2013 (11) TMI 463 - AT - Income Tax

Penalty u/s.271(1)(c) The assessee had undertaken the construction of building commonly known as Haridas Park with Wings A to G - The construction of the Wings C & D part of which was sold during the year the construction of which commenced only after 01.10.1998 - Held that - The construction of the Wings A to D started much subsequent to the other part of the project so that it was considered as Phase 2 of the project - The long time lag (of over a decade) between the construction of the two phases of the project the second phase required extensive modification of the plans - The assessee have a reasonable ground for believing that the construction of Wings A to D formed a separate project by itself and eligibility of the project for deduction u/s 80-IB (10) Decided in favour of assessee.

Summary

Issues:
Appeal against levy of penalty u/s.271(1)(c) for AY 2004-05 due to withdrawal of claim u/s.80-IB(10) by partnership firm engaged in construction business.

Analysis:
The appeal contested the penalty imposed by the CIT(A) confirming the penalty u/s.271(1)(c) of the Income Tax Act, 1961, on the partnership firm for AY 2004-05. The firm filed a return claiming deduction u/s.80-IB(10) which was later withdrawn after a survey revealed the claim could not be substantiated. The Revenue contended that the withdrawal was motivated by the detection of a wrong claim. The first appellate authority deemed the matter non-appealable as it related to penalty proceedings. The penalty was upheld on the basis that the construction of Phase-2 of the project did not qualify as a separate project and failed to meet the area requirement for the deduction.

The main argument before the tribunal was that the firm should not be penalized for adopting a reasonable view and withdrawing the claim to avoid litigation. The firm asserted that the construction of Phase-2 constituted a separate project, meeting the criteria for the deduction. The Revenue, however, argued that the claim was withdrawn after being found invalid, justifying the penalty. The tribunal noted that while the claim was not valid, the firm had a reasonable basis for believing it qualified for the deduction due to the unique circumstances of Phase-2.

The tribunal found that the firm's withdrawal of the claim was made in a bona fide manner and that it had a reasonable basis for the claim. The tribunal emphasized the flexibility required in interpreting tax provisions, especially in complex business scenarios. The Revenue's conclusion regarding the withdrawal's bona fides was deemed premature, and the tribunal held in favor of the firm, allowing the appeal against the penalty.

In conclusion, the tribunal allowed the appeal by the firm, overturning the penalty imposed under section 271(1)(c) for the assessment year 2004-05. The tribunal found that the firm had acted in a reasonable and bona fide manner in claiming the deduction u/s.80-IB(10) for Phase-2 of the project, justifying the withdrawal of the claim and avoiding the penalty.