2015 (4) TMI 633 - HC - Income Tax

Penalty under Section 271(1)(c) - deduction under Section 80-IB(7A) denied - Held that - By making legal claim for deduction under Section 80-IB(7A) assessee is not guilty to concealment of income. In the earlier years, the A.O. himself has cancel the levy of the penalty for the similar reasons. When it is so, then the principal of consistency will have to be followed as per ratio laid down in the case of Radhasoami Satsang, 1991 (11) TMI 2 - SUPREME Court . From the record, it also appears that the A.O. has not given any finding that the claim of the deduction was bogus. The A.O. has only stated that such claim was not leviable as the conditions envisaged under Section 80-IB(7A) were not fulfilled. Thus, the claim was found to be legally unacceptable, but it does not amount to furnish the inaccurate particulars/concealment of the income. It is a simple case of non-allowance of the legal claim for which the penalty is not desireable. Hence, we set aside the impugned order of the Tribunal and restore the order passed by the first appellate authority, who has rightly cancelled the levy of the penalty. - Decided in favour of the assessee

Issues Involved:
1. Justification of penalty under Section 271(1)(c) of the Income Tax Act.
2. Legality of the assessee's claim for deduction under Section 80-IB(7A).
3. Requirement for the Assessing Officer (A.O.) to record satisfaction before initiating penalty proceedings.
4. Consistency in the application of penalty across different assessment years.

Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The primary issue is whether the levy of penalty under Section 271(1)(c) of the Income Tax Act is justified. The A.O. imposed the penalty on the grounds that the assessee made a wrongful claim for deduction under Section 80-IB(7A), which amounted to concealment of income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] canceled the penalty, observing that the claim was a legal one, made without any malafide intention to conceal income. The Tribunal reversed the CIT(A)'s decision, restoring the penalty. The High Court, however, found that the penalty proceedings and assessment proceedings are distinct, and the claim was made based on legal advice and bona fide belief, thus not amounting to concealment of income.

2. Legality of the Assessee's Claim for Deduction under Section 80-IB(7A):
The assessee, a Private Limited Company involved in constructing a Multiplex Theater, claimed deduction under Section 80-IB(7A) for the assessment year 2006-07. The A.O. rejected this claim, stating that the conditions under Section 80-IB(7A) were not fulfilled. The High Court noted that the claim was based on legal advice and supported by an audit report in Form 10CCBA, indicating that the construction was completed by 1.5.2002, making the assessee eligible for the deduction. The Court concluded that the claim was a legal one and not an attempt to furnish inaccurate particulars.

3. Requirement for the A.O. to Record Satisfaction Before Initiating Penalty Proceedings:
The assessee argued that no satisfaction was recorded by the A.O. before initiating penalty proceedings, which is a mandatory requirement. The High Court agreed, emphasizing that the absence of recorded satisfaction before initiating penalty proceedings is a significant procedural lapse. The Court cited various precedents, including the case of CIT vs. S. Dhanabal, to support the view that penalty cannot be levied without clear evidence of deliberate default or concealment.

4. Consistency in the Application of Penalty Across Different Assessment Years:
The assessee highlighted that for the assessment year 2004-05, a similar claim was made, and although initially, penalty proceedings were initiated, they were later dropped. The High Court stressed the principle of consistency, citing the case of Radhasoami Satsang, and noted that the A.O. had not found the claim to be bogus but merely legally unacceptable. The Court found no justification for the penalty in the current assessment year when a similar claim in a previous year did not attract penalty.

Conclusion:
The High Court concluded that the assessee's claim for deduction under Section 80-IB(7A) was made based on legal advice and bona fide belief, without any intention to conceal income. The penalty under Section 271(1)(c) was deemed unjustified as the claim was a legal one and not a case of furnishing inaccurate particulars. The Court set aside the Tribunal's order and restored the CIT(A)'s order, which had canceled the penalty. The appeal filed by the assessee was allowed, and the substantial question of law was answered in favor of the assessee and against the Department.

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