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TMI Blog2008 (11) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... in the return of income which was accompanied by a report by the auditor and under the circumstances noted, the claim did not lack in bona fides. Whether the denial of the claim made in the return of income can lead to an automatic imposition of penalty under s. 271(1)(c) of the Act? - HELD THAT:- It is sufficient to say that the assessment proceedings and the subsequent penalty proceedings are independent proceedings. The findings and conclusions drawn by the authorities in the assessment proceedings are relevant but cannot be construed as conclusive so as to fasten the assessee with the charge of concealment of income and furnishing of inaccurate particulars thereof. A similar situation arose in the case of Deep Tools (P) Ltd.[ 2004 (8) TMI 52 - PUNJAB AND HARYANA HIGH COURT] . In the said case too, the assessee had staked claim for deduction u/s 80HHC, which was declined. The AO levied penalty u/s 271(1)(c). The stand of the assessee was that the claim was mistaken but was based on bona fide considerations. The Hon'ble High Court observed that the claim, though untenable, was based on the report of a chartered accountant in terms of s. 80HHC and the said fact led to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of manufacturing of yarn and trading in wool. For the asst. yr. 1997-98 the assessee filed its return of income declaring taxable income of ₹ 43,40,960. The return of income was accompanied by audited balance sheet, P L a/c along with relevant schedules and annexures and the tax audit report under s. 44AB of the Act. The assessee company had claimed deduction under s. 80-IA of the Act amounting to ₹ 18,60,412 and the audit report in Form No. 10CCB was also filed along with the return of income in this regard. The AO has observed that the assessee was engaged in manufacture of yarn as well as trading in the raw wool and knitted cloth, the gross total income whereof was ₹ 62,01,373. On this income, deduction under s. 80-IA was claimed @ 30 per cent amounting to ₹ 18,60,412. According to the AO, since the deduction under s. 80-IA of the Act was available only on the income derived by an industrial undertaking from manufacturing or processing of goods, the profits earned by the assessee from the trading in the raw wool and knitted cloth, do not qualify for deduction under s. 80-IA of the Act. The claim of the assessee was thus scaled down. The AO rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be eligible for deduction under s. 80-IB, the learned CIT(A) did not agree with such findings of the AO. While deleting the addition in question the learned CIT(A) considered that deduction under s. 80-IB was available on the income derived by an assessee from 'any business of the industrial undertaking' of the appellant. Therefore, once income from sale of raw wool was held to be the income from business, as per the above observations of the CIT(A), it was eligible for deduction under s. 80-IB. In the appeal for asst. yr. 2000-01, the learned CIT(A) even referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Ashok Leyland Ltd. (1981) 130 ITR 900(Mad), which has already been mentioned in the preceding paras. Though the Hon'ble Tribunal has not agreed with the findings of the learned CIT(A) on this issue but the decision of the Hon'ble Tribunal has been taken in view of the decision of the Hon'ble Punjab Haryana High Court in the case of Liberty Shoes Ltd. vs. CIT (2007) 207 CTR (P H) 181. This decision of the Hon'ble Punjab Haryana High Court has been passed in the year 2006 whereas the respective assessment orders have been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l stand of the appellant shows that the appellant did not deliberately and consciously conceal any particulars of income or furnishing inaccurate particulars of income. From these facts it is also revealed that there was no means rea in making the claim of deduction which was ultimately negated by the Hon'ble Tribunal. 4. Against the aforesaid deletion, the Revenue is in appeal before us. The learned Departmental Representative, appearing for the Revenue has assailed the order of the CIT(A). According to the learned Departmental Representative, the claim in question was patently wrong inasmuch as s. 80-IA does not allow the benefit on profits earned from trading activities undertaken, even by an eligible assessee. It is pointed out that the assessee could not justify the bona fides of the claim made in the return of income even during the course of penalty proceedings before the AO. The only reply of the assessee was that the dispute regarding allowability of s. 80-IA benefit on the trading profit was still sub judice and therefore the penalty under s. 271(1)(c) is not justified. According to the learned Departmental Representative, the reply of the assessee before the AO d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the following decisions : (1) Asstt. CIT vs. Vijay Kiran Hotels (P) Ltd. (2008) 10 DTR (Chd)(Trib) 225; (2) CIT vs. Budhewal Co-operative Sugar Mills Ltd. (2008) 6 DTR (P H) 31; (3) CIT vs. Shahbad Co-op. Sugar Mills Ltd. (2008) 6 DTR (P H) 31. 7. We have considered the rival submissions carefully. The factual background leading upto the present proceedings has already been noted by us in some detail in the earlier part of this order and thus, for the sake of brevity, the same is not repeated. It would be sufficient to observe that in the return of income filed, the assessee claimed deduction under s. 80-IA amounting to ₹ 18,60,412 which was restricted to 'nil' in the assessment proceedings under s. 143(3) of the Act on the ground that the benefit is not available in relation to income derived from the trading of the raw wool and knitted cloth which was comprised in the total income declared by the assessee. The claim of deduction was sought to be restricted to the profits from the business of manufacturing of yarn which in the year under consideration was a loss. Hence, the claim of deduction under s. 80-IA was computed at 'nil'. This positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondly, the assessee when called upon to justify the claim during the assessment proceedings, referred to the judgment of Madras High Court in the case of CIT vs. Ashok Leyland Ltd. (supra) to contend that even with regard to the profit on sale of raw wool and knitted cloth, it was eligible for deduction under s. 80-IA. In the case before the Hon'ble Madras High Court, the issue related to an assessee which was manufacturing automobile trucks, the profits from sale of imported spare parts to the purchasers of trucks for servicing the vehicles were sought to be claimed as eligible for s. 80-I benefits. The Hon'ble High Court accepted the stand of the assessee in that case. On the strength of the reasoning adopted by the Hon'ble Madras High Court as above, the assessee canvassed before the AO that the profits in question were eligible for s. 80-IA benefits. Though the subsequent development in the case of the assessee shows that the said view has not found favour with the IT authorities. However, to say that the claim of the assessee made in the return of income was fanciful or was completely untenable, would be a misnomer. Therefore, in our considered opinion, the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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