2009 (2) TMI 241 - AT - Income Tax

Summary

Issues Involved:

1. Legality of penalty under Section 271(1)(c) of the Income Tax Act.
2. Allegation of concealment of income or furnishing inaccurate particulars.
3. Interpretation and application of Section 10B of the Income Tax Act.
4. Examination of the assessee's bona fide belief and the impact of judicial precedents.

Issue-wise Detailed Analysis:

1. Legality of Penalty under Section 271(1)(c) of the Income Tax Act:

The assessee appealed against the penalty levied under Section 271(1)(c) for the assessment year 2004-05. The penalty was based on the disallowance of a deduction claim under Section 10B of the Act amounting to Rs. 30,34,251. The assessee argued that the penalty was unjust as there was no concealment of income or furnishing of inaccurate particulars. The tribunal examined whether the penalty was legally justified, considering the assessee's explanations and the conditions under Section 10B.

2. Allegation of Concealment of Income or Furnishing Inaccurate Particulars:

The Assessing Officer (AO) initiated penalty proceedings on the basis that the assessee claimed an excess deduction under Section 10B by including local sales to two parties as "deemed export," which did not qualify for the deduction as they were not supported by bank certificates showing realization in convertible foreign exchange. The AO concluded that the assessee furnished inaccurate particulars of income, leading to the penalty under Section 271(1)(c). The tribunal evaluated whether the assessee's actions constituted concealment or furnishing inaccurate particulars.

3. Interpretation and Application of Section 10B of the Income Tax Act:

Section 10B requires that the sale proceeds of articles or things exported out of India must be received in convertible foreign exchange. The assessee's claim included local sales categorized as "deemed export," which did not meet this requirement. The tribunal analyzed whether the assessee's interpretation of Section 10B was reasonable and whether the claim could be considered bona fide. The tribunal noted that the provision allowing domestic sales up to 25% of total sales for deduction under Section 10B was omitted from the statute from the assessment year 2002-03 onwards.

4. Examination of the Assessee's Bona Fide Belief and the Impact of Judicial Precedents:

The assessee contended that the claim was made under a bona fide impression based on the pre-amended law and supported by the auditor's report in Form 56-G. The tribunal examined the explanations provided by the assessee and the reliance on judicial precedents, including cases like CIT vs. International Audio Visual and CIT vs. P.H.I. Seeds India Ltd., which dealt with the issue of bona fide claims and penalty imposition. The tribunal also considered the recent Supreme Court decision in Union of India & Ors. vs. Dharamendra Textile Processors & Ors., which clarified that mens rea is not an essential ingredient for imposing penalty under Section 271(1)(c).

The tribunal concluded that the assessee failed to disclose material facts related to the claim under Section 10B and that the explanation provided was not bona fide. The tribunal upheld the penalty, stating that the assessee furnished inaccurate particulars of income, resulting in an excess claim of exemption under Section 10B. The appeal filed by the assessee was dismissed.