2010 (2) TMI 868 - AT - Income Tax

Penalty - deduction u/s.10A - penalty u/s 271(1)(c) was imposed in connection with a claim, made by way of a revised return, claiming a carry forward of loss in respect of loss incurred by one of the units and not claiming deduction u/s 10A on the aggregate of profits/losses of both the units that the assessee company has, but individually for the unit in which profit was earned - Assessing Officer levied penalty on ground that the assessee had filed inaccurate particulars of its income and concealed the income - Held that - merely on that basis or quarrel, it cannot be held that the assessee has furnished inaccurate particulars or has concealed particulars of income or explanation furnished by the assessee is false, penalty under section 271(1)(c) cancelled, no concealment on part of the assessee, therefore, assessee s appeal stands allowed

Summary

Issues Involved:
1. Sustaining penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Deduction under Section 10A of the Income Tax Act.
3. Classification of income from FD interest, sale of residue, and gain from foreign exchange fluctuation.
4. Difference in assessed income and returned income.
5. Disclosure of particulars by the assessee.
6. Application of judicial precedents and legal principles in penalty proceedings.

Detailed Analysis:

1. Sustaining Penalty Imposed Under Section 271(1)(c):
The primary issue in the appeal was whether the penalty of Rs. 4,40,750/- imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961, was justified. The penalty was imposed due to the difference between the deduction claimed under Section 10A by the assessee and the amount allowed by the revenue.

2. Deduction Under Section 10A:
The assessee claimed a deduction under Section 10A amounting to Rs. 3,42,92,692/-. The Assessing Officer restricted this deduction to Rs. 3,21,11,123/- by disallowing certain incomes such as FD interest, sale of residue, and gain from exchange rate fluctuation. The CIT(A) partially allowed the assessee's appeal, permitting a deduction of Rs. 3,30,93,368/-. The Tribunal, in a previous quantum appeal, had restored some issues to the Assessing Officer for fresh adjudication.

3. Classification of Income:
- FD Interest (Rs. 3,33,418/-): The Tribunal restored the issue to the Assessing Officer to re-adjudicate whether this should be treated as business income or income from other sources.
- Sale of Residue (Rs. 4,05,130/-): The Tribunal held that this income should be treated at par with the sale of scrap and considered part of the total turnover, subject to verification of whether it was exported.
- Gain from Foreign Exchange Fluctuation (Rs. 5,75,958/-): The Tribunal, following earlier decisions, held that this should be treated as business income and allowed the deduction under Section 10A.

4. Difference in Assessed Income and Returned Income:
The difference in assessed income and returned income was primarily due to the disallowance of certain incomes from the deduction under Section 10A. The Tribunal noted that this difference was due to a difference of opinion and not due to any concealment or furnishing of inaccurate particulars by the assessee.

5. Disclosure of Particulars by the Assessee:
The Tribunal found that the assessee had disclosed all particulars of income, including the claim of deduction under Section 10A, in the return filed. The Tribunal emphasized that penalty under Section 271(1)(c) cannot be levied merely because an amount is disallowed or taxed differently, provided the particulars are disclosed.

6. Application of Judicial Precedents and Legal Principles:
The Tribunal referred to several judicial precedents to support its decision:
- Union of India vs. Dharmendra Textile Processors (2008) 306 ITR 277 (SC): Penalty under Section 271(1)(c) is a civil liability, and the revenue is not required to prove willful concealment.
- CIT vs. Haryana Warehousing Corporation (2009) 25 DTR 194 (PandH): Penalty cannot be levied simply because a claim for exemption is disallowed if the claim is legitimate and bona fide.
- Kanbay Software India (P) Ltd. vs. Dy.CIT (2009) 31 SOT 153 (Pune): Penalty is not leviable if the explanation for the claim does not suffer from inconsistencies or factual errors.
- Twin Star Jupiter Co-operative Hsg. Soc. Ltd. vs. ITO (2009) 31 SOT 474 (Mum.): Penalty is not automatic if the Assessing Officer finds a different total income than what was offered by the assessee.
- ACIT vs. Mahindra Shubhlab Services Ltd. (2009) 31 SOT 361 (Mum.): Penalty cannot be levied merely because a deduction or benefit claimed by the assessee is disallowed, provided the claim is made bona fide.

Conclusion:
The Tribunal held that there was no concealment on the part of the assessee and that the difference in the deduction claimed under Section 10A was due to a difference of opinion. The penalty imposed by the Assessing Officer and sustained by the CIT(A) was not justified and was accordingly deleted. The appeal filed by the assessee was allowed.