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2013 (8) TMI 328 - AT - Income TaxPenalty u/s 271(1)(c) - Assessee claimed deduction u/s 80IC - CIT deleted penalty u/s 271(1)(c) but disloowed deduction u/s 80IC - Held that - deduction u/s 80IC of the Act was disallowed by the CIT (A), not on the ground of old machinery having been used in the business, but on the ground of the assessee having failed to comply with the requirement of substantial expansion. This ground, it is pertinent to note, had never been invoked by the Assessing Officer for making the disallowance for the year. This disallowance was not challenged by the assessee before the Tribunal. However, this fact of the addition not having been challenged before the Tribunal, by itself does not lead to any inevitable conclusion of leviability of concealment penalty. Penalty proceedings and assessment proceedings are separate. Though the findings in assessment proceedings may be relevant for the purposes of levy of concealment penalty, they are not material for such levy, on a stand alone basis. The requirement u/s 271 (1)(c) of the Act is either concealment of particulars of income or furnishing of inaccurate particulars thereof, neither of which is the case herein. Even under Explanation-1 to Section 271 (1)(c), a presumption is raised, which is a rebuttable presumption. In the present case, even this presumption is not, at the outset, even available against the assessee, inasmuch as the explanation offered by the assessee has neither been found to be false, nor has the assessee not been able to substantiate the same, nor has such explanation been shown to be not bona fide - all facts relating to the explanation and material to the computation of the assessee s total income stood duly disclosed by the assessee. where in the return of income filed, the assessee had duly disclosed all the details regarding the claim of deduction u/s 80IC of the Act, which claim was supported by the Tax Audit Report and the Tax Audit Report contained all the facts relating to the substantial expansion as required by Section 80IC, the Assessing Officer nowhere alleged the assessee to have withheld any information or to have furnished any false information, the disallowance had been made merely on account of a bona fide difference of opinion between the assessee and the department regarding the manner of determining substantial expansion for the purpose of the allowability of deduction u/s 80IC of the Act, which determination, undoubtedly, is a highly debatable/vexed legal issue, beside the fact that the disallowance had been made by the Assessing Officer on one issue, whereas that made by the CIT (A) was entirely on a different issue, no penalty u/s 271(1)(c) of the Act is leviable - Following decisions of CIT vs. Nalwa Sons Investment Ltd. 2010 (8) TMI 40 - DELHI HIGH COURT , CIT vs. Dharam Pal Prem Chand Ltd. 2010 (9) TMI 155 - DELHI HIGH COURT and CIT vs. Harshwardhan Chemicals and Minerals Ltd. 2002 (5) TMI 15 - RAJASTHAN High Court - Decided against Revenue.
Issues Involved:
1. Penalty under Section 271(1)(c) of the IT Act for a wrong claim of deduction under Section 80IC. 2. Disallowance of deduction under Section 80IC due to failure to meet substantial expansion requirements. 3. Disallowance of exemption under Section 10A for transactions with a related concern. Detailed Analysis: 1. Penalty under Section 271(1)(c) for Wrong Claim of Deduction under Section 80IC: The department filed an appeal against the order of the CIT (A), Ghaziabad, which held that the penalty under Section 271(1)(c) of the IT Act for a wrong claim of deduction under Section 80IC amounting to Rs. 2,67,90,071/- was not tenable. The CIT (A) had confirmed the disallowance of the deduction in the assessment proceedings but deleted the penalty. The assessee had claimed deduction under Section 80IB in the original return and later revised it to claim deduction under Section 80IC. The Assessing Officer (AO) disallowed the deduction, stating that the Gagret unit was formed by transferring old machinery, and thus, the deduction under Section 80IC was not available. The CIT (A) upheld the disallowance on the ground that the assessee had not made a substantial expansion of 50% in the plant and machinery. In the penalty proceedings, the CIT (A) deleted the penalty, holding that the assessee had disclosed all material facts in the return and audit reports, and the claim was based on a bona fide belief supported by the Tax Audit Report. The CIT (A) observed that the AO had not established how the assessee's explanation was not bona fide or how the material facts were concealed. The CIT (A) concluded that the penalty was not tenable as it was a case of divergence in views of interpreting the provisions of the Act. The Tribunal upheld the CIT (A)'s order, stating that the penalty under Section 271(1)(c) was not justified as the claim was based on a bona fide interpretation of the law, and all material facts were disclosed. 2. Disallowance of Deduction under Section 80IC: The assessee's claim for deduction under Section 80IC was disallowed by the AO on the ground that the Gagret unit was formed by transferring old machinery. The CIT (A) upheld the disallowance on a different ground, stating that the assessee had not made a substantial expansion of 50% in the plant and machinery. The Tribunal noted that the basis of the addition by the AO was changed by the CIT (A), and the disallowance was not challenged by the assessee before the Tribunal. However, the Tribunal held that the change in the basis of disallowance did not automatically lead to the levy of penalty under Section 271(1)(c). The Tribunal observed that the assessee had disclosed all details regarding the claim of deduction under Section 80IC in the return and audit reports. The disallowance was made due to a bona fide difference of opinion between the assessee and the department regarding the manner of determining substantial expansion, which is a debatable legal issue. 3. Disallowance of Exemption under Section 10A: The AO observed that the SEZ unit of the assessee had made sales to a related concern, and the arm's length price of the transaction was lower than the actual price charged. The AO treated the difference as taxable income, not eligible for exemption under Section 10A. The CIT (A) confirmed the assessment order on this count as well. However, the penalty proceedings focused primarily on the disallowance under Section 80IC. Conclusion: The Tribunal dismissed the department's appeal, upholding the CIT (A)'s order deleting the penalty under Section 271(1)(c). The Tribunal concluded that the penalty was not justified as the assessee had made a bona fide claim based on a reasonable interpretation of the law, and all material facts were disclosed. The disallowance was due to a difference of opinion on a debatable legal issue, and there was no concealment of income or furnishing of inaccurate particulars.
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