2019 (1) TMI 1055 - AT - Income Tax

Penalty u/s 271(1)(c) - Deduction u/s 80IC - AO restricted the claim from 6th year onwards to 25% - substantial expansion had a long history of oscillations gone through various Judicial Authorities - Held that - The assessee has been found to have declared all the details in his return of income while claiming the exemption. Hence in accordance with explanation 1(B) to section 271(1)(c), since the action of the assessee in claiming the exemption can be considered as a bonafide belief that the assessee is rightly eligible for claim of exemption and hence no penalty can be levied under section 271(1)(c). We hereby decline to interfere with the order of the CIT(A) in deleting the penalty levied by the Assessing Officer under section 271(1)(c) - Decided against revenue.

Summary

Issues Involved:
- Penalty imposition under section 271(1)(c) for restricting deduction claimed under section 80-IC of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the Revenue against the order of the Ld. CIT(A)-1, Chandigarh, dated 22/03/2018, challenging the deletion of penalty amounting to ?27,28,890 on the confirmed addition for restricting the benefit of deduction claimed by the assessee under section 80-IC of the Income Tax Act, 1961 from 100% to 25%. The Revenue raised three effective grounds questioning the Ld. CIT(A)'s decision in deleting the penalty.

2. The facts of the case revealed that the assessee initially claimed 100% deduction under section 80-IC of the Act from the A.Y. 2007-08 due to substantial expansion. However, the AO restricted the deduction to 25% from the 6th year onwards, which was upheld in the 1st and 2nd appeals. Subsequently, penalty proceedings were initiated against the assessee based on the AO's observation that the correctness of the addition had been confirmed by the Ld. CIT(A) and the Hon'ble ITAT. The AO emphasized that if an incorrect claim lacking bonafide explanation is made, penalty under section 271(1)(c) is applicable.

3. The Ld. CIT(A) deleted the penalty, citing the assessee's bonafide belief that the 100% deduction was permissible beyond 5 years under section 80-IC, leading to the investment and expansion of the unit. While acknowledging the AO's denial of the deduction claim, the Ld. CIT(A) deemed the issue unsuitable for penalty imposition.

4. During the hearing, it was noted that the deduction under section 80-IC for substantial expansion had undergone various judicial interpretations and outcomes, with oscillations in allowance and disallowance by Revenue and subsequent appellate decisions. The Hon'ble High Court of Himachal Pradesh had initially reversed the additions, but the Hon'ble Supreme Court later overturned this decision. The assessee had disclosed all relevant details in the income tax return while claiming the exemption, indicating a bonafide belief in eligibility. Considering the provisions of explanation 1(B) to section 271(1)(c), the Tribunal declined to interfere with the Ld. CIT(A)'s decision to delete the penalty, ultimately dismissing the Revenue's appeal.

5. The judgment emphasized the importance of assessing bonafide belief in claiming deductions and highlighted the complex legal history surrounding the allowance of deductions under section 80-IC, leading to the dismissal of the Revenue's appeal and upholding the deletion of the penalty imposed by the Assessing Officer.