2024 (10) TMI 249 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction u/s 80DD denied - as submitted assessee is retired individual the son of the assessee being disabled person having disability of more than 80% was not allowed deduction under section 80DD even after submissions of required documents in the shape of medical certificate, having disability of more than 80% HELD THAT - Assessee is already facing great hardship and raising a claim, which could not be substantiated does not attract penalty u/s 271(1)(c) of the Income Tax Act. On this preposition rely upon the decision of Reliance Petro-products Private Limited 2010 (3) TMI 80 - SUPREME COURT wherein it was categorically held by Hon ble Supreme Court that merely making an incorrect claim which is not substantiated does not attract penalty under section 271(1)(c) of the income tax Act Assessee earned interest income during the year under consideration but the same was not offered for taxation. However, noticed that during the assessment proceedings, the additional income was brought for taxation. Be that as it may, after considering the entire fact, circumstances of the present case, noticed that both the lower authorities have proceeded as the levy of penalty under section 271(1)(c) is automatic without considering section 273 therefore, now being satisfied by the explanation offered by the assessee and after considering the position of law as applicable, hold that respective orders imposing and confirming the penalty are set aside and the penalty order is quashed and the assesses appeal is allowed.

Summary

Issues involved:
1. Denial of deduction under section 80DD.
2. Addition of income and imposition of penalty under section 271(1)(c).

Detailed Analysis:

Issue 1: Denial of deduction under section 80DD
The assessee, a retired salaried individual, filed a return of income declaring a certain amount, which was later observed by the Assessing Officer (AO) to be lower than the actual gross income as per Form 16. The case was reopened under section 147 of the Income Tax Act, and additional income was declared by the assessee. The assessee claimed a deduction under section 80DD but could not substantiate it with documentary evidence. The assessment was completed under section 143(3) read with section 147, and penalty proceedings were initiated under section 271(1)(c) for furnishing inaccurate particulars. The penalty was imposed on the grounds of tax evasion. The assessee contended that the denial of deduction under section 80DD was unjustified, as the necessary documents, including a doctor's certificate for the handicapped son and a self-declared affidavit, were submitted. The Tribunal noted that the denial of the deduction was unwarranted, considering the hardship faced by the assessee. The Tribunal relied on the decision of the Hon'ble Supreme Court in CIT vs Reliance Petro-products Private Limited (2010) 322 ITR 158, which stated that merely making an incorrect claim that is not substantiated does not attract a penalty under section 271(1)(c) of the Income Tax Act. The Tribunal held that the denial of the deduction was not a valid ground for imposing a penalty, and the appeal of the assessee was allowed.

Issue 2: Addition of income and imposition of penalty under section 271(1)(c)
The AO added the additional income declared by the assessee and initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars. The penalty was imposed on the grounds of tax evasion. The assessee appealed against the imposition of the penalty, but the Commissioner of Income Tax (Appeals) dismissed the appeal. The assessee then appealed to the Tribunal challenging the order of imposition of the penalty. The Tribunal observed that the penalty was imposed automatically without considering section 273 of the Income Tax Act. After considering the explanations offered by the assessee, the Tribunal held that the penalty orders were not justified. The Tribunal set aside the penalty orders and allowed the appeal of the assessee, dropping the penalty levied.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and dropping the penalty imposed under section 271(1)(c) of the Income Tax Act.