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TMI Blog2011 (7) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... "Act"], was selected for scrutiny with the service of a notice u/s 143(2) of the Act on 29-11-2004.During the course of assessment proceedings, the Assessing Officer ['AO' in short] noticed that the assessee claimed deduction u/s 80HHC and 80IB of the Act to the extent of ₹ 3,41,628/- and ₹ 14,18,948/- respectively. However, the AO did not allow the claim for deduction u/s 80HHC on the ground that 90% of the interest income, miscellaneous income and service income were required to be reduced while computing profits of the business in terms of explanation (baa) of section 80HHC of the Act. Likewise the claim for deduction u/s 80IB was not allowed on interest income, miscellaneous income and service income, these being not derived from the activities of the industrial undertaking. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were also initiated. 3. On appeal, the learned CIT(A) dismissed the appeal while the Tribunal vide their order dated 17-06-2008 in ITA no.1363/Ahd/2007 partly set aside the issue relating to claim for deduction u/s 80HHC and 80IB of the Act in relation to interest income and income from scrap sale. However, the disallowance of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. has levied the penalty u/s.271(1)(c) of the Act in respect of the disallowance of claim of the appellant under the provisions of sec.80.HHC and 80IA of the Act on the service income disclosed at ₹ 45,26,936/-. The A.O. while arriving at the conclusion that the appellant filed inaccurate particulars of income to the extent of deduction claimed u/s.80HHC and 80IA has not held that same was claimed by the appellant by fraud. It is also not the case of the A.O. that the appellant failed to disclose relevant facts and material before the him regarding the claim made for deduction u/s. 80HHC and 80IA of the Act on the impugned amount. The A.O. also has not held that the explanation offered by the appellant lacked his bonafides. 4.7 Hon'ble Kerala High Court in the case of CIT Vs. A. Sreenivasa Pai 242 ITR 29 has held that: "In essence, an Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dduced. It is plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the apex court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, the burden placed upon the assessee is not discharged by any fantastic explanation. It must be an explanation acceptable to the fact- finding body." 4.8 It is clear from the facts of the case that the appellant has discharged the burden cast upon him Explanation 1 to sec.271(1)(c) of the Act. Further, the Hon'ble Rajasthan High court in the case of Shivlal Tak Vs. CIT 251 ITR 373 has held that: "Though the expression "failure to return the total assessed income as not arising on account of any fraud or willful negligence on the part of the assessee" does not find place in the Explanation 1 to Section 271(1) of the Income-Tax Act, 1961, yet clause (B) read with the proviso (ii) to Section 271(1) makes it clear that where the difference between the assessed income and the returned income does not arise on account of any gross or willful negligence on the part of the assessee, no pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of CIT Vs. R.Dalmia,(1992)107 Taxation 107, held that no penalty survives after deletion of additions, forming the basis for the levy of penalty. Similar view was taken in Addl. Commissioner of Income-tax v. Badri Kashi Prasad (1993] 200 ITR 206 (All) and Prabhat Oil Traders v. Income-tax Officer (No. 3) (1996) 218 ITR (A.T.) 39 (ITAT, Ahmedabad),City Dry Fish Company v. Commissioner of Income-tax (1999) 238 ITR 63 (A.P.) , CIT vs. Mohd. Bux Sokat Ali (2004) 265 ITR 326 (Raj)and ACIT vs. VIP Industries (2009) 122 TTJ 289 (Mum). 6.1 Since the very basis upon which the penalty has been imposed on the amount relating to claim for deduction of 80HHC and 80IB in relation to interest income and income from sale of scrap , does not exist in view of the aforesaid order dated 17-06-2008 of the ITAT in quantum appeal in ITA no. 1363/Ahd/2008, we are of the opinion that penalty levied in relation to the these two amounts has rightly been cancelled by the ld. CIT(A). However, the AO is free to initiate the penalty proceedings in accordance with law while completing the assessment in pursuance to the aforesaid directions of the ITAT in quantum appeal. 7. As regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is well settled that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon'ble Supreme Court in the case of Ananthraman Veerasinghaiah & Co. Vs. CIT, 123 ITR 457, the findings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is also well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271(1)(c) of the Act are different than those applied for making or confirming the additions. It is, therefore, necessary to reappreciate and reconsider the matter so as to find out as to whether the addition or disallowance made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in sec. 271(1 )(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. The provisions of section 271(1)(c) of the Act stipulate that if the Assessing Officer or the CIT(Appeals) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1 to section 271(1)(c) of the Act, and in that case, the penalty shall not be imposed. In the instant case, the ld. CIT(A) concluded that the assessee discharged the onus cast on it in terms of explanation 1 to sec. 271(1)9c) of the Act. Hon'ble Supreme Court in the case of Dilip N. Shroff v. Jt. CIT [2007] 210 CTR (SC) 228 : [2007] 291 ITR 519 (SC) while considering the scope of these provisions u/s 271(1)( c) of the Act observed in the following terms: "The legal history of section 271(1)(c) of the Act traced from the 1922 Act prima facie shows that the Explanations were applicable to both the parts. However, each case must be considered on its own facts. The role of the Explanation having regard to the principle of statutory interpretation must be borne in mind before interpreting the aforementioned provisions. Clause (c) of sub-section (1) of section 271 categorically states that the penalty would be leviable if the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. By reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come or furnishing inaccurate particulars thereof by the assessee. Hon'ble Apex Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/ 189 Taxman 322, after considering various decisions including Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/ 161 Taxman 218 (SC) and Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC) concluded that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. In the case unde r conside ration, there is noth in g to suggest that the assessee furnished any inaccurate particulars or concealed the particulars . Admittedly, the claim for deduction u/s 80HHC & 80IB was duly supported by the certificate of the chartered accountant in the prescribed form. In this view of the matter, no fault can be found with the claim of the assessee that it had claimed the deduction in a bona fide manner. In somewhat similar circumstances. Hon'ble Punjab and Haryana High Court cancelled the penalty levied in respect of disallowance of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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