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2018 (6) TMI 1614 - HC - Income TaxPenalty u/s 271(1)(c) - excessive deduction claimed u/s 10B - additions made in the income on account of alleged excess stock - HELD THAT - The first reason for which penalty in question was imposed by the Assessing Authority in the present case was on account of the excessive deduction claimed u/s 10B which was set aside by the learned Tribunal, following the decision of this Court in the case of CIT v. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT . Another ground on which the penalty was imposed by the Assessing Authority was the additions made in the income on account of alleged excess stock, holding which too was set aside by the learned Tribunal vide Paragraph-17 of the impugned order quoted above holding that the said alleged excess stock was not as a result of purchases made outside the books of accounts, but was only on account of wrong entries in the books of accounts and in any case the higher stock in trade declared as closing stock in a particular year would be taken as opening stock at the beginning of the next year and therefore the tax effect of such alleged excess stock is Nil and thus it being a tax neutral entry, the learned Tribunal found that there was no concealment on the part of the Assessee, attracting penalty u/s 271(1)(c). We are satisfied that in the facts of the present case before us, since the Tribunal has reiterated the findings of facts that both the additions made to the income of the Assessee having been set aside following the decision of the High Court in the case of Tata Elxsi Ltd., supra as far as issue of Section 10B is concerned and on the issue of excess stock being tax neutral, such cogent and reasonable findings of facts returned by the learned Tribunal and consequentially setting aside the penalty u/s 271(1)(c) , does not give rise to any substantial question of law requiring the consideration by this Court u/s 260A.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Excessive deduction claimed under Section 10B of the Act. 3. Additions made in the income on account of alleged excess stock. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The Revenue appealed against the Tribunal's decision to set aside the penalty imposed on the Respondent-Assessee. The Tribunal's reasoning was that mere addition to returned income does not result in automatic levy of penalty. The Tribunal cited the Supreme Court's decision in Reliance Petro Products Pvt. Ltd. and the jurisdictional High Court's decision in Manjunatha Cotton & Ginning Factory, emphasizing that the Assessing Officer (AO) did not find the explanation provided by the Assessee to be false or not bona fide. The Tribunal upheld the CIT(A)'s decision to delete the penalty concerning the excess claim under Section 10B of the Act. 2. Excessive Deduction Claimed under Section 10B of the Act: The Tribunal found that the method of computation used by the Assessee for export turnover, which included telecommunication charges, freight, and traveling charges, was supported by the High Court's decision in CIT v. Tata Elxsi. The addition was made on a debatable point of law, and hence, no penalty was leviable. The Tribunal dismissed the Revenue's grounds of appeal, stating that the penalty for the excess claim under Section 10B was not justified. 3. Additions Made in the Income on Account of Alleged Excess Stock: The Tribunal addressed the Assessee's cross-objections regarding the penalty for excess stock. It noted that the excess stock was due to wrong entries in the books of accounts and not due to purchases outside the books. The Tribunal highlighted that the higher stock declared as closing stock in one year would be the opening stock in the next year, making it tax neutral. The Tribunal concluded that there was no concealment of income and that the AO did not provide a specific finding on how the Assessee furnished inaccurate particulars of income. The Tribunal relied on several judicial precedents, including CIT v. Balbir Singh and National Textiles v. CIT, to support its decision to quash the penalty order. Additional Observations: The Revenue's Counsel argued that the Assessee's surrender of income post-search was not voluntary and justified the penalty under Section 271(1)(c). However, the Tribunal found that the penalty was not automatic and depended on the facts and circumstances of the case, as established in Manjunatha Cotton & Ginning Factory. The Tribunal also distinguished the case from MAK Data [P] Ltd. v. CIT, where the Supreme Court upheld the penalty due to the Assessee's lack of explanation for concealed income. In contrast, the present case had explanations from the Assessee that were not found to be false or not bona fide. Conclusion: The High Court upheld the Tribunal's findings that the penalty under Section 271(1)(c) was not justified due to the absence of false or non-bona fide explanations from the Assessee. The excessive deduction under Section 10B and the alleged excess stock were found to be tax neutral or based on debatable points of law. Consequently, the High Court dismissed the Revenue's appeal, finding no substantial question of law requiring further consideration. The appeal was dismissed without costs.
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