2017 (12) TMI 595 - AT - Income Tax

Tribunal Rejects Penalty for Claiming Deduction in Good Faith

The Tribunal upheld the decision of the Ld. CIT (A) in not imposing a penalty under section 271(1)(c) of the Income Tax Act, 1961, on the assessee for ... Penalty u/s 271(1)(c) - assessee is not entitled to seek deduction u/s 10B and for want of meeting this requirement the claim of the assessee becomes a wrong claim - Held that:- It is an admitted fact that the moment the notice was issued calling upon the assessee to explain why the deduction u/s 10B should not be disallowed, the assessee filed a return of income withdrawing the claim for deduction u/s 10B of the Act. In the circumstances, we find that the Ld.CIT (A) is justified in his view that the issue whether claimed u/s 10B is a deduction or exemption is a debatable issue and on this aspect the reasoning given by the Ld.CIT (A) in paragraph no. 3 is impacable. See CIT vs. Reliance Petro Products Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) as held that disallowance of a claim for deduction will not automatically lead to the levy of penalty unless there is concealment of income or furnishing of inaccurate particulars. We are agreeing with the findings of the Ld. CIT (A) that by reason a bona fide legal claim in the return of income even if the same is ultimately found to be not acceptable, it would be said that income has been concealed or inaccurate particulars of income were furnished, and consequently, the assessee cannot be penalized. We, therefore, while upholding the order of the Ld. CIT (A) dismiss the grounds of appeal. - Decided in favour of assessee. Issues:1. Justification of Ld.CIT (A) in not upholding the penalty order passed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961.2. Justification of Ld. CIT (A) in setting aside the penalty order u/s 271(1)(c) of the Act without considering provisions of Explanation 1 to Section 271(1)(c) of the Act.3. Justification of Ld. CIT (A) in not upholding the penalty order u/s 271(1)(c) of the Act by ignoring the ratio dicidendi as upheld by the Hon’ble Jurisdictional High Court in a specific case.4. Erroneousness of the order of the Ld. CIT (A) on facts and in law.5. Whether the assessee is entitled to seek deduction u/s 10B of the Act.Analysis:1. The appeal by the Revenue challenged the Ld. CIT (A)'s order in not upholding the penalty order under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer had imposed a penalty due to the assessee's claim of deduction u/s 10B without obtaining approval from the competent authority. However, the Ld. CIT (A) deleted the penalty based on legal precedents and the assessee's revised return withdrawing the claim. The Tribunal upheld the Ld. CIT (A)'s decision, citing that a bona fide legal claim, even if ultimately disallowed, does not warrant a penalty for concealment of income or furnishing inaccurate particulars.2. The Ld. CIT (A) justified setting aside the penalty order u/s 271(1)(c) without considering Explanation 1 to Section 271(1)(c) of the Act. The Tribunal supported this decision by emphasizing that the issue of claimed deduction u/s 10B was debatable, and non-fulfillment of conditions for deduction did not automatically lead to a penalty unless there was concealment of income or inaccurate particulars.3. The Ld. CIT (A) was criticized for allegedly ignoring the ratio dicidendi upheld by the Hon’ble Jurisdictional High Court in a specific case. However, the Tribunal found that the Ld. CIT (A) had appropriately considered legal precedents and the assessee's actions in withdrawing the claim for deduction u/s 10B after realizing the error, leading to the deletion of the penalty.4. The Revenue contended that the Ld. CIT (A)'s order was erroneous on factual and legal grounds. However, the Tribunal found that the Ld. CIT (A) had correctly applied legal principles and precedents in deleting the penalty, considering the bona fide nature of the claim and the subsequent corrective actions taken by the assessee.5. The main issue revolved around whether the assessee was entitled to seek deduction u/s 10B of the Act. The Tribunal concluded that the Ld. CIT (A) had made a sound decision based on legal interpretations, precedents, and the assessee's actions in rectifying the claim, ultimately dismissing the Revenue's appeal.