2017 (5) TMI 1311 - AT - Income Tax

Penalty under section 271(1)(c) - deduction under section 36(1)(viii) being declined - Held that - As noted explanation of the assessee that (a) vide CBDT notification no SO 627(E) dated 4.8.99 producing milk and milk products have been held to be industry, and that (b) proviso to section 36(1)(viii) is in respect of the limitation on deduction, and as such the limited impact of proviso not being satisfied in any event is that no such limitation will come into play. It is thus contended that the assessee is eligible for the relevant deduction and the matter, for adjudication on that issue, is right now pending before Hon ble jurisdictional High Court. The assesse s claim cannot be said to an outlandish or unacceptable explanation for the purpose of penalty. We see merits in this approach. Whatever be the merits of this claim, the claim is a reasonable claim with prima facie some merits in it and such a claim cannot be simply brushed aside for the penalty purposes. Whatever be the merits of this claim, the claim is a reasonable claim with prima facie some merits in it and such a claim cannot be simply brushed aside for the penalty purposes.We, therefore, direct the Assessing Officer to delete the penalty in respect of the claim of deduction under section 36(1)(viii). As regards penalties in respect of quantum addition we have noted that there is nothing to suggest that explanation of the assessee is incorrect and that the interest earned on the funds are indeed required to be used for designated purposes and yet the addition has been confirmed on the ground that interest was not actually refunded. Once again, whatever be the status of taxability, the fact remains that neither the explanation of the assessee has been found to be incorrect or false or simply unbelievable. The CIT(A) was thus quite justified in holding that the penalty could not be imposed simply because the income has turned out to be taxable and a wrong claim is made by the assessee. We approve the action of the CITI(A) on this point and decline to interfere in the matter. As regards the claim for amortization of lease hold land, there is nothing before us to controvert the findings of the CIT(A) and as such demonstrate that it was not a debatable point at the point of time when income tax return was furnished and that it has not been made in a transparent manner. It is well settled in law that a mere rejection of claim of deduction by itself cannot result in penalty under section 271(1)(c) being imposed. The explanation of the assessee has not been disputed or rejected by the learned Departmental Representative. On this point also, we thus uphold the action of the CIT(A). In effect, while assessee succeeds in his grievance, the Assessing Officer s grievance is rejected. - Appeal of assessee allowed.

Summary

Issues involved:
1. Penalty under section 271(1)(c) of the Income Tax Act 1961 imposed on the assessee for the assessment year 2005-06.

Comprehensive Analysis:
1. The assessee raised grievances regarding the order passed by the CIT(A), arguing that the penalty levied was erroneous and contrary to the law. The CIT(A) partially granted relief to the assessee, but both parties were dissatisfied. The assessee contended that being a company established under an Act of Parliament, there was no malafide intention to defray revenue. The CIT(A) upheld the penalty on disallowance of the appellant's claim under section 36(i)(viii), stating it was incorrect and malafide. The CIT(A) failed to consider the full disclosure in the return of income and the pending appeal before the High Court. The Assessing Officer challenged the deletion of penalties related to interest income on project fund and amortization of leasehold land, arguing that the deductions were not justified. The Tribunal considered the legal aspects and explanations provided by the parties to determine the validity of the penalties.

2. The Tribunal noted that the assessee, an institution of national importance incorporated under an Act of Parliament, claimed deductions under section 36(1)(viii) and faced penalties. The Assessing Officer disallowed the deduction, citing a Tribunal decision and imposed penalties. The CIT(A) upheld the penalties based on the lack of share capital and non-satisfaction of conditions. However, the assessee argued that the claim was reasonable, with pending adjudication before the High Court. Citing legal precedents, the Tribunal found the assessee's explanation acceptable and directed the deletion of the penalty. Regarding penalties for interest income and amortization of leasehold land, the Tribunal upheld the CIT(A)'s decision, stating that the explanations provided were valid and penalties were unwarranted. The Tribunal dismissed the Assessing Officer's appeal and allowed the assessee's appeal, emphasizing the importance of acceptable explanations in penalty assessments.

3. The Tribunal concluded that the penalties imposed on the assessee were not justified based on the explanations provided and legal considerations. The Tribunal emphasized the need for reasonable and acceptable explanations in penalty assessments, citing legal precedents to support its decision. By analyzing the facts, legal provisions, and explanations presented by the parties, the Tribunal determined that the penalties should be deleted in certain instances where the claims were reasonable and pending adjudication. The Tribunal's decision highlighted the importance of fair assessment and consideration of all relevant factors in penalty proceedings under the Income Tax Act 1961.