2016 (7) TMI 407 - HC - Income Tax

Penalty levied under Section 271(1) (c) - undervaluation of closing stock and disallowance on account of rejection of deduction u/s. 80I - Held that - A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. See Reliance Petroproducts Pvt Ltd 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee

Summary

Issues:
- Challenge to the ITAT orders for assessment year 2001-2002 in two tax appeals.
- Undervaluation of closing stock and penalty under Section 271(1)(c).
- Disallowance of deduction under Section 80I of the Income Tax Act, 1961.
- Justification for deleting the penalty by the Appellate Tribunal.

Analysis:
1. Challenge to ITAT Orders:
The appeals were filed against the ITAT orders for assessment year 2001-2002. The assessee, a Cooperative Society engaged in manufacturing milk products, filed a return declaring NIL total income. The AO observed the undervaluation of closing stock by 17% and initiated penalty proceedings under Section 271(1)(c). The CIT (A) upheld the addition but granted relief in quantum, reducing the disallowance. The ITAT allowed the appeal on the penalty levied for undervaluation of closing stock but dismissed the Department's appeal regarding the penalty under Section 80I of the Act.

2. Undervaluation of Closing Stock and Penalty:
The key issue revolved around the undervaluation of closing stock and the penalty under Section 271(1)(c). The appellant contended that there were inconsistencies in the closing stock valuation and the deduction under Section 80I should not have been granted. However, the Counsel for the assessee relied on a Supreme Court decision to argue that mere unsustainable claims in the return do not amount to furnishing inaccurate particulars regarding income. The Court, considering the arguments, upheld the decision of the ITAT based on the Supreme Court precedent.

3. Disallowance of Deduction under Section 80I:
The appellant raised concerns about the inconsistency in the deduction claimed under Section 80I. The Counsel for the appellant argued against the grant of this deduction. However, the Counsel for the assessee cited a Supreme Court decision to support the contention that incorrect or unsustainable claims in the return do not automatically lead to penalties under Section 271(1)(c).

4. Justification for Deleting Penalty:
The primary question for consideration was whether the Appellate Tribunal was justified in deleting the penalty levied under Section 271(1)(c) for undervaluation of closing stock and disallowance under Section 80I. The Court, following the Supreme Court precedent, concluded that the issue was squarely covered by the decision in Reliance Petroproducts Pvt Ltd case. Accordingly, the Court dismissed the appeal, ruling in favor of the assessee and against the Department.

In conclusion, the High Court of Gujarat upheld the decision of the Appellate Tribunal based on legal precedents, ruling in favor of the assessee regarding the penalty levied for undervaluation of closing stock and disallowance under Section 80I of the Income Tax Act, 1961.