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2009 (5) TMI 127 - AT - Income TaxLevy of penalty u/s. 271(1)(c) - Concealment of income - deduction u/s. 80-I and 80HHC - Whether the assessee has been able to discharge his burden vide Expln. 1 to s. 271(1)(c) - ITAT held that the penalty levied by the AO were invalid - HC set aside the Tribunal orders in the light of sub-s. (1B) of s. 271 which has been inserted by the Finance Act 2008 with retrospective effect from 1st April 1989 by holding that there was no necessity to record satisfaction in the assessment order separately that the assessee has concealed particulars of his income or furnished inaccurate particulars of income in the light of the sub-s. (1B) of s. 271 inserted with retrospective effect from1st April 1989. Therefore remitted these appeals back to the Tribunal for hearing on merits. We therefore proceed to dispose of these appeals as to whether penalty levied by the AO u/s. 271(1)(c) was justified on merit. Whether penalty u/s. 271(1)(c) is leviable in respect of disallowance of deduction made u/s. 80HHC? - HELD THAT - It is not the case of the AO that the interest income and miscellaneous income were not at all earned by the assessee in the course of carrying on its business activities or were patently assessable under the head Other sources . The deduction has been disallowed by applying the provisions of Expln. (baa) to s. 80HHC without giving any finding that the assessee has failed to disclose all material facts relating to the computation of deduction u/s. 80HHC or that the assessee s claim was false. We are therefore of the considered view that the assessee s claim was bona fide and assessee has disclosed all material facts relating to the computation of deduction u/s. 80HHC and thus the assessee has been able to discharge his burden that lay upon him under Expln. 1 to s. 271(1)(c). We therefore hold that no penalty u/s. 271(1)(c) is to be levied insofar as the disallowance of claim of deduction u/s. 80HHC is concerned. Whether penalty u/s. 271(1)(c) has been rightly levied in respect of the claim u/s. 80-I disallowed in the assessment? - In the course of penalty proceedings before the AO nobody for the assessee had appeared nor any reply was submitted. It is thus the case where no explanation was offered by the assessee to the AO to explain as to why claim u/s. 80-I was made when it was prima facie not admissible to the assessee. Before CIT(A) the only contention advanced by the assessee was that the disallowance under ss. 80HHC and 80-I cannot be held to be concealment of income or furnishing inaccurate particulars of income. The assessee also submitted before the CIT(A) that the concealed income and that penalty should be imposed. Before the CIT(A) the assessee has not explained as to why claim u/s. 80-I was made in the return of income when the claim was not available to the assessee after the AY 1996-97. In the course of hearing of this appeal the ld counsel for the assessee has submitted that merely because a claim was made but disallowed by the AO is by itself cannot be a basis to say that assessee has actually concealed income so that penalty u/s. 271(1)(c) could be levied. However we find that it is not a case where the assessee s claim has been disallowed because of any difference of opinion. It is also not the case where assessee has disclosed all papers documents or basis in support of the claim u/s. 80-I. We are therefore of the considered view that the Expln. 1 to s. 271 (1)(c) is squarely applicable to the assessee s case in as much as the assessee has failed to offer any explanation in support of the claim of deduction made u/s. 80-I and has also failed to prove that the claim was made bona fide and all the facts relating to the claim have been disclosed by him. We therefore uphold the order of CIT(A) in confirming the penalty in respect of amount of deduction claimed by the assessee u/s. 80-I to the extent of profit available after allowing deduction u/s. 80HHC. The profit available after allowing deduction u/s. 80HHC in the assessment was against total claim worked out by the assessee u/s. 80-I. In case the deduction u/s. 80-I was found to be admissible to the assessee would have been allowed as the profit to that extent was available after allowing deduction u/s. 80HHC and thus the assessee shall be deemed to have made a claim u/s. 80-I. Though the amount of profit available as per return was less than the amount of profit available as per assessment. The order of the CIT(A) is thus upheld. In the result the appeals filed by both the Department and the assessee are dismissed.
Issues Involved:
1. Penalty under Section 271(1)(c) for disallowance of deduction under Section 80HHC. 2. Penalty under Section 271(1)(c) for disallowance of deduction under Section 80-I. Detailed Analysis: 1. Penalty under Section 271(1)(c) for disallowance of deduction under Section 80HHC: The assessee initially claimed a deduction under Section 80HHC at Rs. 1,52,63,904 but the Assessing Officer (AO) reduced it to Rs. 1,49,12,573 by excluding 90% of the interest income, miscellaneous income, and excess provision written back. The AO's reduction was based on Explanation (baa) to Section 80HHC. This led to a disallowance of Rs. 3,51,331 and subsequent initiation of penalty proceedings under Section 271(1)(c). The Tribunal noted that the details of the interest and miscellaneous income were duly furnished by the assessee in the return of income. The issue of whether such incomes should be excluded from business profit for the purpose of computing the deduction under Section 80HHC was dependent on their nature and connection to the operational activities of the business, which could lead to a difference of opinion between the assessee and the AO. The Tribunal emphasized that merely claiming a deduction without reducing 90% of these incomes does not constitute concealment or incorrect claim with an intent to evade taxes. Since the AO did not find the assessee's claim to be false or that the assessee failed to disclose all material facts, the Tribunal held that the assessee's claim was bona fide. Consequently, the assessee successfully discharged the burden under Explanation 1 to Section 271(1)(c), and no penalty was warranted for the disallowance under Section 80HHC. 2. Penalty under Section 271(1)(c) for disallowance of deduction under Section 80-I: The assessee claimed a deduction under Section 80-I amounting to Rs. 38,93,476, which was disallowed by the AO on the grounds that the deduction was only allowable for seven consecutive assessment years starting from the initial assessment year, i.e., 1989-90. Therefore, the deduction was only available up to the assessment year 1996-97, making the claim for the assessment year 1998-99 incorrect. The AO initiated penalty proceedings under Section 271(1)(c) after the assessee failed to provide any explanation for the claim during the assessment proceedings. The CIT(A) confirmed the penalty but restricted it to the total income of Rs. 6,61,332. The Tribunal observed that the assessee did not furnish any reply to the AO's query regarding the basis of the claim under Section 80-I and failed to provide any explanation during the penalty proceedings. The Tribunal noted that the assessee's claim under Section 80-I was not admissible and no details or particulars were furnished to justify the claim. The Tribunal distinguished this case from others where the disallowance was due to a difference of opinion or treatment of income. Here, the claim was patently inadmissible, and the assessee did not voluntarily disclose or withdraw the claim. Thus, Explanation 1 to Section 271(1)(c) was applicable as the assessee failed to offer any explanation or prove the bona fides of the claim. The Tribunal upheld the CIT(A)'s order, confirming the penalty in respect of the disallowed deduction under Section 80-I to the extent of profit available after allowing deduction under Section 80HHC, amounting to Rs. 6,61,332. The appeals filed by both the Department and the assessee were dismissed.
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