2013 (12) TMI 1259 - HC - Income Tax

Deduction u/s 80HHC on goods manufactured and traded by self - Held that - The deduction u/s 80HHC was a legally debatable issue - After the judgment of Apex Court in IPCA Laboratories (supra) the entire provisions of Income Tax Act under Section 80HHC were modified - If assessee s entire claim had been disallowed because of the decision of the Supreme Court in IPCA vs. DCIT 2004 (3) TMI 9 - SUPREME Court that would not have tantamounted to assessee concealing its income or furnishing inaccurate particulars of its income, because the assessee has made calculation of deduction u/s 80HHC as per the then prevailing interpretation - In such case the conditions necessary for levy of penalty under Section 271 (1) (c) of the Act are not fulfilled - The Income Tax Authorities did not find that the assessee had either concealed the particulars of his income or furnished inaccurate particulars of such income, to attract the levy of penalty - Decided against Revenue.

Summary

Issues:
- Interpretation of Section 80HHC for claiming deductions
- Justification of penalty deletion under Section 271(1)(c)
- Application of legal amendments post judgment in IPCA Laboratories case

Interpretation of Section 80HHC for claiming deductions:
The case involved the assessee engaged in trading milk & milk products, claiming deductions under Section 80HHC for exports. The dispute arose as the Supreme Court's judgment in IPCA Laboratories case clarified that deductions under Section 80HHC apply only if there is a positive profit, excluding losses. The Court emphasized that both profits and losses must be considered to determine eligibility for deductions. The CIT (A) found the deduction claim to be a legally debatable issue, not indicative of concealing income or furnishing inaccurate particulars.

Justification of penalty deletion under Section 271(1)(c):
The Income Tax Department raised questions regarding the deletion of a penalty under Section 271(1)(c) by the CIT (A). The Tribunal upheld the CIT (A)'s decision, stating that the deduction claim discrepancy did not amount to furnishing inaccurate particulars of income. The Court reiterated that the penalty is attracted only if there is a concealment of income or furnishing of inaccurate particulars, which was not the case here based on the findings of the CIT (A) and ITAT.

Application of legal amendments post judgment in IPCA Laboratories case:
The Court examined the impact of legal amendments post the IPCA Laboratories judgment on the case. The addition of the words 'such income' in Section 271(1)(c) by the Finance Act, 2005 did not alter the assessment for the year 2004-05. The Court concluded that the assessee's interpretation of Section 80HHC for deductions, even post the Supreme Court's ruling, did not amount to concealing or furnishing inaccurate particulars of income. Therefore, the conditions necessary for levying a penalty under Section 271(1)(c) were not fulfilled.

In summary, the Court dismissed the Income Tax Appeal, ruling in favor of the assessee-respondent on all three issues, emphasizing the importance of considering profits and losses for deductions under Section 80HHC and highlighting that the deduction claim discrepancy did not warrant a penalty under Section 271(1)(c) based on the legal interpretations and findings of the CIT (A) and ITAT.