M/S.PERSOURCE ,,AHMEDABAD vs. THE ITO, WARD-3(3)(4),, AHMEDABAD

Brief facts of the case are that assessee has filed e-return of income on 29.9.2011 declaring total income at Rs.NIL. The assessment was completed under section 143(3) of the Act on 18.2.2014 and total income of Rs.4,33,710/- was determined. While determining the total income, the ld.AO has disallowed deduction under section 10A of the Act of Rs.9,15,557/- in respect of convertible foreign exchange. Thereafter, the ld.AO initiated penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income for wrongful claim of deduction under 2 section 10A of the Act amounting to Rs.9,15,557/- and issued and served notice under section 274 r.w.s. 271(1)(c) of the Act. After hearing the assessee, the ld.AO imposed impugned penalty, which was confirmed by the ld.CIT(A). Against this confirmation of penalty, the assessee is now before the Tribunal.

Before us, the ld.counsel for the assessee submitted by way of written submission that the assessee has challenged disallowance of deduction under section 10A before the Tribunal. The Tribunal vide order in dated 9.8.2018 allowed claim of the assessee in principle and directed the AO to verify whether export proceeds have been received within twelve months from the date of export in tune with Master Circular. Thereafter, the ld.AO vide order dated 6.5.2019 gave effect to order of the ITAT. In other words, the claim of the assessee found to be admissible and income of the assessee was accordingly reworked out by the AO as per the direction of the ITAT. He placed on record copy of the order of the Tribunal as well as order giving effect to the order of the ITAT by the ld.AO dated 6.5.2019. It is therefore submitted that since disallowance on which penalty has been imposed stands cancelled, penalty under section 271(1)(c) of the Act does not sustain, and therefore extinguishes automatically. The ld.DR, on the other hand, did not dispute factual position of the matter.

After hearing ld.DR and a perusal of the material available on record, we find that sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable by him, which shall not be less than , but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income or furnishing of inaccurate particulars of income. In other words, the 3 quantification of the penalty is depended upon the addition made to the income of the assessee. In the present case, the disallowance has been cancelled by the Tribunal vide order dated 9.8.2018 cited (supra), and therefore penalty under section 271(1)(c) of the Act has not limb to stand. Therefore, order of penalty under section 271(1)(c) is cancelled and ground of raised in the appeal of the assessee is allowed.