2011 (5) TMI 335 - HC - Income Tax

Penalty - Deduction under Section 80HHC - Disallowance - The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word inaccurate signified a deliberate act or omission on behalf of the assessee - It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income - assessee having come to know that another assessee doing similar type of business of airport kitchen was given the benefit of Section 80HHC of the Act and an order under Section 263 by the Commissioner recalling such benefit was restored by the Mumbai Tribunal, the assessee submitted the revised return claiming such benefit - The fact that such benefit has really been given to another assessee in the similar circumstances has not been denied - Merely because, the Tribunal found that the claim was not tenable in the eye of law was not a ground of imposing the penalty - Accordingly decided in the favour of the assessee

Summary

Issues Involved:
1. Whether the Tribunal's finding that the claim for deduction under Section 80HHC of the Act was not bona fide or was false is perverse and based on no material.
2. Whether making a claim for deduction under Section 80HHC in the revised return could attract penalty under Section 271(1)(c) of the Act and if such imposition is sustainable in law.

Issue-wise Detailed Analysis:

Issue 1: Bona Fide Nature of Deduction Claim
The Tribunal found that the claim made by the assessee for deduction under Section 80HHC in respect of the foreign flight catering business was not bona fide and was found to be false in the assessment proceeding. The assessee argued that the claim was based on a similar case decided by the Mumbai Bench of the Income-tax Appellate Tribunal in favor of Indian Hotels Limited, which was engaged in a similar business. The assessee contended that the revised return was filed with an auditor's certificate in support of the claim. The High Court noted that no inaccurate particulars were found in the revised return filed by the assessee. The Court referenced the Supreme Court decision in Commissioner of Income-tax vs. Reliance Petro-products Pvt. Ltd., which held that merely making an incorrect claim does not amount to furnishing inaccurate particulars. The High Court concluded that the Tribunal's finding was not supported by any evidence of false or inaccurate particulars submitted by the assessee.

Issue 2: Imposition of Penalty under Section 271(1)(c)
The Assessing Officer imposed a penalty of Rs.5,52,00,300/- under Section 271(1)(c) for making the claim under Section 80HHC in the revised return. The CIT (A) set aside the penalty, but the Tribunal reinstated it with a reduced amount. The High Court examined whether the conditions for imposing a penalty under Section 271(1)(c) were met. The Court reiterated the Supreme Court's interpretation that for a penalty to be imposed, there must be concealment of income or furnishing of inaccurate particulars. The High Court found no evidence that the assessee concealed any material facts or furnished inaccurate particulars. The Court emphasized that the claim was made based on a precedent and was not an attempt to defraud the Revenue. The High Court concluded that merely because the claim was not accepted by the Tribunal does not justify the imposition of a penalty under Section 271(1)(c). The Court set aside the Tribunal's order and restored the CIT (A)'s order, thereby nullifying the penalty.

Conclusion:
The High Court allowed the appeal, setting aside the Tribunal's order and restoring the CIT (A)'s order. The Court answered the first question in the affirmative, indicating that the Tribunal's finding was perverse and unsupported by evidence. The second question was answered in the negative, concluding that the imposition of penalty under Section 271(1)(c) was not sustainable in law. There was no order as to costs.