2024 (8) TMI 627 - AT - Income Tax

Penalty u/s. 271(1)(c) - excess deduction u/s. 10B - onus to prove - HELD THAT - All the relevant facts material to the computation of total income are duly furnished by the assessee and no deficiencies in furnishing of such facts are pointed out by the authorities below. In respect of claim u/s 10B, assessee had explained the facts in detail vide its submissions before the AO as to the number of manufacturing divisions run by it and how the business expenditure incurred is bifurcated towards each division. The explanation of the assessee has not been found to be false. The onus of proving that the explanation is false is on the revenue and there is no finding in this direction at all. Claim made by the assessee is an allowable claim though quantum of the same has been reworked by the AO by applying a different arithmetic. All the details and justifications of claim have been set out in the return of income itself. There was a detailed note giving rationale and computation of the claim along with facts relating to carried forward losses available with the assessee which even after set off are available in the subsequent assessment years. There is nothing on record brought by the revenue to negate the availability of carried forward losses. Thus, the amount of tax sought to be evaded as required in explanation 1 to section 271(1)(c) is indeterminable for the imposition of penalty as rightly observed by the ld. CIT(A). Effect of decision of the assessee to pursue or not to pursue legal remedy against rejection of its stand - The fact that the assessee has not carried in appeal the reduction of its claim by the Assessing Officer is sought to be used against the assessee's claim of bona fides. We are unable to see any rationale in this. The decision to go in litigation or not does not depend on the merits alone. Merely because an assessee does not challenge a particular addition or disallowance in appeal does not mean that the claim for such exclusion from income or deduction lacked bona fides . No reason to interfere with the observations and findings arrived at by the ld. CIT(A) in deleting the penalty imposed on the reduction of claim u/s 10B - Decided in favour of assessee.

Summary

Issues Involved:

1. Deletion of penalty under Section 271(1)(c) of the Income-tax Act for excess deduction claimed under Section 10B.
2. Impact of the excess deduction claim on tax liability.
3. Whether disallowance of deduction constitutes furnishing inaccurate particulars of income.
4. Determination of the amount of tax sought to be evaded under Explanation 4 to Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) for Excess Deduction Claimed under Section 10B:

The Revenue appealed against the order of CIT(A) deleting the penalty imposed under Section 271(1)(c) for excess deduction claimed under Section 10B by the assessee. The CIT(A) had deleted the penalty on the grounds that the excess deduction claim did not impact the tax liability and that mere disallowance of a claim does not amount to furnishing inaccurate particulars of income.

2. Impact of the Excess Deduction Claim on Tax Liability:

The assessee argued that the excess deduction claimed under Section 10B did not affect its tax liability as it had reported a net loss and carried forward business losses. The CIT(A) accepted this argument, noting that the assessee had no positive income and the allowance or disallowance of the deduction did not impact the tax payable. The CIT(A) observed that the final assessed income was negative, and thus, the penalty could not be justified.

3. Whether Disallowance of Deduction Constitutes Furnishing Inaccurate Particulars of Income:

The CIT(A) held that claiming an excess deduction does not automatically imply furnishing inaccurate particulars of income, unless it is established that the claim was made with the intent to reduce tax liability. The CIT(A) relied on the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which stated that mere disallowance of a claim does not amount to furnishing inaccurate particulars. The ITAT also referenced the case of Kanbay Software India (P.) Ltd. v. DCIT, which clarified that making a claim that is not accepted does not equate to furnishing inaccurate particulars.

4. Determination of the Amount of Tax Sought to be Evaded under Explanation 4 to Section 271(1)(c):

The CIT(A) and ITAT noted that the penalty under Section 271(1)(c) could not be levied on hypothetical figures of income. The CIT(A) observed that the assessee's carried forward losses negated any potential tax evasion, and thus, the amount of tax sought to be evaded was indeterminable. The ITAT upheld this view, stating that the Revenue had not demonstrated any falsehood in the assessee's explanation.

Conclusion:

The ITAT upheld the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) for the excess deduction claimed under Section 10B. The ITAT concluded that the disallowance of the claim did not constitute furnishing inaccurate particulars of income, and the penalty could not be justified as the assessee's actions were bona fide and did not result in tax evasion. The appeal by the Revenue was dismissed.