2011 (5) TMI 245 - HC - Income Tax

Penalty - Deduction u/s 80HHC - Revised return - Assessing Officer after full investigation and it could not be said that the Assessing Officer s order was erroneous having been made without proper enquiry and/or investigation - it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income - assessee claimed such benefit being encouraged by such fact cannot lead to penalty under section 271(1)(c) of the Act when there is no false or inaccurate particular submitted by the assessee - Merely because, the Tribunal found that the claim was not tenable in the eye of law was not a ground of imposing the penalty - Decided in favour of the assessee

Summary

Issues Involved:
1. Whether the finding of the Tribunal that the claim made by the assessee in the revised return for deduction under section 80HHC of the Income-tax Act was not bona fide or was found to be false in the assessment proceeding.
2. Whether making a claim of deduction under section 80HHC of the Act in the revised return could attract the penalty under section 271(1)(c) of the Act and if such imposition of penalty is sustainable in law.

Issue-wise Detailed Analysis:

Issue 1: Bona Fide Nature of the Claim under Section 80HHC
The Tribunal's finding that the claim made by the assessee in the revised return for deduction under section 80HHC was not bona fide or was found to be false was challenged. The assessee argued that the claim was made based on a similar case (Indian Hotels Co. Ltd. v. Dy. CIT) where the Mumbai Bench of the Income-tax Appellate Tribunal allowed such a deduction. The assessee contended that the revised return was filed with an auditor's certificate in support of the claim, and there was no concealment or furnishing of inaccurate particulars. The High Court agreed with the assessee, noting that merely because a claim did not find favor with the assessing authority, it should not attract the provision of section 271(1)(c). The Court referred to the Supreme Court's decision in CIT v. Reliance Petroproducts (P.) Ltd., which emphasized that making an incorrect claim in law does not amount to furnishing inaccurate particulars.

Issue 2: Imposition of Penalty under Section 271(1)(c)
The second issue involved whether the claim of deduction under section 80HHC in the revised return could attract penalty under section 271(1)(c). The Assessing Officer had imposed a penalty, which was initially set aside by the CIT(A) but later reinstated by the Tribunal with a reduction in the penalty amount. The High Court found that there was no evidence of the assessee furnishing inaccurate particulars or concealing income. The Court emphasized that the claim was made based on a bona fide belief and supported by an auditor's certificate. The Court reiterated that the penalty under section 271(1)(c) requires proof of concealment or inaccurate particulars, which was not established in this case. Consequently, the High Court set aside the Tribunal's order and restored the CIT(A)'s decision to cancel the penalty.

Conclusion:
The High Court allowed the appeal, answering the first question in the affirmative and the second question in the negative, both against the Revenue. The Court concluded that the Tribunal erred in setting aside the CIT(A)'s order in the absence of any finding of inaccurate particulars submitted by the assessee. The imposition of the penalty was deemed unjustified as the claim was made in good faith based on a precedent and was not a deliberate attempt to defraud the Revenue. The appeal was allowed without any order as to costs.