2012 (8) TMI 490 - AT - Income Tax

Penalty u/s 271(1)(c) - dis-allowance of deduction u/s 80HHC during reopening proceedings, relying on decision in case of IPCA Laboratories (2004 (3) TMI 9 - SUPREME COURT) - assessee contended that where two views are possible, penalty cannot be levied - Held that - This is a simple case of disallowance of deduction because of a later judgment from the Apex Court, and has nothing to do with either inaccurate particulars or concealment of facts. Revenue is unable to point any omission, concealment or inaccurate and certainly nothing has been found to be false , in any case, issue of penalty being not exigible in such circumstances, is now squarely covered by the recent decisions of Apex Court in CIT vs Reliance Petro Products Pvt. Ltd.(2010 (3) TMI 80 - SUPREME COURT). CIT(A) order of cancelling the penalty is upheld - Decided in favor of assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) for disallowance of deduction u/s 80HHC.
2. Whether penalty can be imposed for a debatable issue or a question of law.

Analysis:
1. The Appellate Tribunal ITAT, Mumbai heard an appeal filed by the department against the cancellation of penalty of Rs. 13,05,660/- under section 271(1)(c) by the CIT(A) I, Mumbai. The case involved the disallowance of deduction u/s 80HHC in the assessment order, leading to the initiation of penalty proceedings by the assessing officer. The appellant had filed multiple appeals against the disallowance, with the tribunal upholding certain disallowances. Subsequently, the penalty was imposed by the AO, which was challenged by the appellant before the CIT(A) and then the ITAT.

2. The CIT(A) cancelled the penalty, emphasizing that penalties cannot be imposed on debatable issues or matters involving questions of law. The CIT(A) considered the timing of the decision that led to the disallowance and held that penalizing the appellant for something not in the statute at the time of making the claim would be incorrect. The department appealed this decision before the ITAT, arguing for the penalty to be upheld. However, the ITAT observed that penalties must stem from incorrect particulars or concealment evident in the return filed by the assessee, based on facts substantiated by the AO during assessment proceedings. The tribunal noted that the disallowance in this case arose from a later judgment, not constituting a civil liability, as the deduction was initially allowed in regular assessment proceedings. Citing recent decisions of the Hon'ble Apex Court, the ITAT upheld the CIT(A)'s decision, concluding that the penalty was not applicable in these circumstances.

In conclusion, the ITAT dismissed the department's appeal, affirming the cancellation of the penalty by the CIT(A) and upholding the legal position that penalties cannot be imposed for debatable issues or matters influenced by varied legal viewpoints.