2012 (4) TMI 470 - AT - Income Tax

Confirmation of the penalty u/s. 271(1)(c) by CIT (A) as on the date of filing of return no judicial pronouncement was available in his favour of assessee assessee contested that appellant had disclosed all the details with respect to claim u/s. 10B in the computation of income and notes thereon and the said claim was as per Form 56G issued by the Chartered accountant Held that - Availability/non-availability of a particular pronouncement on a particular date cannot be the basis for imposing penalty u/s. 271(1)(c) - deduction has to be allowed in respect of three eligible units and loss of the fourth 10A unit has to be set off against the normal business income - Provision of s. 271(1)(c) are valid when there exists concealment of the particulars of the income of the assessee or the assessee have furnished inaccurate particulars of his income - no information given in the return was found to be incorrect or inaccurate in favour of assessee.

Summary

Issues:
- Appeal against penalty order under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2005-06.
- Disallowance of deduction claimed under section 10B.
- Justification of penalty imposition for furnishing inaccurate particulars of income and concealing income.
- Failure to prove reasonable cause for the failure to declare true and correct income.
- Legal interpretation regarding the claim of deduction under section 10A without setting off unit losses.
- Applicability of Explanation-1 to section 271(1)(c) for penalty imposition.
- Consideration of judicial pronouncements and legal precedents in penalty assessment.

Analysis:
1. The case involved an appeal against a penalty order under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2005-06. The appellant had claimed a deduction under section 10B, which was disallowed by the Assessing Officer (AO) and upheld by the CIT(A), leading to the initiation of penalty proceedings.

2. The Assessing Officer concluded that the appellant failed to justify the claim of deduction under section 10B, thereby furnishing inaccurate particulars of income and concealing income. The AO imposed a penalty under section 271(1)(c) based on Explanation-1, highlighting the failure to prove any reasonable cause for the inaccurate declaration of income.

3. The CIT(A) confirmed the penalty order, emphasizing that the appellant did not provide evidence to support the bonafide nature of the claim, especially concerning the setting off of unit losses against profits. The CIT(A) considered the absence of judicial pronouncements supporting the appellant's claim at the time of filing the return.

4. During the proceedings, the appellant's Authorized Representative argued that the claim was based on professional advice and cited legal precedents to support the legitimacy of the deduction claim. The Departmental Representative supported the orders of the AO and CIT(A) in imposing and upholding the penalty.

5. The ITAT Mumbai observed that the availability of judicial pronouncements at the time of filing the return should not be the sole basis for imposing a penalty. The tribunal also analyzed the claim under section 10A, emphasizing the logical interpretation of setting off unit losses against profits based on legal precedents and the advice of professional experts.

6. Referring to the Supreme Court's guidelines on penalty imposition under section 271(1)(c), the ITAT allowed the appeal filed by the appellant, concluding that the claim did not involve furnishing inaccurate particulars of income. The tribunal reversed the CIT(A)'s order, highlighting the importance of strict compliance with penalty provisions and the necessity of factual inaccuracies for penalty imposition.