THE COMMISSIOENR OF INCOME TAX-III, LUDHIANA vs. M/S PREET FORGING PVT. LTD. ETC, LUDHIANA

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 23.4.2010, Annexure 6 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh (for brevity “the Tribunal”) in ITA No.1028/Chd/2009, for the assessment year 2004-05, claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in upholding the order of CIT(A)-II, Ludhiana dated 31.8.2009 deleting the penalty imposed under Section 271(1) (c) of the Income Tax Act, 1961?”

Briefly, the facts as narrated in the appeal may be noticed. The assessee is a private limited company engaged in the manufacturing and export of Tractor linkage parts/spanners and trading of miscellaneous items. It filed its return declaring an income of ` 9,81,154/- after claiming deduction under Sections 80HHC and 80IB of the Act amounting to `27,07,091/- and ` 29,14,392/- respectively. During the course of assessment proceedings, it was found that the assessee had claimed export incentive in the form of DEPB and Duty Drawback amounting to ` 51,23,877/- and claimed deduction under Section 80IB of the Act on the same. The Assessing Officer further found that deduction under Section 80HHC of the Act had been claimed without reducing deduction under Section 80IB of the Act from the profits of the business as required under Section 80-IA(9) of the Act. The claim of the assessee in respect of deduction under Section 80HHC of the Act on the brought forward losses of depreciation was not found to be in order. The sale of scrap was treated as other income and thereby it was deducted out of the net profit for calculating profits of the business to work out eligible deduction under Section 80HHC of the Act. The Assessing Officer also made an addition of ` 58,944/- on account of disallowance of Employees' contribution towards Provident Fund under Section 36(1)(va) read with Section 43B of the Act. The excess claim of deduction under Sections 80IB and 80HHC of the Act was disallowed and the assessment was completed at net income of ` 50,05,765/- vide order dated 22.12.2006 under Section 143(3) of the Act. Penalty proceedings under Section 271(1)(c) of the Act were also initiated. Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 28.9.2007, Annexure 2, the appeal was partly allowed. The finding of the Assessing Officer in disallowing deduction under Section 80IB of the Act on export incentive was upheld. The CIT(A) upheld the treatment given by the Assessing Officer to the scrap sale to work out the deduction under Section 80HHC of the Act. The action of the Assessing Officer in deducting unabsorbed depreciation of earlier years from the profit of the year to work out the profit of the business for calculating deductions under Sections 80IB/80HHC of the Act was also upheld. However, the CIT(A) deleted the addition made by the Assessing Officer on account of disallowance of Employees' contribution amounting to ` 58,944/-. The assessee's claim that the deduction under Section 80HHC of the Act was allowable without deducting the amount of deduction allowed under Section 80IB of the Act was accepted. Dissatisfied with the order, the department went in appeal before the Tribunal. Vide order dated 26.12.2007, Annexure 3, the appeal was dismissed against which the revenue filed appeal in this Court under Section 260A of the Act being ITA No.534 of 2008. Thereafter, the assessee was issued a show cause notice to explain as to why penalty under Section 271(1)( c) of the Act may not be imposed. After considering the reply of the assessee, penalty under Section 271(1)(c) of the Act was imposed vide order dated 30.3.2009, Annexure 4. Aggrieved by the order, the assessee filed an appeal before the CIT(A). Vide order dated 31.8.2009, Annexure 5, the CIT(A) deleted the penalty imposed under Section 271(1)(c) of the Act. Against the order dated 31.8.2009, the revenue filed second appeal before the Tribunal. Vide order dated 23.4.2010 Annexure 6, the Tribunal dismissed the appeal. Hence the present appeal by the revenue.

We have heard learned counsel for the parties and perused the record.

The question for consideration in this appeal is regarding levy of penalty under Section 271(1) (c) of the Act for furnishing of inaccurate particulars by the assessee in respect of the claim made under Section 80HHC of the Act.

The assessee had claimed deduction without reducing the profits in respect of deduction under Section 80-1A of the Act. It was contended on behalf of the assessee that the issue being debatable, there was no intentional furnishing of inaccurate particulars. The Hon'ble Apex Court in Commissioner of Income Tax v. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 had held that mere making of a claim which was ultimately found to be unsustainable may not by itself amount to furnishing of inaccurate particulars regarding the income. The revenue was required to show that the deduction claimed was against the statutory provision. It was recorded as under:- “We have already seen the meaning of the word “particulars” in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.”

The Tribunal observed that the claim of the assessee for deduction under Section 80HHC of the Act was a bonafide claim. The claim of the assessee though later on was found to be untenable on the basis of subsequent decision of the Court, thus, it could not be held that the assessee had intentionally claimed deduction under Section 80HHC of the Act which was legally not permissible. This did not amount to furnishing of inaccurate particulars of income. Under the circumstances, no penalty, thus, could be levied under Section 271(1) (c) of the Act. Accordingly, the substantial question of law is answered against the revenue and in favour of the assessee.

The appeal is dismissed. (Ajay Kumar Mittal) Judge October 10, 2012 (Gurmeet Singh Sandhawalia) 'gs' Judge