2025 (5) TMI 199 - AT - Income Tax

Penalty under s.270A quashed where s.80-IC deduction denial raised recurring interpretative issue decided earlier in favour of assessee

ITAT (Mum) quashed penalty under s.270A imposed for alleged under-reporting arising from disallowance of deduction under s.80-IC. The Tribunal found the ... Penalty u/s 270A - under reporting of income - deduction u/s 80-IC - HELD THAT:- As observed that the disallowance in question pertains to a recurring issue relating to deduction u/s 80IC, which has been consistently raised by the AO since Assessment Year 2009–10. However, the ITAT, Mumbai Bench has, through detailed orders, deleted the corresponding additions for A.Ys. 2009–10 to 2015–16. Thus, the disallowance of deduction under Section 80-IC has already been adjudicated in favour of the assessee. The addition in the present year appears to be made in a mechanical manner, merely following the pattern of earlier assessments. The assessee did not challenge the assessment order before a higher forum in the current year; based on this, AO proceeded to impose the penalty. In the present case, although the assessee has not pursued the matter before the higher appellate authority, the disallowance u/s 80-IC is essentially a matter of interpretational difference in the nature of expenditure claimed. The ITAT, Mumbai Bench for own case has already settled the issue on merits in favour of the assessee. No contrary view has been brought on record. The penalty has been imposed solely because the assessee did not prefer an appeal in the current year, which, in our considered opinion, is not a valid ground. We also respectfully rely on the judgment in CIT v. Reliance Petroproducts Pvt. Ltd.. [2010 (3) TMI 80 - SUPREME COURT] which was followed in Sirpur Gold Refinery Ltd. [2011 (5) TMI 1162 - ITAT MUMBAI] Accordingly, we find no infirmity in the impugned appellate order. The penalty imposed u/s 270A is hereby quashed. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals are:Whether the penalty imposed under section 270A of the Income-tax Act, 1961 (the Act) for alleged under-reporting of income due to disallowance of deduction claimed under section 80-IC is justified, particularly when the issue is pending adjudication before higher judicial authorities and has been decided in favour of the assessee in preceding years;Whether the claim of deduction under section 80-IC by the assessee constitutes bona fide explanation under section 270A(6)(a) of the Act, thereby excluding the alleged under-reported income from penalty consideration;Whether the failure of the assessee to challenge the disallowance in the impugned assessment year before the appellate authorities justifies imposition of penalty under section 270A;Whether the precedents and principles laid down by the Hon'ble Supreme Court and coordinate benches of ITAT regarding bona fide claims and penalty imposition apply to the facts of the present case;Whether the penalty under section 270A is mandatory upon establishment of wrongful claim or whether it is discretionary and requires consideration of facts and circumstances of the case.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of penalty under section 270A for disallowance of deduction under section 80-ICLegal framework and precedents: Section 270A provides for penalty on under-reporting or misreporting of income. The penalty is leviable at 50% of the tax on under-reported income. However, section 270A(6)(a) excludes bona fide explanations from being treated as under-reported income. The Supreme Court in CIT v. Reliance Petroproducts Pvt. Ltd. held that a mere legal claim, whether ultimately admissible or not, cannot be treated as furnishing inaccurate particulars attracting penalty. The coordinate bench of ITAT in Shirpur Gold Refinery Ltd. v. ACIT also held that bona fide claims not challenged in appeal do not attract penalty.Court's interpretation and reasoning: The Tribunal observed that the disallowance of deduction under section 80-IC has been a recurring issue since AY 2009-10. The ITAT Mumbai Bench has repeatedly decided the issue in favour of the assessee for AYs 2009-10 to 2015-16, deleting the corresponding additions. The addition in the impugned years was made mechanically by the AO, following the pattern of earlier assessments. The assessee did not challenge the disallowance in the impugned years before appellate authorities, but the Tribunal held that this alone cannot justify penalty imposition.Key evidence and findings: The assessee's claim under section 80-IC was based on identical facts and had been allowed by the CIT(A) and ITAT in earlier years. The revenue's challenge before the Bombay High Court was pending without stay or admission. The penalty was imposed solely on the basis that the assessee did not prefer appeal in the impugned years.Application of law to facts: The Tribunal applied the principle that bona fide claims made in good faith, supported by prior appellate decisions, do not constitute under-reporting. The absence of appeal in the impugned years was held insufficient to infer concealment or misreporting. The penalty was thus quashed.Treatment of competing arguments: The revenue relied on Supreme Court decisions in McDowell & Co. Ltd. and Dharmendra Textile Processors to contend that penalty is mandatory once wrongful claim is established. The Tribunal distinguished these cases on facts, noting that those involved clear abuse or tax evasion, unlike the present bona fide claim. The assessee's reliance on Reliance Petroproducts was accepted.Conclusions: The penalty under section 270A was not justified as the claim was bona fide, the issue was pending adjudication, and the assessee had a consistent history of success on merits. The penalty was quashed accordingly.Issue 2: Bona fide nature of the claim under section 80-IC and applicability of section 270A(6)(a)Legal framework and precedents: Section 270A(6)(a) excludes from under-reported income any amount in respect of which the assessee offers a bona fide explanation and discloses all material facts. The Delhi High Court in CWT v. Santokh Singh defined bona fide as good faith, honesty, absence of fraud or deception. Reliance was placed on CIT v. Reliance Petroproducts Pvt. Ltd. where bona fide claims were held not to attract penalty.Court's interpretation and reasoning: The Tribunal found that the assessee's claim was bona fide as it was based on similar claims allowed in preceding years by appellate authorities. The assessee disclosed all material facts and offered a reasonable explanation for the claim. The claim was not a mere attempt to evade tax but a legitimate interpretation of the law.Key evidence and findings: The assessee's earlier successful claims under section 80-IC for the Uttaranchal undertaking, the absence of concealment or fraud, and the disclosure of facts supported the bona fide nature. The Tribunal noted the absence of any adverse finding of mala fide intent.Application of law to facts: The Tribunal applied the bona fide test and found the assessee's explanation satisfied the statutory requirements, thus excluding the amount from under-reported income under section 270A(6)(a).Treatment of competing arguments: The revenue's contention that the claim was wrongful was countered by the Tribunal's reliance on prior appellate decisions and the absence of final adjudication against the assessee. The Tribunal rejected the argument that non-challenge of the order in the impugned year amounted to concealment.Conclusions: The claim under section 80-IC was bona fide and hence not liable to penalty under section 270A.Issue 3: Effect of non-appeal by the assessee in the impugned assessment years on penalty impositionLegal framework and precedents: Penalty under section 270A is not automatic but discretionary. The Supreme Court in Reliance Petroproducts emphasized that mere disallowance does not attract penalty if bona fide explanation exists. The ITAT in Shirpur Gold Refinery Ltd. held that failure to appeal does not by itself justify penalty.Court's interpretation and reasoning: The Tribunal held that the assessee's failure to appeal in the impugned years was due to adjustment of amounts and no tax liability arising, thus a factual circumstance rather than concealment or misreporting. The penalty cannot be imposed solely on this ground.Key evidence and findings: The assessee did not file appeal as the amount was adjusted and no additional tax was payable. The Tribunal noted no evidence of suppression or mala fide intent.Application of law to facts: The Tribunal applied the principle that penalty should not be imposed mechanically and must consider the facts and bona fide nature of claims, rejecting imposition based solely on non-appeal.Treatment of competing arguments: The revenue argued that non-appeal indicated acceptance of disallowance and justified penalty. The Tribunal rejected this, emphasizing the factual context and prior appellate decisions in favour of the assessee.Conclusions: Non-appeal in the impugned years does not justify penalty under section 270A.Issue 4: Applicability of Supreme Court precedents on penalty and tax planningLegal framework and precedents: The Supreme Court in McDowell & Co. Ltd. held tax planning within law is permissible but benefits cannot be extended beyond legislative intent. Dharmendra Textile Processors held penalty is mandatory once wrongful claim is established irrespective of intent. Reliance Petroproducts held bona fide claims do not attract penalty.Court's interpretation and reasoning: The Tribunal distinguished McDowell and Dharmendra Textile Processors on facts, noting those cases involved clear abuse or evasion, unlike the present bona fide claim. The Tribunal relied on Reliance Petroproducts to hold that bona fide claims, even if ultimately disallowed, do not attract penalty.Key evidence and findings: No evidence of abuse or evasion was found. The claim was consistent with prior appellate decisions.Application of law to facts: The Tribunal applied the principle that bona fide claims are protected and penalty cannot be imposed mechanically.Treatment of competing arguments: The revenue's reliance on mandatory penalty provisions was rejected due to factual distinction.Conclusions: Penalty was not mandatorily leviable in this bona fide claim scenario.3. SIGNIFICANT HOLDINGS'The addition in the present year appears to be made in a mechanical manner, merely following the pattern of earlier assessments. The assessee did not challenge the assessment order before a higher forum in the current year; based on this, the Ld. AO proceeded to impose the penalty.''The penalty has been imposed solely because the assessee did not prefer an appeal in the current year, which, in our considered opinion, is not a valid ground.''A mere making of legal claim, whether or not ultimately admissible, cannot be treated as furnishing of inaccurate particulars - as has been held on the facts of this case.''The under-reported income, for the purposes of this section, shall not include the following, namely: - (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered.'Core principles established include:Penalty under section 270A is not automatic but discretionary and requires consideration of bona fide nature of claims;Bona fide claims supported by prior appellate decisions and full disclosure do not constitute under-reported income;Non-appeal in an assessment year, especially when no tax liability arises, does not justify penalty imposition;Mechanical imposition of penalty without regard to facts and prior decisions is impermissible;Reliance on Supreme Court precedents must be factually appropriate; mere disallowance does not attract penalty if bona fide explanation exists.Final determinations on each issue were in favour of the assessee, resulting in dismissal of the revenue's appeals and quashing of the penalty imposed under section 270A for AYs 2017-18 and 2018-19.