2016 (6) TMI 934 - AT - Income Tax

Penalty under section 271(1)(c) - excess deduction claimed under section 80-IB - bonafide mistake - Held that - We find from the facts of the case that the Auditor computed deduction @ 100% in respect of the two units in reference and the assessee claimed the same deduction in the return of income filed. According to us, it is a very much likelihood that a normal person will claim the deduction in the return of income what has been computed by the Auditor, who has been authorized by the Act to submit a audit report in form No. 10 CCB in respect of the claim of deduction. In the circumstances, it cannot be said that there was a malafide intention behind the claim of excess deduction and it occurred due to the wrong claim computed by the Auditor. On perusal of the assessment order, we find that the Assessing Officer has mentioned only the letter dated 01/12/2006 submitted by the assessee on 04/12/2006 revising its claim of deduction under section 80-IB of the Act and accordingly allowed the claim at the rate of 30% and nowhere held that the mistake was pointed out by the Assessing Officer to the assessee. When the assessee itself noticed the mistake and came forward and offered the income for taxation, the assessee cannot be held in default for furnishing inaccurate particulars. Thus we are of the opinion that the excess claim under section 80-IB of the Act made by the assessee was on the basis of the bonafide mistake of the Auditor and the assessee cannot be held for furnishing inaccurate particulars of income and, accordingly, the penalty levied under section 271(1)(c) of the Act on the incorrect claim of deduction under section 80-IB is deleted - Decided in favour of assessee Penalty levied on disallowance of deduction under section 80-IB on account of higher allocation of head office/common expenses - Held that - We find that facts of allocation of common expenses are identical to the facts of the case of Dharmpal Premchand Ltd (2010 (9) TMI 155 - DELHI HIGH COURT ), thus respectfully following the ratio of the said decision wherein held that merely because the assessee had claimed the expenditure, which 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)- Decided against revenue Levy of penalty on unexplained cash credit under section 68 - Held that - In the case in hand, the assessee has failed to prove the identity and creditworthiness of the creditor as well as genuineness of the transaction. In view of the facts of the case, the assessee is liable for furnishing inaccurate particulars of income in respect of the issue in dispute and accordingly we uphold the penalty levied in respect of disallowance of interest of ₹ 19,200/- paid in respect of the loan taken from Mr. Ravi Kapoor which has been held as unexplained cash credit under section 68 of the Act in the assessment year 2001- 02. - Decided against assessee

Issues Involved:
1. Jurisdiction and validity of the penalty order under section 271(1)(c) of the Income-tax Act, 1961.
2. Imposition of penalty for excess deduction claimed under section 80-IB.
3. Penalty on disallowance of deduction under section 80-IB due to higher allocation of indirect/head-office expenditure.
4. Penalty on disallowance of interest paid on a loan treated as unexplained cash credit under section 68.

Detailed Analysis:

1. Jurisdiction and Validity of the Penalty Order:
- Issue: Whether the penalty order under section 271(1)(c) was beyond jurisdiction, bad in law, and void ab initio.
- Findings: The grounds related to jurisdiction and validity (grounds 1 and 1.1) were not pressed by the assessee's representative and were dismissed as infructuous.

2. Imposition of Penalty for Excess Deduction Claimed under Section 80-IB:
- Issue: Whether the penalty under section 271(1)(c) was justified for the excess deduction of ?5,77,22,220 claimed under section 80-IB.
- Findings: The assessee claimed the deduction based on an auditor's certificate, which was later revised during scrutiny proceedings. The Commissioner of Income-tax (Appeals) upheld the penalty, stating that the mere filing of a rectifying letter did not absolve the assessee from charges of furnishing inaccurate particulars. The Tribunal, however, found that the mistake was bona fide, caused by an error in the auditor’s computation, and not due to any malafide intention. The Tribunal cited the Supreme Court's decision in Price Waterhouse Coopers Pvt. Ltd. vs. CIT, which held that inadvertent errors do not justify penalty imposition. Consequently, the Tribunal deleted the penalty for the excess deduction claim.

3. Penalty on Disallowance of Deduction under Section 80-IB Due to Higher Allocation of Indirect/Head-Office Expenditure:
- Issue: Whether the penalty was justified for the disallowance of ?6,95,173 under section 80-IB due to higher allocation of head-office expenses.
- Findings: The assessee did not allocate head-office expenses to the units eligible for deduction, which the Assessing Officer considered necessary. The Commissioner of Income-tax (Appeals) confirmed the penalty, but the Tribunal found that the allocation of such expenses is a debatable issue. Citing the Delhi High Court's decision in CIT vs. Dharmpal Premchand Ltd., the Tribunal held that no penalty could be levied for a debatable issue and allowed the appeal on this ground.

4. Penalty on Disallowance of Interest Paid on a Loan Treated as Unexplained Cash Credit:
- Issue: Whether the penalty was justified for the disallowance of ?19,200 interest paid on a loan from Mr. Ravi Kapoor, treated as unexplained cash credit under section 68.
- Findings: The Tribunal upheld the penalty, noting that the assessee failed to prove the identity, creditworthiness, and genuineness of the transaction related to the loan from Mr. Ravi Kapoor. The Tribunal distinguished this case from the Punjab and Haryana High Court’s decision in CIT vs. Sunila Sharma, where the penalty was set aside due to extraneous reasons preventing confirmation from creditors. Here, the assessee’s failure to satisfy the requirements of section 68 justified the penalty.

Conclusion:
The appeal was partly allowed. The Tribunal deleted the penalty related to the excess deduction claimed under section 80-IB and the allocation of head-office expenses but upheld the penalty on the disallowance of interest paid on the loan treated as unexplained cash credit. The decision was pronounced in the open court on 2nd June 2016.

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