2013 (3) TMI 75 - HC - Income Tax

Penalty u/s 271(1)(c) - As per the AO assessee had set off his loss against the amount of profit after claiming deduction under Section 80HHC whereas the deduction under Section 80HHC was allowable on the gross total income as defined under Section 80AB - Held that - As decided in CIT Versus RELIANCE PETROPRODUCTS FVT. LTD. 2010 (3) TMI 80 - SUPREME COURT mere making of a claim, which is not sustainable in law, would not, ipso facto, amount to furnishing inaccurate particulars regarding the income of the assessee and would, therefore, not automatically result in a penalty order against the assessee - in favour of assessee.

Summary

Issues:
Assessment of penalty under Section 271(1)(c) of the Income Tax Act, 1961 based on claim of losses set off against profit under Section 80HHC - Interpretation of gross total income and deduction eligibility - Reliance on judicial precedents for claim justification - Bonafide nature of claim and explanation provided - Applicability of penalty under Section 271(1)(c) based on claim validity.

Analysis:
The appeal before the High Court pertained to the Tribunal's order regarding the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961. The issue revolved around the claim made by the assessee for setting off current year's losses against profit under Section 80HHC. The Assessing Officer disallowed a portion of the deduction claimed by the assessee, leading to the penalty imposition, which was later deleted by the Tribunal.

The Assessing Officer's stance was based on the interpretation that the deduction under Section 80HHC should be allowed on the gross total income as per Section 80AB, which included the income after setting off current year's losses. This interpretation led to the disallowance of a specific amount from the total deduction claimed by the assessee.

The Tribunal's decision was influenced by the judgment in the case of CIT v. Reliance Petroproducts Private Limited, emphasizing that a claim not sustainable in law does not automatically warrant a penalty under Section 271(1)(c). On the other hand, the appellant relied on the judgment in CIT v. Zoom Communication Private Limited, highlighting the need for a bonafide explanation for claims not only incorrect in law but also without any basis.

The respondent's defense was based on reliance on precedents from the Bombay High Court and Kerala High Court supporting their claim position, which was subsequently clarified by the Supreme Court in the case of IPCA Laboratory Ltd. v. DCIT. The High Court concurred with the respondent's argument that the claim was not made in bad faith or without basis, considering the legal landscape at the time of filing the return.

Ultimately, the High Court upheld the Tribunal's decision, emphasizing that the claim made by the assessee was not devoid of basis or bonafide explanation, in line with the principles established in the Reliance Petroproducts case. The judgment concluded that no legal question merited further consideration, leading to the dismissal of the appeal.