2017 (4) TMI 811 - AT - Income Tax

Penalty under Section 271(1)(c) - wrong claim of deduction under Section 80IB(10) - bonafide belief - Held that - The claim of the deduction under Section 80IB(10) raised by the assessee in respect of the interest on margin money parked in the form of fixed deposits with bank, remaining under a bonafide belief that the same being inextricably interlinked and interwoven with the business of the assessee, is a claim raised by the assessee on account of a mistaken interpretation of a statutory provision on its part, which on the said count would not invite penalty under Section 271(1)(c) in the hands of the assessee. We thus set aside the order of the CIT(A) and quash the penalty in the hands of the assessee. - Decided in favour of assessee

Summary

Issues:
- Appeal against penalty under Section 271(1)(c) for inaccurate particulars of income related to deduction under Section 80IB(10) on interest income from fixed deposits.

Analysis:

Issue 1: Appeal against penalty under Section 271(1)(c)
The appeal was directed against the penalty imposed by the Assessing Officer (A.O) under Section 271(1)(c) of the Income-tax Act, 1961, confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). The appellant contested the penalty of ?1,07,594 levied for inaccurate particulars of income due to a claim for deduction under Section 80IB(10) on interest income from fixed deposits. The appellant argued that the claim was made in good faith and should not attract a penalty.

Issue 2: Facts and Background
The appellant, a real estate development firm, filed its return of income claiming a deduction under Section 80IB(10) but was assessed by the A.O, who disallowed a portion of the claim related to interest income from fixed deposits. The A.O initiated penalty proceedings under Section 271(1)(c) alleging inaccurate particulars of income. The appellant contended that the interest income had a nexus with its business activities and was included in the deduction claim in good faith.

Issue 3: Arguments and Submissions
During the appeal process, the appellant maintained that the claim under Section 80IB(10) was based on a genuine belief supported by disclosed facts in the income computation and audit reports. The appellant cited legal precedents and the interpretation of the term "derived from" by the Supreme Court to justify the claim. The appellant argued that the penalty was unwarranted as all relevant details were disclosed.

Issue 4: Decision and Rationale
After considering the arguments and facts presented, the Tribunal found that the appellant had included the interest income in the deduction claim believing it was linked to its business. The Tribunal noted that all relevant details were disclosed in the income computation and audit reports. Citing the Supreme Court's interpretation, the Tribunal concluded that the claim, though mistaken, did not warrant a penalty under Section 271(1)(c). The penalty imposed by the A.O was set aside, and the appeal of the appellant was allowed.

Conclusion:
The Tribunal ruled in favor of the appellant, setting aside the penalty imposed under Section 271(1)(c) for the inaccurate claim related to deduction under Section 80IB(10) on interest income from fixed deposits. The decision highlighted the importance of good faith claims supported by disclosed facts and legal interpretations in tax matters.