J R CONSTRUCTION CO.,VADODARA vs. THE ITO, WARD-1(3)(2), VADODARA

The assessee has raised the following grounds of appeal:

Based on the above disallowances, the AO initiated penalty proceedings under section 271(1)(c) of the Act on the allegation that the assessee had concealed particulars of income and furnished inaccurate particulars. Although the assessee filed a reply during penalty proceedings, the AO was not satisfied with the explanation. The AO held that the assessee had wrongly claimed deduction under section 80IB(10) of the Act to which it was not fully entitled and failed to substantiate its claim during penalty proceedings. Accordingly, the AO levied a penalty of ₹17,78,480/- vide order dated 25.06.2015, treating the disallowance as a case of furnishing inaccurate particulars of income. The essence of the AO’s reasoning was that the claim of deduction was not allowable to the extent claimed and therefore amounted to a false claim attracting penalty.

Aggrieved by the penalty order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). However, there was a substantial delay of 850 days in filing the appeal. The assessee sought condonation of delay by submitting that the penalty order had been received by the accountant who subsequently left the firm without informing the partners, and the assessee came to know about the order only when recovery proceedings were initiated.

Without prejudice to the above finding, the CIT(A) also examined the conduct of the assessee during appellate proceedings. The CIT(Appeals) observed that multiple opportunities were granted, but the assessee failed to respond to notices of hearing and did not file any submissions or documentary evidence in support of its case. Only one adjournment was sought, and thereafter there was complete non- compliance. The CIT(A) thus held that the assessee was not interested in prosecuting the appeal. By placing reliance on judicial principles that an appeal must be effectively pursued and not merely filed, the CIT(A) dismissed the appeal of the assessee for non-prosecution.

On merits also, though not elaborately discussed due to dismissal on technical grounds, the CIT(A) observed that the assessee had failed to

Accordingly, the CIT(Appeals) dismissed the appeal on multiple grounds firstly, due to inordinate and unexplained delay, secondly, for non-prosecution, and thirdly, on failure of the assessee to substantiate its case on merits. Consequently, the penalty of ₹17,78,480/- levied under section 271(1)(c) for furnishing inaccurate particulars of income was confirmed.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material on record. It is observed that the penalty under section 271(1)(c) of the Act has been levied on account of disallowance of deduction under section 80IB(10) of the Act, which forms the very basis of the quantum addition. It is an undisputed position that in the assessee’s own case for earlier assessment year 2004-05, the CIT(Appeals) and Hon’ble Ahmedabad ITAT had allowed the claim of the assessee in quantum proceedings. Though the decision of the Tribunal was subsequently reversed by the Hon’ble High Court, the fact remains that two different judicial authorities have taken divergent views on the same issue. Further, it has been brought to our notice that the matter is presently pending before the Hon’ble Supreme Court by way of Special Leave Petition.

In the present case, since the assessee had succeeded before the Tribunal on the very same issue for assessment year 2004-05, it cannot be said that the claim made by the assessee was either false or lacking bona fides. The existence of conflicting judicial opinions itself demonstrates that the issue is arguable and not free from doubt. Therefore, the essential conditions for levy of penalty under section 271(1)(c), namely concealment of income or furnishing of inaccurate particulars, are not satisfied.

Coming to the issue of delay in filing the appeal before the CIT(Appeals), we note that the CIT(A) has dismissed the appeal on account of delay as well as for non-prosecution. However, considering that the quantum proceedings on the very same issue have travelled up to the Hon’ble Supreme Court for and are still sub judice, we are of the view that the assessee cannot be said to have acted with mala fide intention in not pursuing the appeal diligently at that stage. The pendency of the matter before higher judicial forums constitutes a reasonable cause, and in the

In view of the above discussion, considering the fact that the issue is debatable, that the assessee had succeeded before the Tribunal in its own case for assessment year 2004-05, and that the matter is pending before the Hon’ble Supreme Court, we hold that the penalty levied under section 271(1)(c) is not sustainable in law. Accordingly, the penalty of ₹17,78,480/- is directed to be deleted.

In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 22/04/2026