2013 (7) TMI 1103 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) was correct in confirming the penalty of Rs. 7,28,621/- levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961.
2. Whether a well-reasoned order passed by the CIT(A) can be reversed or interfered with by the Tribunal without recording reasons for disagreeing with it.
3. Whether the case of the assessee is covered by Explanation 1 to section 271(1)(c).

Summary:
Issue 1: Confirmation of Penalty by CIT(A)

The assessee, a firm engaged in manufacturing and export of brass items, claimed deductions u/s 10B and 80IB in its return for AY 2006-07. The AO disallowed the deduction u/s 80IB and levied a penalty of Rs. 7,28,621/- u/s 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) confirmed the penalty, stating that the claim was not supported by the required auditor's certificate and was made to defraud the revenue. The assessee argued that the claim was made under a bona fide legal misconception and not to deceive the department. The Third Member agreed with the Judicial Member's view that the penalty should be canceled, noting that the assessee had disclosed all material facts and had withdrawn the claim during the assessment proceedings. The majority view held that the penalty was not justified, and the appeal of the assessee was allowed.

Issue 2: Reversal of CIT(A)'s Order

The Third Member considered whether a well-reasoned order by the CIT(A) could be reversed by the Tribunal without proper reasoning. The Third Member concluded that even a well-reasoned order could be reversed if it was found not to be in accordance with the law or based on a wrong appreciation of facts. The Tribunal has the jurisdiction to pass an appropriate order by assigning its own reasons for disagreeing with the lower authorities.

Issue 3: Applicability of Explanation 1 to Section 271(1)(c)

The Third Member examined whether the case was covered by Explanation 1 to section 271(1)(c), which deals with the furnishing of inaccurate particulars of income. It was found that the assessee had disclosed all relevant facts and there was no material to suggest that the claim was not bona fide. The Third Member cited relevant case laws, including the Supreme Court's decision in CIT Vs. Reliance Petro Products Pvt. Ltd., which held that merely making an incorrect claim does not amount to furnishing inaccurate particulars. The claim was made under a bona fide belief and was withdrawn during the assessment proceedings, thus not attracting the penalty under section 271(1)(c).

Conclusion:

In accordance with the majority view, the penalty of Rs. 7,28,621/- levied by the AO u/s 271(1)(c) was canceled, and the appeal of the assessee was allowed.