2019 (5) TMI 93 - AT - Income Tax

Penalty u/s 271(1)(c) - grants and contribution made by the assessee to various institution and deduction claimed thereon u/s 36(1)(xii) was disallowed by AO, however, same was allowed by the CIT(A) and ITAT - whether assessee has failed to give any bonafide explanation in respect of the claim - claim of benefit of weighted deduction u/s 35 being an incentive - HELD THAT - We find that the hundred percent claim of the grant to notified institution was allowed u/s 36(1)(xii) but the balance 25% claimed u/s 35(1) has not been allowed to the assessee. It is settled position of the law that mere making of a claim, which is not sustainable in the law by itself will not amount to furnishing inaccurate particulars of income. See RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT The only question is regarding the weighted claim of 25% u/s 35(1) on the same grants made to notified institution, which has been allowed under section 36(1)(xii). Thus, we cannot say that the claim under section 35(1) is based on any inaccurate particulars of income. CIT(A) has upheld the penalty only on the ground that assessee has failed to give any bonafide explanation in respect of the claim. We do not agree with the said finding of the CIT(A). The assessee has duly explained before the AO the reasons as why the deduction u/s 35(1) has been claimed, which have been also reiterated by us in the brief facts of the case. Accordingly, we set aside the finding of the CIT(A) on the issue in dispute and direct the AO to delete the penalty in all the three assessment years under consideration. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of the penalty order under section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of whether the appellant concealed income or furnished inaccurate particulars.
3. Validity of the claim for weighted deduction under section 35(1) of the Act.
4. Applicability of judicial precedents and principles of natural justice.
5. Adequacy of the explanation provided by the appellant regarding the disallowance of deductions.
6. Procedural correctness of the penalty initiation and assessment process.

Detailed Analysis:

1. Legitimacy of the Penalty Order under Section 271(1)(c):
The appellant contested the penalty order under section 271(1)(c) for assessment years 2005-06, 2006-07, and 2007-08, arguing that the penalty was unjustified as there was no concealment or furnishing of inaccurate particulars of income. The Tribunal noted that the penalty was imposed for disallowance of claims under section 35(1) and section 14A, which were not accepted by the Revenue.

2. Determination of Concealment or Furnishing Inaccurate Particulars:
The Tribunal examined whether the appellant concealed income or furnished inaccurate particulars. The appellant argued that the claim for deductions was made in good faith and based on a bonafide belief. The Tribunal held that mere disallowance of a claim does not automatically lead to penalty unless there is evidence of concealment or furnishing of inaccurate particulars. Citing the Supreme Court's decision in CIT vs. Reliance Petroproducts Ltd., the Tribunal emphasized that an incorrect claim in law does not amount to furnishing inaccurate particulars.

3. Validity of the Claim for Weighted Deduction under Section 35(1):
The appellant claimed weighted deduction under section 35(1) for contributions to notified institutions engaged in scientific research. The Assessing Officer disallowed the 25% weighted portion of the deduction, which the appellant did not contest further. The Tribunal noted that the 100% deduction under section 36(1)(xii) was allowed, and the disallowance of the additional 25% under section 35(1) was not due to inaccurate particulars but a different interpretation of the law.

4. Applicability of Judicial Precedents and Principles of Natural Justice:
The Tribunal referenced several judicial precedents, including CIT vs. Zoom Communications Private Limited and CIT vs. Escorts Finance Ltd., to determine the applicability of penalties for incorrect claims. The Tribunal concluded that the appellant's case did not involve concealment or furnishing of inaccurate particulars, distinguishing it from the cited cases where penalties were upheld for patently incorrect claims.

5. Adequacy of the Explanation Provided by the Appellant:
The Tribunal assessed the explanation provided by the appellant regarding the disallowance of deductions. The appellant argued that the claim was made based on the pending Tribunal decisions for earlier years and the lack of clarity on the allowability of deductions under section 36(1)(xii). The Tribunal found the explanation bonafide and noted that the appellant had disclosed all relevant details, thus negating the basis for penalty.

6. Procedural Correctness of the Penalty Initiation and Assessment Process:
The Tribunal addressed the procedural correctness of the penalty initiation, noting that the Assessing Officer did not clearly specify the grounds for penalty—whether for concealment of income or furnishing inaccurate particulars. However, since the Tribunal decided to delete the penalty based on the substantive arguments, it did not further adjudicate this procedural aspect.

Conclusion:
The Tribunal concluded that the appellant made the claims in good faith and based on a bonafide belief, without any intention to conceal income or furnish inaccurate particulars. The penalty under section 271(1)(c) was deemed unjustified, and the Tribunal directed the Assessing Officer to delete the penalty for all three assessment years under consideration. The appeals filed by the appellant were allowed.

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