2013 (9) TMI 480 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction u/s 80IA disallowed as the assessee which was awarded a contract for construction of four lane road was acting merely as a contractor, therefore, the deduction will not be allowable in view of the amended provisions of section 80IA(4) brought in the statute by the Finance Act, 2007 with retrospective effect from the year 2000-2001 - Held that - As decided in case of DCIT v/s Unity Chopra (Joint Venture) 2013 (5) TMI 373 - ITAT MUMBAI after the decision in the case of ABVG Heavy industries Ltd. (2010 (2) TMI 108 - BOMBAY HIGH COURT) has allowed the claim of deduction u/s 80-IA on similar facts claim of appellant, even on merit (in quantum proceedings) is valid and sustainable. The assessee company was under a bonafide belief that it is eligible for deduction u/s 80-IA. Moreover, from the decisions cited above, it is clearly evident that the said issue is a highly debatable one. It is well settled law that no penalty u/s 271(1)(c) can be levied when the issue is a debatable one as decided in CIT vs. Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT - thus the orders passed by the Commissioner (Appeals) deleting the penalty levied under section 271(1)(c) confirmed - Decided against Revenue.

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.
2. Eligibility for deduction under section 80IA(4) of the Income Tax Act, 1961.
3. Interpretation of the retrospective amendment to section 80IA(4) and its impact on the assessee's claim.
4. Applicability of the Supreme Court ruling in CIT vs. Reliance Petroproducts Pvt. Ltd. to the present case.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961:
The Revenue challenged the consolidated impugned orders passed by the Commissioner (Appeals)-XXXVIII, Mumbai, which related to the penalty order under section 271(1)(c) for the assessment years 2003-04 to 2008-09. The penalty amounts varied for each year, with the highest being Rs. 38,50,000 for 2004-05 and the lowest being Rs. 17,000 for 2007-08 and 2008-09. The assessee, an Association of Persons (AoP), claimed deductions under section 80IA(4) for income earned from infrastructure projects. The Assessing Officer disallowed these claims and imposed penalties, arguing that the assessee was a contractor and not eligible for the deduction due to the retrospective amendment to section 80IA(4).

2. Eligibility for deduction under section 80IA(4) of the Income Tax Act, 1961:
The assessee claimed deductions under section 80IA(4) for income earned from strengthening the Tansa Dam, arguing that it was engaged in infrastructure development. The Assessing Officer disallowed the claim, citing that the project was awarded as a works contract and, per the retrospective amendment by the Finance Act 2007, deductions under section 80IA(4) were not applicable to works contracts. The Special Bench of the Tribunal in B.T. Patil & Sons had previously held that the benefit of section 80IA would not apply to works contracts from 1st April 2000.

3. Interpretation of the retrospective amendment to section 80IA(4) and its impact on the assessee's claim:
The assessee contended that the retrospective amendment to section 80IA(4) was not applicable to sub-contractors working for enterprises on a work contract basis, referencing the Jaipur Bench decision in Om Metals Infrastructure Projects P. Ltd. v/s CIT. The Commissioner (Appeals) considered the assessee's detailed explanations, various case laws, and the retrospective nature of the amendment, concluding that the claim was debatable and had a reasonable basis. The Commissioner (Appeals) found that the claims did not amount to concealment of income or furnishing inaccurate particulars, as the claims were based on legal interpretations and existing decisions at the time of filing.

4. Applicability of the Supreme Court ruling in CIT vs. Reliance Petroproducts Pvt. Ltd. to the present case:
The Commissioner (Appeals) referenced the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that disallowance of certain claims does not constitute concealment of income for penalty purposes. The Tribunal affirmed this view, noting that the issue was debatable and that the assessee's claim was based on a bona fide belief and existing legal interpretations. The Tribunal upheld the deletion of penalties, citing similar decisions in other group concerns and emphasizing that no penalty should be levied when the issue is debatable and the claim is made in good faith.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the Commissioner (Appeals)'s orders to delete the penalties for all the assessment years under consideration. The Tribunal found that the assessee's claims were debatable and made in good faith, aligning with the Supreme Court's ruling in CIT vs. Reliance Petroproducts Pvt. Ltd. and similar Tribunal decisions in related cases.