2012 (11) TMI 797 - AT - Income Tax

Penalty u/s 271(l)(c) of the IT Act - appellant submitted that it had not committed any default of concealing particulars of is income or furnishing inaccurate particulars of income; the penalty with regard to concealment was not applicable as the deduction u/s. 80HHC was duly claimed in the return of income on the basis of export achieved during the year and the deduction has been claimed on the basis of the certificate issued by the Chartered Accountant, who had duly verified all the export turnover figures As per Circular No.2/2006, in respect of addition u/s 80HHC with respect to DEPB, the AO in fact should not have imposed the penalty at all - no penalty shall be levied or interest shall be charged in respect of any fresh demand raised consequent to the enactment of Taxation Laws (Amendment) Act, 2005, on account of variation in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC - matter restored back to the file of the CIT(A)

Issues Involved:
1. Deduction under Section 80HHC w.r.t. DEPB income.
2. Disallowance of public issue expenses.
3. 10% DEPB license against indirect expenses for deduction under Section 80HHC.
4. Interpretation of "Total Turnover" and "Export Turnover" for Section 80HHC(3).
5. Deduction in respect of disclaimer certificate issued.
6. Disallowance of consultation fees paid to Dalal Macdonald.
7. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Detailed Analysis:

1. Deduction under Section 80HHC w.r.t. DEPB income:
The Assessing Officer (AO) disallowed the deduction under Section 80HHC concerning DEPB income. The CIT(A) confirmed the disallowance due to the retrospective amendment by the Taxation Laws Amendment Act, 2005. The assessee argued that the claim was made based on the auditor's certificate and was a debatable issue. The tribunal upheld the CIT(A)'s decision to delete the penalty, citing Circular No. 2/2006, which states no penalty should be levied for claims related to DEPB credits due to retrospective amendments.

2. Disallowance of public issue expenses:
The AO disallowed Rs. 16,51,946/- claimed as public issue expenses, treating it as capital expenditure. The assessee contended that the expenses were for legal and appraisal fees for offloading shares and not for increasing share capital, relying on the auditor's advice. The CIT(A) found the claim to be bona fide and supported by the auditor's report, thus deleting the penalty. The tribunal agreed, noting the disclosure of full particulars and the debatable nature of the issue.

3. 10% DEPB license against indirect expenses for deduction under Section 80HHC:
The AO disallowed the claim of reducing indirect expenses by 10% of the DEPB license for deduction under Section 80HHC. The CIT(A) observed that the claim was based on the auditor's report and professional advice, deeming it a bona fide belief. The tribunal upheld the deletion of the penalty, recognizing the issue's debatable nature.

4. Interpretation of "Total Turnover" and "Export Turnover" for Section 80HHC(3):
The AO and CIT(A) disagreed on the interpretation of "Total Turnover" and "Export Turnover" for Section 80HHC(3). The assessee's claim was based on the auditor's advice. The CIT(A) noted the full disclosure of facts and the issue's debatable nature, leading to the deletion of the penalty. The tribunal upheld this decision.

5. Deduction in respect of disclaimer certificate issued:
The AO disallowed the deduction claimed based on disclaimer certificates, which the assessee argued resulted in no profit. The CIT(A) found the claim to be bona fide and supported by the auditor's certificate, thus deleting the penalty. The tribunal agreed, noting the full disclosure and the debatable nature of the issue.

6. Disallowance of consultation fees paid to Dalal Macdonald:
The AO disallowed Rs. 1,31,406/- claimed as consultation fees, treating it as capital expenditure. The assessee contended that the fees were for ongoing business development, supported by the auditor's report. The CIT(A) found the claim to be bona fide and deleted the penalty. The tribunal upheld this decision, recognizing the issue's debatable nature.

7. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The AO imposed a penalty of Rs. 2,35,75,803/- under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) deleted the penalty, noting the bona fide nature of the claims, full disclosure of facts, and the debatable nature of the issues. The tribunal upheld the deletion of the penalty concerning the DEPB income, citing Circular No. 2/2006, and restored the penalty proceedings for other additions to the CIT(A) for fresh consideration after deciding the quantum.

Conclusion:
The tribunal upheld the CIT(A)'s decision to delete the penalty concerning the DEPB income, relying on Circular No. 2/2006. For other additions, the penalty proceedings were restored to the CIT(A) for fresh consideration. The appeal was partly allowed for statistical purposes.

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