2013 (5) TMI 640 - AT - Income Tax

Penalty u/s. 271(1)(c) - non entitlement for exemption u/s. 10B - assessee submitted that the Chartered Accountant of the assessee company while issuing the certificate in support of the book profits u/s. 115JB erroneously deducted the exempt income u/s. 10B under bona fide belief inadvertently failed to take note of the amendment brought in the relevant provisions of I.T.Act vide Finance Act 2007 w.e.f. 01.04.2008 whereby the exempt income u/s. 10B is not permissible for deduction while computing the book profits u/s. 115JB - Held that - It may be observed that the related amendment has been brought vide Finance Act 2007 w.e.f. 01.04.2008 and the relevant assessment year was the first year during which the said amended provisions were to be implemented. The assessee company for its tax matters relied upon its Chartered Accountant. But the Chartered Accountant inadvertently failed to take note of the amended provisions and claimed exemption u/s. 10B. In such circumstances, the present case is not a case of concealment of income or furnishing of wrong particulars of income, rather it is a case of wrong claim of exemption which was based on bona fide belief, thus this is not a fit case for levy of penalty - in favour of assessee. Penalty u/s. 221(1) r.w.s. 140A(3) - default in payment of self assessment tax - Held that - Despite availing sufficient opportunity, the assessee in this case failed to make the payment of tax at the time of passing of penalty order of the AO. Even the assessee could not substantiate its contention of financial crunch with any supporting evidence. However, the fact which cannot be ignored is that the assessee made the entire payment of tax along with interest before preferring the penalty appeal before the CIT(A) i.e. within a very short period of 30 days. No doubt, while imposing penalty @100% on the defaulted amount the AO did not record his reasons for the same. Hence, levy of maximum penalty in this case @100% of the defaulted amount is not justifiable. But reducing the same to almost negligible amount will also be not justified in face of the statutory provisions of the Act. Thus in the interests of justice amount of penalty is reduced to 1/3rd of the amount imposed by the AO. Partly in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act for A.Y. 2008-09.
2. Confirmation of penalty under section 221(1) r.w.s. 140A(3) of the Income Tax Act for A.Y. 2011-12.

Issue 1: Confirmation of penalty under section 271(1)(c) for A.Y. 2008-09:
The appellant, a private limited company, contested the penalty amount of Rs.65,00,000/- imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act for A.Y. 2008-09. The AO disallowed the claim of exemption under section 10B while computing profits under section 115JB, resulting in an addition to the book profits. The appellant argued that the Chartered Accountant made an inadvertent error in claiming the exemption and it was not a case of concealment of income. The Appellate Tribunal noted that the amendment disallowing the exemption was new for the relevant assessment year and the appellant relied on the Chartered Accountant for tax matters. Considering the circumstances, the Tribunal held that it was not a case of concealment but a wrong claim based on a bona fide belief. Consequently, the penalty was set aside, and the appeal was allowed.

Issue 2: Confirmation of penalty under section 221(1) r.w.s. 140A(3) for A.Y. 2011-12:
The appellant challenged the penalty of Rs.87,18,548/- imposed under section 221(1) r.w.s. 140A(3) for A.Y. 2011-12. The AO levied the penalty due to non-payment of self-assessment tax despite opportunities given. The appellant argued financial constraints due to market conditions and delayed payments from buyers as reasons for the default. However, the CIT(A) upheld the penalty, stating lack of evidence supporting the financial difficulties claimed by the appellant. The Tribunal acknowledged the default but found the imposition of a 100% penalty unjustifiable. Considering the prompt payment of the tax before the penalty appeal, the Tribunal reduced the penalty to 1/3rd of the amount imposed by the AO. The appeal for A.Y. 2011-12 was thus partly allowed.

In conclusion, the Appellate Tribunal ITAT MUMBAI addressed the issues of confirming penalties under different sections of the Income Tax Act for two assessment years. The judgments analyzed the circumstances, including errors by the Chartered Accountant, financial constraints, and prompt tax payments, leading to the setting aside of one penalty and partial allowance of the other. The decisions emphasized the importance of bona fide belief, evidence supporting claims, and the reasonableness of penalty imposition based on individual case facts.