CIT KARNAL vs. M/S RAJ OVERSEAS

This order will dispose of ITA Nos.225 and 232 of 2010, as both the appeals raised common question of leviability of penalty when the assessee had put forward the claim which was found not acceptable. In I.T.A. No.225 of 2010, the Revenue has claimed following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the penalty imposed under Section 271 (1)(c) on the amount of deduction claimed under Section 80IB on export incentives by holding that there was no deliberate furnishing of inaccurate particulars by the assessee, given the fact that the decision of the Hon'ble Supreme Court in Sterling Foods Vs. CIT dated 15.4.1999 (237 ITR 579) disallowing claim of deduction under Chapter VIA of the Act on export incentives was already available to the assessee at the time of filing of return of income for Assessment Year 2003-04, and therefore, the assessee was evidently filing inaccurate particulars of income in claiming deduction under Section 80IB on export incentives?” ii) “Whether the decision of the Income Tax Appellate Tribunal to delete the penalty under Section 271(1)(c) of the Act is justified in the light of the decision of the Hon'ble Supreme Court in Liberty India Vs. CIT (317) ITR 218), whereby the non-allowability of 8-0IB deduction on export incentives has been re-affirmed?” iii) “Whether the decision of the Income Tax Appellate Tribunal quashing the penalty order under Section 271(1)(c) on the ground that there is no deliberate concealment is justified in the light of the decision of the Hon'ble Apex Court in Dharmendra Textile Processors and others, 306 ITR 277 (SC), which has held that mens rea is not an essential ingredient for levy of penalty under Section 271 (1)(c) of the Act, and that levy of such penalty is mandatory as remedy for loss to revenue, and given the fact that such loss to revenue has occurred in the instant case due to wrong claim by the assessee with respect to deduction under Section 80IB?”

The Assessee is manufacturer and derived income from exports. The Assessee claimed deduction under Section 80-IB of the Act in respect of income from duty draw back. The Assessing Officer disallowed the said claim on the ground that the income derived from duty draw back was not income derived from industrial undertaking, as held by the Hon’ble Supreme Court in CIT v. Sterling Foods India [1999] 237 ITR 579. Penalty was also levied. The CIT(A) upheld the view of the Assessing Officer but the Tribunal deleted the penalty with the following observations:- “.......Thus, prima facie, it indicates that this issue was a debatable one. Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Budh Well Co-Operative Sugar Mills (supra) has held that if an assessee has made a bonafide claim on the basis of law laid down by various Hon'ble High Court then penalty would not be levied upon such an assessee merely on the ground that his claim was disallowed. Similarly, the Hon'ble Rajasthan High Court in the case of CIT Vs. Harshvardhan (supra) has held that if as assessee claims some deductions which are debatable then it could not be said that assessee has concealed any income or furnished inaccurate particulars of income which exposed him with the penalty proceedings under Section 271(1)(c) of the Act.....”

We have heard learned counsel for the Revenue.

In view of factual finding of the Tribunal, it cannot be disputed that the issue was debatable and deduction claimed by the Assessee did not lack bonafides. In such a situation, penalty under Section 271(c) of the Act was not attracted. In recent judgment of the Hon’ble Supreme Court in CIT v. Reliance Petroproducts (P) Ltd. [2010] 230 CTR 320, the legal position to this effect has been reiterated. If the Assessee has made full disclosure in the return, claim for deduction cannot be held to be giving of inaccurate particulars. The view taken by the Tribunal is, thus, a possible view.

No substantial question of law arises.