2016 (4) TMI 1043 - AT - Income Tax

Penalty u/s 271(1)(c ) - entitlement for relief u/s 80 IA - Held that - The assessee has made a claim u/s 80 IA of the Act. Along with the return of income the assessee filed report from a Chartered Accountant in form no.10 CCB as required u/s 80 IA(7) of the Act. The claim was made on the advice of the auditors. A perusal of this audit report demonstrates that the auditors of the assessee also believed that the assessee was eligible for deduction u/s 80 IA of the Act. It was a conscious claim made by the assessee supported by an audit report. The assessee has also made an application to STPI for setting up the infrastructure facilities under the STPI Scheme. All details of the claim made u/s 80 IA are filed by the assessee, along with the return of income. Under these circumstances we are of the considered opinion that the explanation given by the assessee that it was under a genuine belief that it was entitled for relief u/s 80 IA of the Act is bonafide. The assessee acted under the guidance and advice of a Chartered Accountant. Hence in our view it was under a bonafide belief that it is entitled to the claim for deduction under provisions of s.80 IA of the Act. The provisions under the Income Tax Act are highly complicated and its different for a layman to understand the same. Even seasoned tax professionals have difficulty in comprehending these provisions. Making a claim for deduction under the provisions of S.80 IA of the Act which has numerous conditions attached, is a complicated affair. It is another matter that the assessing authorities have found that the claim is not admissible. Under these circumstances we hold that it cannot be said that this is a case of furnishing of inaccurate particulars of income. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2004-05.

Detailed Analysis:

Issue 1: Denial of Deduction under Section 80 IA
The assessee, a company providing services to clients, claimed a deduction under section 80 IA of the Income Tax Act. The Assessing Officer disallowed the claim, stating that the assessee was not engaged in developing, operating, and maintaining infrastructure facilities as required by the section. The AO found discrepancies in the audit report and rejected the claim based on various grounds, including lack of specific provisions cited by the assessee. The First Appellate Authority upheld the disallowance.

Issue 2: Penalty under Section 271(1)(c)
The Assessing Officer imposed a penalty under section 271(1)(c) on the grounds of furnishing inaccurate particulars of income. The First Appellate Authority confirmed the penalty. The assessee, on appeal, argued that the penalty should be canceled, citing legal advice and the belief in entitlement to the deduction. The assessee contended that all necessary details were provided with the return of income.

Analysis of Judgment:
The Tribunal considered the complexity of tax provisions and the genuine belief of the assessee in claiming the deduction under section 80 IA. The Tribunal noted that the claim was supported by an audit report and professional advice, indicating a bonafide belief on the part of the assessee. The Tribunal emphasized that even tax professionals find it challenging to navigate the intricacies of tax laws, especially regarding deductions like section 80 IA. Citing relevant case laws, the Tribunal concluded that the penalty under section 271(1)(c) was not warranted in this case.

The Tribunal highlighted the importance of bonafide belief and reliance on professional advice in tax matters. It emphasized that the claim made by the assessee was not a deliberate attempt to reduce taxable income but a result of genuine belief and professional guidance. By applying the principles laid down in relevant case laws, the Tribunal canceled the penalty levied under section 271(1)(c) and allowed the appeal of the assessee.

In conclusion, the Tribunal's judgment focused on the bonafide nature of the assessee's claim, the complexity of tax provisions, and the reliance on professional advice. The decision to cancel the penalty was based on the genuine belief of the assessee in claiming the deduction under section 80 IA, supported by proper documentation and legal guidance.