2018 (10) TMI 1019 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of deduction u/s.10B - furnishing inaccurate particulars of income - Held that - The assessee during the assessment proceedings has furnished all the details with regard to the deduction claimed u/s 10B of the Act. Thus, there was neither any concealment of income nor furnished inaccurate particulars of income in the income tax return. Thus, there is no question of levying the penalty u/s 271(1)(c). We have heard the rival contentions and perused the materials available on record. The instant case relates to the excessive deduction claimed by the assessee u/s 10B of the Act. Accordingly, the penalty was levied by the AO on account of furnishing inaccurate particulars of income. There is no dispute that the deduction was claimed by the assessee u/s 10B of the Act on the basis of audit report obtained in Form 56G which is placed on record. Thus, in our considered view the assessee should not suffer on account of penalty by the mistake committed by the auditor. We note that the penalty cannot be levied if any error has been committed by the auditor by giving a certificate specifying the wrong amount of deduction u/s 10B of the Act. Thus, we direct the AO to delete the penalty levied by him u/s 271(1)(c). No reason to interfere in the order of Ld CIT(A). Hence, the ground of appeal of the Revenue is dismissed.

Summary

Issues:
- Appeal against penalty order under section 271(1)(c) of the Income Tax Act, 1961
- Disallowance of deduction under section 10B
- Assessment Year 2005-06

Analysis:

Issue 1: Appeal against penalty order under section 271(1)(c) of the Income Tax Act, 1961

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding the penalty imposed under section 271(1)(c) of the Act. The Revenue contended that the penalty was erroneously deleted by the CIT(A). The main argument was that the appellant had not concealed income or furnished inaccurate particulars, and therefore, the penalty should be upheld. However, the CIT(A) deleted the penalty after considering the appellant's submissions and the facts of the case. The CIT(A) noted that the claim for deduction under section 10B was based on information provided during the assessment proceedings and in the audit report. The CIT(A) also referred to relevant case law, including judgments from the Gujarat High Court and the Supreme Court, to support the decision to delete the penalty.

Issue 2: Disallowance of deduction under section 10B

The assessee, a limited company engaged in manufacturing/trading, had claimed a deduction under section 10B of the Act. The dispute arose when the AO disallowed the excess deduction claimed by the assessee due to not reducing the interdivisional transfer amount from the total sales. The disallowance was reduced by the CIT(A) after considering certain adjustments, leading to a reduced disallowance amount. Subsequently, penalty proceedings were initiated by the AO under section 271(1)(c) of the Act. The assessee argued that the mistake in claiming the deduction was unintentional and based on the auditor's advice. The CIT(A) accepted the assessee's explanation and deleted the penalty, emphasizing that there was no intent to conceal facts or misrepresent information.

Issue 3: Assessment Year 2005-06

The penalty imposed by the AO under section 271(1)(c) of the Act was the subject of the appeal for Assessment Year 2005-06. The ITAT, after considering the arguments of both parties and examining the facts of the case, upheld the decision of the CIT(A) to delete the penalty. The ITAT relied on case law and precedents to support its conclusion that the penalty cannot be levied when errors in claiming deductions are made inadvertently and in good faith, especially when all relevant information was disclosed to the tax authorities.

In conclusion, the ITAT dismissed the Revenue's appeal and upheld the decision to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2005-06.