2014 (12) TMI 1058 - AT - Income Tax

Tribunal affirms CIT(A)'s decision to cancel penalty under Income Tax Act 271(1)(c)

DCIT Circle-3(1), New Delhi Versus Canon India Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) of the Income Tax Act. It was found that the assessee had ... Levy of penalty u/s 271(1)(c) - Assessee furnished inaccurate particulars at the time of assessment proceedings and claimed deduction u/s 10A at an amount higher than the actual eligibility or not – Held that:- No penalty u/s 271(1)(c) of the Act can be justifiably be levied on the facts - Revenue Authority has failed to establish that in the return of income the assessee has either shown as incorrect or inaccurate particulars of income - merely because the AO did not agree with the submission made by the assessee, the same cannot be said to be furnished of inaccurate particulars of income for the purpose of levying penalty u/s 271(1)(c). Disallowances of expenditure cannot result in automatic levy of penalty - If an assessee has been able to offer an explanation, which is not found by the Revenue Authority to be false, and assessee has been able to prove that such explanation is bonafide and that all the facts relating to the same have been disclosed by the assessee - assessee shall be out of the clutches of Explanation1 to section 271(1)(c) of the IT Act and in such cases no penalty shall be imposed – relying upon CIT vs. Reliance Petro Products Pvt. Limited [2010 (3) TMI 80 - SUPREME COURT] - no penalty u/s 271(1)(c) of the Act can be imposed because the Revenue Authority has not disclosed any facts in its return of income - even otherwise Revenue Authority has failed to establish that in the return of income assessee has either been shown as inaccurate or incorrect particulars of its income - merely because the expenditure claimed by the assessee has been disallowed by the Revenue Authority does not lead to an inference that it is a case of furnishing inaccurate particulars of income - assessee has offered its bona fide explanation which was not proved false by the Revenue Authority – FAA has passed the well-reasoned order and the order of the CIT(A) is upheld – Decided against revenue. Issues Involved:1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act.2. Furnishing of inaccurate particulars of income.3. Allocation of interest and foreign exchange loss to STP unit.4. Ad hoc estimation by the Assessing Officer (AO).5. Bona fide belief and disclosure of complete particulars by the assessee.Detailed Analysis:Issue 1: Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax ActThe Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted the penalty of Rs. 6,03,930/- imposed by the AO under Section 271(1)(c). The CIT(A) found that the case was not fit for penalty as the assessee had disclosed complete facts and there was no concealment or furnishing of inaccurate particulars of income.Issue 2: Furnishing of Inaccurate Particulars of IncomeThe AO imposed the penalty on the grounds that the assessee furnished inaccurate particulars by claiming a higher deduction under Section 10A than eligible. However, the CIT(A) observed that the assessee had disclosed all relevant particulars and the AO's disagreement with the assessee's claim did not amount to furnishing inaccurate particulars. The Tribunal upheld this view, stating that a mere disallowance of expenditure does not automatically lead to penalty.Issue 3: Allocation of Interest and Foreign Exchange Loss to STP UnitThe AO reduced the deduction under Section 10A by estimating interest and foreign exchange loss on External Commercial Borrowing (ECB) allocable to the STP unit at Rs. 16,91,685/-. The assessee did not contest this allocation during the appellate proceedings for quantum addition, which the AO interpreted as an admission of furnishing inaccurate particulars. However, the CIT(A) and the Tribunal found that the allocation was an ad hoc estimate and not based on any fault of the assessee.Issue 4: Ad Hoc Estimation by the Assessing Officer (AO)The AO's estimation of 7% for interest and foreign exchange loss was found to be ad hoc. The CIT(A) noted that similar apportionment in the preceding year was deleted by the ITAT, indicating that the adjustment was due to a difference of opinion rather than any fault of the assessee. The Tribunal agreed, emphasizing that ad hoc estimates cannot justify penalty under Section 271(1)(c).Issue 5: Bona Fide Belief and Disclosure of Complete Particulars by the AssesseeThe CIT(A) and the Tribunal highlighted that the assessee had disclosed all particulars in a bona fide belief that no interest or foreign exchange loss was allocable to the STP unit. The Tribunal cited various judgments, including those of the Hon'ble Supreme Court and High Courts, to support that a bona fide claim, even if disallowed, does not attract penalty if all facts are disclosed. The Tribunal concluded that the Revenue failed to prove that the assessee's explanation was false or that there was any concealment of income.Conclusion:The Tribunal upheld the CIT(A)'s order, confirming that no penalty under Section 271(1)(c) was justified as the Revenue could not establish that the assessee furnished inaccurate particulars of income. The appeal filed by the Revenue was dismissed, reinforcing that disallowance of claims based on ad hoc estimates and differences of opinion does not warrant penal action.Pronouncement:The order was pronounced in the open court on 29.10.2014.