2017 (5) TMI 533 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction of 80-IB was denied on other income - mandatory notice u/s 274 - Held that - AO duly initiated the penalty proceedings in the quantum assessment and levied the penalty after issuance of the mandatory notice u/s 274. Further, the defect, if any, found in the standard printed proforma of notice u/s 274, stood cured by the provisions of Section 292B and do not invalidate the penalty proceedings. This point is further fortified by the fact that the assessee actively contested the penalty proceedings without an iota of doubt in his mind as to the ground for which he was being penalized. Therefore, the legal grounds raised by the Ld. AR stands rejected. It is to be noted that the assessee claimed 80IB deduction towards certain items and the Tribunal uphold the major claim of the assessee which proves the point that the assessee made a claim which was bona-fide and tenable in law. Therefore, the assessee made a legally valid claim, which was accepted to a major extent. In view of the same, we are of the considered opinion that the assessee do not deserves to be saddled with the impugned penalty particularly when it derived benefit only to the extent of 30%, being deduction u/s 80-IB. Therefore, by deleting the same, we allow the assessee s appeal.

Summary

Issues:
Assessment of penalty under section 271(1)(c) for claiming deduction under section 80-IB on 'other income'.

Detailed Analysis:

1. Background: The appeal by the assessee for Assessment Year 2006-07 challenges the penalty imposed under section 271(1)(c) by the Ld. Commissioner of Income Tax (Appeals) for claiming deduction under section 80-IB on 'other income'.

2. Facts: The assessee, a resident corporate entity engaged in manufacturing, claimed deduction under section 80-IB on 'other income' totaling ?1,07,05,561. The Assessing Officer (AO) disallowed this deduction, leading to penalty proceedings under section 271(1)(c) and imposition of a penalty of ?36,96,564.

3. Quantum Proceedings: The quantum proceedings reached the ITAT, resulting in partial success for the assessee, allowing the deduction under section 80-IB on a reduced amount of ?75,03,543, with the remaining ?32,02,018 disallowed.

4. Appeal: The assessee appealed the penalty order before the Ld. CIT(A), where the penalty was restricted to the non-eligible amount of ?32,02,018. The assessee further appealed this decision before the ITAT.

5. Legal Grounds: The assessee argued that the penalty was imposed without proper application of mind, citing issues with the notice issued under section 274. The Revenue contended that the penalty was validly initiated, and the assessee was aware of the grounds for penalty imposition.

6. Decision on Legal Grounds: The ITAT rejected the legal grounds raised by the assessee, stating that the penalty proceedings were duly initiated, and any defects in the notice were cured by Section 292B. The ITAT emphasized that the assessee actively contested the penalty proceedings with full knowledge of the grounds.

7. Merits: The assessee argued that the 'other income' was linked to its business activities, and the claim under section 80-IB was bona fide. The Revenue contended that the disallowed amount justified the penalty imposition.

8. Decision on Merits: The ITAT found merit in the assessee's arguments, noting that the Tribunal upheld a significant portion of the claim under section 80-IB, indicating a valid and tenable claim. Considering that the assessee derived only 30% benefit from the claimed deduction, the ITAT concluded that the penalty was unwarranted and allowed the assessee's appeal.

9. Conclusion: The ITAT allowed the assessee's appeal, concluding that the penalty under section 271(1)(c) was not justified based on the merits of the case.

This detailed analysis outlines the key aspects of the legal judgment regarding the penalty imposition under section 271(1)(c) for claiming deduction under section 80-IB on 'other income' for the Assessment Year 2006-07.