2022 (6) TMI 668 - AT - Income Tax

Penalty u/s 271(1)(c) - repair and maintenance expenses on account of charity and donation on account of part deduction in Section 80IC - HELD THAT - On perusal of assessment order, it is noticed that no satisfaction has been formed in the course of assessment for committing any default contemplated under Section 271(1)(c) in respect of such addition. Thus, the imposition of penalty on such addition claimed in the books of account is not justified at the first instance. The action of the CIT(A) is accordingly reversed. Deduction under Section 80IC on certain other income which inter alia included profit on sale of asset - AO disallowed the claim of deduction under Section 80IC terming it to be incidental income and thus cannot be said to be derived from manufacture or produce of any article or thing - Assessing Officer relied upon the judgment rendered in the case of CIT vs. Sterling Foods 1999 (4) TMI 1 - SUPREME COURT wherein the Court observed that the industrial undertaking itself had to be the source of profit and the business of industrial undertaking had to directly yield that profit. The action of the Assessing Officer is clearly governed by the interpretation rendered by the Hon ble Supreme Court on expression derived from and is based on the stance that while the income so reflected in the books may be attributable to the business undertaking but cannot be equated with the expression derived from the manufacturing activity. Thus, the deduction reduced on account of interpretative process cannot per se be equated with furnishing of inaccurate particulars of income. In the absence of any culpability, the imposition of penalty owing to denial of deduction on such interpretation on nicety of law does not warrant imposition of onerous penalty u/s 271(1)(c). The penalty imposed is thus cancelled.- Appeal of assessee allowed.

Summary

Issues:
1. Penalty imposed on disallowance of charity and donation expenses.
2. Penalty imposed on disallowance of deduction under Section 80IC.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of charity and donation expenses and part deduction under Section 80IC for AY 2011-12. The Assessing Officer disallowed Rs.1,44,794 on account of charity and donation and Rs.65,782 on account of part deduction under Section 80IC, which led to the imposition of penalties. The Tribunal found that no satisfaction was formed during assessment for imposing penalties under Section 271(1)(c) for the disallowance of charity and donation expenses. Therefore, the penalty was unjustified and reversed.

2. The Assessing Officer disallowed the deduction under Section 80IC claimed by the assessee on certain "other income," including profit on the sale of assets. This disallowance was based on the interpretation that the income was incidental and not directly derived from the manufacturing activity of the industrial undertaking. The Assessing Officer relied on a Supreme Court judgment to support this interpretation. The Tribunal held that the denial of deduction based on an interpretative process does not amount to furnishing inaccurate particulars of income. Since there was no culpability on the part of the assessee, the penalty imposed for the disallowance of deduction under Section 80IC was canceled.

In conclusion, the Tribunal allowed the appeal of the assessee, finding the penalties imposed on the disallowance of charity and donation expenses and the disallowance of deduction under Section 80IC to be unjustified and reversed.