2014 (1) TMI 177 - AT - Income Tax

Appellate Tribunal Overturns Penalty under Income-tax Act

Regal Carpets Pvt. Ltd. Versus Income-tax Officer

The Appellate Tribunal ruled in favor of the appellant, deleting the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal ... Imposition of Penalty u/s 271(1)(c) of the Act – Calculation of deduction u/s 80-HHC of the Act – Held that:- The assessee was under bona fide belief that the income has been generated only from 100% export business and the disclosure was accordingly made as 'business income' and claim u/s 80HHC accordingly calculated – Following CIT Vs. Reliance Petroproducts Ltd. [2010 (3) TMI 80 - SUPREME COURT ] - assessee's claim u/s 80-HHC are disclosed in the return of income - The assessee's CA certified the amount of allowability of deduction u/s 80-HHC including the said sum of Rs. 95 lacs which was treated to be earned from 100% export business - The fact that assessee is a 100% exporter and has no domestic business, has not been disputed – the order for penalty u/s 271(1)(c) of the Act set aside – Decided in favour of Assessee. Issues:Challenge to penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2004-05 regarding calculation of deduction under section 80-HHC.Detailed Analysis:Issue 1: Challenge to Penalty ImposedThe appellant, a company engaged in 100% export, contested the sustenance of a penalty of Rs. 3,29,520 under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed concerning the calculation of deduction under section 80-HHC for the assessment year 2004-05.Issue 2: Disclosure and JustificationDuring a survey, the appellant surrendered Rs. 30 lakh, which was included in its business income from exports for claiming a deduction under section 80-HHC. The appellant maintained that there was complete disclosure, no concealment of income, and no furnishing of inaccurate particulars. The appellant argued that the issue of deduction was debatable and hence no penalty should be levied.Issue 3: Assessing Officer's DecisionThe Assessing Officer rejected the appellant's explanation and levied the penalty, citing deliberate default. The AO relied on a decision of the Hon'ble Punjab & Haryana High Court, stating that surrendered income should be treated as income from other sources, not business income from exports.Issue 4: First Appeal and Confirmation of PenaltyThe appellant, aggrieved by the penalty imposition, appealed to the CIT(A), who upheld the penalty levied by the Assessing Officer. Dissatisfied, the appellant approached the Appellate Tribunal to challenge the penalty.Issue 5: Arguments and Counter-argumentsThe appellant's counsel argued that the appellant's claim for deduction under section 80-HHC was based on bona fide belief and supported by relevant facts. The counsel highlighted conflicting judgments from different High Courts and emphasized that the issue was debatable. The Departmental Representative, on the other hand, contended that the appellant's claim was wrong and deliberate, relying on a Delhi High Court judgment.Issue 6: Tribunal's DecisionAfter considering the contentions and perusing the records, the Tribunal found that all relevant facts related to the appellant's claim under section 80-HHC were disclosed in the income tax return. The Tribunal noted that the issue was debatable, and the Supreme Court's judgment in Reliance Petroproducts Ltd. was applicable. Consequently, the Tribunal deleted the penalty imposed under section 271(1)(c) of the Act, allowing the appellant's appeal.In conclusion, the Appellate Tribunal, after a detailed analysis of the issues involved, ruled in favor of the appellant, deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961.