2010 (9) TMI 657 - AT - Income Tax

Penalty - During scrutiny AO noticed that the assessee has claimed a deduction of Rs. 2,66,63,949 , under section 80 HHC, but while computing the profit eligible for the said deduction, the assessee has not set off brought forward losses of earlier years - It was thus pleaded that the claim made by the assessee was a bonafide legal claim, based on rational interpretation of legal provision, and merely because it is rejected, the imposition of penalty under section 271(1)(c) is not warranted - Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (2010 -TMI - 75701) - Accordingly the penalty is deleted and the appeal is dismissed

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Justification of the penalty based on the legal position at the time of filing the income tax return.
3. Evaluation of the assessee's bona fides and transparency in making the claim.
4. The impact of subsequent legal interpretations on the penalty.

Issue-Wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The core issue is whether the CIT(A) was justified in confirming the penalty of Rs. 97,99,000 under section 271(1)(c) for the assessment year 2003-04. The penalty was imposed due to the assessee's claim of a deduction under section 80HHC without setting off brought forward losses, which was deemed inadmissible based on the Supreme Court's judgment in IPCA Laboratories Ltd v. DCIT.

2. Justification of the Penalty Based on the Legal Position at the Time of Filing the Income Tax Return:
The assessee argued that the claim was permissible based on the law prevailing at the time of filing the return on 31st October 2003. The Supreme Court's decision in IPCA Laboratories, which rendered the claim inadmissible, was delivered on 11th March 2004. The Tribunal noted that the correctness of the claim should be examined based on the legal position at the time of filing the return. The assessee's claim was supported by the then-prevailing judgment of the Bombay High Court in CIT v. Shirke Construction Equipments Ltd.

3. Evaluation of the Assessee's Bona Fides and Transparency in Making the Claim:
The assessee contended that the claim was made transparently, with complete disclosure and supported by a certificate from a chartered accountant. The Tribunal found that the assessee had disclosed all necessary facts and made the claim in a fair and transparent manner. The Tribunal also noted that the assessee's conduct could not be deemed lacking in bona fides.

4. The Impact of Subsequent Legal Interpretations on the Penalty:
The Tribunal emphasized that the penalty should be assessed based on the legal position at the time of filing the return. The subsequent Supreme Court judgment in IPCA Laboratories could not retroactively render the assessee's claim as furnishing inaccurate particulars. The Tribunal referred to the Supreme Court's judgment in CIT v. Reliance Petroproducts Pvt. Ltd., which stated that merely making an unsustainable claim does not amount to furnishing inaccurate particulars of income.

Conclusion:
The Tribunal concluded that the assessee's claim was made in accordance with the law prevailing at the time of filing the return and was supported by necessary disclosures and a chartered accountant's certificate. The Tribunal found no merit in the CIT(A)'s observation that the assessee should have revised the return after the Supreme Court's judgment. The Tribunal held that the penalty under section 271(1)(c) was not justified, as the assessee's explanation was reasonable and bona fide. Consequently, the Tribunal deleted the penalty of Rs. 97,99,000 imposed on the assessee.

Final Judgment:
The appeal was allowed, and the penalty was deleted. The judgment was pronounced in the open court on 17th September 2010.