2014 (5) TMI 964 - AT - Income Tax

Court upholds deletion of penalty under Income Tax Act, directs fresh assessment before penalties

The court upheld the deletion of the penalty under section 271(1)(c) of the Income Tax Act by the CIT(A) for the assessment year 2004-05. The court found ... Penalty u/s 271(1)(c) of the Act - Claim of exemption u/s 10A of the Act – Failure to substantiate – Held that:- As decided in assessee's own case for the earlier assessment year, it has been held that the AO as well as the CIT(A) has disallowed the claim of deduction to the assessee on the ground that the same was not claimed in the return of income filed nor any revised Return was filed - the assessee preferred claim of deduction u/s 10A of the Act - Only when the assessee was informed that his claim u/s 10A is not allowable occasion for claiming deduction u/s 80HHC arose - The assessee could not have claimed deduction u/s 10A and u/s 80HHC simultaneously in the same computation - the Audit Report required for claiming deduction u/s 80HHC was filed before completion of the assessment - CIT(A) was not justified in not entertaining the bonafide claim of the assessee by exercising Appellate power conferred upon him - the assessee was eligible for acclaiming deduction u/s 80HHC and the deduction in accordance with the law ought to have been allowed to the assessee – the AO is directed to set aside the penalty – Decided against Revenue. Issues:1. Deletion of penalty u/s.271(1)(c) of the Income Tax Act by the CIT(A) without proper appreciation of facts.2. Claim of exemption u/s.10A of the Act not being bonafide and failure to substantiate the claim.3. Whether explanation1 below section 271(1)(c) was attracted in the case.4. Upholding the decision of the Assessing Officer by the CIT(A).5. Allowability of claim of deduction u/s.80HHC of the Income Tax Act.Analysis:1. The appeal by the Revenue challenged the order of the CIT(A) deleting the penalty of Rs.1,41,59,604/- levied u/s.271(1)(c) for AY 2004-05. The Revenue contended that the CIT(A) erred in not appreciating the non-bonafide nature of the assessee's claim of exemption u/s.10A and the failure to substantiate it. The Revenue argued that the explanation1 below section 271(1)(c) should have been considered. The Revenue prayed for setting aside the CIT(A) order and restoring that of the Assessing Officer.2. The assessee's counsel pointed out that the ITAT 'B' Bench Ahmedabad had set aside the orders of the Assessing Officer and the CIT(A) in the assessee's own case for AY 2004-05, directing a fresh assessment. The Revenue's Senior DR supported the Assessing Officer's order.3. The ITAT, after hearing both sides and examining the records, referred to the decision of the ITAT 'B' Bench Ahmedabad in the quantum appeal. The ITAT noted that the issue revolved around the allowability of deduction u/s.80HHC, even though not claimed in the return but before the Assessing Officer when the claim u/s.10A was denied. The ITAT held that the assessee was eligible for deduction u/s.80HHC and directed the AO to delete the penalty. The ITAT allowed the Revenue to initiate penalty proceedings after a fresh assessment.4. Consequently, the ITAT rejected the Revenue's appeal, affirming the deletion of the penalty by the CIT(A) based on the ITAT 'B' Bench Ahmedabad's decision in the quantum appeal. The ITAT emphasized the necessity for a fresh assessment by the AO before considering penalty proceedings.5. The final order pronounced in court upheld the dismissal of the Revenue's appeal, concluding the case related to the deletion of the penalty u/s.271(1)(c) and the allowability of deduction u/s.80HHC as per the ITAT's directions in the quantum appeal.