2011 (10) TMI 490 - AT - Income Tax

Penalty u/s 271(1)(c) - erroneous claim u/s 80RRA - Held That - In view of assessment in AY 2004-05 to 2006-07 , it is observed that claim was made after due deliberation and consideration in the years in which it was thought that the same is admissible. The explanation that the claim was made on the basis of advice that the deduction is admissible as in past has been found to be factually incorrect as no such claim has been made for assessment years 2004-05 and 2005-06. The assessee is not entitled to deduction for assessment year 2006-07 also, but it is not known as to what has happened to the claim made by him under the provision in this year. Also the claim was withdrawn after its detection and assessee waited till the demand was raised by the AO on passing the order. Therefore in view of decision in case of CIT vs Zoom Communication (P) Ltd. (2010 (5) TMI 34 - DELHI HIGH COURT) & Gurbachan Lal (2000 (11) TMI 44 - DELHI HIGH COURT) wherein held that if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty under Section 271(1)(c) - as the explanation furnished by the assessee to be false. Penalty u/s 271(1)(c) is leviable - Decided against assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271(1)(c) of the Income-tax Act, 1961 for a disallowed deduction under section 80RRA.

Detailed Analysis:

Issue 1:
The revenue appealed against the deletion of a penalty of Rs. 4,42,723 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 for a disallowed deduction claimed by the assessee under section 80RRA.

Analysis:
The assessee had claimed a deduction under section 80RRA in the return filed for the assessment year. However, this deduction was not admissible for the year under consideration as the provision had been deleted from April 1, 2005. The Assessing Officer disallowed the deduction during the assessment, leading to penalty proceedings. The key contention was whether the claim was erroneous or false and if the penalty was justified.

Issue 2:
The appeal before the Appellate Tribunal challenged the decision of the Commissioner of Income Tax (Appeals) to delete the penalty based on the explanation provided by the assessee regarding the disallowed deduction under section 80RRA.

Analysis:
The Appellate Tribunal considered the facts and submissions. It was argued that the claim was made based on the advice of the chartered accountant, and the mistake was realized by the assessee's representative before detection by the Assessing Officer. The Tribunal relied on relevant case laws to determine the bonafide nature of the explanation and the disclosure of all material facts by the assessee.

Issue 3:
The Tribunal had to decide whether the penalty under section 271(1)(c) was justified based on the nature of the claim, the timing of its withdrawal, and the explanation provided by the assessee.

Analysis:
After a detailed examination of the case, the Tribunal found that the claim was not made inadvertently but after due consideration. The explanation provided by the assessee was deemed false as evidenced by the history of deduction claims in previous assessment years. The Tribunal also highlighted the timing of the claim withdrawal and the subsequent payment of tax only after the assessment order, indicating a desire to delay tax payment.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the Commissioner of Income Tax (Appeals) and restoring the penalty imposed by the Assessing Officer. The decision was based on the finding that the explanation provided by the assessee was false, and there was a deliberate attempt to claim inadmissible deductions, leading to the penalty being upheld.