2009 (2) TMI 244 - AT - Income Tax

Summary

Issues Involved:
1. Whether the penalty order passed by the AO is barred by limitation under the provisions of Section 275(1)(a) of the IT Act, 1961.
2. Whether the AO was justified in levying penalty under Section 271(1)(c) of the IT Act, 1961 in respect of disallowance of assessee's claim under Section 80-O of the Act.

Issue-wise Detailed Analysis:

1. Limitation of Penalty Order under Section 275(1)(a):

Facts and Arguments:
- The assessee contended that the penalty order passed by the AO was barred by limitation under Section 275(1)(a) of the IT Act, 1961.
- The original assessment was completed on 27th March 1998, and the claim under Section 80-O was disallowed. The CIT(A) allowed the claim on 2nd July 1999, but the Tribunal set aside the matter to the AO on 4th Nov 2003.
- The AO completed the fresh assessment on 1st Feb 2005 and initiated penalty proceedings under Section 271(1)(c).
- The assessee argued that the limitation period prescribed under Section 275(1)(a) applied, making the penalty order dated 31st Aug 2005 barred by limitation.

Tribunal's Analysis:
- The Tribunal analyzed Section 275(1) and its clauses (a), (b), and (c) to determine the applicable limitation period.
- The Tribunal noted that Section 275(1)(a) applies when the relevant assessment or other order is the subject-matter of an appeal to the CIT(A) or the Tribunal.
- Since the fresh assessment order dated 1st Feb 2005 was not appealed against, it did not fall under Section 275(1)(a).
- The Tribunal held that the case was covered by Section 275(1)(c), which applies to cases not falling under clauses (a) or (b).
- Under Section 275(1)(c), the penalty order can be passed within six months from the end of the month in which action for imposition of penalty was initiated or before the expiry of the financial year in which the proceedings were completed, whichever is later.
- The AO passed the penalty order on 31st Aug 2005, within the limitation period prescribed by Section 275(1)(c).

Conclusion:
- The Tribunal concluded that the penalty order passed by the AO on 31st Aug 2005 was not barred by limitation, rejecting the assessee's contention.

2. Justification of Penalty under Section 271(1)(c):

Facts and Arguments:
- The AO levied the penalty under Section 271(1)(c) for the disallowance of the assessee's claim under Section 80-O.
- The AO did not state that the explanation offered by the assessee was not bona fide or that the assessee failed to furnish all relevant particulars.
- The CIT(A) held that the claim under Section 80-O was never admissible and was patently incorrect.
- The assessee argued that the claim was made bona fide and all particulars were furnished, and the disallowance itself should not lead to a penalty.

Tribunal's Analysis:
- The Tribunal noted that in the first round, the CIT(A) had allowed the assessee's claim under Section 80-O, indicating that the claim was not prima facie false.
- The Tribunal emphasized that a claim made under a bona fide belief should not be subjected to penalty if the assessee has disclosed all primary and basic facts.
- The Tribunal found that the assessee had furnished all details and documents relating to the claim, and the disallowance was due to the failure to substantiate the claim, not because it was false or mala fide.

Conclusion:
- The Tribunal held that the assessee had discharged its burden under Explanation 1 to Section 271(1)(c) and that the penalty was not justified.
- The Tribunal deleted the penalty levied under Section 271(1)(c).

Final Decision:
- The appeal filed by the assessee was partly allowed, with the penalty order being upheld as not barred by limitation but the penalty itself being deleted.