TMI Blog2013 (7) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty of ₹ 7,28,621/-levied by AO u/s.271(1)(c) of the IT Act. Therefore, in accordance with majority view, the penalty of ₹ 7,28,621/- levied by AO u/s.271(1)(c) is cancelled. 3. In the result, the appeal of the assessee is allowed. SHRI G.C. GUPTA, VICE-PRESIDENT (AZ) (THIRD MEMBER) On account of difference in opinion between the learned Judicial Member and learned Accountant Member of ITAT, Rajkot Bench, this matter has been referred to me by the Hon ble President, ITAT for consideration and disposal under Section 255(4) of the Income Tax Act, 1961. There is a difference of opinion between the learned Members of the Rajkot Bench on the issue of framing of points of difference between the Members. Accordingly, the learned Judicial Member and the learned Accountant Member have framed point of difference separately. The learned Judicial Member has framed the following point of difference for disposal by the Third Member: Whether on the facts and circumstances of the case, the ld. CIT(A) is correct in confirming the penalty of ₹ 7,28,621/- levied by the AO u/s.271(1)(c) of the Income Tax Act, 1961 OR it should be cancelled as proposed by Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the auditor of the assessee itself has rejected the claim of the assessee and still the assessee chose to make the claim. He submitted that the statutory requirement of filing of the auditor s certificate along with claim of deduction made by the assessee was not complied with by the assessee. He referred to relevant paras of the order of the learned AM in support of the case of the Revenue. He submitted that the decision of the Hon ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. v. Commissioner of Income-tax, 348 ITR 306 (SC) is distinguishable on facts. He submitted that had the case of the assessee not been selected for scrutiny assessment, the assessee would have escaped with deduction under section 80IB of the Act, which was otherwise not sustainable in law. He relied on the decision in the case of CIT Vs. Zoom Communication P. Ltd., 327 ITR 510 (Delhi). He submitted that the assessee has failed to explain under what circumstances the amount of deduction under Section 80IB was claimed by the assessee. He relied on series of following decisions: High Court of Delhi in the case of CIT Vs. Splendour Construction High Court of Delhi in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the assessee is a simple partnership firm, and therefore should not be held liable for penalty under section 271(1)(c) of the Act on account of its bona fide claim of a legal deduction. 6. I have considered rival submissions and have perused the proposed orders of the learned JM and the learned AM on this issue. I have also perused the copies of various documents filed in the compilation by the assessee. The only issue before me as Third Member is to adjudicate whether in the facts and circumstances of the case, the penalty imposed under Section 271(1)(c) of the Act was in accordance with law or not. I find that the assessee-firm is engaged in the business of manufacturing and export of brass items. It is an hundred percent export oriented unit and its income is exempt under Section 10B of the Act. The firm was constituted on 7.2.2002 and it started production from financial year 2002-2003. The assessee was claiming and was allowed deduction under Section 10B of the Act from its inception and also for the relevant assessment year 2006-2007. The assessee has claimed deduction under Section 80IB for the first time amounting to ₹ 21,46,646/- in its return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of income under Section 271(1)(c) of the Act. In this case, the assessee has during the course of assessment proceedings filed a written letter dated 24.12.2008 before the AO withdrawing claim of deduction under Section 80IB. Even if the assessee has not withdrawn its claim of deduction and had insisted for allowance of deduction, even then in the absence of any material brought on record to implicate the assessee, by showing that his claim of deduction was not bona fide, it cannot be said that the assessee is guilty of filing inaccurate particulars of its income. 7. I am not impressed with the arguments of the learned CITDR that it is a straightforward case, and is not a case of bona fide and wrong legal conception on the issue of claim of deduction. Merely because the auditor of the assessee has not made the claim of the deduction, the assessee is not barred from making a legal claim of deduction while filing its return of income. The requirement of filing of auditors certificate along with claim of deduction made by the assessee, is a procedural requirement and could be complied with during the course of assessment proceedings. I find that it has become a normal practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish that either the assessee is guilty of concealment of income or the claim of the assessee for deduction was not bona fide and was to defraud the Revenue, no such material has been brought on record in this case on behalf of the Revenue. In find that the decision of the Hon ble Delhi High Court in CIT Vs. Zoom Communication P. Ltd. (supra) is of no help to the Revenue. In this case, the facts were recorded that in fact the assessee did not claim either before the AO or before the CIT(A) that such a deduction was permissible under Section 32(1)(iii), and that it was also not the case of the assessee that it was under a bona fide belief that these two amounts could be claimed as revenue expenditure. I find that no such circumstances existed in the case of the assessee before me. I find mere submission of a claim which is incorrect in law would not amount to giving inaccurate particulars of income, but the claim made by the assessee has to be bona fide. If, in a case the Revenue is in position to establish that the claim made by the assessee was not only incorrect in law, but was mala fide, Explanation 1 to Section 271(1)(c) would apply to the facts of the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deeming fiction of the Explanation 1 to section 271(1)(c) of the Act is not applicable to the facts and circumstances of the case, as the explanation of the assessee is bona fide and the assessee has disclosed all material facts relevant to the computation of income before the AO. I find that the ratio of the decision of the Hon ble Apex Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd., (2010) 322 ITR 158 (SC) wherein held that mere making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars, applies to the facts and circumstances of the case of the assessee. In CIT Vs. Darampal Premchand Ltd. (2010) 329 ITR 572 (Del), following the decision of the Hon ble Apex Court in Reliance Petro Products Pvt. Ltd. (supra) deleted the penalty on the denial of claim of deduction under section 80IA and 80IB to the assessee. In my considered opinion, even a well reasoned order passed by the AO or the CIT(A) can be reversed in appeal, provided, it is found that the order of the revenue authorities is not as per law or is based on wrong appreciation of the facts of the case, and accordingly, the appellate court would be well within its jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erfered with by this Tribunal without recording reasons for disagreeing with it. 2. Whether the case of the assessee, on the facts stated in the Dissenting Note of the AM, is covered by Explanation 1 to section 271(1)(c). Reference u/s 255 (4) of the I.T. Act, 1961 As there is a difference of opinion between the Members of the Bench who heard this appeal, the same is referred to the Hon ble President of Income Tax Appellate Tribunal for necessary action as envisaged u/s. 255(4) of the Income Tax Act, 1961:- Whether on the facts and circumstances of the case, the ld. CIT(A) is correct in confirming the penalty of ₹ 7,28,621/- levied by the AO u/s. 271(1)(c) of the Income Tax Act, 1961 OR it should be cancelled as proposed by Judicial Member? Order T. K. Sharma, J. M. This appeal by the assessee is against the order dated 1.12.2010 of CIT(A) confirming the penalty of ₹ 7,28,621/- levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961(the Act) for the assessment year 2006-07. 2. Briefly stated the facts are that the assessee is a firm engaged in the business of manufacturing and export of brass items. It is a 100% export oriented uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 5. Ours is a case of claiming deduction with furnishing of relevant accurate particulars and not a case of furnishing inaccurate particulars. Penalty cannot be levied in such case. 6. Moreover also, the condition that production started in the financial year 2002-03 has a background that in 2001-02 the manufacturing process had already commenced and therefore the relevant condition therefore can be taken as. 7. The case is fully covered by the recent decisions of the Hon. Supreme Court in the case of Reliance Petro Products where the Hon. Court has been pleased to hold that penalty does not attract merely for making a claim which is found to be not admissible. (Enclosed herewith the copy of the said Judgment for your kind perusal.) 8. Taking into consideration the co-operation extended and overall facts of the case, it is requested that penalty levied may kindly be ordered to be deleted. CIT V/s Reliance Petroproducts (Supreme Court) S. 271(1) (c) penalty cannot be imposed even for mating unsustainable claims The assessee claimed deduction u/s 36(1)(iii) for interest paid on loan taken for purchase of shares. The AO disallowed the Interest u/s 14A and levied pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of chartered accountant as required by the said section. In tax audit report also. auditor has stated to have NIL deduction under Chapter VI A. Hence purposefully, the said wrong claim was made in return of income to defraud the revenue. It cannot be said to be a bonafide claim as contended by AR. There is no uncertainty about eligibility of appellant in making claim u/s.80IB. It is a case where no same income deduction u/s 10B 80lB, both have been claimed to defraud the revenue. It was claimed simply as deduction in return of income without any supporting documents, working or report of chartered accountant. If the case of the appellant was not scrutinized, then the claim goes unattended. The appellant has not come forward and withdrawn wrong claim, it was assessing officer. who has found out in the course of assessment. The decision relied on AR is thus clearly distinguishable on facts. Hence in my considered opinion. this is tit case for levy of penalty and action of assessing officer is upheld. 5. Aggrieved with the order of the ld. CIT(A), the assessee is in appeal before the Tribunal. 6. At the time of hearing before us, Shri Vimal Desai, the ld. AR appeared on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 80IB. This action of the AO was not agitated and the assessment order was attained finality. 6.3 In the aforesaid background, the ld. Counsel for the assessee pleaded that the penalty levied by the AO u/s 271(1)(c ) and confirmed by the ld.CIT(A) be deleted. 6.4 With regard to the contention of the AO that the deduction u/s 80IB was claimed for the first time and audit report in Form No.10CCB was not filed with return of income. The contention of the ld. Counsel, in this respect, is that the reasons for not filing the audit report in Form No.10CCB are that it is a procedural requirement. He submitted that it has been held number of times that if the audit report is filed before the completion of assessment proceedings, the deduction is allowable. The ld. Counsel submitted that if the assessee had not withdrawn the claim of deduction u/s 80IB, the audit report would have been filed before the completion of assessment proceedings though not filed with return of income. It is a settled proposition of law that mere non-filing of audit report with return of income cannot be a ground to deny the deduction. Therefore, he pleaded that the penalty imposed on this ground may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory assessment would not have been preferred. The ld. Counsel for the assessee submitted that the penalty levied by the AO and confirmed by the ld. CIT(A) be deleted as the claimed was made under the bonafide belief and not intentional. 6.7 The ld.Counsel for the assessee submitted that the reason for putting forward the claim of deduction u/s 80IB in the year under appeal for the first time was the legal perception of the assessee that the relevant date for deduction is date of inception and hence it is eligible for the benefit. Though this perception was incorrect in law, the claim was apparent disallowed in the return of income and the same was always going to be examined by the AO in mandatory assessment of the assessee. The ld.Counsel for the assessee submitted that there was no malafide intention of the assessee to claim deduction and hence no penalty is attracted to the impugned claim of the assessee on the ground of claim for the first time. 6.8 With regard to the contention of the AO regarding NIL deduction in tax audit report is not material as tax audit report neither binds the assessee nor the A.O. The ld. Counsel for the assessee submitted that even otherwise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Textile Processors Ors. (2008) 219 CTR (SC) 617 : (2008) 306 ITR 277 (SC) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under s. 276Cand penalty under s. 271(l)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the finding having been recorded on facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse. The ld. Counsel for the assessee submitted that the case of the assessee is on even better footing as the wrong claim was preferred on legal perception and in the situation of a known scrutiny assessment. 6.12. The Ld.Counsel for the assessee also placed reliance on the decision of the Pune Bench of the Tribunal in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction and interpretation of law. The furnishing of inaccurate information thus relates to furnishing of factually correct details and information about income. In the present case, however, what has been treated as furnishing of inaccurate particulars is making of a claim which was not admitted by the Assessing Officer an action not contested by the assessee. The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. The authorities below have apparently proceeded to treat assessee s making an incorrect claim of income as furnishing of inaccurate particulars. What is a correct claim and what is an incorrect claim is a matter of perception. Raising a legal claim, even if it is ultimately found to be legally unacceptable, cannot amount of furnishing of inaccurate particulars of income. Inaccurate , is something factually incorrect and interpretation of law can never be a factual aspect. Just because an Assessing Officer does not accept an interpretation, such an interpretation is not rendered incorrect. Even the judgments of Hon ble Supreme Court are reversed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, but the fact that there can be a bona fide view to that effect cannot be ruled out. The human probabilities favour acceptance of this explanation for bona fides. The fact that the assessee has not carried in appeal the rejection of his claim by the AD is sought to be used against the assessee's claim of bona fides. There is no rationale in this. The decision to go in litigation or not does not depend on the merits alone, and merely because an assessee does not challenge a particular addition or disallowance in appeal does not mean that the claim for such exclusion from income or deduction lacked bona fides. The decision not to go into a litigation or not is dependent on a variety of factors, and the merits of the legal issue involved is only one such factor. Therefore, the decision to the assessee to pursue or not to pursue legal remedy against rejection of his stand is not the safe indicator about bona fides of such stand. The authorities below clearly erred in holding that merely because 'the assessee has accepted the stand of the AD, so far as rejection of assessee's claim was concerned, it would show that action of the assessee lacked bona fides. In an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd.(supra), the Hon ble Delhi High Court deleted the penalty on the denial of claim of deduction U/s 80IA and 80IB in case of CIT V/s Dharampal Premchand Ltd. (2010) 329 ITR 572 (Del). He also placed on record a copy of the said judgment in the case of Dharampal Premchand Ltd. (supra). 6.15. The ld. Counsel for the assessee also placed reliance on the decision of the Mumbai Bench of the Tribunal in the case of Zycus Infotech (P) Ltd. V/s ITO (2007) 17 SOT 310 (Mumbai) and submitted that denial of claim of exemption U/S 10A that if the assessee had disclosed all the material facts, merely because his claim based on his own understanding of law was denied will not attract the penalty. He also placed on record the copy of the decision of the Mumbai Bench of the Tribunal. 6.16. While concluding the submissions, the ld. Counsel for the assessee submitted that the assessee s case is well covered by the above mentioned case law and facts narrated therein and hence the penalty levied by the AO and confirmed by the ld. CIT(A) be deleted. 7. Shri Avinash Kumar, ld. DR appeared on behalf of the Revenue and contend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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