2015 (10) TMI 1431 - AT - Income Tax

Penalty u/s.271(1)(c) - variation in the claim of deduction u/s.10A - Held that - In the quantum proceedings the AO has disallowed the claim on some income/expenditure which was partly allowed by the CIT(A). However, the CIT(A) has reduced the claim u/s.10A by allowing certain expenditure which were claimed by assessee against other unit. On the issue of imposition of penalty for wrong claim of expenditure, the Hon ble Supreme Court in the case of Reliance Petroproducts Ltd. (2010 (3) TMI 80 - SUPREME COURT) held that merely because the assessee had claimed the expenditure, where claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion attract the penalty under Section 271(1)(c) In the instant case before us, the enhancement of ₹ 50,00,000/- was made by CIT(A). the penalty proceedings should be commenced in the course of, and before the completion of the proceedings in which the income tax authority is satisfied about the default which attracts the penalty. Here in this case the CIT(A) was satisfied and completed the proceedings by making enhancement. However, he has not initiated any penalty proceeding. Hence no merit in the penalty levied with reference to variation in the amount of claim for deduction u/s.10A - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2002-03 based on deduction claimed under section 10A and treatment of STPI link charges in computing total turnover.

Analysis:

1. Imposition of Penalty under Section 271(1)(c) for Deduction Claimed under Section 10A:
The appeal was filed against the order of the CIT(A) regarding the imposition of a penalty under section 271(1)(c) for the assessment year 2002-03. The penalty was imposed by the Assessing Officer (AO) due to a revision in the amount of deduction claimed under section 10A. Initially, the AO excluded income related to foreign exchange fluctuation for computing eligible income under section 10A. However, the CIT(A) reversed this decision and allowed the income for deduction under section 10A. The Tribunal upheld the CIT(A)'s decision. Additionally, the CIT(A) enhanced the income by Rs. 50 lakhs as the assessee had claimed expenditure of one unit against another non-eligible unit, resulting in an increased profit for the eligible unit. The Tribunal found that the penalty was unjustified as it was imposed based on the variation in the claim for deduction under section 10A. The Tribunal cited the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd. to support its conclusion that a mere decline of a deduction claim does not warrant a penalty under section 271(1)(c).

2. Treatment of STPI Link Charges in Computing Total Turnover:
Another issue involved the treatment of STPI link charges in computing total turnover. The AO had reduced the STPI link charges from the export turnover, considering them as telecommunication charges as per the explanation to Section 2(iv) of the Act. The CIT(A) modified the AO's order, stating that the STPI link charges should not be part of the export turnover and should also be excluded from the total turnover. The Tribunal agreed with the CIT(A)'s decision on this matter.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the penalty imposed under section 271(1)(c) for the variation in the deduction claim under section 10A was not justified. The Tribunal highlighted the importance of initiating penalty proceedings before the completion of the relevant proceedings and cited legal precedents to support its decision.