1996 (3) TMI 170 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Validity of the assessee's claim for relief under Section 80J for the assessment year 1980-81.
3. Applicability of the Explanation to Section 271(1)(c) concerning bona fide mistakes.
4. Quantum of penalty to be imposed.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act:
The revenue appealed against the order of the CIT(Appeals) who deleted a penalty of Rs. 10,94,050 imposed by the Assessing Officer on the assessee under Section 271(1)(c). The Tribunal noted that the assessee had made a claim for relief under Section 80J for the assessment year 1972-73 through a letter dated 30-12-1974, although this claim was not included in the return filed. The Tribunal had earlier held that Rule 19A(3) was repugnant to Section 80J and that the total value of the assessee's assets should be taken as the capital employed without deducting liabilities. The CIT(Appeals) had accepted the assessee's explanation as bona fide, but the Tribunal found that the assessee consciously made the claim and contested it up to the Tribunal stage, indicating awareness of its actions.

2. Validity of the assessee's claim for relief under Section 80J for the assessment year 1980-81:
For the assessment year 1980-81, the assessee filed a revised return at 'Nil' after initially declaring an income of Rs. 9,73,800. The Assessing Officer rejected the assessee's claim for deduction of unabsorbed relief under Section 80J, stating that the Nadiad Unit started production in 1971, relevant to the assessment year 1972-73, and the deficiency could not be carried forward beyond the assessment year 1979-80. The CIT(Appeals) upheld this rejection, and the assessee withdrew its appeal before the Tribunal after the Supreme Court decision in the case of Lohia Machines Ltd. The Tribunal concluded that the assessee was aware that the relief under Section 80J for the assessment year 1980-81 was not allowable, as it was not claimed in the original or first revised return and was only claimed after the ITO informed the assessee of the brought forward losses.

3. Applicability of the Explanation to Section 271(1)(c) concerning bona fide mistakes:
The CIT(Appeals) had held that the provisions of the Explanation to Section 271(1)(c) were not applicable because the assessee's explanation was bona fide and based on the decision of the ITAT. However, the Tribunal found that the assessee's claim was not bona fide, as it was aware of the legal position and had made the claim consciously. The Tribunal noted that the assessee was assisted by competent taxation advisors and should not have omitted the relief of Rs. 16,96,203 while filing the returns.

4. Quantum of penalty to be imposed:
The CIT(Appeals) had held that even if penalties were to be imposed, the quantum should be reduced in light of the Supreme Court decision, which would reduce the relief for the assessment year 1973-74 and 1974-75 to Rs. 1,52,877. However, the Tribunal upheld the quantum of penalty imposed by the Assessing Officer, stating that the issue pertains to the assessment year 1980-81 and the inaccurate particulars filed by the assessee, not what the AO should have allowed. The Tribunal emphasized that the penalty should be decided with reference to the inaccurate particulars filed by the assessee, and not with reference to the final allowance of the claim.

Conclusion:
The appeal filed by the revenue was allowed, and the Tribunal upheld the penalty of Rs. 10,94,050 imposed under Section 271(1)(c) on the grounds that the assessee consciously made a false claim for relief under Section 80J for the assessment year 1980-81, and the explanation provided was not bona fide.