2016 (9) TMI 1067 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction u/s 10A allowed - Held that - There is no scope for levy of penalty on the given facts of the case. As far as the provisions of Section 10A are concerned, the Sub-Section 1 of Section 10A allows the deduction for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to inform or produce such articles or things or computer software as the case may be. Subsection 1A however, has certain restrictions on quantum of deduction and rest of the provisions pertain to computation of quantum and restrictions placed, if the units are transferred etc. Nowhere in Section 10A, it is specified that the deduction is not eligible, if the STPI does not continue the approval beyond the five year period. On a complete reading of the provision, anybody will come to a conclusion that once deduction of Section 10A is allowed in the first year, on the basis of satisfying the conditions, assessee would be eligible for deduction for consecutive ten assessment years. In this case, there is no dispute that assessee was eligible for deduction u/s 10A in earlier years. There is also no dispute that assessee has applied for renewal on STPI approval for the later five years which was however, not pursued. According to my understanding, assessee has made a claim of deduction on the strength of the provisions, even though it has accepted that the claim made cannot be substantiated in the absence of STPI approval. It may be assessee s opinion and accepted the disallowance made in assessment proceedings. Mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars is not a ground for levying penalty especially when there is nothing on record to show that assessee has concealed any particulars or furnished any inaccurate particulars. Assessee simply made a claim u/s. 10A on the reason that having been eligible in earlier years, assessee would be allowed deduction in the impugned assessment year as well. This, in my view does not come into the purview as concealment of income or of furnishing of inaccurate particulars - Decided in favour of assessee

Summary

Issues:
1. Eligibility of the company for 10A deduction.
2. Disallowance of 10A claimed in scrutiny assessment.
3. Initiation of penalty proceedings u/s. 271(1)(c) by AO.
4. Confirmation of penalty by CIT(A).
5. Appeal by assessee against the penalty confirmation.

Eligibility of the company for 10A deduction:
The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) regarding the eligibility of the company for claiming 10A deduction for the assessment year 2010-11. The company, engaged in software export, claimed entire profit as exempt u/s. 10A of the Income Tax Act, based on being a 100% Export Oriented Unit (EOU) registered with Software Technology Parks of India (STPI). The Assessing Officer (AO) disallowed the claim as the STPI approval had expired, leading to scrutiny assessment and penalty proceedings u/s. 271(1)(c).

Disallowance of 10A claimed in scrutiny assessment:
The AO disallowed the 10A claim due to the expired STPI approval, as the company failed to renew its status. The company's submissions regarding renewal application were considered contradictory by the CIT(A), who confirmed the penalty. However, the ITAT Hyderabad, in its detailed analysis, found that the mere erroneous claim without concealment or furnishing inaccurate particulars does not warrant a penalty, especially when the claim was made based on previous eligibility and statutory provisions.

Initiation of penalty proceedings u/s. 271(1)(c) by AO:
The AO initiated penalty proceedings u/s. 271(1)(c) on the grounds that the company deliberately made a wrong claim of deduction u/s. 10A despite knowing its ineligibility. The AO relied on precedents to support the penalty imposition, emphasizing deliberate concealment and the need for the assessee to rebut the presumption of deliberate concealment with cogent materials.

Confirmation of penalty by CIT(A):
The CIT(A) confirmed the penalty, citing the expired STPI approval and the company's awareness of the limited validity period. The CIT(A) found the company's actions fraudulent, leading to the penalty confirmation despite the company's arguments and reliance on various decisions to support its case.

Appeal by assessee against the penalty confirmation:
The ITAT Hyderabad, in its detailed analysis, disagreed with the CIT(A)'s confirmation of the penalty. The ITAT emphasized that the claim was made based on statutory provisions and previous eligibility, without concealment or furnishing inaccurate particulars. The ITAT highlighted that the mere disallowance of the claim does not automatically warrant a penalty, especially when all relevant details were disclosed, leading to the cancellation of the penalty and allowing the assessee's appeal.

In conclusion, the ITAT Hyderabad allowed the appeal of the assessee, emphasizing that the disallowance of the claim does not amount to concealment or furnishing inaccurate particulars, especially when the claim was made based on statutory provisions and previous eligibility.