2012 (8) TMI 702 - AT - Income Tax

Penalty penalty imposed u/s.271(1)(c) in respect of denial of deduction u/ss 10A/10B on such interest income Held that - Similar penalty was initiated by the Revenue in respect of asstt. year 2003-04 also - AO got satisfied as to the non-levy of penalty and dropped the same In favor of assessee

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) for denial of deduction under sections 10A/10B on interest income for the assessment year 2002-03.
- Justification of penalty imposition based on denial of deduction.
- Consideration of bona fide view by the assessee on the eligibility of interest income for deduction.
- Comparison with similar penalty initiation for the assessment year 2003-04.
- Decision on the time-barred nature of the penalty order.

Analysis:
The appeal pertains to the penalty imposed under section 271(1)(c) for the denial of deduction under sections 10A/10B on interest income for the assessment year 2002-03. The AO upheld the penalty, which was subsequently echoed by the CIT(A). The primary issue revolved around the imposition of penalty due to the disallowance of deduction on interest income from deposits and staff loans. The Tribunal noted that the basis for penalty imposition was the non-allowance of deduction under sections 10A/10B on the interest income. The assessee had claimed deduction based on certain Tribunal orders, even though the claim was not accepted in quantum proceedings. The Tribunal emphasized that the mere rejection of a claim does not automatically warrant a penalty under section 271(1)(c), especially when the assessee disclosed all necessary particulars in the return. Citing the decision in CIT vs. Reliance Petroproducts, the Tribunal highlighted that a possible view taken by the assessee on the eligibility of an amount for deduction does not constitute concealment of income or furnishing inaccurate particulars.

Furthermore, the Tribunal observed that a similar penalty was initiated for the assessment year 2003-04 but was eventually dropped by the AO. The assessee pointed out that historically, penalties had not been imposed for non-granting of deduction under sections 10A/10B on interest income, a statement that went uncontested by the Revenue. Considering these factors, the Tribunal concluded that the CIT(A) erred in upholding the penalty and ordered for its deletion.

Additionally, the assessee raised an additional ground alleging that the penalty order was time-barred. However, since the Tribunal decided to cancel the penalty on merits, the ground related to the time-bar became infructuous and was dismissed. Ultimately, the appeal was allowed, and the penalty was deleted based on the reasons provided in the judgment.