2013 (10) TMI 1171 - HC - Income Tax

Mens rea for penalty u/s 271(1)(c) of the Income Tax Act - The respondent-assessee is a company engaged in manufacture of hosiery goods at Ludhiana. A survey under Section 133A of the Act was carried out in the business premises of the assessee. It surrendered undisclosed income amounting to ₹ 1.20 crores under different heads. The said income was included in the profit and loss account and offered to tax. However, the assessee claimed deduction on the entire income under Section 80IB of the Act which included the aforesaid surrendered Income of ₹ 1.20 crores Held that - Reliance has been placed upon the judgment in the case of CIT v. Rubber Udyog Vikas (P) Limited, 2011 (2) TMI 858 - PUNJAB AND HARYANA HIGH COURT , wherein it was held that making incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with mala fide intention or had claimed deductions being aware of the well settled legal position Thus, the instant case is not a fit case for imposition of penalty u/s 271(1)(c) of the Income tax act Decided against the Revenue.

Summary

Issues:
1. Whether the Tribunal was justified in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act for excess claim of deduction under Section 80IB on surrendered income?
2. Whether the Tribunal was justified in deleting the penalty by applying the decision of the Supreme Court in a specific case despite differences in facts and legal positions?

Analysis:

Issue 1:
The appeal was filed by the revenue against the deletion of penalty under Section 271(1)(c) of the Income Tax Act by the Tribunal. The respondent-assessee, a hosiery goods manufacturing company, surrendered undisclosed income during a survey and claimed deduction under Section 80IB on the entire income, including the surrendered amount. The Assessing Officer disallowed the excess deduction and levied a penalty. The CIT(A) partly allowed the appeal, but the Tribunal set aside the decision and restored the Assessing Officer's order. The penalty was levied based on inaccurate particulars of income. However, the CIT(A) allowed the appeal citing the decision in Reliance Petroproducts case. The Tribunal dismissed the revenue's appeal, stating it was not a case of a false claim but a debatable issue, upholding the decision based on legal precedents.

Issue 2:
The revenue argued that the deduction claim was incorrect, justifying the penalty. The assessee contended that the claim was debatable, citing various judgments. The Tribunal upheld the deletion of the penalty, emphasizing that it was not a false claim but an incorrect one. The Tribunal referred to legal precedents, including the Reliance Petroproducts case and a High Court judgment, to support its decision. The Supreme Court's interpretation of inaccurate particulars and concealment of income was crucial in determining the applicability of the penalty. The Court clarified that a mere incorrect claim, without fraudulent intent, does not amount to furnishing inaccurate particulars. The Tribunal's decision was further supported by another High Court ruling, emphasizing that making an incorrect claim does not warrant a penalty unless there is malafide intention or a deliberate attempt to mislead.

In conclusion, the Tribunal's decision to delete the penalty was upheld based on legal precedents and the interpretation of inaccurate particulars under the Income Tax Act. The appeal by the revenue was dismissed, and the substantial questions of law were answered against the revenue and in favor of the assessee.