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2018 (3) TMI 528 - HC - Income TaxPenalty u/s 271(1)(c) - denial of exemption to interest income under Section 10B - Held that - We find that the issue arising in these appeals is covered in favour of the assessee by the full bench decision of Karnataka High Court in Commissioner of Income Tax Vs. Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT . We find that for subsequent assessment years, the assessee has been granted the benefit of deduction under Section 10B of the Act to the extent of its interest income. We find from the affidavit in reply dated 7th February, 2018 filed by Mr. Waseem Ur Rehman, Joint Commissioner of Income Tax (OSD), Mubmai that the respondents have already launched prosecution against the applicant assessee and its officers. In the present facts, prima facie, it appears that the controversy in the present appeals in respect of deduction of interest income under Section 10B stands resolved in favour of the applicant assessee. At the very least, it would be a debatable issue. No penalty levied.
Issues:
1. Early hearing and stay of the impugned order dated 7th August, 2015 passed by the Tribunal. 2. Admissibility of three appeals challenging the order dated 7th August, 2015 of the Tribunal. 3. Substantial questions of law regarding penalty under Section 271(1)(c) of the Income Tax Act. 4. Interpretation of exemption in the return of income and its acceptance by the Revenue. 5. Perversity and legality of the Tribunal's order. 6. Benefit of deduction under Section 10B of the Income Tax Act for interest income. 7. Prosecution initiated against the applicant assessee and its officers. 1. Early Hearing and Stay of the Impugned Order: The High Court considered motions seeking early hearing and stay of the order passed by the Tribunal in relation to pending appeals under Section 260A of the Income Tax Act. The respondent had initiated proceedings under Section 276C, 227 r/w 278B of the Act against the applicant and its officers, prompting the need for early hearing and stay of the impugned order. The Court directed the appeals challenging the Tribunal's order to be listed along with the motions. 2. Admissibility of Appeals and Substantial Questions of Law: The Court admitted the three appeals filed under Section 260A of the Act, which contested the Tribunal's order for Assessment Years 1997-98, 1998-99, and 1999-2000. The appeals raised substantial questions of law regarding the justification of the penalty imposed under Section 271(1)(c) of the Act, the acceptance of exemption claims in the return of income, and the legality of the Tribunal's order. 3. Interpretation of Exemption and Legality of Tribunal's Order: The substantial questions of law focused on whether the Tribunal was justified in confirming the penalty under Section 271(1)(c) of the Act, and if the penalty was levied due to the non-acceptance of the appellant's exemption claim by the Revenue. Additionally, the Court questioned the perversity and legality of the Tribunal's order, indicating the need for a detailed examination of the facts and circumstances. 4. Benefit of Deduction for Interest Income: The Court considered the benefit of deduction under Section 10B of the Act for interest income, citing a full bench decision of the Karnataka High Court in a related case. It noted that the issue was resolved in favor of the assessee by the decision and highlighted that for subsequent assessment years, the assessee had been granted the deduction under Section 10B for its interest income. 5. Prosecution Initiated Against Applicant Assessee and Officers: The Court acknowledged that prosecution had been launched against the applicant assessee and its officers by the respondents. It observed that the controversy regarding the deduction of interest income under Section 10B seemed to be resolved in favor of the applicant assessee, or at least presented a debatable issue. Consequently, the Court granted a stay to the impugned order dated 7th August, 2015, in line with the prayers in the motions, allowing all three motions in this regard.
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