2016 (7) TMI 832 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowance of claim of deduction u/s. 80IB on processing charges miscellaneous income and on interest on employee loans - Held that - The disallowance may have been confirmed in the quantum proceedings however such a finding may not be a final word so far as penalty proceedings are concerned because the considerations which arise in penalty proceedings are separate and distinct from the assessment proceedings. In the penalty proceedings the assessee can point out the factors which had lead to a bona fide belief for making the claim at the time of filing the return of income. Here in this case the assessee not only by way of notes in the audited accounts but also before the authorities below have relied upon the decisions wherein similar nature of income were held to be allowable for deduction u/s. 80 IA. Thus the claim of the assessee was genuinely bona fide at the time of filing the return of income. Not only that some of the items of other income like processing charges insurance claim there are still decisions which are in favour of the assessee post the judgment of Liberty India Ltd. Thus it cannot be held that the assessee had made any false claim for which any penalty u/s. 271(1)(c) is warranted. Accordingly on the facts and circumstances of the case we are of the opinion that no penalty for furnishing of inaccurate particulars u/s. 271(1)(c) can be levied - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) for disallowance of deduction u/s. 80IB on processing charges, miscellaneous income, and interest on employee loans for A.Y. 2005-06.

Analysis:
1. The appellant, a limited company engaged in manufacturing and trading of agro chemical products and seeds, filed an appeal against the CIT(A)-Mumbai's order imposing a penalty under section 271(1)(c) for disallowance of deduction u/s. 80IB amounting to ?12,05,963.

2. The appellant claimed deduction u/s. 80IB in the return of income for various units, including Topik Unit, Multipurpose Formulation unit, and TMX Unit. The claim included income from processing charges, miscellaneous income, and interest on employee loans, which were disputed during assessment.

3. The AO disallowed a portion of the deduction claimed by the appellant related to miscellaneous income, processing charges, and interest on employee loans, leading to the imposition of the penalty. The disallowance was reduced at the appellate stage to ?40,19,878 on specific items.

4. The appellant contended that the disallowed income had a direct connection with the industrial undertaking and was based on precedents available at the time of filing the return. The appellant cited judicial decisions to support its claim, emphasizing the bona fide nature of the deduction claim.

5. The CIT(A) confirmed the penalty, focusing on the concept of penalty rather than the merits of the claim. However, the appellant argued before the ITAT that the disallowed miscellaneous income was supported by recent court decisions, and penalties were not imposed in previous years on similar disallowances.

6. The ITAT analyzed the facts, noting that the appellant disclosed all particulars of income in audited reports and relied on legal precedents for the deduction claim. The tribunal found the appellant's claim to be bona fide at the time of filing the return, especially considering that penalties were not imposed in previous years on similar grounds.

7. The ITAT concluded that no penalty under section 271(1)(c) should be levied, as the appellant's claim was genuine and supported by legal precedents available at the time. Therefore, the penalty was directed to be deleted, and the appellant's appeal was allowed.

In conclusion, the ITAT ruled in favor of the appellant, emphasizing the genuine nature of the deduction claim and the reliance on legal precedents available at the time of filing the return. The tribunal found no justification for imposing a penalty under section 271(1)(c) and directed the deletion of the penalty.