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2014 (12) TMI 132 - AT - Income TaxConcealment of penalty u/s 271(1)(c) Correct and true facts supplied for claim u/s 80JAA - Whether penalty is exigible where the issue is covered by the Hon ble Supreme Court, only because, Hon ble Supreme Court interprets the law Held that - The assessee is in the business of trading, processing and exporting of cut and polished diamonds had during the year engaged new regular employees, to whom the assessee had paid additional wages and in that view of fact, claimed the deduction u/s 80JJAA on those additional wages - The AO held that the deduction as claimed cannot be allowed, since there was no manufacture or production of any article by the undertaking - when the deduction was claimed, i.e. in AY 2005-06, Explanation 4 to section 10A w.e.f. 01.04.2004, was already in the statute book, which read as, For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semiprecious stones . The Finance Act, 2003 inserted Explanation 4 in section 10A of the Act w.e.f. 01.04.2004, the assessee was under bona fide belief that the definition can be extended for claiming deduction u/s 80JJAA of the Act as well, as the business of the assessee was cutting and polishing of rough diamonds - as canvassed by the assessee is well supported by Explanation 4, inserted in section 10A with effect from 01.04.2004 and also certain decisions, which are relied upon by the AR, has to be held to be bona fide - This is case where the claim made by the assessee u/s 80JJAA has only been rejected - the explanation given by the assessee with regard to its belief for the claim of the impugned deduction cannot be said to be mala fide in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT it has been held that the claim made by the assessee, which cannot be sustained in law, will not give rise to penalty to section 271(1)(c) of the Income Tax Act - penalty u/s 271(1)(c) is not exigible in respect of disallowance of claim of deduction, made by the assessee thus, the order of the CIT(A) is set aside Decided in favour of assessee.
Issues Involved:
1. Levy and sustaining of penalty under section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: 1. Levy and Sustaining of Penalty under Section 271(1)(c): The appeal was filed by the assessee against the order of CIT(A) confirming the concealment penalty of Rs. 11,47,607/- under section 271(1)(c) of the Income Tax Act, 1961. The primary issue was whether the assessee's claim for deduction under section 80JJAA, which was disallowed by the AO based on the Supreme Court's decision in CIT vs Gem India Manufacturing Co., amounted to furnishing inaccurate particulars of income. Facts and Background: The assessee, engaged in trading, processing, and exporting cut and polished diamonds, claimed a deduction under section 80JJAA. This was denied by the AO and CIT(A) based on the Supreme Court ruling in Gem India, which held that cutting and polishing diamonds does not constitute manufacturing or production. Consequently, the AO levied a penalty under section 271(1)(c) for furnishing inaccurate particulars of income. Arguments by the Assessee: The assessee contended that their claim was made in good faith, referring to the case of Sheetal Diamonds Ltd. vs ITO, where it was argued that the decision in Gem India was context-specific and did not universally apply to all cases of diamond processing. The assessee also cited the Supreme Court's decision in Arihant Tiles & Marbles (P) Ltd., which acknowledged that certain processing activities could be considered manufacturing for tax deduction purposes. Arguments by the Revenue: The Revenue argued that at the time of filing the return, the only applicable Supreme Court decision was Gem India, which clearly stated that cutting and polishing diamonds did not amount to manufacturing. Therefore, the assessee's claim was a straightforward case of furnishing inaccurate particulars of income. Tribunal's Observations and Decision: The Tribunal observed that at the time of the assessee's claim, Explanation 4 to section 10A, which included cutting and polishing of diamonds in the definition of manufacturing, was already in effect. This provided a reasonable basis for the assessee's belief that their activity constituted manufacturing. The Tribunal also noted that the issue of whether such activities amounted to manufacturing was debatable and had been subject to differing judicial interpretations. The Tribunal referred to the Supreme Court's ruling in Reliance Petroproducts Pvt. Ltd., which held that no penalty should be levied for claims that are legally unsustainable if all facts were disclosed to the AO. Given the bona fide belief of the assessee and the debatable nature of the issue, the Tribunal concluded that the penalty under section 271(1)(c) was not justified. Conclusion: The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty, thereby allowing the appeal filed by the assessee. Order Pronouncement: The order was pronounced in the open court on 22.8.2014.
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