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TMI Blog2010 (6) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant s case is covered by clause (b) of Explanation 1 to sec. 271(1)( c) of the I T Act. 3 The factual matrix which are relevant for levy of the penalty as under: 3.1 The assessee company is engaged in the business of manufacture and trading of pharmaceutical and different chemicals. The assessee has filed its return of income for the assessment year 2000-01 declaring the income at Rs. 5,03,36,100/-. The assessment in this case was completed u/s 143(3) vide assessment order dated 31.3.2003 in which the total income was determined at Rs. 10,39,09,220/-. 3.2 So far as the issue in respect of penalty before us is concerned, it is in respect of the disallowances made by the A.O. (i) disallowance u/s 14A to Rs. 3,10,058/- and (ii) u/s 80HHC at Rs. 4,92,99,692/- 4 In respect of the disallowance u/s 14A, the A.O. observed that the assessee declared dividend income at Rs.2,95,58,090/- and the entire dividend income was claimed u/s 10(33) of the Act but has not quantified expenditure relatable to earning of the said income. The A.O., accordingly worked out the amount of Rs. 44,21,890/- as expenditure relatable to dividend, which was claimed as exempt and disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, before it can apply, the condition to be satisfied is that the assessee has claimed and been allowed a deduction/s 80IA/IB. The latter part of that provision, however, clearly refers to the extent of the profits . The appellants for the relevant assessment year are entitled to deduct 30% of the profits of speciality division u/s 80-IB of the I T Act. Hence, if section 801A(9) is to apply, what is relevant is to consider the 30% of the profits for which a deduction is claimed and allowed u/s 801A/IB and then determine the extent of such deduction, which is embedded in 80HHC deduction, subject to the condition that total deduction does not exceed the total profits and gains. It is of course true that there is no corresponding provision in section 8HHC. However, the clear language of section 801A(9) is such that a deduction under any other section of Chapter VIA is restricted. In fact, the last sentence of section 80IA(9) is very significant and states that the deduction shall in no case exceed the profits and gains of the undertaking. In other words, that sentence clearly refers to the aggregate of the deduction u/s 80IA/80-IB as well as any other provision of Chapter VI-A. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted purposes of determining the profits of goods manufactured in the eligible unit availing deduction u/s 80-IB of the Act and in turn being exported on which deduction u/s 80HHC of the Act is availed. Such profits on goods manufactured on the eligible units shall be excluded from the profits of business which in turn are the basis for computing the deduction u/s 80HHC of the Act. In case no part of the goods manufactured by the assessee from units against which deduction u/s 80-IB of the Act is claimed are exported then in line with the ratio laid down by Hon ble High Court in case of Godrej Agrovet Ltd vs ACIT(supra) no part of such profits shall be excluded from the eligible profits adopted for the purposes of computing deduction /s 80HHC of the Act. The A.O. shall afford reasonable opportunity of hearing to the assessee. The ground no 3 raised by the assessee and the ground no.3 raised by the Revenue are decided as directed above. 5.2 The A.O. took into consideration the penalty on the two disallowances i.e. 14A at Rs.3,10,058/- and u/s 80HHC at Rs. 4,92,99,692/- which was at Rs.1,90,99,826/-. The assessee challenged the said penalty order before the ld CIT(A) but without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year before us is 2000-01. Section 14A was inserted with retrospective effect by the Finance Act 2001. Even the A.O. has taken shelter of the consequent changes and levied the penalty but in our opinion, that can be supported in the case of Reliance Petroproducts Ltd (supra), the Supreme Court, in clear terms has held that merely because the claim of the assessee in respect of the expenditure is not accepted or acceptable to the revenue that cannot be the reason for levy of penalty. 8 In the present case also, the ld CIT(A) reduced the quantum subsequently and restricted the same to the extent of Rs. 3,10.058/-. Nothing has been brought on record by the A.O. that the assessee has furnished any inaccurate particulars and it is only the interpretation of the A.O. to sec. 14A and in our opinion, no penalty is sustainable so far as the disallowance made u/s 14A is concerned. 9 Now, we examine whether penalty can be levied on the disallowance made u/s 80HHC. The A.O. rejected the entire claim of the assessee under sec. 80HHC. After interpreting the proviso to sec. 80IA(9), the ld CIT(A) was of the opinion that as the assessee was entitled to deduction in respect of the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanations not only not bonafide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bonafide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income. 12. In the subsequent decision in the case of Union of India v. Dharamendra Textile Processors (306 ITR 277), their Lordship held that the element of mens rea was not necessary for levy of penalty u/s 271(1)(c) of the Act. It was further held that the object behind the enactment of section 271(1)(c) read with the Explanations indicates that the section has been enacted to provide a remedy for loss of revenue and the penalty under that provision is a civil liability. Hence, wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Act. In the subsequent decision in the case of Reliance Petro products Pvt Ltd (supra), their Lordship expressed that on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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