2014 (4) TMI 315 - AT - Income Tax

Penalty levied u/s 271(1)(c) of the Act - Excess claim u/s 10B of the Act Held that - The decision in Income Tax Officer Ward-2(1) (4) Versus M/s. Greytrix (India) Pvt. Ltd. 2013 (1) TMI 381 - ITAT MUMBAI and Income Tax Officer 3(2) (1), Mumbai Versus M/s Jewelex International P Ltd., Mumbai 2010 (9) TMI 906 - ITAT MUMBAI followed - once a conclusion is reached that the interest income forms part of total income, sub section 4 of section 10B takes over and the interest income can be included in the profits for the purposes of claiming deduction u/s 10B of the Act - levy of penalty on excess claim made u/s 10B for inclusion of the interest income is not sustainable. Inclusion of insurance and freight charges Held that - Levy of penalty for inclusion of the insurance and freight charges within the excess claim, section 10B of the Act specifically excludes the insurance and freight charges from the export turnover - the assessee has not shown any tangible material or basis as to why the clear statutory provision which excludes the insurance and freight charges has been included by the assessee in the claim - the voluntary disclosure does not release the assessee from the mischief of penal proceedings - The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty thus, levy of penalty for inclusion of the insurance and freight charges within the excess claim is justifiable thus, levy of penalty on excess claim made u/s 10B for inclusion of the interest income is not sustainable in law and levy of penalty for inclusion of the insurance and freight charges is justifiable on facts Decided partly in favour of Assessee.

Summary

Issues:
Penalty under Section 271(1)(c) for excess claim under Section 10B of the Income Tax Act.

Analysis:
The appeal was against the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act for the assessment year 2003-04. The assessee, engaged in manufacturing and exporting, had claimed excess deduction under Section 10B for two units. The AO found discrepancies in the claim, leading to the penalty imposition. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty but directed a modification in the quantum of penalty. The assessee challenged this decision.

During the appeal, the assessee's representative argued that the excess claim was based on judicial pronouncements allowing inclusion of interest income for deduction under Section 10B. They contended that the claim was legally justified. However, the Departmental Representative (DR) argued that the excess claim was intentional, not a genuine mistake. The DR highlighted that the assessee revised the computation only after persistent queries by the AO, indicating deliberate action. The CIT(A) justified the penalty, considering it a fit case.

The Tribunal analyzed the issues. Firstly, regarding the inclusion of interest income in the claim under Section 10B, the Tribunal referred to previous cases supporting the view that such inclusion is debatable and not indicative of concealment of income. Therefore, the penalty for this inclusion was deemed unsustainable and was deleted. Secondly, concerning the inclusion of insurance and freight charges in the claim, the Tribunal noted that Section 10B specifically excludes these charges from export turnover. As the assessee failed to provide a valid basis for including them, the penalty for this inclusion was upheld as justifiable.

Consequently, the Tribunal partially allowed the appeal, directing the AO to quantify the penalty in accordance with the findings. The decision was pronounced on February 28, 2014.