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2014 (11) TMI 430 - AT - Income TaxLevy of penalty u/s 271(1)(c) Claim of deduction u/s 80HHC Held that - The claim of deduction was based on unaudited accounts, because of which the claim of deduction at Venniar facility was unduly high, in its accounts, is also to be addressed - The issue, which is common with both the parties is, once the unduly high profit and deduction was brought to the notice of the assessee, was rectified immediately and rightful claim was made the contention of the assessee is accepted that even a multinational accounting firm, having presence across the globe could end up in making silly mistake as decided in Price Waterhouse Coopers (P.) Ltd. Versus Commissioner of Income-tax, Kolkata - I 2012 (9) TMI 775 - SUPREME COURT - undesired and unwanted human anomaly cannot push the assessee into the field of penal mens rea - Hence the penalty, as levied by the revenue authorities merit to be deleted. The AO committed mistake in not writing the words 80HH , while ordering initiation of penalty proceedings - This decision is not quid-pro-quo, but is based on the fact that the entire assessment order is based on denial of deduction u/s 80HH - Simply to accept the lapse committed by the AO cannot comprehend that the AO did not initiate penal proceedings the order of the CIT(A) is to be set aside - Decided in favour of assessee.
Issues Involved:
1. Legitimacy of penalty under section 271(1)(c) of the Income Tax Act, 1961. 2. Accuracy of the assessee's claim for deductions under sections 80HH and 80HHC. 3. Validity of the revised profit and loss account submitted by the assessee. 4. The impact of unaudited accounts on the assessee's claims. 5. The procedural correctness of the penalty initiation by the Assessing Officer (AO). Detailed Analysis: 1. Legitimacy of Penalty under Section 271(1)(c): The appeal focuses on whether the penalty of Rs. 25,31,304/- levied under section 271(1)(c) for furnishing inaccurate particulars of income was justified. The assessee argued that the mistake in the original return was due to clerical errors and unaudited accounts, not deliberate intent to evade tax. The AO and CIT(A) held that the error was significant and not rectified voluntarily, thus justifying the penalty. 2. Accuracy of the Assessee's Claim for Deductions under Sections 80HH and 80HHC: The assessee initially claimed deductions under sections 80HH and 80HHC based on inflated profits from the Venniar factory. The AO questioned the high net profit rate of 42.06% compared to 20.43% from other tea gardens. Upon confrontation, the assessee revised the profit figures, reducing the claimed deduction under section 80HH. The AO considered this an attempt to furnish inaccurate particulars to reduce taxable income. 3. Validity of the Revised Profit and Loss Account: The revised profit and loss account submitted by the assessee was not accepted as a voluntary correction but rather a response to the AO's query. The CIT(A) and AO held that the revision did not amount to a revised return and was not filed voluntarily. The AO initiated penalty proceedings based on the excessive claim of deduction under section 80HH and the incorrect claim under section 80HHC. 4. Impact of Unaudited Accounts on the Assessee's Claims: The assessee's claim was based on unaudited accounts, which led to the inflated profit figures. The AO and CIT(A) noted that the unaudited accounts contributed to the inaccurate claim for deductions. The assessee argued that the mistake was rectified once detected, but the revenue authorities viewed it as a significant error, not a mere clerical mistake. 5. Procedural Correctness of Penalty Initiation by the AO: The assessee contested the procedural correctness of the penalty initiation, arguing that the AO did not explicitly order the initiation of penalty proceedings under section 80HH. The CIT(A) and ITAT noted that the AO's satisfaction for initiating penalty proceedings was clear from the assessment order, despite a typographical error. The ITAT rejected the argument that the penalty initiation was procedurally flawed. Conclusion: The ITAT concluded that the penalty under section 271(1)(c) should be deleted. The decision was based on the fact that the assessee's claim for deduction was initially supported by a reasonable belief, as it was based on a single judge's decision of the Calcutta High Court, which was later reversed. The ITAT also considered the unaudited accounts' impact and accepted that the mistake was not deliberate. The ITAT held that the penalty was not justified as the error did not indicate penal mens rea. Consequently, the appeal was allowed, and the penalty was directed to be deleted.
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