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TMI Blog2011 (6) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the Assessing Officer, there is no merit in levy of penalty u/s 271(1)(c) Dis-allowance of deduction u/s 80HHC which was made on the subsequent amendment to the provisions of section 80HHC in respect of DEPB - Held that:- The said amendment being not there at the time of filing of the return by the assessee cannot be held to have furnished inaccurate particulars of income in respect of its claim of deduction u/s 80HHC of the Act - Decided in favor of Assessee. - IT APPEAL NOS. 777 AND 778 (CHD.) OF 2009 - - - Dated:- 21-6-2011 - D.K. SRIVASTAVA, MS. SUSHMA CHOWLA, JJ. Smt. Jaishree Sharma for the Appellant. Sudhir Sehgal for the Respondent. ORDER Ms. Sushma Chowla, Judicial Member. These two appeals by the Revenue are against the separate orders of the Commissioner of Income-tax (Appeals)-II, Ludhiana, dated May 8, 2009 and May 15, 2009 relating to the assessment years 2002-03 and 2003-04 respectively against the penalty levied under section 271(1)(c) of the Income-tax Act, 1961. 2. The Revenue has raised the following common grounds of appeal : 1. That the learned Commissioner of Income-tax (Appeals)-II has erred in law and on facts in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring eligible period, i.e., April 1, 1995 to March 31, 2002, the deduction claimed under section 80-IB was disallowed. The Assessing Officer thus levied penalty under section 271(1)(c) of the Act amounting to Rs. 31,97,405 relating to the assessment year 2002-03. The Commissioner of Income-tax (Appeals) in respect of the disallowance on account of the exclusion of export incentive while computing the deduction under section 80-IB of the Act observed that the issue was debatable as before the ratio laid down by the Supreme Court in Sterling Foods (supra) there were varying ratios laid down by the various High Courts and as such the claim made by the assessee was a bona fide claim and negation of such claim does not attract levy of penalty under section 271(1)(c) of the Act. In respect of the second ground on which deduction under section 80-IB of the Act was disallowed by the Assessing Officer it was observed by the Commissioner of Income-tax (Appeals) that the assessee was engaged in the business of manufacturing of hand tools since in the year 1990 and in the year 1995 the business activities were switched over to manufacturing of scaffolding for which new machinery was purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the calculation of deduction allowable under section 80-IB of the Act. 7. The learned authorised representative for the assessee pointed out that penalty under section 271(1)(c) of the Act was levied on two accounts, i.e., (a) export incentive/DEPB being not eligible for deduction under section 80-IB of the Act and; (b) incorrect claim of deduction under section 80-IB of the Act and non-fulfilment of the conditions laid down under the section. The learned authorised representative for the assessee fairly conceded that the Tribunal had confirmed the additions on both accounts. It was further pointed out by the learned authorised representative that the issue being debatable does not warrant levy of penalty under section 271(1)(c) of the Act. It was further pointed out that the assessee was first engaged in the manufacturing of hand tools. Later the unit was established for manufacturing of scaffolding on which deduction under section 80-IB was claimed. The learned authorised representative pointed out that such deduction was claimed on the basis of the report of the chartered accountant and all particulars in connection with the same were filed before the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ools and made addition to the extent of Rs. 3,23,351 in the machinery account. As the assessee had failed to substantiate its claim of establishment of new industrial undertaking which was in fact established between the eligible period, i.e., from April 1, 1995 to March 31, 2002, the assessee was held not eligible for deduction under section 80-IB of the Act. The Tribunal held that in view of the abovesaid facts of the assessee utilising its old machinery and making a small addition to the machinery account, could not be said to have established a new industrial undertaking that was eligible for deduction under section 80-IB of the Act, in the light of sub-section (2) of section 80-IB of the Act. Further the deduction claimed under section 80-IB of the Act was denied on the export incentive/DEPB. In the penalty proceedings the plea of the assessee was that deduction was claimed on the basis of the report of the chartered accountant and further the issue being debatable, no penalty was leviable on the difference of opinion. The Assessing Officer observed in the penalty order passed under section 271(1)(c) of the Act that the assessee's reliance on the report of the chartered accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foods. Though subsequently the decision of the hon'ble jurisdictional High Court of Punjab and Haryana in the case of Liberty India v. CIT [2007] 293 ITR 520 (P H) was pronounced and which is against the assessee on this issue, the fact remains that at the time of filing the return of income by the appellant there was no such decision of the hon'ble jurisdictional High Court against it. Even in his order dated February 16, 2006 passed by my predecessor in appeal No. 205/IT/CIT(A)-II/Ldh/04-05, disallowance made by the Assessing Officer on this ground was not upheld keeping in view such decisions including the decision of the hon'ble Gujarat High Court in the case of CIT v. India Gelatine and Chemicals Ltd. [2005] 275 ITR 284 (Guj.); 145 Taxman 303. In his order dated February 16, 2006 my predecessor has duly brought out these decisions in support of the appellant. The decision of the Income-tax Appellate Tribunal, Delhi in the case of Mentha and Allied Products P. Ltd. v. ITO [1993] 199 ITR (AT) 134 (Delhi); 45 TTJ 333 and in the case of Asstt. CIT v. Vipin Sardana as reported [2005] 148 Taxman 41 (Delhi-Trib.) have further been referred to by my predecessor in this regard." 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,66,944.40 1,11,58,876.40" 14. The claim of the assessee vis-a-vis its unit of manufacturing of scaffolding was rejected as the assessee was found to have made small addition to the plant and machinery during the year under consideration as compared to the earlier addition made to the unit. The Commissioner of Income-tax (Appeals) vide paragraph 5.4 observed as under : "5.4 As per these details new machinery was introduced from year to year. Though the appellant started this manufacturing activity in the year 1995, as clarified in the details of machinery account given above, it was only in the year 2001-02 that the value of new machinery installed had touched to the tune of Rs. 1,11,58,876. The value of old machinery as on March 31, 2002 was of Rs. 21,91,932 and the value of new machinery as on that date was of Rs. 89,66,944. The percentage ratio of this machinery worked out to 19.64 per cent and of new machinery 80.36 per cent. It was on this account that the appellant has contended that the condition laid down in section 80-IB that the new installed machinery should have been in excess of 80 per cent was fulfilled the first time in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, which was accompanied by audited balance-sheet, profit and loss account and also audit report in Form No. 10CCB, though incomplete as per the Assessing Officer, there is no merit in levy of penalty under section 271(1)(c) of the Act, where the claim of the assessee is rejected. In the assessment order also there is no charge against the assessee not to have disclosed complete particulars or information required to compute the income for the year under consideration. The question which arises in the present case was whether the claim made by the assessee for deduction under section 80-IB of the Act in the abovesaid facts and circumstances was a bona fide claim and whether the rejection of such a claim would attract penalty leviable under section 271(1)(c) of the Act. We find that the assessee had discharged its onus in respect of its claim to deduction under section 80-IB of the Act. Firstly by making such a claim vide disclosure in its return of income and accompanying documents and also its bona fides in claiming such deduction in the year under appeal after installation of the machinery. In the facts and circumstances of the case where the assessee had acquired new plant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the auditor was collusive." 17. In view of the above, we confirm the order of the Commissioner of Income-tax (Appeals) in deleting the penalty levied under section 80-IB of the Act on both counts of denial of deduction under section 80-IB of the Act on export incentive and also on account of non-fulfilment of conditions under section 80-IB of the Act. 18. Now coming to the facts in I. T. A. No. 778/Chd/2009 relating to the assessment year 2003-04, wherein penalty of Rs. 60,76,832 was imposed under section 271(1)(c) of the Act. The said penalty was levied by the Assessing Officer on the reduction of claim of deduction under sections 80HHC and 80-IB of the Act. The assessee had claimed deduction under section 80HHC of the Act by including DEPB receipts and export incentive as profits of the business. The assessee was held to be not eligible for reduction on said export incentive and as such deduction claimed under section 80HHC of the Act was reduced. Similarly the income from interest, rebate and discount and excise duty refund was excluded from the eligible profits of business and the deduction claimed under section 80HHC was recomputed. However, the assessee was held to h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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