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2017 (5) TMI 1311 - AT - Income TaxPenalty under section 271(1)(c) - deduction under section 36(1)(viii) being declined - Held that:- As noted explanation of the assessee that (a) vide CBDT notification no SO 627(E) dated 4.8.99 producing milk and milk products have been held to be industry, and that (b) proviso to section 36(1)(viii) is in respect of the limitation on deduction, and as such the limited impact of proviso not being satisfied in any event is that no such limitation will come into play. It is thus contended that the assessee is eligible for the relevant deduction and the matter, for adjudication on that issue, is right now pending before Hon’ble jurisdictional High Court. The assesse’s claim cannot be said to an outlandish or unacceptable explanation for the purpose of penalty. We see merits in this approach. Whatever be the merits of this claim, the claim is a reasonable claim with prima facie some merits in it and such a claim cannot be simply brushed aside for the penalty purposes. Whatever be the merits of this claim, the claim is a reasonable claim with prima facie some merits in it and such a claim cannot be simply brushed aside for the penalty purposes.We, therefore, direct the Assessing Officer to delete the penalty in respect of the claim of deduction under section 36(1)(viii). As regards penalties in respect of quantum addition we have noted that there is nothing to suggest that explanation of the assessee is incorrect and that the interest earned on the funds are indeed required to be used for designated purposes and yet the addition has been confirmed on the ground that interest was not actually refunded. Once again, whatever be the status of taxability, the fact remains that neither the explanation of the assessee has been found to be incorrect or false or simply unbelievable. The CIT(A) was thus quite justified in holding that the penalty could not be imposed simply because the income has turned out to be taxable and a wrong claim is made by the assessee. We approve the action of the CITI(A) on this point and decline to interfere in the matter. As regards the claim for amortization of lease hold land, there is nothing before us to controvert the findings of the CIT(A) and as such demonstrate that it was not a debatable point at the point of time when income tax return was furnished and that it has not been made in a transparent manner. It is well settled in law that a mere rejection of claim of deduction by itself cannot result in penalty under section 271(1)(c) being imposed. The explanation of the assessee has not been disputed or rejected by the learned Departmental Representative. On this point also, we thus uphold the action of the CIT(A). In effect, while assessee succeeds in his grievance, the Assessing Officer’s grievance is rejected. - Appeal of assessee allowed.
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