concealment of facts. It was emphasized that the mere denial of a claim for deduction does not automatically lead to a penalty, especially when all relevant details were transparently provided.

The judgment referred to precedents, including the Supreme Court case of Commissioner of Income-tax vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 and a Bombay High Court judgment dated 14th August, 2012, to support the position that a denied deduction does not ipso facto attract a penalty under Section 271 of the Act.

In conclusion, the judgment answered the question of law in the negative, favoring the assessee. The appeal was allowed, and no costs were imposed. The decision was based on the understanding that the denial of a deduction, when all facts were transparently disclosed, does not automatically lead to a penalty under the Income Tax Act.